Financial Management Solved
Tuesday, February 16, 2010 Posted In FM Edit ThisA company whose stock is selling at a P/E ratio greater than the P/E ratio of a market index most likely has _________.
Select correct option:
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
Which of the following is called the tax savings of the firm derived from the deductibility of interest expense?
Select correct option:
Interest tax shield
Depreciable basis
Financing umbrella
Current yield
The reduction in income taxes that results from the tax-deductibility of interest payments.
Tax benefits derived from creative structuring of a financing arrangement. For example, usingloan capital instead of equity capital because interest paid on the loans is generally tax deductible whereas the dividend paid on equity is not
Upon which of the following a firm's degree of operating leverage (DOL) depends primarily?
Select correct option:
Sales variability
Level of fixed operating costs
Closeness to its operating break-even point
Debt-to-equity ratio
Discounted cash flow methods provide a more objective basis for evaluating and selecting an investment project. These methods take into account:
Select correct option:
Magnitude of expected cash flows
Timing of expected cash flows
Both timing and magnitude of cash flows
None of the given options
Ref It discounts the cash flow to take into the account the time value of money.
Expected Portfolio Return = ___________.
Select correct option:
rP * = xA rA + xB rB
rP * = xA rA - xB rB
rP * = xA rA / xB rB
rP * = xA rA * xB rB
What is the most important criteria in capital budgeting?
Select correct option:
Return on investment
Profitability index
Net present value
Pay back period
If stock is a part of totally diversified portfolio then its company risk must be equal to:
Select correct option:
0
0.5
1
-1
For most firms, P/E ratios and risk_________.
Select correct option:
Will be directly related
Will have an inverse relationship
Will be unrelated
None of the above.
Which of the following is the cash required during a specific period to meet interest expenses and principal payments?
Select correct option:
Debt capacity
Debt-service burden
Adequacy capacity
Fixed-charge burden
Which of the following stipulate a relationship between expected return and risk?
Select correct option:
APT stipulates
CAPM stipulates
Both CAPM and APT stipulate
Neither CAPM nor APT stipulate
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| Which of the following factors might affect stock returns? | ||||||||
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| If all things equal, when diversification is most effective? | ||||||||
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| Which of the followings expressed the proposition that the value of the firm is independent of its capital structure? | ||||||||
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| Which of the following will NOT equate the future value of cash inflows to the present value of cash outflows? | ||||||||
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| Which of the following is related to the use Lower financial leverage? | ||||||||
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| Why markets and market returns fluctuate? | ||||||||
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| Which of the following is NOT an example of hybrid equity | ||||||||
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| 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: | ||||||||
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| A 5-year annuity due has periodic cash flows of Rs.100 each year. If the interest rate is 8 percent, the present value of this annuity is closest to which of the following equations? | ||||||||
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| To increase a given future value, the discount rate should be adjusted __________. | ||||||||
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| Which of the following is NOT the form of cash flow generated by the investments of the shareholders? | ||||||||
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| According to the Capital Asset Pricing Model (CAPM), a well-diversified portfolio's rate of return is a function of which of the following: | ||||||||
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| What is the most important criteria in capital budgeting? | ||||||||
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| If all things equal, when diversification is most effective? | ||||||||
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| 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. | ||||||||
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| As interest rates go up, the present value of a stream of fixed cash flows _____. | ||||||||
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| Which of the following could be taken same as minimizing the weighted average cost of capital? | ||||||||
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| Which of the following formulas represents a correct calculation of the degree of operating leverage? | ||||||||
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| The value of a bond is directly derived from which of the following? | ||||||||
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| Which statement is NOT true regarding the market portfolio? | ||||||||
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In the dividend discount model, _____ which of the following are not incorporated into the discount rate?
Select correct option:
Real risk-free rate
Risk premium for stocks
Return on assets
Expected inflation rate
Which of the following is NOT an example of hybrid equity
Select correct option:
Convertible Bonds
Convertible Debenture
Common shares
Preferred shares
For which of the following costs is it generally necessary to apply a tax adjustment to a yield measure?
Select correct option:
Cost of debt
Cost of preferred stock
Cost of common equity
Cost of retained earnings
The value of the bond is NOT directly tied to the value of which of the following assets?
Select correct option:
Real assets of the business
Liquid assets of the business
Fixed assets of the business
Lon term assets of the business
What are two major areas of capital budgeting?
Select correct option:
Net present value, profitability index
Net present value; internal rate of return
Net present value; payback period
Pay back period; profitability index
Which of the followings are the propositions of Modigliani and Miller's?
Select correct option:
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
None of the given options
The weighted average of possible returns, with the weights being the probabilities of occurrence is referred to as ________.
Select correct option:
Probability distribution
Expected return
Standard deviation
Coefficient of variation
In calculating the costs of the individual components of a firm's financing, the corporate tax rate is important to which of the following component cost formulas?
Select correct option:
Common stock
Debt
Preferred stock
None of the above
A statistical measure of the variability of a distribution around its mean is referred to as ________.
Select correct option:
Probability distribution
Expected return
Standard deviation
Coefficient of variation
How "Shareholder wealth" is represented in a firm?
Select correct option:
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
What is potentially the biggest advantage of a small partnership over a sole proprietorship?
Select correct option:
Unlimited liability
Single tax filing
Difficult ownership resale
Raising capital
Total Marks: 1
The benefit we expect from a project is expressed in terms of:
Select correct option:
Cash in flows
Cash out flows
Cash flows
None of the given option
Upon which of the following a firm's degree of operating leverage (DOL) depends primarily?
Select correct option:
Sales variability
Level of fixed operating costs
Closeness to its operating break-even point
Debt-to-equity ratio
Which of the following is the value of beta for the market portfolio?
Select correct option:
0.25
-1.0
1.0
0.5
Which of the following is related to the use Lower financial leverage?
Select correct option:
Fixed costs
Variable costs
Debt financing
Common equity financing
Why common stock of a company must provide a higher expected return than the debt of the same company?
Select correct option:
There is less demand for stock than for bonds
There is greater demand for stock than for bonds
There is more systematic risk involved for the common stock
There is a market premium required for bonds
_______ is equal to (common shareholders' equity/common shares outstanding).
Select correct option:
Book value per share
Liquidation value per share
Market value per share
None of the above
When a bond will sell at a discount?
Select correct option:
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
In order for the investor to earn more than the current yield the bond must be selling for a discount. Yield to maturity will be greater than current yield as investor will have purchased the bond at discount and will be receiving the coupon payments over the life of the bond.
Which of the following would be considered a cash-flow item from an "operating" activity?
Select correct option:
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
Upon which of the following a firm's degree of operating leverage (DOL) depends primarily?
Select correct option:
Sales variability
Level of fixed operating costs
Closeness to its operating break-even point
Debt-to-equity ratio
Which of the following is simply the weighted average of the possible returns, with the weights being the probabilities of occurrence?
Select correct option:
Probability distribution
Expected return
Standard deviation
Coefficient of variation
Which of the following is simply the weighted average of the possible returns, with the weights being the probabilities of occurrence?
Select correct option:
Probability distribution
Expected return
Standard deviation
Coefficient of variation
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
Which of the following is related to the use Lower financial leverage?
Select correct option:
Fixed costs
Variable costs
Debt financing
Common equity financing
Cash budgets are prepared from past:
Select correct option:
Balance sheets
Income statements
Income tax and depreciation data
None of the given options
The cash budget is prepared from forecasted cash collections and disbursements rather
If we were to increase ABC company cost of equity assumption, what would we expect to happen to the present value of all future cash flows?
Select correct option:
An increase
A decrease
No change
Incomplete information
Question # 10 of 10 ( Start time:
Which of the followings expressed the proposition that the cost of equity is a positive linear function of capital structure?
Select correct option:
The Capital Asset Pricing Model
M&M Proposition I
M&M Proposition II
The Law of One Price
MC080402251 : Irfan Tahir
Quiz Start Time: 11:56 AM Time Left 80
sec(s)
Question # 1 of 20 ( Start time:
Which of the following factor(s) do NOT affects the movements in the market index?
Select correct option:
Macroeconomic factors
Socio political factors
Social factors
All of the given options
MC080402251 : Irfan Tahir
Quiz Start Time: 11:56 AM Time Left 17
sec(s)
Question # 2 of 20 ( Start time:
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?
Select correct option:
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
MC080402251 : Irfan Tahir
Quiz Start Time: 11:56 AM Time Left 15
sec(s)
Question # 3 of 20 ( Start time:
Which of the following could be taken same as minimizing the weighted average cost of capital?
Select correct option:
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
MC080402251 : Irfan Tahir
Quiz Start Time: 11:56 AM Time Left 40
sec(s)
Question # 4 of 20 ( Start time:
If risk and return combination of any stock is above the SML, what does it mean?
Select correct option:
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
MC080402251 : Irfan Tahir
Quiz Start Time: 11:56 AM Time Left 64
sec(s)
Question # 5 of 20 ( Start time:
The presence of which of the following costs is not used as a major argument against the M&M arbitrage process?
Select correct option:
Bankruptcy costs
Agency costs
Transactions costs
Insurance costs
MC080402251 : Irfan Tahir
Quiz Start Time: 11:56 AM Time Left 58
sec(s)
Question # 6 of 20 ( Start time:
If all things equal, when diversification is most effective?
Select correct option:
Securities' returns are positively correlated
Securities' returns are uncorrelated
Securities' returns are high
Securities' returns are negatively correlated
MC080402251 : Irfan Tahir
Quiz Start Time: 11:56 AM Time Left 53
sec(s)
Question # 7 of 20 ( Start time:
Which of the following is correct, if a firm has a required rate of return equal to the ROE?
Select correct option:
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.
None of the given options
MC080402251 : Irfan Tahir
Quiz Start Time: 11:56 AM Time Left 33
sec(s)
Question # 8 of 20 ( Start time:
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?
Select correct option:
Project A dominates project B
Project B dominates project A
Neither project dominates the other in terms of risk and return
Incomplete information
MC080402251 : Irfan Tahir
Quiz Start Time: 11:56 AM Time Left 38
sec(s)
Question # 9 of 20 ( Start time:
Which of the following is NOT the form of cash flow generated by the investments of the shareholders?
Select correct option:
Income
Capital loss
Capital gain
Operating income
MC080402251 : Irfan Tahir
Quiz Start Time: 11:56 AM Time Left 65
sec(s)
Question # 10 of 20 ( Start time:
Which of the following is related to the use of higher operating leverage?
Select correct option:
Fixed costs
Variable costs
Debt financing
Common equity financing
MC080402251 : Irfan Tahir
Quiz Start Time: 11:56 AM Time Left 22
sec(s)
Question # 11 of 20 ( Start time:
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?
Select correct option:
Rs.154.73
Rs.147.36
Rs.109.39
Rs.104.72
MC080402251 : Irfan Tahir
Quiz Start Time: 11:56 AM Time Left 11
sec(s)
Question # 12 of 20 ( Start time:
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?
Select correct option:
Rs. 250.44
Rs. 231.91
Rs.181.62
Rs.184.08
MC080402251 : Irfan Tahir
Quiz Start Time: 11:56 AM Time Left 45
sec(s)
Question # 13 of 20 ( Start time:
Which of the following is the characteristic of a well diversified portfolio?
Select correct option:
Its market risk is negligible
Its unsystematic risk is negligible
Its systematic risk is negligible
All of the given options
MC080402251 : Irfan Tahir
Quiz Start Time: 11:56 AM Time Left 12
sec(s)
Question # 14 of 20 ( Start time:
Which of the following could NOT be defined as the capital structure of the Company?
Select correct option:
The firm's mix of Assets and liabilities
The firm's common stocks only
The firm's debt-equity ratio
All of the given options
MC080402251 : Irfan Tahir
Quiz Start Time: 11:56 AM Time Left 9
sec(s)
Question # 15 of 20 ( Start time:
Which of the following examples best represents a passive dividend policy?
Select correct option:
The firm sets a policy such that the proportion of dividends paid from net income remains constant
The firm pays dividends with what remains of net income after taking acceptable investment projects
The firm sets a policy such that the quantity (dollar amount per share) of dividends paid from net income remains constant
All of the given options are examples of various types of passive dividend policies
MC080402251 : Irfan Tahir
Quiz Start Time: 11:56 AM Time Left 56
sec(s)
Question # 16 of 20 ( Start time:
Which of the following is simply the weighted average of the possible returns, with the weights being the probabilities of occurrence?
Select correct option:
Probability distribution
Expected return
Standard deviation
Coefficient of variation
MC080402251 : Irfan Tahir
Quiz Start Time: 11:56 AM Time Left 36
sec(s)
Question # 17 of 20 ( Start time:
The conventional measure of dispersion is _______.
Select correct option:
A probability distribution
The expected return
The standard deviation
Coefficient of variation
MC080402251 : Irfan Tahir
Quiz Start Time: 11:56 AM Time Left 29
sec(s)
Question # 18 of 20 ( Start time:
What does the law of conservation of value implies?
Select correct option:
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
All of the given options
MC080402251 : Irfan Tahir
Quiz Start Time: 11:56 AM Time Left 72
sec(s)
Question # 19 of 20 ( Start time:
Which of the following has the same meaning as the working capital to financial analyst?
Select correct option:
Total assets
Fixed assets
Current assets
Current assets minus current liabilities
MC080402251 : Irfan Tahir
Quiz Start Time: 11:56 AM Time Left 54
sec(s)
Question # 20 of 20 ( Start time:
Which of the following could be defined as the capital structure of the Company?
Select correct option:
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
MC090200111 : Bilal Ahmad
Quiz Start Time: 12:20 PM Time Left 31
sec(s)
Question # 1 of 20 ( Start time:
What would you expect to happen to the price of a share of stock on the day it goes ex-dividend?
Select correct option:
The price should increase by the amount of the dividend
The price should decrease by the amount of the dividend
The price should decrease by one-half the amount of the dividend
The price should remain constant
MC090200111 : Bilal Ahmad
Quiz Start Time: 12:20 PM Time Left 56
sec(s)
Question # 2 of 20 ( Start time:
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
MC090200111 : Bilal Ahmad
Quiz Start Time: 12:20 PM Time Left 80
sec(s)
Question # 3 of 20 ( Start time:
When the bond approaches its maturity, the market value of the bond approaches to which of the following?
Select correct option:
Intrinsic value
Book value
Par value
Historic cost
MC090200111 : Bilal Ahmad
Quiz Start Time: 12:20 PM Time Left 59
sec(s)
Question # 4 of 20 ( Start time:
Upon which of the following a firm's degree of operating leverage (DOL) depends primarily?
Select correct option:
Sales variability
Level of fixed operating costs
Closeness to its operating break-even point
Debt-to-equity ratio
MC090200111 : Bilal Ahmad
Quiz Start Time: 12:20 PM Time Left 25
sec(s)
Question # 5 of 20 ( Start time:
According to MM II, what happens when a firm's debt-to-equity ratio increases?
Select correct option:
Its financial risk increases
Its operating risk increases
The expected return on equity increases
The expected return on equity decreases
MC090200111 : Bilal Ahmad
Quiz Start Time: 12:20 PM Time Left 69
sec(s)
Question # 6 of 20 ( Start time:
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?
Select correct option:
Cash budgeting
Capital budgeting
Capital rationing
Capital expenditure
MC090200111 : Bilal Ahmad
Quiz Start Time: 12:20 PM Time Left 33
sec(s)
Question # 7 of 20 ( Start time:
What would be the result when there is an increase in the number of shares outstanding by reducing the par value of stock?
Select correct option:
Stock split
Stock dividend
Extra dividend
Regular dividend
MC090200111 : Bilal Ahmad
Quiz Start Time: 12:20 PM Time Left 34
sec(s)
Question # 10 of 20 ( Start time:
If the probability is written on Y-axis and the rate of return is mentioned on the X-axis, Which kind of relationship it shows when there is higher the standard deviation the higher the risk.
Select correct option:
Indirect relationship
Inverse relationship
Direct relationship
No relationship
MC090200111 : Bilal Ahmad
Quiz Start Time: 12:20 PM Time Left 59
sec(s)
Question # 13 of 20 ( Start time:
A capital budgeting technique through which discount rate equates the present value of the future net cash flows from an investment project with the project’s initial cash outflow is known as:
Select correct option:
Payback period
Internal rate of return
Net present value
Profitability index
MC090200111 : Bilal Ahmad
Quiz Start Time: 12:20 PM Time Left 47
sec(s)
Question # 14 of 20 ( Start time:
The DuPont Approach breaks down the earning power on shareholders' book value (ROE) as follows: ROE = __________.
Select correct option:
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
MC090200111 : Bilal Ahmad
Quiz Start Time: 12:20 PM Time Left 59
sec(s)
Question # 15 of 20 ( Start time:
What should be used to calculate the proportional amount of equity financing employed by a firm?
Select correct option:
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
MC090200111 : Bilal Ahmad
Quiz Start Time: 12:20 PM Time Left 44
sec(s)
Question # 16 of 20 ( Start time:
How can a company improve (lower) its debt-to-total asset ratio?
Select correct option:
By borrowing more
By shifting short-term to long-term debt
By shifting long-term to short-term debt
By selling common stock
MC090200111 : Bilal Ahmad
Quiz Start Time: 12:20 PM Time Left 55
sec(s)
Question # 17 of 20 ( Start time:
If Deen Muhammad Suppliers receive an invoice for purchases dated
Select correct option:
January 11
January 22
January 30
December 30
MC090200111 : Bilal Ahmad
Quiz Start Time: 12:20 PM Time Left 45
sec(s)
Question # 19 of 20 ( Start time:
When a firm needs guaranteed, short-term funds available for a variety purposes, the bank loan will likely be a __________.
Select correct option:
Compensating balance arrangement
Revolving credit agreement
Transaction loan
Line of credit
MC090200111 : Bilal Ahmad
Quiz Start Time: 12:20 PM Time Left 20
sec(s)
Question # 20 of 20 ( Start time:
Which of the following is the cash required during a specific period to meet interest expenses and principal payments?
Select correct option:
Debt capacity
Debt-service burden
Adequacy capacity
Fixed-charge burden
MC090200008 : Samina Mushtaq
Quiz Start Time: 12:40 PM Time Left 77
sec(s)
Question # 3 of 20 ( Start time:
Discounted cash flow methods provide a more objective basis for evaluating and selecting an investment project. These methods take into account:
Select correct option:
Magnitude of expected cash flows
Timing of expected cash flows
Both timing and magnitude of cash flows
None of the given options
MC090200008 : Samina Mushtaq
Quiz Start Time: 12:40 PM Time Left 24
sec(s)
Question # 4 of 20 ( Start time:
Which of the followings expressed the proposition that the value of the firm is independent of its capital structure?
Select correct option:
The Capital Asset Pricing Model
M&M Proposition I
M&M Proposition II
The Law of One Price
MC090200008 : Samina Mushtaq
Quiz Start Time: 12:40 PM Time Left 64
sec(s)
Question # 6 of 20 ( Start time:
Which of the following is related to the use Lower financial leverage?
Select correct option:
Fixed costs
Variable costs
Debt financing
Common equity financing
MC090200008 : Samina Mushtaq
Quiz Start Time: 12:40 PM Time Left 81
sec(s)
Question # 7 of 20 ( Start time:
When coupon bonds are issued, they are typically sold at which of the following value?
Select correct option:
Above par value
Below par
At or near par value
At a value unrelated to par
MC090200008 : Samina Mushtaq
Quiz Start Time: 12:40 PM Time Left 48
sec(s)
Question # 9 of 20 ( Start time:
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%?
Select correct option:
Rs.105,000
Rs.1,500,000
Rs.3975,000
Rs.1,050
Where the efficient stock combination of risk and return in efficient market should lie?
Select correct option:
On the SML
Below the SML
Above the SML
It may lie anywhere for efficient combination
MC090200008 : Samina Mushtaq
Quiz Start Time: 12:40 PM Time Left 70
sec(s)
Question # 11 of 20 ( Start time:
Security market line gives the relationship between _______ and _________.
Select correct option:
Market risk and the required return
Systematic risk and the required return
Non-diversified risk and the required return
All of the given options 1
MC090200008 : Samina Mushtaq
Quiz Start Time: 12:40 PM Time Left 79
sec(s)
Question # 17 of 20 ( Start time:
Which of the following would be considered a cash-flow item from an "operating" activity?
Select correct option:
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
MC090200008 : Samina Mushtaq
Quiz Start Time: 12:40 PM Time Left 82
sec(s)
Question # 20 of 20 ( Start time:
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
MC090205414 : Imran Khan
Quiz Start Time: 12:58 PM Time Left 65
sec(s)
Question # 2 of 20 ( Start time:
Which of the following statements is true?
Select correct option:
The financial risk of a firm decreases when it takes on a risky project
The financial risk of a firm increases when it takes on more equity
The business risk of a firm increases when it takes on a risky project
The business risk of a firm increases when it takes on more debt
MC090205414 : Imran Khan
Quiz Start Time: 12:58 PM Time Left 70
sec(s)
Question # 5 of 20 ( Start time:
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
MC090205414 : Imran Khan
Quiz Start Time: 12:58 PM Time Left 77
sec(s)
Question # 6 of 20 ( Start time:
For which of the following costs is it generally necessary to apply a tax adjustment to a yield measure?
Select correct option:
Cost of debt
Cost of preferred stock
Cost of common equity
Cost of retained earnings
MC090205414 : Imran Khan
Quiz Start Time: 12:58 PM Time Left 50
sec(s)
Question # 8 of 20 ( Start time:
Which of the following statements (in general) is correct?
Select correct option:
A low receivables turnover is desirable
The lower the total debt-to-equity ratio, the lower the financial risk for a firm
An increase in net profit margin with no change in sales or assets means a weaker ROI
The higher the tax rate for a firm, the lower the interest coverage ratio
MC090205414 : Imran Khan
Quiz Start Time: 12:58 PM Time Left 84
sec(s)
Question # 12 of 20 ( Start time:
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.
Select correct option:
I, II, and III
I only
III only
II and III only
MC090205414 : Imran Khan
Quiz Start Time: 12:58 PM Time Left 15
sec(s)
Question # 12 of 20 ( Start time:
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.
Select correct option:
I, II, and III
I only
III only
II and III only
MC090205414 : Imran Khan
Quiz Start Time: 12:58 PM Time Left 75
sec(s)
Question # 15 of 20 ( Start time:
Which of the following is a payment of additional shares to shareholders in lieu of cash?
Select correct option:
Stock split
Stock dividend
Extra dividend
Regular dividend
MC090205414 : Imran Khan
Quiz Start Time: 12:58 PM Time Left 62
sec(s)
Question # 16 of 20 ( Start time:
Why common stock of a company must provide a higher expected return than the debt of the same company?
Select correct option:
There is less demand for stock than for bonds
There is greater demand for stock than for bonds
There is more systematic risk involved for the common stock
There is a market premium required for bonds
MC090205414 : Imran Khan
Quiz Start Time: 12:58 PM Time Left 52
sec(s)
Question # 18 of 20 ( Start time:
Which of the following would NOT improve the current ratio?
Select correct option:
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
MC090205414 : Imran Khan
Quiz Start Time: 12:58 PM Time Left 68
sec(s)
Question # 19 of 20 ( Start time:
Upon which of the following a firm's degree of operating leverage (DOL) depends primarily?
Select correct option:
Sales variability
Level of fixed operating costs
Closeness to its operating break-even point
Debt-to-equity ratio
MC090205414 : Imran Khan
Quiz Start Time: 12:58 PM Time Left 52
sec(s)
Question # 20 of 20 ( Start time:
Which of the following is NOT an example of hybrid equity
Select correct option:
Convertible Bonds
Convertible Debenture
Common shares
Preferred shares
A company whose stock is selling at a P/E ratio greater than the P/E ratio of a market index most likely has _________.
Select correct option:
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
Which of the following is called the tax savings of the firm derived from the deductibility of interest expense?
Select correct option:
Interest tax shield
Depreciable basis
Financing umbrella
Current yield
The reduction in income taxes that results from the tax-deductibility of interest payments.
Tax benefits derived from creative structuring of a financing arrangement. For example, usingloan capital instead of equity capital because interest paid on the loans is generally tax deductible whereas the dividend paid on equity is not
Upon which of the following a firm's degree of operating leverage (DOL) depends primarily?
Select correct option:
Sales variability
Level of fixed operating costs
Closeness to its operating break-even point
Debt-to-equity ratio
Discounted cash flow methods provide a more objective basis for evaluating and selecting an investment project. These methods take into account:
Select correct option:
Magnitude of expected cash flows
Timing of expected cash flows
Both timing and magnitude of cash flows
None of the given options
Ref It discounts the cash flow to take into the account the time value of money.
Reference
Expected Portfolio Return = ___________.
Select correct option:
rP * = xA rA + xB rB
rP * = xA rA - xB rB
rP * = xA rA / xB rB
rP * = xA rA * xB rB
What is the most important criteria in capital budgeting?
Select correct option:
Return on investment
Profitability index
Net present value
Pay back period
If stock is a part of totally diversified portfolio then its company risk must be equal to:
Select correct option:
0
0.5
1
-1
For most firms, P/E ratios and risk_________.
Select correct option:
Will be directly related
Will have an inverse relationship
Will be unrelated
None of the above.
Which of the following is the cash required during a specific period to meet interest expenses and principal payments?
Select correct option:
Debt capacity
Debt-service burden
Adequacy capacity
Fixed-charge burden
Which of the following stipulate a relationship between expected return and risk?
Select correct option:
APT stipulates
CAPM stipulates
Both CAPM and APT stipulate
Neither CAPM nor APT stipulate
=====
Which of the following factors might affect stock returns?
Select correct option:
Business cycle
Interest rate fluctuations
Inflation rates
All of the above
If all things equal, when diversification is most effective?
Select correct option:
Securities' returns are positively correlated
Securities' returns are uncorrelated
Securities' returns are high
Securities' returns are negatively correlated
Which of the followings expressed the proposition that the value of the firm is independent of its capital structure?
Select correct option:
The Capital Asset Pricing Model
M&M Proposition I
M&M Proposition II
The Law of One Price
Which of the following will NOT equate the future value of cash inflows to the present value of cash outflows?
Select correct option:
Discount rate
Profitability index
Internal rate of return
Multiple Internal rate of return
Which of the following is related to the use Lower financial leverage?
Select correct option:
Fixed costs
Variable costs
Debt financing
Common equity financing
Why markets and market returns fluctuate?
Select correct option:
Because of political factors
Because of social factors
Because of socio-political factors
Because of macro systematic factors
Which of the following is NOT an example of hybrid equity
Select correct option:
Convertible Bonds
Convertible Debenture
Common shares
Preferred shares
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
A 5-year annuity due has periodic cash flows of Rs.100 each year. If the interest rate is 8 percent, the present value of this annuity is closest to which of the following equations?
Select correct option:
(Rs.100)(PVIFA at 8% for 4 periods) + Rs.100
(Rs.100)(PVIFA at 8% for 4 periods)(1.08)
(Rs.100)(PVIFA at 8% for 6 periods) - Rs.100
Can not be found from the given information
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
Which of the following is NOT the form of cash flow generated by the investments of the shareholders?
Select correct option:
Income
Capital loss
Capital gain
Operating income
According to the Capital Asset Pricing Model (CAPM), a well-diversified portfolio's rate of return is a function of which of the following:
Select correct option:
Unique risk
Reinvestment risk
Market risk
Unsystematic risk
What is the most important criteria in capital budgeting?
Select correct option:
Return on investment
Profitability index
Net present value
Pay back period
If all things equal, when diversification is most effective?
Select correct option:
Securities' returns are positively correlated
Securities' returns are uncorrelated
Securities' returns are high
Securities' returns are negatively correlated
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.
Select correct option:
I, II, and III
I only
III only
II and III only
As interest rates go up, the present value of a stream of fixed cash flows _____.
Select correct option:
Goes down
Goes up
Stays the same
Can not be found from the given information
Which of the following could be taken same as minimizing the weighted average cost of capital?
Select correct option:
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
Which of the following formulas represents a correct calculation of the degree of operating leverage?
Select correct option:
(Q - QBE)/Q
(EBIT) / (EBIT - FC)
[Q(P-V) + FC] /[Q(P-V)]
Q(P-V) / [Q(P-V) - FC]
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 options
Which statement is NOT true regarding the market portfolio?
Select correct option:
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
In the dividend discount model, _____ which of the following are not incorporated into the discount rate?
Select correct option:
Real risk-free rate
Risk premium for stocks
Return on assets
Expected inflation rate
Which of the following is NOT an example of hybrid equity
Select correct option:
Convertible Bonds
Convertible Debenture
Common shares
Preferred shares
For which of the following costs is it generally necessary to apply a tax adjustment to a yield measure?
Select correct option:
Cost of debt
Cost of preferred stock
Cost of common equity
Cost of retained earnings
The value of the bond is NOT directly tied to the value of which of the following assets?
Select correct option:
Real assets of the business
Liquid assets of the business
Fixed assets of the business
Lon term assets of the business
What are two major areas of capital budgeting?
Select correct option:
Net present value, profitability index
Net present value; internal rate of return
Net present value; payback period
Pay back period; profitability index
Which of the followings are the propositions of Modigliani and Miller's?
Select correct option:
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
None of the given options
The weighted average of possible returns, with the weights being the probabilities of occurrence is referred to as ________.
Select correct option:
Probability distribution
Expected return
Standard deviation
Coefficient of variation
In calculating the costs of the individual components of a firm's financing, the corporate tax rate is important to which of the following component cost formulas?
Select correct option:
Common stock
Debt
Preferred stock
None of the above
A statistical measure of the variability of a distribution around its mean is referred to as ________.
Select correct option:
Probability distribution
Expected return
Standard deviation
Coefficient of variation
How "Shareholder wealth" is represented in a firm?
Select correct option:
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
What is potentially the biggest advantage of a small partnership over a sole proprietorship?
Select correct option:
Unlimited liability
Single tax filing
Difficult ownership resale
Raising capital
Total Marks: 1
The benefit we expect from a project is expressed in terms of:
Select correct option:
Cash in flows
Cash out flows
Cash flows
None of the given option
Upon which of the following a firm's degree of operating leverage (DOL) depends primarily?
Select correct option:
Sales variability
Level of fixed operating costs
Closeness to its operating break-even point
Debt-to-equity ratio
Which of the following is the value of beta for the market portfolio?
Select correct option:
0.25
-1.0
1.0
0.5
Which of the following is related to the use Lower financial leverage?
Select correct option:
Fixed costs
Variable costs
Debt financing
Common equity financing
Why common stock of a company must provide a higher expected return than the debt of the same company?
Select correct option:
There is less demand for stock than for bonds
There is greater demand for stock than for bonds
There is more systematic risk involved for the common stock
There is a market premium required for bonds
_______ is equal to (common shareholders' equity/common shares outstanding).
Select correct option:
Book value per share
Liquidation value per share
Market value per share
None of the above
When a bond will sell at a discount?
Select correct option:
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
In order for the investor to earn more than the current yield the bond must be selling for a discount. Yield to maturity will be greater than current yield as investor will have purchased the bond at discount and will be receiving the coupon payments over the life of the bond.
Which of the following would be considered a cash-flow item from an "operating" activity?
Select correct option:
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
Upon which of the following a firm's degree of operating leverage (DOL) depends primarily?
Select correct option:
Sales variability
Level of fixed operating costs
Closeness to its operating break-even point
Debt-to-equity ratio
Which of the following is simply the weighted average of the possible returns, with the weights being the probabilities of occurrence?
Select correct option:
Probability distribution
Expected return
Standard deviation
Coefficient of variation
Which of the following is simply the weighted average of the possible returns, with the weights being the probabilities of occurrence?
Select correct option:
Probability distribution
Expected return
Standard deviation
Coefficient of variation
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
Which of the following is related to the use Lower financial leverage?
Select correct option:
Fixed costs
Variable costs
Debt financing
Common equity financing
Cash budgets are prepared from past:
Select correct option:
Balance sheets
Income statements
Income tax and depreciation data
None of the given options
The cash budget is prepared from forecasted cash collections and disbursements rather
If we were to increase ABC company cost of equity assumption, what would we expect to happen to the present value of all future cash flows?
Select correct option:
An increase
A decrease
No change
Incomplete information
Question # 10 of 10 ( Start time:
Which of the followings expressed the proposition that the cost of equity is a positive linear function of capital structure?
Select correct option:
The Capital Asset Pricing Model
M&M Proposition I
M&M Proposition II
The Law of One Price
Total portfolio risk is a combination of:
Select correct option:
Systematic risk plus non-diversifiable risk
Avoidable risk plus diversifiable risk
Systematic risk plus unavoidable risk
Systematic risk plus diversifiable risk
MC090200527 : Alina Khan
Quiz Start Time: 01:20 PM Time Left 48
sec(s)
Question # 4 of 20 ( Start time:
Which of the following is not the present value of the bond?
Select correct option:
Intrinsic value
Market price
Fair price
Theoretical price
MC090200527 : Alina Khan
Quiz Start Time: 01:20 PM Time Left 38
sec(s)
Question # 5 of 20 ( Start time:
Which of the following is not a recognized approach for determining the cost of equity?
Select correct option:
Dividend discount model approach
Before-tax cost of preferred stock plus risk premium approach
Capital-asset pricing model approach
Before-tax cost of debt plus risk premium approach
MC090200527 : Alina Khan
Quiz Start Time: 01:20 PM Time Left 43
sec(s)
Question # 7 of 20 ( Start time:
When Investors want high plowback ratios?
Select correct option:
Whenever ROE > k
Whenever k > ROE
Only when they are in low tax brackets
Whenever bank interest rates are high
MC090200527 : Alina Khan
Quiz Start Time: 01:20 PM Time Left 36
sec(s)
Question # 10 of 20 ( Start time:
How the beta of the stock could be calculated?
Select correct option:
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
All of the given options
MC090200527 : Alina Khan
Quiz Start Time: 01:20 PM Time Left 29
sec(s)
Question # 11 of 20 ( Start time:
Cash budgets are prepared from past:
Select correct option:
Balance sheets
Income statements
Income tax and depreciation data
None of the given options
MC090200527 : Alina Khan
Quiz Start Time: 01:20 PM Time Left 61
sec(s)
Question # 12 of 20 ( Start time:
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
MC090200527 : Alina Khan
Quiz Start Time: 01:20 PM Time Left 63
sec(s)
Question # 13 of 20 ( Start time:
Expected Portfolio Return = ___________.
Select correct option:
rP * = xA rA + xB rB
rP * = xA rA - xB rB
rP * = xA rA / xB rB
rP * = xA rA * xB rB
MC090200527 : Alina Khan
Quiz Start Time: 01:20 PM Time Left 71
sec(s)
Question # 14 of 20 ( Start time:
When the bond approaches its maturity, the market value of the bond approaches to which of the following?
Select correct option:
Intrinsic value
Book value
Par value
Historic cost
MC090200527 : Alina Khan
Quiz Start Time: 01:20 PM Time Left 55
sec(s)
Question # 15 of 20 ( Start time:
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?
Select correct option:
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
MC090200527 : Alina Khan
Quiz Start Time: 01:20 PM Time Left 55
sec(s)
Question # 18 of 20 ( Start time:
Above the breakeven EBIT, increased financial leverage will __________ EPS, all else the same. Assume there are no taxes
Select correct option:
Increase
Decrease
Either increase or decrease
None of the given options
MC090200527 : Alina Khan
Quiz Start Time: 01:20 PM Time Left 71
sec(s)
Question # 20 of 20 ( Start time:
What is yield to maturity on a bond?
Select correct option:
Below the coupon rate when the bond sells at a discount, and equal to the coupon rate when the bond sells at a premium
The discount rate that will set the present value of the payments equal to the bond price
Based on the assumption that any payments received are reinvested at the coupon rate
None of the above
MC090201994 : Shoaib Anjum
Quiz Start Time: 01:45 PM Time Left 81
sec(s)
Question # 1 of 20 ( Start time:
As interest rates go up, the present value of a stream of fixed cash flows _____.
Select correct option:
Goes down
Goes up
Stays the same
Can not be found from the given information
MC090201994 : Shoaib Anjum
Quiz Start Time: 01:45 PM Time Left 52
sec(s)
Question # 2 of 20 ( Start time:
Which of the following is the stability of a firm's operating income?
Select correct option:
Financial leverage
Weighted-average cost of capital
Capital structure
Business risk
MC090201994 : Shoaib Anjum
Quiz Start Time: 01:45 PM Time Left 52
sec(s)
Question # 3 of 20 ( Start time:
Which of the following is correct, if a firm has a required rate of return equal to the ROE?
Select correct option:
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.
None of the given options
MC090201994 : Shoaib Anjum
Quiz Start Time: 01:45 PM Time Left 80
sec(s)
Question # 7 of 20 ( Start time:
If stock is a part of totally diversified portfolio then its company risk must be equal to:
Select correct option:
0
0.5
1
-1
MC090201994 : Shoaib Anjum
Quiz Start Time: 01:45 PM Time Left 64
sec(s)
Question # 11 of 20 ( Start time:
Where the stock points will lie, if a stock is a part of totally diversified portfolio?
Select correct option:
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 represents a firm's safety stock?
Select correct option:
Inventory having passed quality-control inspection
Largest order size that retains minimum order costs
Inventory of most frequently ordered items
Reorder point that considers lags and uncertainties
MC090201994 : Shoaib Anjum
Quiz Start Time: 01:45 PM Time Left 85
sec(s)
Question # 14 of 20 ( Start time:
If the probability is written on Y-axis and the rate of return is mentioned on the X-axis, Which kind of relationship it shows when there is higher the standard deviation the higher the risk.
Select correct option:
Indirect relationship
Inverse relationship
Direct relationship
No relationship
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