MGT201 Solved Quizs

     

   Question No: 41    ( Marks: 5 )

 Suppose Ali Inc. issues ten-year bonds (par Rs. 1,000) with an annual coupon of 8.6%. Similar ten-year bonds are paying 8.0% interest. What is the value of one Ali's new bonds that is, what should be its price?

Bond Price = PV(all inflows) + PV(face value)

 So in this case

 Bond Price = PV(of all coupon payments) +PV(1000)

 as bond will pay same amount for the next 10 year assume it annuity so we use annuity formula if some done get this formula he/she can try manually PV for every year for ten years.

 8.6% of one thousand = 1000*.086 = 86          

 Which he gets every year as coupon payment

 PV = Amt * PVIF =  [1 -  (1+i)^-n ]/i

 i = 8%

 price = 86* [( 1 – (1.08)^-10) ]/.08    +  (1000/1.08)^10

price = 577.0670003 + 463.1934881 = 1040.260488

= 1040.26

Question No: 42    ( Marks: 5 )

 Draw a three year time line which illustrates the following situation:

i.        An outflow of Rs. 10,000 occurs at time 0

ii.      Inflows of Rs. 5,000 occur at the end of year 1, 2 and 3.

iii.    The interest rate during the three year is 10%.

Question # 1 of  10

An annuity due is always worth _____ a comparable annuity. 

Select correct option: 

 Less than 

More than 

Equal to

Can not be found from the given information

 Question # 2 of 10 ( Start time: 04:11:40 PM )  Total Marks: 1 

Which of the following would be considered a cash-flow item from an "investing" activity? 

Select correct option: 

 Cash outflow to the government for taxes 

Cash outflow to shareholders as dividends 

Cash outflow to lenders as interest

Cash outflow to purchase bonds issued by another company

 Question # 3 of 10 ( Start time: 04:13:04 PM )  Total Marks: 1 

Which of the following effects price of the bond? 

Select correct option: 

 Market interest rate 

Required rate of return 

Interest rate risk 

All of the given options

 Question # 4 of 10 ( Start time: 04:13:54 PM )  Total Marks: 1 

Where there is single period capital rationing, what the most sensible way of making investment decisions? 

Select correct option: 

 Choose all projects with a positive NPV 

Group projects together to allocate the funds available and select the group of projects with the highest NPV 

Choose the project with the highest NPV 

Calculate IRR and select the projects with the highest IRRs

 Question # 5 of 10 ( Start time: 04:15:07 PM )  Total Marks: 1 

Which of the following statements is correct in distinguishing between serial bonds and sinking-fund bonds? 

Select correct option: 

 Serial bonds mature at a variety of dates, but sinking-fund bonds mature at a single date. 

Serial bonds provide for the deliberate retirement of bonds prior to maturity, but sinking-fund bonds do not provide for the deliberate retirement of bonds prior to maturity

Serial bonds do not provide for the deliberate retirement of bonds prior to maturity, but sinking-fund bonds do provide for the deliberate retirement of bonds prior to maturity. 

None of the above are correct since

  Question # 6 of 10 ( Start time: 04:16:37 PM )  Total Marks: 1 

Which group of ratios measures a firm's ability to meet short-term obligations? 

Select correct option: 

 Liquidity ratios

Debt ratios

Coverage ratios 

Profitability ratios

Question # 7 of 10 ( Start time: 04:17:10 PM )  Total Marks: 1 

Why companies invest in projects with negative NPV? 

Select correct option: 

Because there is hidden value in each project

Because there may be chance of rapid growth

Because they have invested a lot

All of the given options 

Question # 8 of 10 ( Start time: 04:18:03 PM )  Total Marks: 1 

Which of the following needs to be excluded while we calculate the incremental cash flows? 

Select correct option: 

Depreciation

Sunk cost 

Opportunity cost

Non-cash item 

Question # 9 of 10 ( Start time: 04:19:01 PM )  Total Marks: 1 

A project that tells us the number of years required to recover our initial cash investment based on the project’s expected cash flows is: 

Select correct option: 

Pay back period

Internal rate of return 

Net present value

Profitability index

1.The objective of financial management is to maximize _________ wealth.

Select correct option:

Stakeholders

Shareholders

Bondholders

Directors

 Where there is single period capital rationing, what the most sensible way of making investment decisions?

Select correct option:

Choose all projects with a positive NPV

Group projects together to allocate the funds available and select the group of projects with the highest NPV

Choose the project with the highest NPV

Calculate IRR and select the projects with the highest IRRs

 The logic behind _________ is that instead of looking at net cash flows you look at cash inflows and outflows separately for each point in time.

Select correct option:

IRR

MIRR

PV

NPV

 The RBS pays 5.60%, compounded daily (based on 360 days), on a 9-month certificate of deposit, if you deposit Rs.20, 000 you would expect to earn around __________ in interest.

Select correct option:

Rs.840

Rs.858

Rs.1,032

Rs.1,121

 Who determine the market price of a share of common stock?

Select correct option:

The board of directors of the firm

The stock exchange on which the stock is listed

The president of the company

Individuals buying and selling the

 At the termination of project, which of the following needs to be considered relating to project assets?

Select correct option:

Salvage value

Book value

Intrinsic value

Fair value

 With continuous compounding at 8 percent for 20 years, what is the approximate future value of a Rs. 20,000 initial investment?

Select correct option:

Rs.52,000

Rs.93,219

Rs.99,061

Rs.915,240

Amount =  P*(1+i/n)^n

 To increase a given future value, the discount rate should be adjusted __________.

Select correct option:

Upward

Downward

First upward and then downward

None of the given options

 What is a legal agreement, also called the deed of trust, between the corporation issuing bonds and the bondholders that establish the terms of the bond issue?

Select correct option:

Indenture

Debenture

Bond

Bond trustee

1. Juan is starting a software writing company. He is the owner and has only 3 employees. He wants a simple inexpensive form of ownership that leaves him in control and that he can quickly dissolve if he decides to change to another business. His best choice of form of ownership would be:

a. S-corporation

b. Partnership

c. Corporation

d. Sole proprietorship

2. A tool that identifies the strengths, weaknesses, opportunities and threats of an

organization is know as:

a. SWOT Analysis

b. Trend Analysis

c. Fundamental Analysis

d. Technical Analysis

3. When the market's required rate of return for a particular bond is much less than

its coupon rate, the bond is selling at:

a. A premium

b. A discount

c. Cannot be determined without more information

d. Face value

4. Which of the following statements best describe the ‘Balance Sheet’?

a. Summarizes the firm’s revenues and expenses over an accounting period

b. Reports how much of the firm’s earnings were retained in the business rather

than paid out in dividends

c. Reports the impact of a firm’s operating, investing, and financing activities on

cash flows over an accounting period

d. States the firm’s financial position at a specific point in time

5. Which of the following is the purpose of the Debt management ratios?

a. They measure the amount of debt the firm uses

b. They measure how effectively a firm is managing its assets

c. They show the relationship of a firm’s cash and other current assets to its current

liabilities

d. They show the combined effects of all areas of the firm on operating results

6. In which of the following situations a project is acceptable?

a. When a project has conventional cash flows patterns

b. When a project has a non-conventional cash flow pattern

c. When a project has a discounted rate higher than the inflation rate

d. When a project has a positive net present value

7. The gross profit margin is unchanged, but the net profit margin declined over the

same period. This could have happened if:

a. Cost of goods sold increased relative to sales.

b. Sales increased relative to expenses.

c. The tax rate has been increased

d. Dividends were decreased.

8. Alto Industries has a debt-to-equity ratio of 1.6 compared with the industry average

of 1.4. This means that the company

a. Will not experience any difficulty with its creditors.

b. Has less liquidity than other firms in the industry.

c. Will be viewed as having high creditworthiness.

d. Has greater than average financial risk when compared to other firms in its

industry.

9. For purposes of financial statements, the accounting value of fixed assets is:

a. Based on their estimated liquidation value (doubted)

b. Based on their relative importance to the company

c. Based on their actual purchase price

d. Based on their current market price

10. Which of the following transactions affects the acid-test ratio?

a. Receivables are collected.

b. Inventory is liquidated for cash.

c. New common stock is sold and used to retire a debt issue.

d. A new common stock issue is sold and equipment purchased

11. The rate of return on the best available investment of equal risk is called:

a. Discounting (doubted)

b. Compounding

c. The opportunity cost rate

d. Time lines

12. An annuity whose payments occur at the end of each period is called:

a. An opportunity cost annuity.

b. An ordinary annuity

c. An annuity due

d. An outflow annuity

13. Which of the following is the rate of return earned on a bond if it is held until

maturity?

a. Yield-to-call

b. Coupon payment

c. Yield-to-maturity

d. Sinking fund yield

14. Keeping other things constant, if a bond’s yield-to-maturity increases:

a. Its price will rise

b. Its price will remain unchanged

c. Its price will fall.

d. Can not be determined

15. A 30-year corporate bond issued in year 1985 would now trade in which of the

following markets?

a. Primary capital market (P # 7)

b. Primary money market

c. Secondary money market

d. Secondary capital market

16. When the market's nominal annual required rate of return for a particular bond is

less than its coupon rate, the bond will be selling at ________.

a. A discount

b. A premium

c. Par value

d. An indeterminate price

17. The buyer of a zero-coupon bond expects to receive:

a. Price appreciation.

b. A rate of return equal to zero over the life of the bond.

c. Variable dividends instead of a fixed interest payment annually.

d. All interest payments in one lump sum at maturity.

18. The intrinsic value of a share of common stock:

a. Is the discounted value of all future cash dividends

b. Increases when the required rate of return increases, if the dividend is held

constant.

c. Is zero if the company pays no dividends

d. Is the discounted capital gain expected on the stock

19. ABC Company will pay a dividend of Rs.2.40 per share at the end of this year. Its

dividend yield is 8%. At what price is the stock selling?

a. Rs.40

b. Rs.35

c. Rs.30

d. Rs.25

20. Which of the following stock would provide a regular income to the investor?

a. Growth stock

b. Income stock

c. Aggressive stock

d. Defensive stock