MIDTERM EXAMINATION Spring 2010 MGT201- Financial Management (Session - 2)

Question No: 1    ( Marks: 1 )    - Please choose one
 Felton Farm Supplies, Inc., has an 8 percent return on total assets of Rs.300,000 and a net profit margin of 5 percent. What are its sales? 
       ► 750,0Rs.3, 750,000
       ► Rs.48Rs.480, 000
       ► Rs.30Rs.300, 000
       ► Rs.1, Rs.1, 500,000
   
Question No: 2    ( Marks: 1 )    - Please choose one
 Which of the following statements is the least likely to be correct?
       ► A firm that has a high degree of business risk is less likely to want to incur financial risk
       ► There exists little or no negotiation with suppliers of capital regarding the financing needs of the firm
       ► Financial ratios are relevant for making internal comparisons
       ► It is important to make external comparisons or financial ratios
   
Question No: 3    ( Marks: 1 )    - Please choose one
 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.  
       ► Rs.840

       ► Rs.858

       ► Rs.1,032

       ► Rs.1,121

   
Question No: 4    ( Marks: 1 )    - Please choose one
 An 8-year annuity due has a present value of Rs.1,000.  If the interest rate is 5 percent, the amount of each annuity payment is closest to which of the following?
       ► Rs.154.73
       ► Rs.147.36
       ► Rs.109.39
       ► Rs.104.72
   
Question No: 5    ( Marks: 1 )    - Please choose one
 ABC Co. will earn Rs. 350 million in cash flow in four years from now. Assuming an 8.5% weighted average cost of capital, what is that cash flow worth today?
       ► Rs.253 million  
       ► Rs.323 million 
       ► Rs.380 million
       ► Rs.180 million
   
Question No: 6    ( Marks: 1 )    - Please choose one
  All of the following influence capital budgeting cash flows EXCEPT __________.

       ►  Choice of depreciation method for tax purposes
       ►  Economic length of the project
       ►  Projected sales (revenues) for the project
       ►  Sunk costs of the project
   
Question No: 7    ( Marks: 1 )    - Please choose one
 An investment proposal should be judged in whether or not it provides:
       ► 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
   
Question No: 8    ( Marks: 1 )    - Please choose one
 In case of mutually exclusive projects, if two projects are of equal size and have the same life, then:
       ► NPV and MIRR will create the conflict
       ► NPV and MIRR will lead to the same decision
       ► NPV will give the best solution
       ► MIRR will give the best solution
   
Question No: 9    ( Marks: 1 )    - Please choose one
 Due to timing difference problem, a good project might suffer from _____ IRR even though its NPV is ________.
       ► Higher; Lower
       ► Lower; Lower
       ► Lower; Higher
       ► Higher; Higher
   
Question No: 10    ( Marks: 1 )    - Please choose one
 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 option

   
Question No: 11    ( Marks: 1 )    - Please choose one
 If a 7% coupon bond is trading for Rs. 975 it has a current yield of _________ percent.

       ► 7.00
       ► 6.53
       ► 8.53
       ► 7.18
   
Question No: 12    ( Marks: 1 )    - Please choose one
 Consider a 5-year bond with a 10% coupon that has a present yield to maturity of 8%.  If interest rates remain constant, one year from now, what will be the price of this bond?

       ► Higher

       ► Lower

       ► The same

       ► Rs. 1,000

   
Question No: 13    ( Marks: 1 )    - Please choose one
 You wish to earn a return of 12% on each of two stocks, A and B.  Each of the stocks is expected to pay a dividend of Rs. 2 in the upcoming year.  The expected growth rate of dividends is 9% for stock A and 10% for stock B. The intrinsic value of stock A:


       ► Will be greater than the intrinsic value of stock B
       ► Will be the same as the intrinsic value of stock B
       ► Will be less than the intrinsic value of stock B
       ► None of the given options
   
Question No: 14    ( Marks: 1 )    - Please choose one
 Assume that the expected returns of the portfolios are the same but their standard deviations are given in the options given below, which of the option represent the most risky portfolio according to standard deviation?

       ► 1.5%
       ► 2.0%
       ► 3.0%
       ► 4.0%
   
Question No: 15    ( Marks: 1 )    - Please choose one
 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
   
Question No: 16    ( Marks: 1 )    - Please choose one
 What is the present value of Rs.1,000 to be paid at the end of 5 years if the interest rate is 8% compounded annually?
       ► Rs.680.58
       ► Rs.1,462.23
       ► Rs.322.69
       ► Rs.401.98
   
Question No: 17    ( Marks: 1 )    - Please choose one
 What is the present value of Rs.53,000 to be paid at the end of 15 years if the interest rate is 9% compounded annually?
       ► Rs.25,300
       ► Rs.34,122
       ► Rs.14,549
       ► Rs.11,989
   
Question No: 18    ( Marks: 1 )    - Please choose one
 TFC is the abbreviation of which of the following?
       ► Termination for Convenience
       ► Test for Completion
       ► Term finance certificate
       ► Transport Format Combination
   
Question No: 19    ( Marks: 1 )    - Please choose one
 One way to increase the shareholder’s wealth is to __________.
       ► Increase the stock price
       ► Improve goodwill
       ► Increase amount of debt
       ► Increase fixed assets
   
Question No: 20    ( Marks: 1 )    - Please choose one
 Which of the following is used to assess the financial position of a company?
       ► Financial statements
       ► Stock price in the market
       ► Credit worthiness of the company
       ► Capital structure of the company
   
Question No: 21    ( Marks: 1 )    - Please choose one
 Through which of the following formula desired growth rate can be calculated?
       ► Return on equity × (1- payout ratio)
       ► Return on equity / (1- payout ratio)
       ► Return on equity + (1+ payout ratio)
       ► Return on equity - (1/ payout ratio)
   
Question No: 22    ( Marks: 1 )    - Please choose one
 Which of the following project should be accepted?
       ► Project A: Io Rs.2, 000, Return in Yr 1= 850, NPV= 3, 500, IRR = 50%
       ► Project B: Io Rs.1, 500, Return in Yr 1= 1000, NPV= 450, IRR = 40%
       ► Project C: Io Rs.200, Return in Yr 1= 150, NPV= 73, IRR = 55%
       ► Project D: Io Rs.1, 000, Return in Yr 1= 750, NPV= 250, IRR = 55%
   
Question No: 23    ( Marks: 1 )    - Please choose one
 Which of the following formula is used to calculate the perpetual investment of preferred stock with fixed dividend?
       ► Po = DIV1 / rPE
       ► Po = DIV1 × rPE
       ► Po × rPE = DIV1
       ► Po - DIV1 = rPE
   
Question No: 24    ( Marks: 1 )    - Please choose one
 Which of the following should be kept in mind while investing in direct claim securities?
       ► Standalone & portfolio risk
       ► Goodwill of the company
       ► Political instability
       ► Rate of return of similar shares
    
Question No: 25    ( Marks: 1 )    - Please choose one
 Portfolio risk can be defined as:
       ► Overall risk of entire collection of investments
       ► Risk of particular investment as compare to other investment
       ► Risk of political instability within country
       ► Risk of bankruptcy of company making investment
   
Question No: 26    ( Marks: 1 )    - Please choose one
 When you allocate capital, you choose investments that are more beneficial and less
       ► Diversified
       ► Risky
       ► Costly
       ► Value based
   
Question No: 27    ( Marks: 1 )    - Please choose one
 With the help of which of the following formula we can calculate coefficient of variation?
       ► Range / variance
       ► Expected return / standard deviation
       ► Variance / standard deviation
       ► Standard deviation / expected return
   
Question No: 28    ( Marks: 1 )    - Please choose one
 In a portfolio of three randomly selected stocks, which of the following statement is not correct?
       ► Risk of the overall portfolio is less than the risk of each of the stocks if they were held in isolation
       ► The risk of the portfolio is greater than the risk of one or two of the stocks
       ► The beta of the portfolio is lower than the lowest of the three betas
       ► The beta of the portfolio is higher than the highest of the three betas
   
Question No: 29    ( Marks: 3 )
 Comment on the statement?
“Common Stock is more risky than the Preferred Stock:”

   
Question No: 30    ( Marks: 3 )
 How the risk is measured? What is the fundamental rule of risk?
   
Question No: 31    ( Marks: 5 )
 How risk affects the share price? (2.5)
What does the meaning of standard deviation in finance? (2.5)


   
Question No: 32    ( Marks: 5 )
 Suppose you approach a bank for getting loan.  And the bank offers to lend you Rs.1, 000,000 and you sign a bond paper. The bank asks you to issue a bond in their favor on the following terms required by the bank: Par Value = Rs 1, 000,000, Maturity = 3 years
Coupon Rate = 15% p.a, Security = Machinery
You are required to calculate the cash flow of the bank which you will pay every month as well as the present value of this option




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