CORPORATE FINANCE
MCQ
FOR BPUT-SEM-2-2020
1. Which one of the following terms is defined as the
management of a firm's long-term investments?
A. working capital
management
B. financial
allocation
C. agency cost
analysis
D. capital budgeting
E. capital structure
2. Which one of the
following terms is defined as the mixture of a firm's debt and equity
financing?
A. working capital
management
B. cash management
C. cost analysis
D. capital budgeting
E. capital structure
3. Which one of the
following is defined as a firm's short-term assets and its short-term
liabilities?
A. working capital
B. debt
C. investment
capital
D. net capital
E. capital structure
4. A business owned by
a solitary individual who has unlimited liability for its debt is called
a:
A. corporation.
B. sole proprietorship.
C. general
partnership.
D. limited
partnership.
E. limited liability
company.
5. A business formed by two or more individuals who each have
unlimited liability for all of the firm's business debts is called a:
A. corporation.
B. sole
proprietorship.
C. general partnership.
D. limited
partnership.
E. limited liability
company.
6. A business partner whose potential financial loss in the
partnership will not exceed his or her investment in that partnership is called
a:
A. generally
partner.
B. sole proprietor.
C. limited partner.
D. corporate
shareholder.
E. zero partner.
1. The concept of compound interest refers to:
A) earning interest on the original investment.
B) payment of interest on previously
earned interest.
C) investing for a multi-year period of time.
D) determining the APR of the investment.
Answer: B
2. When an investment pays only simple interest, this means:
A) the interest rate is lower than on comparable investments.
B) the future value of the investment will be low.
C) the earned interest is non taxable to the investor.
D) interest is earned only on
the original investment.
Answer: D
3. Assume the total expense for your current year in college equals
$20,000. Approximately how much would your parents have needed to invest 21
years ago in an account paying 8% compounded annually to cover this amount?
A) $ 952
B) $1,600
C) $1,728
D) $3,973
PV = FV where PV is the present value
(1 + i)n FV is the future amount
i is the interest rate
n is the period
PV = 20,000
(1 + 0.08)21
PV = 3,973
Answer: D
4. How much will accumulate in an account with an initial deposit of
$100, and which earns 10% interest compounded quarterly for three years?
A) $107.69
B) $133.10
C) $134.49
D) $313.84
100 = FV
(1 + 0.025)12
FV = 134.49
Answer: C
5. How much must be invested today in order to generate a five-year
annuity of $1,000 per year, with the first payment one year from today, at an
interest rate of 12%?
A) $3,604,78
B) $3,746.25
C) $4,037.35
D) $4,604.78
PVA = W x 1 - 1 where PVA is the present value
(1 + i)n W is the annuity amount
i i is the interest rate
n is the period
PVA = 1,000 x 1 - 1
(1 + 0.12)5
0.12
PVA = 3,604.78
Answer: A
51. If two
firms in the same line of business merge together, it is called __________
merger.
(A) horizontal
(B) vertical
(C) straight
(D) conglomerate
52. If two
firms at different stages of production merge together, it is called __________
merger.
(A) horizontal
(B) vertical
(C) straight
(D) conglomerate
53. If
two firms in unrelated line of business merge together, it is called __________
merger.
(A) horizontal
(B) vertical
(C) straight
(D)
conglomerate
54. The measure
for calculating how much two random variable change together is called
(A) variance
(B) covariance
(C) skewness
(D) kurtosis
55. The
normalized version of covariance is called
(A) regression
(B) correlation
(C) cross-section
(D) spread
Which
of the following is not one of the
three fundamental methods of firm valuation? a) Discounted Cash flow
b) Income or
earnings - where the firm is valued on some multiple of accounting income or
earnings.
c) Balance
sheet - where the firm is valued in terms of its assets.
d) Market Share
What is the
value of the firm usually based on?
a) The value of
debt and equity.
b)
The value of equity.
c) The value of
debt.
d) The value of
assets plus liabilities.
Which of the
following defines the market to book value?
a)
The ratio of stock market valuation divided by the
value of its NAV.
b) The ratio of
NAV value divided by stock market valuation.
c) The market
value of tangible assets divided by the book value of tangible assets.
d) The market
value of intangible assets divided by the book value of intangible assets.
Shareholders
wealth increases with the increase in ___
a) EPS
b) Market value
of the firm
c) Dividend
& market value of the firm
d) Market price
of the equity share
Promotion of
welfare of human by corporate is called as_______
a) Social
service
b) Philosophy
c) NGO work
d) Corporate philanthropy
Leasing of
machinery can be categorized as______
a) Fixed asset
b) Investment
decision
c) Financing
decision
d) Capital
budgeting decision
A mutually
exclusive decision means:
a) Accepting
of an alternative, leads to rejecting of other
b) Accepting of
both alternatives
c) Rejecting of
both alternatives
d) Both c &
d
Which of the
following has Net profit as basis for calculation
a) Net present
value
b) Average
rate of return
c) Internal
rate of return
d) Payback
period
Internal
rate of return is …
a) Rate at
which discounted cash inflow is more than discounted cash outflow
b) Rate at
which discounted cash inflow is less than discounted cash outflow
c) Rate at which discounted cash inflow
is equal to the discounted cash outflow
d) Either a or b
Corporate
wealth maximization is the value maximization for_____
a) Equity
shareholders
b) Stakeholders
c) Employees
d) Debt capital
owners
Book value
of assets includes
a) Fixed
assets, current asset
b) Fixed
assets, current asset, intangible asset
c) Fixed
assets, current asset, fictitious asset
d) Fixed
assets, current asset, intangible asset, fictitious asset
Listed
companies can be valued at
a) Book Value
b) Market
value
c) Salvage
value
d) Liquidation
value
Unlisted
company can be valued at
a) Net
asset Method
b) Market value
method
c) Both a &
b
d) None of the
above
Which of the
following valuation methods is based on “Going concern concept”
a) Market value
method
b) Book
value method
c) Liquidation
method
d) Salvage
value method
A company
has a profit attributable to ordinary shareholders of £100,000. The number of
ordinary shares of £1 in issue during the year was 300,000. The market value of
the company’s shares at the year end was £6.50. The price/earnings ratio for
this company is: a) 0.05 times
b) 0.33 times
c) 6.5 times
d)
19.5 times
What does
the price/earnings (PE) ratio measure?
a) The
multiple that the stock market places on a company’s earnings
b) The number
of times that dividends paid are covered by profits
c) The return
received by way of dividends as a percentage of current share price
d) The amount
of profits available to ordinary shareholders
What
does the price-to-earnings ratio (P/E) tell you?
|
a) |
How much each of a company's products sells for on average. |
|
b)
|
How
much investors are willing to pay per unit of a company's earnings. |
|
c) |
How much tax per unit investors are willing to pay. |
|
d) |
None of the above How is the P/E ratio calculated? |
|
a) |
Market value/quick ratio |
|
b) |
Earnings per share/market capitalization |
|
c)
|
Market
value per share/earnings per share |
d) None of the above
What
is the most important use of the P/E ratio for investors?
a)
It helps investors decide how much profit a
company is likely to make in future.
b) It helps
investors decide whether a company's shares are overpriced or underpriced.
c)
It helps investors decide on the most
appropriate risk to reward ratio.
d)
None of the above
What
does a high P/E ratio suggest?
a) A company
shares are currently overpriced.
b)
A company shares are currently underpriced.
c)
No relation
d)
None of the above
If
a company has a share price of $100 and its earnings per share averaged $2,
what is its P/E ratio?
a) 20
b) 50
c) 80
d) 70
If
a company's earnings per share is $20 and it has a share price of $600, what is
the P/E ratio?
a) 30
b) 40
c) 50
d) 20
Making gifts
of money, goods, or time to help non-profit organizations, groups or
individuals is:
a) Corporate
social marketing
b) Cause
marketing
c) Cause-related
marketing
d)
Corporate philanthropy
The term
_____ can be used in a broad sense to describe all the policies, procedures,
relationships, and systems in place to oversee the successful and legal
operation of the enterprise.
a) corporate governance
b) corporate
policy
c) corporate
oversight
d) corporate
strategy
|
A profitability index (PI) of .92
for a project means that __________. |
|
a) the project's costs (cash outlay) are (is) less
than the present value of the project's benefits |
|
b) the project's NPV is greater than zero |
|
c) the project's NPV is greater than 1 |
|
d) the project returns 92 cents in present value for
each current dollar invested (cost) |
The LMN Corporation is considering an investment that
will cost $80,000 and have a useful life of 4 years. During the first 2 years,
the net incremental after-tax cash flows are $25,000 per year and for the last
two years they are $20,000 per year. What is the payback period for this
investment?
|
a) 3.2 years. |
|
b) 3.5 years. |
|
c) 4.0 years. |
|
d) Cannot be determined from this information. |
Bulging Stomach Restaurants, Inc., has estimated that
a proposed project's 8-year net cash benefit will be $4,000 per year for years
1 through 8, with an additional terminal benefit of $8,000 at the end of the
eighth year. Assuming that these cash inflows satisfy exactly Bulging's required rate of return of 8 percent, the
project's initial cash outflow is closest to which of the following four
possible answers?
|
a) |
|
|
|
$27,309 |
|
b) |
|
|
|
$25,149 |
|
|
|
c) |
|
|
|
$14,851 |
|
d) |
|
|
|
$40,000 |
Which of the following statements is incorrect regarding a normal project?
a)
If the NPV of a project
is greater than 0, then its PI will exceed 1.
b)
If the IRR of a project
is 8%, its NPV, using a discount rate, k, greater than 8%, will be less than 0.
c) If the PI of a project equals 0, then the project's initial
cash outflow equals the PV of its cash flows.
d)
If the IRR of a project
is greater than the discount rate, k, then its PI will be greater than 1.
Assume that a firm has accurately calculated the net
cash flows relating to two mutually exclusive investment proposals. If the net
present value of both proposals exceed zero and the firm is not under the
constraint of capital rationing, then the firm should __________.
a)
calculate the IRRs of
these investments to be certain that the IRRs are greater than the cost of
capital
b)
compare the
profitability index of these investments to those of other possible investments
c)
calculate the payback
periods to make certain that the initial cash outlays can be recovered within a
appropriate period of time
d) accept the proposal that has the largest NPV since the goal
of the firm is to maximize shareholder wealth and, since the projects are
mutually exclusive, we can only take one
A project whose acceptance does not prevent or require the acceptance of one or more alternative
projects is referred to as __________.
a)
a mutually exclusive
project
b) an independent project
c)
a dependent project
d)
a contingent project
When operating under a single-period
capital-rationing constraint, you may first want to try selecting projects by
descending order of their __________ in order to give yourself the best chance
to select the mix of projects that adds most to firm value.
a) profitability index (PI)
b)
net present value (NPV)
c)
internal rate of return
(IRR)
d)
payback period (PBP)
Which of the following statements is correct
regarding the internal rate of return (IRR) method?
a)
Each project has a
unique internal rate of return.
b) As long as you are not dealing with mutually exclusive
projects, capital rationing, or unusual projects having multiple sign changes
in the cash-flow stream, the internal rate of return method can be used with
reasonable confidence.
c)
The internal rate of
return does not consider the time value of money.
d)
The internal rate of
return is rarely used by firms today because of the ease at which net present
value is calculated.
Which of the following is not a potential for a ranking problem between two mutually
exclusive projects?
a)
The projects have
unequal lives that differ by several years.
b)
The costs of the two
projects differ by nearly 30%.
c)
The two projects have
cash flow patterns that differ dramatically.
d) One of the mutually exclusive projects involves replacement
while the other involves expansion.
A project whose acceptance precludes the acceptance
of one or more alternative projects is referred to as __________.
|
a)
a mutually exclusive project. b)
an
independent project. c)
a dependent
project. d)
a contingent
project. Two mutually exclusive projects are being considered. Neither project
will be repeated again in the future after their current lives are complete.
There exists a potential problem though -- the expected life of the first
project is one year and the expected life of the second project is three
years. This has caused the NPV and IRR methods to suggest different project
preferences. What technique can be used to help make a better decision in
this scenario? |
a)
Rely on the NPV method and make your choice as it
will tell you which one is best.
b)
Use the common-life
technique to replicate the one-year project three times and recalculate the NPV
and IRR for the one-year project.
c)
Ignore the NPV
technique and simply choose the highest IRR since managers are concerned about
maximizing returns.
d)
In this situation, we
need to rely on the profitability index (PI) method and choose the one with the
highest PI.
High P/E
ratios tend to indicate that a company will _______
a) grow quickly
b) grow at the
same speed as the average company
c) grow slowly
d) not grow
_________ is
equal to (common shareholders' equity/common shares outstanding).
a) Book value per share
b) Liquidation
value per share
c) Market value
per share
d) Tobin's Q
The _______
is defined as the present value of all cash proceeds to the investor in the
stock.
a) dividend
payout ratio
b) intrinsic value
c) market
capitalization rate
d) plowback
ratio
Historically,
P/E ratios have tended to be _________.
a) higher when
inflation has been high
b) lower when inflation has been high
c) uncorrelated
with inflation rates but correlated with other macroeconomic variables
d) uncorrelated
with any macroeconomic variables including inflation rates
All of the
following influence capital budgeting cash flows EXCEPT:
a) Accelerated
depreciation
b) Salvage
value
c) Tax rate
changes
d)
Method of project financing used
A capital
investment is one that
a) Has
the prospect of long term benefit
b) Has the
prospect of short term benefit
c) Is only
undertaken by large corporations
d) Applies only
to investment in fixed assets
Companies may adopt an aggressive or a conservative
working capital policy. An aggressive policy means that a company
a)
holds high levels of
cash and inventories
b)
expects a lower level
of profitability
c)
has a low level of flexibility
d)
faces a low level of
risk
Which of the
following would be consistent with a more aggressive approach to financing
working capital?
a. Financing
short-term needs with short-term funds.
b. Financing
permanent inventory buildup with long-term debt.
c. Financing
seasonal needs with short-term funds.
d. Financing some long-term needs with short-term funds.
Which of the
following illustrates the use of a hedging (or matching) approach to financing?
a) Short – term
assets financed with long term liabilities
b) Permanent working capital financed with long-term
liabilities.
c) Short – term
assets financed with equity.
d) All assets
financed with a 50 percent equity, 50 percent long-term debt mixture.
Permanent
working capital
a. Varies with
seasonal needs.
b. Includes
fixed assets.
c. Is the amount of current assets required to meet a firm's
long-term minimum needs.
d. Includes
accounts payable.
Which of the following would not be financed from working capital?
a) Cash float
b) Accounts
receivable
c) Credit sales
d) A
new personal computer for the office
When
economic value added is used as the performance measure, value is only created
if the after-tax operating income exceeds
a) cost of investing capital
b) investment
c) working
capital
d) sales
Which of the
performance evaluation methods takes into consideration tax effects?
a) Economic value
added
b) Return on
sales
c) Residual
income
d) Return on
investment
Which of the
following best describes "Market Value Added"?
a) The value
added to the product the firm produces above and beyond the costs of the
inputs.
b) The
difference between the book value of equity and debt versus the market value of
the firm.
c) The difference between the market value of the firm and the
amount of contributed capital.
d) None of the
above accurately describes Market Value Added.
Market price per share of a firm having equity
capital of Rs. 100000 consisting of shares of Rs. 10 each, profit after tax of
Rs. 82000, & P/E ratio of 8 is
a) Rs. 65.70
b) Rs.10.25
c) Rs.65.60
d) Rs.1.025
Chapter 01
Introduction to Corporate
Finance
2. Which one of the following
terms is defined as the mixture of a firm's debt and equity financing?
A. working capital management
B. cash management
C. cost analysis
D. capital budgeting
E. capital structure
3. Which one of the following
is defined as a firm's short-term assets and its short-term liabilities?
A. working capital
B. debt
C. investment capital
D. net capital
E. capital structure
4. A business owned by a
solitary individual who has unlimited liability for its debt is called a:
A. corporation.
B. sole proprietorship.
C. general partnership.
D. limited partnership.
E. limited liability company.
5. A business formed by two or
more individuals who each have unlimited liability for all of the firm's
business debts is called a:
A. corporation.
B. sole proprietorship.
C. general partnership.
D. limited partnership.
E. limited liability company.
6. A business partner whose
potential financial loss in the partnership will not exceed his or her
investment in that partnership is called a:
A. generally partner.
B. sole proprietor.
C. limited partner.
D. corporate shareholder.
E. zero partner.
7. A
business created as a distinct legal entity and treated as a legal
"person" is called a:
A. corporation.
B. sole proprietorship.
C. general partnership.
D. limited partnership.
E. unlimited liability company.
8. Which
one of the following terms is defined as a conflict of interest between the
corporate shareholders and the corporate managers?
A. articles of incorporation
B. corporate breakdown
C. agency problem
D. bylaws
E. legal liability
9. A
stakeholder is:
A. a person who owns shares of stock.
B. any person who has voting rights based on stock ownership of a
corporation.
C. a person who initially founded a firm and currently has management control
over that firm.
D. a creditor to whom a firm currently owes money.
E. any person or entity other than a stockholder or creditor
who potentially has a claim on the cash flows of a firm.
10. Which
of the following questions are addressed by financial managers?
I. How should a product be marketed?
II. Should customers be given 30 or 45 days to pay for their credit purchases?
III. Should the firm borrow more money?
IV. Should the firm acquire new equipment?
A. I and IV only
B. II and III only
C. I, II, and III only
D. II, III, and IV only
E. I, II, III, and IV
11. Which one
of the following functions should be the responsibility of the controller
rather than the treasurer?
A. daily cash deposit
B. income tax returns
C. equipment purchase analysis
D. customer credit approval
E. payment to a vendor
12. The controller of a corporation
generally reports directly to the:
A. board of directors.
B. chairman of the board.
C. chief executive officer.
D. president.
E. vice president of finance.
13. Which one of the following
correctly defines the upward chain of command in a typical corporate
organizational structure?
A. The vice president of finance reports to the chairman of the board.
B. The chief executive officer reports to president.
C. The controller reports to the president.
D. The treasurer reports to the vice president of finance.
E. The chief operations officer reports to the vice president of
production.
14. Which one of the following is a
capital budgeting decision?
A. determining how many shares of stock to issue
B. deciding whether or not to purchase a new machine for the
production line
C. deciding how to refinance a debt issue that is maturing
D. determining how much inventory to keep on hand
E. determining how much money should be kept in the checking account
15. Which
of the following should a financial manager consider when analyzing a capital
budgeting project?
I. project start up costs
II. timing of all projected cash flows
III. dependability of future cash flows
IV. dollar amount of each projected cash flow
A. I and IV only
B. I, II, and IV only
C. I, II, and III only
D. II, III, and IV only
E. I, II, III, and IV
16. Which one of the following is a
capital structure decision?
A. determining which one of two projects to accept
B. determining how to allocate investment funds to multiple projects
C. determining the amount of funds needed to finance customer purchases of
a new product
D. determining how much debt should be assumed to fund a
project
E. determining how much inventory will be needed to support a project
17. The decision to issue additional
shares of stock is an example of which one of the following?
A. working capital management
B. net working capital decision
C. capital budgeting
D. controller's duties
E. capital structure decision
18. Which
of the following accounts are included in working capital management?
I. accounts payable
II. accounts receivable
III. fixed assets
IV. inventory
A. I and II only
B. I and III only
C. II and IV only
D. I, II, and IV only
E. II, III, and IV only
19. Which one of the following is a
working capital management decision?
A. determining the amount of equipment needed to complete a job
B. determining whether to pay cash for a purchase or use the
credit offered by the supplier
C. determining the amount of long-term debt required to complete a project
D. determining the number of shares of stock to issue to fund an
acquisition
E. determining whether or not a project should be accepted
20. Which one of the following
statements concerning a sole proprietorship is correct?
A. A sole proprietorship is designed to protect the personal assets of the
owner.
B. The profits of a sole proprietorship are subject to double taxation.
C. The owner of a sole proprietorship is personally
responsible for all of the company's debts.
D. There are very few sole proprietorships remaining in the U.S. today.
E. A sole proprietorship is structured the same as a limited liability
company.\
21. Which
one of the following statements concerning a sole proprietorship is
correct?
A. The life of a sole proprietorship is potentially unlimited.
B. A sole proprietor can generally raise large sums of capital quite
easily.
C. Transferring ownership of a sole proprietorship is easier than
transferring ownership of a corporation.
D. A sole proprietorship is taxed the same as a C corporation.
E. It is easy to create a sole proprietorship.
22. Which
of the following individuals have unlimited liability based on their ownership
interest?
I. general partner
II. sole proprietor
III. stockholder
IV. limited partner
A. II only
B. I and II only
C. II and IV only
D. I, II, and III only
E. I, II, and IV only
23. Which
one of the following best describes the primary advantage of being a limited
partner instead of a general partner?
A. tax-free income
B. active participation in the firm's activities
C. no potential financial loss
D. greater control over the business affairs of the partnership
E. maximum loss limited to the capital invested
24. A
general partner:
A. is solely responsible for all the partnership debts.
B. has no say over a firm's daily operations.
C. faces double taxation whereas a limited partner does not.
D. has a maximum loss equal to his or her equity investment.
E. receives a salary in lieu of a portion of the profits.
25. A
limited partnership:
A. has an unlimited life.
B. can opt to be taxed as a corporation.
C. terminates at the death of any limited partner.
D. has a greater ability to raise capital than a sole
proprietorship.
E. consists solely of limited partners.
26. Which
of the following apply to a partnership that consists solely of general
partners?
I. double taxation of partnership profits
II. limited partnership life
III. active involvement in the firm by all the partners
IV. unlimited personal liability for all partnership debts
A. II only
B. I and II only
C. II and III only
D. I, II, and IV only
E. II, III, and IV only
27. Which
of the following are advantages of the corporate form of business ownership?
I. limited liability for firm debt
II. double taxation
III. ability to raise capital
IV. unlimited firm life
A. I and II only
B. III and IV only
C. I, III, and IV only
D. II, III, and IV only
E. I, II, III, and IV
28. Which
one of the following statements is correct?
A. The majority of firms in the U.S. are structured as corporations.
B. Corporate profits are taxable income to the shareholders when earned.
C. Corporations can raise large amounts of capital generally
easier than partnerships can.
D. Stockholders face no potential losses related to their corporate
investment.
E. Corporate shareholders elect the corporate president.
29. Which
one of the following statements is correct?
A. A general partnership is legally the same as a corporation.
B. Both sole proprietorship and partnership income is taxed
as individual income.
C. Partnerships are the most complicated type of business to form.
D. All business organizations have bylaws.
E. Only firms organized as sole proprietorships have limited lives.
30. The
articles of incorporation:
I. describe the purpose of the firm.
II. are amended periodically.
III. set forth the number of shares of stock that can be issued.
IV. detail the method that will be used to elect corporate directors.
A. I and III only
B. I and IV only
C. II and III only
D. II and IV only
E. I, III, and IV only
31. Corporate
bylaws:
A. must be amended should a firm decide to increase the number of shares
authorized.
B. cannot be amended once adopted.
C. define the name by which the firm will operate.
D. describe the intended life and purpose of the organization.
E. determine how a corporation regulates itself.
32. Which
one of the following characteristics applies to a limited liability
company?
A. available only to firms having a single owner
B. limited liability for limited partners only
C. taxed similar to a partnership
D. taxed similar to a C corporation
E. all income generated is totally tax-free
33. Which
one of the following business types is best suited to raising large amounts of
capital?
A. sole proprietorship
B. limited liability company
C. corporation
D. general partnership
E. limited partnership
34. Which
type of business organization has all the respective rights and privileges of a
legal person?
A. sole proprietorship
B. general partnership
C. limited partnership
D. corporation
E. limited liability company
35. Sam,
Alfredo, and Juan want to start a small U.S. business. Juan will fund the
venture but wants to limit his liability to his initial investment and has no
interest in the daily operations. Sam will contribute his full efforts on a
daily basis but has limited funds to invest in the business. Alfredo will be
involved as an active consultant and manager and will also contribute funds.
Sam and Alfredo are willing to accept liability for the firm's debts as they
feel they have nothing to lose by doing so. All three individuals will share in
the firm's profits and wish to keep the initial organizational costs of the
business to a minimum. Which form of business entity should these individuals
adopt?
A. sole proprietorship
B. joint stock company
C. limited partnership
D. general partnership
E. corporation
36. Sally
and Alicia currently are general partners in a business located in Atlanta,
Georgia. They are content with their current tax situation but are both very
uncomfortable with the unlimited liability to which they are each subjected.
Which form of business entity should they consider to replace their general
partnership assuming they wish to remain the only two owners of their business?
Whichever organization they select, they wish to be treated equally.
A. sole proprietorship
B. joint stock company
C. limited partnership
D. limited liability company
E. corporation
37. Which
one of the following best states the primary goal of financial management?
A. maximize current dividends per share
B. maximize the current value per share
C. increase cash flow and avoid financial distress
D. minimize operational costs while maximizing firm efficiency
E. maintain steady growth while increasing current profits
38. Which
one of the following best illustrates that the management of a firm is adhering
to the goal of financial management?
A. increase in the amount of the quarterly dividend
B. decrease in the per unit production costs
C. increase in the number of shares outstanding
D. decrease in the net working capital
E. increase in the market value
per share
39. Why
should financial managers strive to maximize the current value per share of the
existing stock?
A. doing so guarantees the company will grow in size at the maximum
possible rate
B. doing so increases employee salaries
C. because they have been hired to represent the interests
of the current shareholders
D. because this will increase the current dividends per share
E. because managers often receive shares of stock as part of their
compensation
40. Decisions
made by financial managers should primarily focus on increasing which one of
the following?
A. size of the firm
B. growth rate of the firm
C. gross profit per unit produced
D. market value per share of outstanding stock
E. total sales
41. The
Sarbanes-Oxley Act of 2002 is a governmental response to:
A. decreasing corporate profits.
B. the terrorists attacks on 9/11/2001.
C. a weakening economy.
D. deregulation of the stock exchanges.
E. management greed and abuses.
42. Which
one of the following is an unintended result of the Sarbanes-Oxley Act?
A. more detailed and accurate financial reporting
B. increased management awareness of internal controls
C. corporations delisting from major exchanges
D. increased responsibility for corporate officers
E. identification of internal control weaknesses
43. A
firm which opts to "go dark" in response to the Sarbanes-Oxley
Act:
A. must continue to provide audited financial statements to the public.
B. must continue to provide a detailed list of internal control
deficiencies on an annual basis.
C. can provide less information to its shareholders than it
did prior to "going dark".
D. can continue publicly trading its stock but only on the exchange on
which it was previously listed.
E. ceases to exist.
44. Which
of the following are results related to the enactment of the Sarbanes-Oxley Act
of 2002?
I. increased foreign stock exchange listings of U.S. stocks
II. decreased compliance costs
III. increased privatization of public corporations
IV. increased public disclosure by all corporations
A. I and III only
B. II and IV only
C. I, II, and III only
D. II, III, and IV only
E. I, III, and IV only
45. Which
one of the following actions by a financial manager is most apt to create an
agency problem?
A. refusing to borrow money when doing so will create losses for the firm
B. refusing to lower selling prices if doing so will reduce the net
profits
C. refusing to expand the company if doing so will lower the value of the
equity
D. agreeing to pay bonuses based on the market value of the company stock
rather than on the firm's level of sales
E. increasing current profits when doing so lowers the value
of the firm's equity
46. Which
of the following help convince managers to work in the best interest of the
stockholders? Assume there are no golden parachutes.
I. compensation based on the value of the stock
II. stock option plans
III. threat of a company takeover
IV. threat of a proxy fight
A. I and II only
B. III and IV only
C. I, II, and III only
D. I, III, and IV only
E. I, II, III, and IV
47. Which
form of business structure is most associated with agency problems?
A. sole proprietorship
B. general partnership
C. limited partnership
D. corporation
E. limited liability company
48. Which
one of the following is an agency cost?
A. accepting an investment opportunity that will add value to the firm
B. increasing the quarterly dividend
C. investing in a new project that creates firm value
D. hiring outside accountants to audit the company's
financial statements
E. closing a division of the firm that is operating at a loss
49. Which
one of the following is least likely to be an agency problem?
A. increasing the size of a firm
B. concentrating on maximizing current profits
C. closing a division with net losses
D. increasing the market value of the firm's shares
E. obtaining a patent for a new product
50. Which
one of the following is a means by which shareholders can replace company
management?
A. stock options
B. promotion
C. Sarbanes-Oxley Act
D. agency play
E. proxy fight
51. Which
one of the following grants an individual the right to vote on behalf of a
shareholder?
A. proxy
B. by-laws
C. indenture agreement
D. stock option
E. stock audit
52. Which
one of the following parties has ultimate control of a corporation?
A. chairman of the Board
B. board of directors
C. chief executive officer
D. chief operating office
E. shareholders
53. Which
of the following parties are considered stakeholders of a firm?
I. employee
II. long-term creditor
III. government
IV. common stockholder
A. I only
B. IV only
C. I and III only
D. II and IV only
E. II, III, and IV only
54. Which
of the following represent cash outflows from a corporation?
I. issuance of securities
II. payment of dividends
III. new loan proceeds
IV. payment of government taxes
A. I and III only
B. II and IV only
C. I and IV only
D. I, II, and IV only
E. II, III, and IV only
55. Which
of the following are cash flows from a corporation into the financial markets?
I. repayment of long-term debt
II. payment of government taxes
III. payment of loan interest
IV. payment of quarterly dividend
A. I and II only
B. I and III only
C. II and IV only
D. I, III, and IV only
E. I, II, and III only
56. Which
one of the following is a primary market transaction?
A. sale of currently outstanding stock by a dealer to an individual
investor
B. sale of a new share of stock to an individual investor
C. stock ownership transfer from one shareholder to another shareholder
D. gift of stock from one shareholder to another shareholder
E. gift of stock by a shareholder to a family member
57. Shareholder
A sold 500 shares of ABC stock on the New York Stock Exchange. This
transaction:
A. took place in the primary market.
B. occurred in a dealer market.
C. was facilitated in the secondary market.
D. involved a proxy.
E. was a private placement.
58. Public
offerings of debt and equity must be registered with which one of the
following?
A. New York Board of Governors
B. Federal Reserve
C. NYSE Registration Office
D. Securities and Exchange Commission
E. Market Dealers Exchange
59. Which
one of the following statements is generally correct?
A. Private placements must be registered with the SEC.
B. All secondary markets are auction markets.
C. Dealer markets have a physical trading floor.
D. Auction markets match buy and sell orders.
E. Dealers arrange trades but never own the securities traded.
60. Which
one of the following statements concerning stock exchanges is correct?
A. NASDAQ is a broker market.
B. The NYSE is a dealer market.
C. The exchange with the strictest listing requirements is NASDAQ.
D. Some large companies are listed on NASDAQ.
E. Most debt securities are traded on the NYSE.
61. Shareholder
A sold shares of Maplewood Cabinets stock to Shareholder B. The stock is listed
on the NYSE. This trade occurred in which one of the following?
A. primary, dealer market
B. secondary, dealer market
C. primary, auction market
D. secondary, auction market
E. secondary, OTC market
62. Which
one of the following statements is correct concerning the NYSE?
A. The publicly traded shares of a NYSE-listed firm must be worth at least
$250 million.
B. The NYSE is the largest dealer market for listed securities in the
United States.
C. The listing requirements for the NYSE are more stringent
than those of NASDAQ.
D. Any corporation desiring to be listed on the NYSE can do so for a fee.
E. The NYSE is an OTC market functioning as both a primary and a secondary
market.
63. Which
one of the following statements concerning NASDAQ is FALSE?
A. It is easier to be listed on NASDAQ than on the NYSE.
B. NASDAQ is an electronic market.
C. NASDAQ is a dealer market.
D. NASDAQ is an OTC market.
E. NASDAQ is an auction market.
CORPORATE FINANCE
1. What is the Objective of Financial
Management?
I. Profit Maximization
II. Wealth Maximization
2. What are the decisions of a Financial
Manager?
I.
Financing Decision
II.
Investing Decision
III.
Dividend Decision
IV. All of the Above
3.
Business Risk can be measured by which one of
the followings;
I.
Combined Leverage
II.
Financial Leverage
III.
Operating Leverage
4.
Financial Risk can be measured by which of the
following;
I. Financial Leverage
II.
Operating Leverage
III.
Combined Leverage
5. DOL ( Degree of Operating Leverage) can
be measured by ; I. Percentage
change in EPS/ Percentage Change in EBIT
II. Percentage Change in EBIT/
Percentage Change in Sales
III. Percentage Change in EPS/ Percentage
Change in Sales
6. A
Company having Degree of Financial Leverage of 7times. Its EBIT rose by 10%.
What will be its impact on its EPS?
I.
EPS will fall by 10%
II.
EPS won’t change
III. EPS will rise by 70%
7. A Company having DOL 4 times & DFL
having 2 times. What is its DCL?
I.
2 times
II.
4 times
III. 8 times
8. Mutually Exclusive Projects are also
known as ;
I. Independent Projects
II. Dependent Projects
III. Simultaneous Projects
9. A
project having cash flow pattern of single Cash Outflow followed by series of
cash inflows is called;
I.
Non Conditional Cash Flow
II.
Conditional Cash Flow
III. Conventional Cash Flow
10. The rate at which
future cash flows are discounted for calculation of Present Value is called as;
I.
Bank Rate
II.
Internal
Rate of Return
III. Discounting Rate
11. Equal annual cash
flows are also known as ;
I.
Discounted Cash flow
II.
Future Cash flow
III. Annuity
12. A
project having an initial investment of Rs.2, 00,000 and its generating Rs.20,
000 cash flow per year. What is its payback period;
I. 5 years
II. 10 years
III. Cannot be calculated
13. A
project is generating an average annual profit after tax of Rs.10, 000 per
year. Its average initial investment is Rs.2, 00,000. What is its ARR?
I.
15%
II.
10%
III. 5%
14. Net Present Value
refers to;
I. Ratio between Present Value of
Cash Inflows and Present Value of cash Inflows
II. Difference between Present Value of Cash Inflows and
Present Value of cash Inflows
III. Multiplication between Present Value of Cash Inflows and
Present Value of cash Inflows
15. A firm’s cutoff NPV
is Rs.10, 000. They are considering a project, whose calculated NPV
comes to (+) Rs.12, 000. What will be your suggestion regarding the project in
consideration;
I. Reject
II. Accept
III. Indifference
16. The
present value of cash inflows of a project is Rs.40, 000 and the present value
of cash outflow is Rs.20, 000. What will be its Profitability Index;
I.
(+)20,000
II.
(-) 20,000
III. 2
17. The Internal Rate of
Return (IRR) is that rate at which;
I. NPV becoming Positive
II. NPV becoming Zero
III. NPV becoming Negative
18.
When there will a conflict among NPV and IRR method of Capital
Budgeting, which method’s suggestion should be followed;
I.
PB Method’s Decision
II.
NPV Method’s
Decision
III.
IRR Method’s Decision
19.
A company is following NPV method for proposal
acceptance. Its Present Value of Cash Outflows is Rs.30, 000 and its NPV comes
to (+) 15,000. What is the Present Value of cash Inflows;
I.
15,000
II. 45,000
III. 7,500
20. A project is generating and equal annual cash inflow of Rs.20,
00,000 for 10 years. Its cost of
Capital is 12%. At
12% p.a. the present value of the rupee received annually for 10 years is
Rs.5.650. Its initial investment
is Rs.110, 00,000. How much will be its NPV;
I.
Rs,1,13,00,000
II.
Rs.1,10,00,000
III. Rs.3,00,000
21. The agreement among
Bond Holders , Issuer and Trustee is called as ;
I. Prospectus
II. Indenture
III. Budget Manual
22. The relationship
between Bond Price and Yield is;
I.
Direct
II.
Linear
III. Inverse
23. A
company had issued Rs.1, 000, 12% Bond 10 years ago. Currently the bond is
trading at 15% yield basis. What is the market value of the Bond;
I. Rs.800
II.
Rs.600
III.
Rs.1,000
24. The
shares of a company are selling at Rs.20 per share. The firm had paid Rs.2 per
share dividend last year. The estimated growth of the company is 5% per year.
What is its cost of equity capital;
I.
5%
II.
12.5%
III. 15.5%
25. What
is the estimated market price of the equity of the above company if the
anticipated growth rate of the firm is 8%?
I. Rs.30
II. Rs.28.80
III. Rs.16.80
26. A
company had issued Rs.1, 000, 16% Bond 10 years ago. Currently the bond is
trading at 14% yield basis. Would you buy the bond at Rs.1, 200?
I. Yes
II. No
III. Cannot Decide
27. A
company having Current Assets of Rs.95, 000 and its Net Working Capital is
75,000. How much will it be as Current Liabilities?
I.
1,70,000
II.
75,000
III. 20,000
28. ABC
Ltd is having a Net Working Capital of Rs.20, 000. Total Current Assets is
Rs.1, 00,000. Total Current Liabilities are Rs.80, 000. Calculate its Gross Working Capital:
I. 20,000
II. 1,00,000
III. 80,000
29. How amount of working
capital need is related to Growth of the firm;
I. Positively Correlated
II.
Negatively Correlated
III.
No Relation
30. Overdraft refers to;
I. Withdrawing within cash credit limit
II. Withdrawing beyond cash credit limit
III. Investment in Call Money Market
31. Decentralized
collection centers will;
I. Accelerate the cash inflows
II.
Decelerate the cash inflows
III.
No effect on cash collection
32. Lethargy refers to;
I. Delay in postal for receiving
payments
II. Delaying in processing within the organization
III. Delay in collection of funds by the
banker
33. If the company is
going to relax the credit terms, which factor will be negatively affected;
I.
Sales Volume
II.
Profit
III. Investments on Receivables
34. A
company is fixed a Credit Term as 2/10 Net 30. What is its discounting period
for early payment?
I. 10 days
II.
30 days
III.
2 days
35. Which
method / technique usually applied for inventory management of spare parts in
the production department?
I. ABC Analysis
II. VED Analysis
III. None of the above
36. Annual Requirement of raw materials of a company is 3, 00,000
units. Cost per order placed is
Rs.20. Purchase price per unit of
item is Rs.3. carrying cost is 25%. Calculate its EOQ;
I. 300 units
II. 4,000 units
III. 400 units
37. Refer to the question No -36, How many orders should the company
be placing if it will follow
EOQ method of Inventory
management;
I. 75 orders
II.
7 orders
III.
20 orders
38. The Time duration
between placing an order for stock and receiving it is known as ;
I. Stock Period
II. Lead period
III. Grace Period
39. The relationship
between Dividend Payment and Retention ratio
is;
I. Positive
II. Inverse
III. No Relation
40. The best dividend payout ratio of a Growing Firm as per
Walter’s Model of Dividend is;
I. 100% Dividend Payout Ratio
II. 0% Dividend Payout Ratio
III. 50% Dividend Payout Ratio
41. The worst dividend payout ratio of a Declining Firm as per Gordon’s
Model is:
I. 0% Dividend Payout Ratio
II.
100% Dividend Payout Ratio
III.
50% Dividend payout Ratio
42.
Which statement is true according to MM
Hypothesis of Dividend Theory; I. Payment of dividend has no effect on the valuation of the firm
II.
Payment of dividend has positive impact on the
valuation of the firm
III.
Payment of dividend has negative impact of the
valuation of the firm
43.
A closely held plastic company having an
internal rate of return of 20%, Cost of equity capital of 10%, Earning per
share is Rs.10. If this company decides not to pay any dividend in the current
year, what will be its market value per share?
I. Rs.100
II. Rs.200
III. Rs.150
44. A
Firm having Price-Earning Ration of 12.5, Number of share holders 20000 @
Rs.100 each. Its total earning is Rs. 2, 00,000 in the current year and
dividend paid is Rs.1, 50,000. What will be its value of share as per Walter’s Model;
I.
Rs.140.60
II.
Rs.161.34
III. Rs. 132.81
45. An
engineering company has a cost of equity capital of 15%. Its current market
price of the stock is Rs.30.
It’s planning to give Rs.3 per share as dividend in the next year. What will be
the stock’s price after 1 year if he holds that stock till end of the
year?
I. Rs.31
II. Rs.31.50
III. Rs.34.50
46. An
engineering company has a cost of equity capital of 15%. Its current market
price of the stock is Rs.30.
It’s planning to give NIL dividends in the next year. What will be the stock’s
price after 1 year if he holds that stock till end of the year?
I. Rs.34.50
II.
Rs.30
III.
Rs.31.40
47.
Capital Structure refers to; I. Long Term
sources of funds
II.
Short Term sources of funds
III.
Both of the above
48.
Net Income Approach (NI) of Capital Structure is
propounded by;
I. Durand David
II.
Moddigliani
III.
Willium Boumol
49. According to Net Operating Income(NOI) Approach of Capital Structure , with the
increase in
Debt Equity Ratio ;
I.
Overall Cost of Capital will rise
II.
Cost of Debt will rise
III. Cost of equity will rise
50. Moddigliani and
Miller explained the irrelevance of capital structure by applying:
I. Hedging Concept
II. Arbitrage Concept
III. Speculative Concept
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