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

 OR

 http://www.tutorsonnet.com/homework_help/working_capital_management/permanent_and_temporary_working_capital_online_tutoring.htm

 

 

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 

 Ref:

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.

 OR

 http://sites.google.com/site/sumitdeole2/analysis

 

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:

master budget.jpg 

 

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