Fin 622 new McQs with reference
Solved by Hûzáifä $he!kh
Quiz #4
MC080200629 : Imtiaz Sarwar Quiz
Question # 1 of 15
Which of the following investment criteria does not take the time value of money into consideration?
Simple payback method (page#34)
Net present value
Profitability index
Internal rate of return for borrowing projects
Question # 2 of 15
Which of the following is the Dividend Payout ratio for a common stock?
Dividend per share: Market value per share
Earning per share: Intrinsic value per share
Dividend per share: Earning per share
Market value per share: intrinsic value per share
Ref:
http://en.wikipedia.org/wiki/Dividend_payout_ratio
Question # 3 of 15
Cash discounts are offered by the seller to buyer in order to improve which of the following?
Operating cycle
Sales turnover
Company goodwill
Credit worthiness
Ref:
Operating Cycle = age of inventory + collection period.
The operating cycle is the number of days from cash to inventory to accounts receivable to cash.
And
http://www.slideshare.net/sagar_sjpuc/working-capital-management-presentation-775445 in slide #3
Question # 4 of 15
Average beta has value equal to:
1 Slid # 16
2
3
4
Question # 5 of 15
Which of the following may be a major reason for hard capital rationing?
Dilution of earning per share (EPS)
High interest expense
High interest rate (SLIDE 13 BOOK PAGE 44)
Company own policies
Question # 6 of 15
In inventory management, the storage cost of inventory is considered as:
Carrying cost Page#97
Reorder cost
Stock out cost
Safety cost
Ref:
What Is Inventory Carrying Cost?
The cost to carry inventory measures the overhead that an organization carries to support its inventory. In addition to the money originally spent to purchase it, more money will be spent on upkeep while inventory sits in your possession. The longer the inventory is there, the more it will cost in upkeep. Carrying cost is usually expressed as a percentage that represents the cents per dollar that will be spent on inventory overhead per year.
Or
www.ism.ws/files/Pubs/Proceedings/BCHarding.pdf
Question # 7 of 15
Which of the following statement is TRUE regarding temporary working capital?
Temporary working capital varies with seasonal requirements
Temporary working capital is the constant component of working capital
Temporary working capital excludes inventories
Temporary working capital should be financed with bonds or common stock
Ref:
Temporary Working capital
The temporary or varying working capital varies with the volume of operations. It fluctuates with the scale of operations. This is the additional working capital required from time to time over and above the permanent or fixed working capital. During seasons, more production/sales take place resulting in larger working capital needs. The reverse is true during off-seasons. As seasons vary, temporary working capital requirement moves up and down. Temporary working capital can be financed through short term funds like current liabilities. When the level of temporary working capital moves up, the business might use short-term funds and when the level for temporary working capital recedes, the business may retire its short-term loans
Question # 8 of 15
Which of the following describes the hedging approach to financing?
Maturity dates of financing instruments are spread over a period of time so that they mature in a steady, predictable fashion
Each asset is offset with a financing instrument of the same approximate maturity
Each asset is offset with a put or call option.
The firm takes out insurance to protect itself against uneven cash flows.
Ref: provided by Zubair (Slide#17 of following link)
http://wps.pearsoned.co.uk/wps/media/objects/1669/1709919/0273685988_ch08.ppt
Question # 9 of 15
If the Internal Rates of Return of two, mutually exclusive options are both greater than the cost of capital, which option should be selected under the Internal Rate of Return method?
The one with the largest Internal Rate of Return. (Damn sure)
The one with the smallest Internal Rate of Return.
The one with the highest Net Present Value at the firm’s cost of capital.
None of the given options
Question # 10 of 15
Which of the following measures systematic risk of a firm’s common stock?
Beta (PAGE 50)
CAPM
MM-Model
SML
Question # 11 of 15
Which of the following is closely related to a sales budget?
Miscellaneous income
Future profits
Cash outflow
Cash inflow
The master budget has two major parts including the operating budget and the financial budget (See Exhibit 9-4). The operating budget begins with the sales budget and ends with the budgeted income statement. The financial budget includes the capital budget as well as a cash budget, and a budgeted balance sheet
Question # 12 of 15
Which of the following is the correct definition for "spread" in cash management?
The difference between optimal cash balance and Nominal Cash balance
The difference between opining cash balance and ending cash balance.
The difference between upper limit and lower limit of cash balances
The difference between optimal cash balance and ending cash balance
Ref:
Page#96 Graph
Question # 13 of 15
Which of the following statement is CORRECT regarding residual dividend policy?
Shareholders are paid dividend from capital
Dividend are paid after meeting all the financial needs of the firm
The management sets a fixed payout ratio
Shareholders are paid fixed dividend every year
Ref:
Page#76
Residual Dividend Policy
If a company does not pay all the profit to shareholders in the form of dividend then the debt equity ratio
will change. In this section we will assume that company do have some potential opportunities and will
finance these opportunities first and any remainder profit will be paid as dividend and the debt equity ratio
will be held constant
Question # 14 of 15
Total M - 1
Since companies in some industries typically have high fixed costs, but have stable and predictable revenues. Which of the following statement would be TRUE about these companies?
Their degree of operating leverage is relatively low.
Their bond issues would tend to have a speculative rating.
Their overall business risk is relatively low. (Doubt)
They are unable to take on much additional financial risk.
Question # 15 of 15
Which of the following changes will occur if a bond's yield-to-maturity increases, keeping other things equal ?
Its price will rise
Its price will remain unchanged
Its price will fall. (Sure)
Can not be determined
MC080204590 : Mudasar Ahmed Quiz
Question # 1 of 15
Since preferred stock dividends are fixed, valuing preferred stock is roughly equivalent to valuing:
A zero growth common stock.
A positive growth common stock
A short-term bond
An option.
Ref: http://www.wattpad.com/73486?p=2
Question # 2 of 15
Which one of the following statements is TRUE regarding future value of a single sum?
Increase if the interest rate increases.
Remains unchanged if the interest rate changes
Decrease if the interest rate increases
All of the given options
Ref:
http://www.getobjects.com/Components/Finance/TVM/fv.html
Example: You can afford to put $10,000 in a savings account today that pays 6% interest compounded annually. How much will you have 5 years from now if you make no withdrawals?
PV = 10,000
i = .06
n = 5
FV = 10,000 (1 + .06)5 = 10,000 (1.3382255776) = 13,382.26
End of Year |
1 |
2 |
3 |
4 |
5 |
Principal |
10,000.00 |
10,600.00 |
11,236.00 |
11,910.16 |
12,624.77 |
Interest |
600.00 |
636.00 |
674.16 |
714.61 |
757.49 |
Total |
10,600.00 |
11,236.00 |
11,910.16 |
12,624.77 |
13,382.26 |
Question # 3 of 15
All of the following are the methods to evaluate the credit worthiness in business EXCEPT:
Market reputation
Previous payment record
Production plant capacity
Financial strength
Ref:
Page#104
credit worthiness in business
Financial statements of vendor
Market reputation
Banks
Previous payment record
Financial strength
Capacity
General economic conditions in vendors industry
Question # 4 of 15
What is the main purpose of constructing a portfolio of financial assets?
To maximize risk and minimize the return
To minimize the risk and minimize the return
To maximize the return and minimize the risk
To minimize the return and minimize the risk
Question # 5 of 15
Which of the following is tax deductible?
Dividend on preferred shares
Dividend on common stocks
Coupon payments on bonds
Capital gain on common stocks
Question # 6 of 15
Inventory between various stages of production is known as:
Work in Process inventory
Finished goods inventory
Balanced goods inventory
Raw materials inventory(Doubt)
Question # 7 of 15
Which of the following effects should be considered by a firm if it allows credit to its customers?
Cost of discount
Arrange loans to finance short term operations
Prices of goods
All of the given options
page#104
Question # 8 of 15
Which of the following is most relevant to a company’s ability to pay off its short-term obligation?
Dividend Policy
Net working capital
Operating Cycle
Profitability
Ref:
Working Capital
Working Capital is simply the amount that current assets exceed current liabilities. Here it is in the form of the equation:
Working Capital = Current Assets - Current Liabilities
This formula is very similar to the current ratio. The only difference is that it gives you a dollar amount rather than a ratio. It too is calculated to determine a firm's ability to pay its short-term obligations. Working Capital can be viewed as somewhat of a security blanket. The greater the amount of Working Capital, the more security an investor can have that they will be able to meet their financial obligations.
Question # 9 of 15
Which of the following is prepared by combining all the functional budgets?
A production budget
A cash budget
A sales budget
A master budget
Ref:
Question # 10 of 15
Which of the following should be ignored, while evaluating the financial viability of a project?
Initial cost
Equipment cost
Cost of capital
Sunk cost
Ref: http://www.scribd.com/doc/18688564/A-Note-on-the-Financial-Evaluation-of-Projects
Question # 11 of 15
A company has a dividend yield of 8%. If its dividend is expected to grow at a constant rate of 5%, what must be the expected rate of return on the company’s stock?
14%
13%
12%
10%
Ref: r = DIV1/P0 + g =
8% + 5% =
13%
Question # 12 of 15
Determine a firm's total asset turnover (TAT) if its net profit margin (NPM) is 5 percent, total assets are $8 million, and ROI is 8 percent.
1.60
2.05
2.50
4.00
Ref: (ROI) / (NPM) = TAT
(.08) / (.05) = 1.6
Question # 13 of 15
Which of the following condition if exist will make the diversification more effective?
Securities contained in a portfolio are positively correlated
Securities contained in a portfolio are negatively correlated
Securities contained in a portfolio have high market values
Securities contained in a portfolio have low market values
Ref:
http://www.stockexchangesecrets.com/portfolio-diversification.html
OR
The most effective portfolio diversification will come from making investments that show negative correlation to each other. However, simply by investing in companies who show returns that are not correlated perfectly to each other, the risk in the portfolio will be lower than the associated risk of any individual stock.
Question # 14 of 15
Which one of the following is a major limitation of Linear Programming Technique of capital projects selection?
Ignores the relative size of the Investment (slide 14)
Time value of money is not considered
Project cash flows are ignored
Project profitability is ignored
Question # 15 of 15
Holding everything else constant, increasing fixed costs ________ the firm's break-even point.
Decreases
Increases the covariance of
Increases(Doubt)
Does not affect