MGT 201 All Solved Quiz 2 in One File

MGT 201 all solved quiz 2 in One file
Today Quiz
The Value (V) of a bond having 15 years maturity, par value of Rs.1,000 and Kd of 10% can be
computed with the help of following formula: V = I(PVIFA10%,15)+FV(PVIF10%,15) Factor of
this:
7.6061
0.2394
8.6061
0.2494
Which of the following value of the shares changes with investor’s perception about the
company’s future and supply and demand situation?
Par value
Market value
Intrinsic value
Which of the following is type a Temporary Account?
Assets
Libilitiies
Reserves
Which of the following equation is NOT correct?

Gross Revenue – Admin & Operating Expenses = Operating Revenue
Other Expenses + Other Revenue = EBIT
Which of the following refers to bringing the future cash flow to the present time?
Net present value
Discounting
Opportunity cost
Internal rate of return
Which of the following is FALSE about Perpetuity?
It is a series of cash flows
Cash flows occur for a specific time period
Its cash flows are identical
None of the given options
Which of the following is similar between Return on Investment and Payback Period techniques
of Capital budgeting?
Involvement of interest rate while making calculations
Neglects time value of money
Tricky and complicated methods
All options
Which of the following is NOT a cash outflow for the firm?

Depriciation
Divident
Question # 11 of 20 ( Start time: 11:37:56 AM ) Total Marks: 1 What is the present value of
Rs.8,000 to be paid at the end of three years if interest rate is 11%?
Rs. 6015
Rs. 4872
Rs. 1842
Rs. 6725
When the bond approaches its maturity, the market value of the bond approaches to which of the
following?
Intrinsic value
Book value
Par value
Historic cost
If Net Present Value technique is used, what is the minimum acceptance criterion for a project?
NPV<0
NPV=0
NPV>0
NPV<=0
Choose the correct statement regarding the calculations of NPV (Net Present Value).
Exclude sunk costs and include opportunity costs and externalities
Exclude sunk costs and externalities and include opportunity costs
Include sunk costs, opportunity costs, and externalities

Exclude sunk costs and opportunity costs and include externalities
All of the following are the reasons for Uncertain NPV calculations EXCEPT:
Estimated discount rate does not change with the markets
Estimated Life of project is doubtful
Annual after-tax cash flows are difficult to estimate
Timing of cash flows is not exactly predictable
Suppose you expect that in year 2011, the Sales Revenue of your Business will grow from Rs.
500,000 to Rs. 700,000. What will be the estimated amount of Inventory in year 2011 if it were
Rs. 100,000 last year?
Rs. 100,000
Rs. 120,000
Rs. 140,000
Rs. 160,000
Which of the following techniques would be used for a project that has non–normal cash flows?
Multiple internal rate of return

The statement which distinguishes expected rate of return on stock form required rate of return
on stock is:
A rate which an investor is expecting in future time period
Expeted rate may not be equal to required rate of return in some cases\
Minimum acceptable rate is "required rate" and rate expected in future is "expected rate".
All of the given
What are the 'Indirect Securities'?
The securities whose value depends on the cash flows generated by the underlying assets
The securities whose value depends on the value of the underlying assets
The securities that indirectly generate returns for its investors
As interest rates go up, the present value of a stream of fixed cash flows _____.
Goes down
Goes up
Stays the same
Can not be found from the given information
Some Quizz..
Question # 1 of 15 ( Start time: 09:47:52 PM ) Total M - 1

An investment proposal should be judged in whether or not it provides:
Select correct option:
A return equal to the return require by the investor

A return more than required by investor
A return less than required by investor
A return equal to or more than required by investor

In which of the following approach you need to bring all the projects to the same length in time?
MIRR approach
Going concern approach
Common life approach
Equivalent annual approach

Which of the following is the general assumption of Percent of Sales Forecasting?
Current Assets usually grow in proportion to Revenues

Current Assets usually grow in proportion to Expenses
Current Assets usually grow in proportion to Liabilities
Current Assets usually grow in proportion to Sales

Which of the following is correct, if a firm has a required rate of return equal to the ROE?
The firm can increase market price and P/E by retaining more earnings.
The firm can increase market price and P/E by increasing the growth rate.
The amount of earnings retained by the firm does not affect market price or the P/E.

Which of the following is NOT true regarding an ordinary annuity?
It is a series of equal cash flows

Payments are made at the start of each period
It is also known as deferred annuity

________ is paid by companies with lower grade bonds like CC or C ratings.
Default risk premium

Sovereign Risk Premium
Market risk premium
Maturity risk premium

Which of the following are the approaches used to make two projects with different life spans
comparable?
Modified internal rate of return and equivalent annual annuity

Common life and equivalent annual annuity
Common life and modified internal rate of return

Which of the following will NOT equate the future value of cash inflows to the present value of
cash outflows?
Discount rate
Profitability index
Multiple Internal rate of return

When a bond will sell at a discount?
The coupon rate is greater than the current yield and the current yield is greater than yield to
maturity
The coupon rate is greater than yield to maturity
The coupon rate is less than the current yield and the current yield is greater than the yield to
maturity
The coupon rate is less than the current yield and the current yield is less than yield to
maturity

When Investors want high plowback ratios?
Whenever ROE > k

Whenever k > ROE
Only when they are in low tax brackets
Whenever bank interest rates are high

________ are also known as Spontaneous Financing.
Current liabilities
Current assets
Fixed assets
Long-term liabilities

Which type of responsibilities are primarily assigned to Controller and Treasurer respectively?
Operational; financial management
Financial management; accounting
Accounting; financial management
Financial management; operations

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?
Indenture
Debenture
Bond
Bond trustee

Asset
Liability
Reserves
Revenue
Which of the following is TRUE about IRR (Internal Rate of Return)?

It changes for each and every year over the life of the project
It remains same for each and every year over the life of the project
It increases over the life of the project
It decreases over the life of the project
The risk that covers events like unexpected changes in the economy refers to:
Systematic risk
Unsystematic risk
Total risk
All of the above
Identify the option that best describes the simple rule of a journal entry.
Sum of Debits = Sum of Credits
Sum of Debits > Sum of Credits
Sum of Debits < Sum of Credits
When bonds are issued, under which of the following category the value of the bond appears?
Equity
Fixed assets
Short term loan
Long term loan

What is the present value of Rs. 3,500,000 to be paid at the end of 50 years if the correct risk
adjusted interest rate is 18%?
Rs.105,000
Rs.1,500,000
Rs.3975,000
Rs. 350,000
Who or what is a person or institution designated by a bond issuer as the official

representative of the bondholders?
Indenture
Debenture
Bond
Bond trustee
The value of the bond is NOT directly tied to the value of which of the following assets?
Real assets of the business
Liquid assets of the business
Fixed assets of the business
Long term assets of the business

The current yield on a bond is equal to ________.
Annual interest divided by the current market price
The yield to maturity
Annual interest divided by the par value
The internal rate of return
With continuous compounding at 8 percent for 20 years, what is the approximate future value
of a Rs. 20,000 initial investment?
Rs.52,000
Rs.93,219
Rs.99,061
Rs.915,240
Independent projects refer to:
One can invest in one of the projects and not in both
Cash flows of the two projects are not linked to each other
Cash flows of the two projects are linked to each other

Which of the following refers to a highly competitive market where good business ideas are
taken up immediately?
Capital market
Efficient market
Money market
Real asset market
Which of the following refers to the cost of taking up one option while sacrificing the other?
Opportunity cost
Operating cost
Sunk cost
Floatation cost
Company ABC is analyzing some projects amongst which one project will be selected. In your
opinion which project is best for the company?
Project W with pay back period of 6.55 years

Project X with pay back period of 3.75 years
Project Y with pay back period of 4.08 years
Project Z with pay back period of 5 years
Why we need Capital rationing?
Because, there are not enough positive NPV projects
Because, companies do not always have access to all of the funds they could make use of
Because, managers find it difficult to decide how to fund projects
Because, banks require very high returns on projects
All are the advantages of sole proprietorship, except:
Easiest and least expensive to form
Limited liability ownership
Single person receives all incomes/ profits
Easy to dissolve business; if required
What additional risk exists if investor invests in foreign bonds?

Additional cost involve due to cross boundaries arrangements
Bonds are dominated in currency other then investor’s home currency
Foreign governments are not much reliable due to different laws
Market risk of foreign government is fluctuating drastically
Identify the component(s) of working capital management.
Fixed assets
Current assets and current liabilities
Fixed assets and long-term liabilities
Shareholder's equity
The formula to calculate future value of an amount using simple interest is:
F V = PV (1+ i * n)
F V = PV (1 + i) n
F V = PV x (e) i x n
F V = PV /(1 + i) n
How can a company improve (lower) its debt-to-total asset ratio?

By borrowing more
By shifting short-term to long-term debt
By shifting long-term to short-term debt
By selling common stock
Nominal Interest Rate is also known as:
Effective interest Rate
Annual percentage rate
Periodic interest rate
Required interest rate
When the bond approaches its maturity, the market value of the bond approaches to which of
the following?
Intrinsic value
Book value
Par value
Historic cost
While calculating the YTM, bond that sells at price other then par, YTM is equal to interest
yield plus
Negative or positive capital margin
Negative or Positive capital gain
Negative or Positive capital premium
Negative or Positive capital discount
Identify the option that best describes the simple rule of a journal entry.
Sum of Debits = Sum of Credits
Sum of Debits > Sum of Credits
Sum of Debits < Sum of Credits
Equity
Fixed assets
Short term loan
Long term loan

What is the present value of Rs. 3,500,000 to be paid at the end of 50 years if the correct risk
Rs.105,000
Rs.1,500,000
Rs.3975,000
Rs. 350,000
Who or what is a person or institution designated by a bond issuer as the official

representative of the bondholders?
Indenture
Debenture
Bond
Bond trustee
Long term assets of the business

The current yield on a bond is equal to ________.
Annual interest divided by the current market price
The yield to maturity
Annual interest divided by the par value
The internal rate of return
With continuous compounding at 8 percent for 20 years, what is the approximate future value
of a Rs. 20,000 initial investment?
Rs.52,000
Rs.93,219
Rs.99,061
Rs.915,240
Independent projects refer to:
One can invest in one of the projects and not in both
Cash flows of the two projects are not linked to each other
Cash flows of the two projects are linked to each other

Which of the following refers to a highly competitive market where good business ideas are
taken up immediately?
Capital market
Efficient market
Money market
Real asset market
Which of the following refers to the cost of taking up one option while sacrificing the other?
Opportunity cost
Operating cost
Sunk cost
Floatation cost
Company ABC is analyzing some projects amongst which one project will be selected. In your
opinion which project is best for the company?
Project W with pay back period of 6.55 years

Project X with pay back period of 3.75 years
Project Y with pay back period of 4.08 years
Project Z with pay back period of 5 years
Why we need Capital rationing?
Because, there are not enough positive NPV projects
Because, companies do not always have access to all of the funds they could make use of
Because, managers find it difficult to decide how to fund projects
Because, banks require very high returns on projects
All are the advantages of sole proprietorship, except:
Easiest and least expensive to form
Limited liability ownership
Single person receives all incomes/ profits
Easy to dissolve business; if required
What additional risk exists if investor invests in foreign bonds?

Additional cost involve due to cross boundaries arrangements
Bonds are dominated in currency other then investor’s home currency
Foreign governments are not much reliable due to different laws
Market risk of foreign government is fluctuating drastically
Fixed assets
Current assets and current liabilities
The formula to calculate future value of an amount using simple interest is:
F V = PV (1+ i * n)
F V = PV (1 + i) n
F V = PV x (e) i x n
F V = PV /(1 + i) n

By borrowing more
Nominal Interest Rate is also known as:
Effective interest Rate
Periodic interest rate
Required interest rate
When the bond approaches its maturity, the market value of the bond approaches to which of
the following?
Intrinsic value
Book value
Par value
Historic cost
While calculating the YTM, bond that sells at price other then par, YTM is equal to interest
yield plus
Negative or positive capital margin
Negative or Positive capital gain
Negative or Positive capital premium
Negative or Positive capital discount
Question # 1of 10 ( Start time: 07:23:51 PM) Total Marks: 1
A 5-year ordinary annuity has a present value of Rs.1,000. If the interest rate is 8 percent, the
amount of each annuity payment is closest to which of the following?

Rs. 250.44
Rs. 231.91
Rs.181.62
Rs.184.08 (no idea )
Identify, what can be the biggest advantage of a small partnership over a sole proprietorship?

Liability is unlimited
Profit is double taxed
Ownership is difficult to resale
Capital can be raised easily *

Which of the following is not a Profitability ratio?
Net Profit Margin
Inventory Turnover *
Return on Assets
Return on Equity
Question # 4 of 10 ( Start time: 07:27:29 PM ) Total Marks: 1

The DuPont Approach breaks down the earning power on shareholders' book value (ROE) as
follows: ROE = __________.

Net profit margin × Total asset turnover × Equity multiplier *
Total asset turnover × Gross profit margin × Debt ratio
Total asset turnover × Net profit margin
Total asset turnover × Gross profit margin × Equity multiplier

When comparing loans or investments that make payments at different intervals, you should
focus on:

Nominal interest rate * (doubt)
Effective annual rate
Periodic Interest Rate

All of the following are the financial statements used for the purpose of reporting and analysis
EXCEPT:

Balance Sheet
Income Statement
Statement of Retained Earnings
None of the given options *

Abnormal or downward sloping yield curve implies that:
Short term rates are lower than long term interest rates
Short term rates are higher than long term interest rates *
Short term rates are same as long term interest rates

If ABC Company is taking legal action against a third party for breach of contract and its
lawyers are confident of winning this case as well as receiving compensation, then this would be
reported as __________ by ABC Company.

Current asset
Long term asset
Contingent asset *
Tangible asset


Fixed assets
Current assets and current liabilities *
Balance Sheet of a company reflects:

Operating efficiency or profitability of a company
Organization's financial health at a specific point of time *
Cash movement during operations in an accounting period
Share of the owners in the business
Question # 1 of 15 ( Start time: 05:10:33 AM ) Total Marks: 1

Which of the following is not the present value of the bond?
Intrinsic value
Market price
Fair price
Theoretical price

Which of the following is similar between Return on investment and Payback period techniques

Do not account for time value of money
All of the given options


EBIT – Financial Charges & Interest = EBT
Net Income – Dividends = Retained Earning

Depreciation
Dividends
Interest
Taxes

Who or what is a person or institution designated by a bond issuer as the official representative
of the bondholders?
Indenture
Debenture
Bond
Bond trustee

MIRR (discount rate) equates which of the following?
Future value of cash inflows to the present value of cash outflows

Future value of cash flows to the present value of cash flows
Future value of all cash flows to zero
Present value of all cash flows to zero

At the termination of project, which of the following needs to be considered relating to project
assets?
Salvage value
Book value
Intrinsic value
Fair value

Effective interest rate is different from nominal rate of interest because:
Nominal interest rate ignores compounding

Nominal interest rate includes frequency of compounding
Periodic interest rate ignores the effect of inflation

For Company A, plow back ratio is 30%. What will be its Pay-out ratio?
3.33%
30%
31%
70%

Which of the following needs to be excluded while we calculate the incremental cash flows?
Depreciation
Sunk cost
Opportunity cost
Non-cash item

What is potentially the biggest advantage of a small partnership over a sole proprietorship?
Unlimited liability
Single tax filing
Difficult ownership resale
Raising capital

Which of the following statements is TRUE regarding Permanent Accounts?
Accounts that are found on Income Statement

Accounts that are found on Statement of Retained Earnings
Accounts that are found on Balance Sheet


What is the present value of Rs.8,000 to be paid at the end of three years if interest rate is 11%?
Rs.6,015
Rs.4,872
Rs.6,725
Rs.1,842

What is the most important criteria in capital budgeting?
Return on investment
Profitability index
Net present value
Pay back period

Where there is single period capital rationing, what is the most sensible way of making
investment decisions?
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
Select correct MGT201 Option:
Lon term assets of the business

________ is the variability of return on stocks or portfolios not explained by general market
movements. It is avoidable through diversification.
Systematic risk
Standard deviation
Unsystematic risk
Coefficient of variation
Unsystematic risk is the diversifiable portion of total risk and not a measure of total risk like
standard deviation.
The presence of which of the following costs is not used as a major argument against the M&M
arbitrage process?
Bankruptcy costs
Agency costs
Transactions costs
Insurance costs
The presence of these costs is used as major argument against the M&M arbitrage process
What type of long-term financing most likely has the following features: 1) it has an infinite life,
2) it pays dividends, and 3) its cash flows are expected to be a constant annuity stream?
Long-term debt
Preferred stock
Common stock
None of the given MGT201 Options
According to timing difference problem a good project might suffer from ___ IRR even though its
NPV is ______.
Higher; lower
Lower; Lower
Lower; higher
Higher; higher
Expected Portfolio Return = _________.

rP * = xA rA + xB rB
rP * = xA rA - xB rB
rP * = xA rA / xB rB
rP * = xA rA * xB rB
Upon which of the following a firm's degree of operating leverage (DOL) depends primarily?
Sales variability
Level of fixed operating costs
Closeness to its operating break-even point
Debt-to-equity ratio
For most firms, P/E ratios and risk_______.

Will be directly related
Will have an inverse relationship
Will be unrelated
None of the above.
The ________ the coefficient of variation ______ the relative risk of the investment.
Larger; Larger
Larger; Smaller
Smaller; Larger
Smaller; Smaller
You are considering two investment proposals, project A and project B. B's expected net present
value is Rs. 1,000 greater than that for A and A's dispersion of net present value is less than that
for B. On the basis of risk and return, what would be your conclusion?
Project A dominates project B
Project B dominates project A
Neither project dominates the other in terms of risk and return
Incomplete information
The expected net present value of B is greater than the expected net present value of A and the
risk of B exceeds the risk of A, so neither dominates the other.
______ means expanding the number of investments which cover different kinds of stocks.
Diversification
Standard deviation
Variance
Covariance
What should be used to calculate the proportional amount of equity financing employed by a
firm?
The common stock equity account on the firm's balance sheet
The sum of common stock and preferred stock on the balance sheet
The book value of the firm
The current market price per share of common stock times the number of shares
Outstanding
What is the long-run objective of financial management?

Select correct Option:
Maximize earnings per share
Maximize the value of the firm's common stock
Maximize return on investment
Maximize market share
__________are analysts who use information concerning current and prospective profitability of
firms to assess the firm's fair market value.
Credit analysts
Fundamental analysts
Systems analysts
Technical analysts
Total M - 1
Which of the followings expressed the proposition that the value of the firm is independent of its
capital structure?
The Capital Asset Pricing Model
M&M Proposition I
M&M Proposition II
The Law of One Price
The statement of cash flows reports a firm's cash flows segregated into which of the following
categorical order?
Operating, investing, and financing
Investing, operating, and financing
Financing, operating and investing
Financing, investing, and operating
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:
Pay back period
Net present value
Profitability index
Which of the following would generally have unlimited liability?
A limited partner in a partnership
A shareholder in a corporation
The owner of a sole proprietorship
A member in a limited liability company (LLC)
If 2 stocks move in the same direction together then what will be the correlation coefficient?
►0
► 1.0
► -1.0
► 1.5
Rationale:The strength of the correlation between two variables such as two stock prices is
measured by the correlation coefficient. If two stock prices have perfect positive correlation,
their correlation coefficient will have the value of +1.
which of the following needs to be excluded while we calculate the incremental cash flows?
Depreciation
Sunk cost
Opportunity cost
Non-cash item
If risk and return combination of any stock is above the SML, what does it mean?
It is offering lower rate of return as compared to the efficient stock
It is offering higher rate of return as compared to the efficient stock
Its rate of return is zero as compared to the efficient stock
It is offering rate of return equal to the efficient stock
Modified internal rate of return
Net present value

Depreciation
Dividends
Interest
Taxes
Which of the following statements is correct for a firm that currently has total costs of carrying
and ordering inventory that is 50% higher than total carrying costs?
Current order size is greater than optimal
Current order size is less than optimal
Per unit carrying costs are too high
The optimal order size is currently being used
When a firm needs guaranteed, short-term funds available for a variety purposes, the bank loan
will likely be a ________.
Compensating balance arrangement
Revolving credit agreement
Transaction loan
Line of credit
Which if the following is (are) true? I. The dividend growth model holds if, at some point in
time, the dividend growth rate exceeds the stock’s required return. II. A decrease in the
dividend growth rate will increase a stock’s market value, all else the same. III. An increase
in the required return on a stock will decrease its market value, all else the same
I, II, and III not sure

I only
III only
II and III only
An implicit cost of adding debt to the capital structure is that it:

Adds interest expense to the operating statement
Increases the required return on equity
Reduces the expected return on assets
Decreases the firm's beta
hich of the following statements regarding covariance is correct?

Covariance always lies in the range -1 to +1
Covariance, because it involves a squared value, must always be a positive number (or zero)
Low covariances among returns for different securities leads to high portfolio risk
Covariances can take on positive, negative, or zero values
Which of the following is not a form of short-term, spontaneous credit?

Accrued wages
Trade credit
Commercial paper
Accrued taxes
Which of the following has the same meaning as the working capital to financial analyst?
Total assets
Fixed assets
Current assets
Current assets minus current liabilities
Above the breakeven EBIT, increased financial leverage will ________ EPS, all else the same.
Assume there are no taxes
Increase
Decrease
Either increase or decrease
Which of the following is NOT an example of hybrid equity

Convertible Bonds
Convertible Debenture
Common shares
Preferred shares
If we invest in many securities which are ________to each other then it is possible to reduce
overall risk for your investment.
Comparable
Correlated
Highly correlated
Negatively correlated
The objective of financial management is to maximize _______ wealth.

Stakeholders
Shareholders
Bondholders
Directors
A company whose stock is selling at a P/E ratio greater than the P/E ratio of a market index
most likely has _______.
An anticipated earnings growth rate which is less than that of the average firm
A dividend yield which is less than that of the average firm
Less predictable earnings growth than that of the average firm
Greater cyclicality of earnings growth than that of the average firm
The stock in your portfolio was selling for Rs.40 per share yesterday, but has today declared a
three for two split. Which of the following statements seems to be true?
There will be two-thirds as many shares outstanding, and they will sell for Rs.60.00 each
There will be four times as many shares outstanding, and they will sell for Rs.160.00 each
There will be 50 percent more shares outstanding and they will sell for Rs.26.67 each
There will be one-and-one-half times as many shares outstanding, and they will sell for
Rs.60.00 each
Under the idealized conditions of MM, which statement is correct when a firm issues new stock
in order to pay a cash dividend on existing shares?

The new shares are worth less than the old shares
The old shares drop in value to equal the new price
The value of the firm is reduced by the amount of the dividend
The value of the firm is unaffected
________ is the variability of return on stocks or portfolios not explained by general market
Systematic risk
Standard deviation
Unsystematic risk
When taxes are considered, the value of a levered firm equals the value of the______.
Unlevered firm
Unlevered firm plus the value of the debt
Unlevered firm plus the present value of the tax shield
Unlevered firm plus the value of the debt plus the value of the tax shield
Which of the following would be consistent with an aggressive approach to financing working
capital?
Financing short-term needs with short-term funds
Financing permanent inventory buildup with long-term debt
Financing seasonal needs with short-term funds
Financing some long-term needs with short-term funds
Which of the following is the maximum amount of debt (and other fixed-charge financing) that a
firm can adequately service?
Debt capacity
Debt-service burden
Adequacy capacity
Fixed-charge burden
Which of the following terms best applies to the short-term interest rate charged by banks to
large, creditworthy customers?
Discount basis interest rate
Long-term bond rate
Prime rate
Fed funds rate
According to _________, the firm's cost of equity increases with greater debt financing, but the
WACC remains unchanged.
M&M Proposition I with taxes
M&M Proposition I without taxes
M&M Proposition II without taxes
M&M Proposition II with taxes
Which of the following is the cash required during a specific period to meet interest expenses
and principal payments?
Debt capacity
Debt-service burden
Adequacy capacity
Fixed-charge burden
What are two major areas of capital budgeting?

Net present value, profitability index
Net present value; internal rate of return
Net present value; payback period
Pay back period; profitability index
A statistical measure of the variability of a distribution around its mean is referred to as

________.
Probability distribution
Expected return
Standard deviation
The benefit we expect from a project is expressed in terms of:
Cash in flows
Cash out flows
Cash flows
None of the given MGT201 Option
Long-term debt
Preferred stock
Common stock

What is the economic order quantity for the following situation? A firm sells 32,000 cases of
microwave popcorn per year. The cost per order is Rs.20 per case and the firm experiences a
carrying cost of 8.0%.
2,000 cases
4,000 cases
8,000 cases
16,000 cases
Total assets
Fixed assets
Current assets
Which of the followings are the propositions of Modigliani and Miller's?
The market value of a firm's common stock is independent of its capital structure
The market value of a firm's debt is independent of its capital structure

The market value of any firm is independent of its capital structure
How "Shareholder wealth" is represented in a firm?
The number of people employed in the firm
The book value of the firm's assets less the book value of its liabilities
The market price per share of the firm's common stock
The amount of salary paid to its employees
The value of direct claim security is derived from which of the following?
Fundamental analysis
Underlying real asset
Supply and demand of securities in the market
All of the given MGT201 Options
Sales variability
In 2 years you are to receive Rs.10,000. If the interest rate were to suddenly decrease, the
present value of that future amount to you would ________.
Fall
Rise
Remain unchanged
Which of the following is an example of restructuring the firm?
Dividends are increased from Rs.1 to Rs.2 per share
A new investment increases the firm's business risk
New equity is issued and the proceeds repay debt
A new Board of Directors is elected to the firm
Which of the following refers to financial risk?

Risk of owning equity securities
Risk faced by equity holders when debt is used
General business risk of the firm
Possibility that interest rates will increase
Why companies invest in projects with negative NPV?
Because there is hidden value in each project
Because there may be chance of rapid growth
Because they have invested a lot
Which of the following is called the tax savings of the firm derived from the deductibility of
interest expense?
Interest tax shield
Depreciable basis
Financing umbrella
Current yield
An annuity due is always worth ___ a comparable annuity.

Less than
More than
Equal to
capital?
According to the Capital Asset Pricing Model (CAPM), a well-diversified portfolio's rate of
return is a function of which of the following:
Unique risk
Reinvestment risk
Market risk
Unsystematic risk
By borrowing more
Who or what is a person or institution designated by a bond issuer as the official representative
of the bondholders?
Indenture
Debenture
Bond
Bond trustee
cash outflows?

Discount rate
Profitability index
How the beta of the stock could be calculated?
By monitoring price of the stock
By monitoring rate of return of the stock
By comparing the changes in the stock market price to the changes in the stock market index
Which of the following is a payment of additional shares to shareholders in lieu of cash?
Stock split
Stock dividend
Extra dividend
Regular dividend
What is potentially the biggest advantage of a small partnership over a sole proprietorship?
Unlimited liability
Single tax filing
Difficult ownership resale
Raising capital
Which of the following would generally have unlimited liability?
A limited partner in a partnership
A shareholder in a corporation
The owner of a sole proprietorship
A member in a limited liability company (LLC)
Which of the following is related to the use Lower financial leverage?
Fixed costs
Variable costs
Debt financing
Common equity financing

Which group of ratios measures a firm's ability to meet short-term obligations?
Liquidity ratios
Debt ratios
Coverage ratios
Profitability ratios
Which of the following is the cash required during a specific period to meet interest expenses
and principal payments?
Debt capacity
Debt-service burden
Adequacy capacity
Fixed-charge burden
What is the most important criteria in capital budgeting?
Return on investment
Profitability index
Net present value
Pay back period

Fixed costs
Variable costs
Debt financing
When a firm needs guaranteed, short-term funds available for a variety purposes, the bank loan
will likely be a ________.
Compensating balance arrangement
Revolving credit agreement
Transaction loan
Line of credit
Which of the following terms best applies to the short-term interest rate charged by banks to
large, creditworthy customers?
Discount basis interest rate
Long-term bond rate

Prime rate
Fed funds rate
The explicit costs associated with corporate default, such as legal expenses, are the _________
of the firm.
Flotation costs
Default beta coefficients
Direct bankruptcy costs
Indirect bankruptcy costs
According to MM II, what happens when a firm's debt-to-equity ratio increases?
Its financial risk increases
Its operating risk increases
The expected return on equity increases
The expected return on equity decreases
Which statement is NOT true regarding the market portfolio?
It includes all publicly traded financial assets

It is the tangency point between the capital market line and the indifference curve
All securities in the market portfolio are held in proportion to their market values
It lies on the efficient frontier
Which of the following factor(s) do NOT affects the movements in the market index?
Macroeconomic factors
Socio political factors
Social factors
In 2 years you are to receive Rs.10,000. If the interest rate were to suddenly decrease, the present
value of that future amount to you would ________.
Fall
Rise
Remain unchanged
Discounted cash flow methods provide a more objective basis for evaluating and selecting an
investment project. These methods take into account:

Magnitude of expected cash flows
Timing of expected cash flows
Both timing and magnitude of cash flows
A statistical measure of the variability of a distribution around its mean is referred to as

________.
Expected return
Standard deviation
The benefit we expect from a project is expressed in terms of:
Cash in flows
Cash out flows
Cash flows

Long-term debt
Preferred stock
Common stock
What is the economic order quantity for the following situation? A firm sells 32,000 cases of
microwave popcorn per year. The cost per order is Rs.20 per case and the firm experiences a
carrying cost of 8.0%.
2,000 cases
4,000 cases
8,000 cases
16,000 cases
Total assets
Fixed assets
Current assets
Sales variability
When Investors want high plowback ratios?

Whenever ROE > k
Whenever k > ROE
Only when they are in low tax brackets
Whenever bank interest rates are high]

Which of the following would NOT improve the current ratio?

Borrow short term to finance additional fixed assets

Issue long-term debt to buy inventory
Sell common stock to reduce current liabilities
Sell fixed assets to reduce accounts payable
Equity
Fixed assets
Short term loan
Long term loan
For which of the following costs is it generally necessary to apply a tax adjustment to a yield
measure?
Cost of debt
Cost of preferred stock
Cost of common equity
Cost of retained earnings
Which of the following could be taken same as minimizing the weighted average cost of capital?
Maximizing the market value of the firm
Maximizing the market value of the firm only if MM's Proposition I
Minimizing the market value of the firm only if MM's Proposition I holds
Maximizing the profits of the firm
Total assets
Fixed assets
Current assets



In 2 years you are to receive Rs.10,000. If the interest rate were to suddenly decrease, the
present value of that future amount to you would ________.
Fall
Rise
Remain unchanged
Which of the following is an example of restructuring the firm?

Dividends are increased from Rs.1 to Rs.2 per share

A new investment increases the firm's business risk
New equity is issued and the proceeds repay debt

A new Board of Directors is elected to the firm


Why companies invest in projects with negative NPV?

Because there is hidden value in each project

Because there may be chance of rapid growth
Because they have invested a lot
Which of the following is called the tax savings of the firm derived from the deductibility of
interest expense?
Interest tax shield

Depreciable basis
Financing umbrella
Current yield
An annuity due is always worth ___a comparable annuity.

Less than
More than
Equal to
capital?


By borrowing more
Which of the following factor(s) do NOT affects the movements in the market index?
Macroeconomic factors
Socio political factors
Social factors
Which of the following is a major disadvantage of the corporate form of organization?
Double taxation of dividends

Inability of the firm to raise large sums of additional capital
Limited liability of shareholders
Limited life of the corporate form
To increase a given future value, the discount rate should be adjusted __________.
Upward
Downward
First upward and then downward
Investors may be willing to pay a premium for stable dividends because of the informational
content of __________, the desire of investors for __________, and certain __________.
Institutional considerations; dividends; current income
Dividends; current income; institutional considerations
Current income; dividends; institutional considerations
Institutional considerations; current income; dividends
Which of the following is the stability of a firm's operating income?

Financial leverage
Weighted-average cost of capital
Capital structure
Business risk
Which of the following is simply the weighted average of the possible returns, with the weights
being the probabilities of occurrence?
Expected return
Standard deviation
Coefficient of variation is NOT the measure of __________.

Risk
Probability
Relative dispersion
Risk per unit of expected return
because its dispersion of probability
If Deen Muhammad Suppliers receive an invoice for purchases dated 12/12/2002 subject to
credit terms of "2/10, net 30", what is the last possible day the discount can be taken?
January 11
January 22
January 30
December 30
The term "2/10" refers to a firm that can take the discount for only 10 days from the date of the
invoice. Thus, goods shipped on the 12th are due no later than the 22nd if the discount is taken
Fixed costs
Variable costs
Debt financing
Which of the following is a basic principle of finance as it relates to the management of working
capital?
Profitability varies inversely with risk
Liquidity moves together with risk
Profitability moves together with risk
Profitability moves together with liquidity
Which of the following effects price of the bond?
Market interest rate
Required rate of return
Interest rate risk
__________ is the variability of return on stocks or portfolios not explained by general market
Systematic risk
Standard deviation
Unsystematic risk
cash outflows?
Discount rate
Profitability index
What does the law of conservation of value implies?
The mix of senior and subordinated debt does not affect the value of the firm
The mix of convertible and non-convertible debt does not affect the value of the firm
The mix of common stock and preferred stock does not affect the value of the firm
What is the present value of Rs.8,000 to be paid at the end of three years if the correct risk
Rs.5,850
Rs.4,872
Rs.6,725
Rs.1,842
Which of the following is a capital budgeting technique that is NOT considered as discounted
cash flow method?
Payback period
Net present value
Profitability index
Which one of the following selects the combination of investment proposals that will provide the
greatest increase in the value of the firm within the budget ceiling constraint?
Cash budgeting
Capital budgeting
Capital rationing
Capital expenditure
Which of the following market in finance is referred to the market for short-term government and
corporate debt securities?
Money market
Capital market
Primary market
Secondary market
How economic value is added (EVA) calculated?
It is the difference between the market value of the firm and the book value of equity
It is the firm's net operating profit after tax (NOPAT) less a dollar cost of capital charge
It is the net income of the firm less a dollar cost that equals WAAC multiplied by the book value
of liabilities and equities
In 2 years you are to receive Rs.10,000. If the interest rate were to suddenly decrease, the present
value of that future amount to you would __________.
Fall
Rise
Remain unchanged

http://highered.mcgraw-hill.com/sites/0073012386/student_view0/chap...
Long-term debt
Preferred stock
Common stock
How dividend yield on a stock is similar to the current yield on a bond?
Both represent how much each security’s price will increase in a year
Both represent the security’s annual income divided by its price
Both are an accurate representation of the total annual return an investor can expect to earn by
owning the security
Both are quarterly yields that must be annualized
Which group of ratios shows the extent to which the firm is financed with debt?
Liquidity ratios
Debt ratios
Coverage ratios
Profitability ratios
At the termination of project, which of the following needs to be considered relating to project
assets?
Salvage value
Book value
Intrinsic value
Fair value
Which of the following would be considered a cash-flow item from an "operating" activity?
Cash outflow to the government for taxes
Cash outflow to shareholders as dividends
Cash inflow to the firm from selling new common equity shares
Cash outflow to purchase bonds issued by another company
Which of the following could be defined as the capital structure of the Company?

The firm's mix of different securities
The firm's debt-equity ratio
The market imperfection that the firm's manager can exploit
All of the above
Which statement is NOT true regarding the market portfolio?
It includes all publicly traded financial assets
It is the tangency point between the capital market line and the indifference curve
All securities in the market portfolio are held in proportion to their market values
It lies on the efficient frontier
Which of the following could NOT be defined as the capital structure of the Company?
The firm's mix of Assets and liabilities
The firm's common stocks only
The firm's debt-equity ratio
Which of the following refers to a policy of dividend "smoothing"?

Maintaining a constant dividend payout ratio
Keeping the regular dividend at the same level indefinitely
Maintaining a steady progression of dividend increases over time
Alternating cash dividends with stock dividends
Where the stock points will lie, if a stock is a part of totally diversified portfolio?
It will lie below the regression line
It will line above the regression line
It will line exactly on the regression line not sure
It will be tangent to the regression line
Where the stock points will lie, if a stock is a part of totally diversified portfolio?
It will lie below the regression line
It will line above the regression line
It will line exactly on the regression line
It will be tangent to the regression line
Which of the following is the characteristic of a well diversified portfolio?

Its market risk is negligible
Its unsystematic risk is negligible
Its systematic risk is negligible
Which of the following portfolio statistics statements is correct?
A portfolio's expected return is a simple weighted average of expected returns of the individual
securities comprising the portfolio.
A portfolio's standard deviation of return is a simple weighted average of individual security

return standard deviations.
The square root of a portfolio's standard deviation of return equals its variance.
The square root of a portfolio's standard deviation of return equals its coefficient of variation
What should be used to calculate the proportional amount of equity financing employed by a
firm?
The common stock equity account on the firm's balance sheet
The sum of common stock and preferred stock on the balance sheet
The book value of the firm

The current market price per share of common stock times the number of shares Outstanding
The value of a bond is directly derived from which of the following?
Select correct Option:
Cash flows
Coupon receipts
Par recovery at maturity
All of the given
Today Quiz
The Value (V) of a bond having 15 years maturity, par value of Rs.1,000 and Kd of 10% can be
computed with the help of following formula: V = I(PVIFA10%,15)+FV(PVIF10%,15) Factor of
this:
7.6061
0.2394
8.6061
0.2494
Which of the following value of the shares changes with investor’s perception about the
company’s future and supply and demand situation?
Par value
Market value
Intrinsic value
Assets
Libilitiies
Reserves

Which of the following refers to bringing the future cash flow to the present time?
Net present value
Discounting
Opportunity cost
Which of the following is FALSE about Perpetuity?
It is a series of cash flows
Its cash flows are identical

Which of the following is similar between Return on Investment and Payback Period techniques
Neglects time value of money
All options

Depriciation
Divident
Question # 11 of 20 ( Start time: 11:37:56 AM ) Total Marks: 1 What is the present value of
Rs.8,000 to be paid at the end of three years if interest rate is 11%?
Rs. 6015
Rs. 4872
Rs. 1842
Rs. 6725
When the bond approaches its maturity, the market value of the bond approaches to which of the
following?
Intrinsic value
Book value
Par value
Historic cost
If Net Present Value technique is used, what is the minimum acceptance criterion for a project?
NPV<0
NPV=0
NPV>0
NPV<=0
Choose the correct statement regarding the calculations of NPV (Net Present Value).
Exclude sunk costs and include opportunity costs and externalities
Exclude sunk costs and externalities and include opportunity costs
Include sunk costs, opportunity costs, and externalities

Exclude sunk costs and opportunity costs and include externalities
All of the following are the reasons for Uncertain NPV calculations EXCEPT:
Estimated discount rate does not change with the markets
Estimated Life of project is doubtful
Annual after-tax cash flows are difficult to estimate
Timing of cash flows is not exactly predictable
Suppose you expect that in year 2011, the Sales Revenue of your Business will grow from Rs.
500,000 to Rs. 700,000. What will be the estimated amount of Inventory in year 2011 if it were
Rs. 100,000 last year?
Rs. 100,000
Rs. 120,000
Rs. 140,000
Rs. 160,000
The statement which distinguishes expected rate of return on stock form required rate of return
on stock is:
A rate which an investor is expecting in future time period
Expeted rate may not be equal to required rate of return in some cases\
Minimum acceptable rate is "required rate" and rate expected in future is "expected rate".
All of the given
What are the 'Indirect Securities'?
The securities whose value depends on the cash flows generated by the underlying assets
The securities whose value depends on the value of the underlying assets
The securities that indirectly generate returns for its investors

As interest rates go up, the present value of a stream of fixed cash flows _____.
Goes down
Goes up
Stays the same

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MGT 201 all solved quiz 2 in One file

Which of the following is type a Temporary Account?

Which of the following equation is NOT correct?

Net present value

Internal rate of return

Which of the following is FALSE about Perpetuity?

It is a series of cash flows

Cash flows occur for a specific time period

Its cash flows are identical

None of the given options

Neglects time value of money

Tricky and complicated methods

Which of the following is NOT a cash outflow for the firm?

Exclude sunk costs and externalities and include opportunity costs

Include sunk costs, opportunity costs, and externalities

Estimated discount rate does not change with the markets

Estimated Life of project is doubtful

Annual after-tax cash flows are difficult to estimate

Timing of cash flows is not exactly predictable

Multiple internal rate of return

A rate which an investor is expecting in future time period

All of the given

What are the 'Indirect Securities'?

The securities that indirectly generate returns for its investors

Stays the same

Can not be found from the given information

Question # 1 of 15 ( Start time: 09:47:52 PM ) Total M - 1

Select correct option:

A return equal to the return require by the investor

Question # 2 of 15 ( Start time: 09:47:52 PM ) Total M - 1

Question # 3 of 15 ( Start time: 09:48:26 PM ) Total M - 1

Current Assets usually grow in proportion to Revenues

Question # 4 of 15 ( Start time: 09:49:18 PM ) Total M - 1

Question # 5 of 15 ( Start time: 09:50:02 PM ) Total M - 1

It is a series of equal cash flows

Question # 6 of 15 ( Start time: 09:50:50 PM ) Total M - 1

Select correct option:

Default risk premium

Question # 7 of 15 ( Start time: 09:51:29 PM ) Total M - 1

Modified internal rate of return and equivalent annual annuity

Question # 8 of 15 ( Start time: 09:52:26 PM ) Total M - 1

Question # 9 of 15 ( Start time: 09:53:06 PM ) Total M - 1

Question # 10 of 15 ( Start time: 09:53:45 PM ) Total M - 1

Whenever ROE > k

Whenever bank interest rates are high

Question # 11 of 15 ( Start time: 09:54:28 PM ) Total M - 1

Question # 12 of 15 ( Start time: 09:55:01 PM ) Total M - 1

Operational; financial management

Financial management; accounting

Accounting; financial management

Financial management; operations

Question # 13 of 15 ( Start time: 09:55:42 PM ) Total M - 1

Question # 14 of 15 ( Start time: 09:56:19 PM ) Total M - 1

Which of the following is TRUE about IRR (Internal Rate of Return)?

Sum of Debits = Sum of Credits

Sum of Debits > Sum of Credits

Sum of Debits < Sum of Credits

None of the given options