3/15/2020 Financial Management Quiz on 15.03.

z on 15.03.2020 at 11:00 to 11:30 hrs ( Quiz will Activated at 11:00 am and will Close at 11:30 am )

Financial Management Quiz on

15.03.2020 at 11:00 to 11:30 hrs ( Quiz will
Activated at 11:00 am and will Close at
11:30 am )
Total points 19/20

Financial Management Quiz on 15.03.2020 at 11:00 to 11:30 hrs ( Quiz will Activated at
11:00 am and will Close at 11:30 am )

The respondent's email address (epgpx02.069@iimrohtak.ac.in) was recorded on

submission of this form.

1. Shareholders of a corporation may be, among others: I) individuals; II) 1/1

pension funds; III) insurance companies

A. I only

B. I and II only

C. II only

D. I, II, and III

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3/15/2020 Financial Management Quiz on 15.03.2020 at 11:00 to 11:30 hrs ( Quiz will Activated at 11:00 am and will Close at 11:30 am )

2. Generally, a corporation is owned by its:I) managers; II) board of 1/1

directors; III) shareholders

A. I only

B. II and III

C. I, II, and III

D. III only

3. Which of the following is an important function of financial markets?I) 1/1

providing financing; II) providing liquidity; III) reducing risk; IV) providing
information

A. I, II, III, and IV

B. I and II only

C. I only

D. IV only

4. The sale of financial assets by a corporation is also referred to as the: 1/1

A. capital budgeting decision.

B. CFO decision.

C. financing decision.

D. investment decision.

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5. The ultimate financial goal of a corporation is to: 1/1

A. minimize stockholder risk.

B. maximize value of the corporation to the stockholders.

C. maximize profit.

D. increase size of the firm

6. Mr. Dell has $100 income this year and zero income next year. The 1/1
market interest rate is 10% per year. Mr. Dell also has an investment
opportunity—having the same risk as the market in which he can invest
$50 this year and receive $80 next year. Suppose Mr. Dell consumes $50
this year and invests in the project. What is the NPV of the investment
opportunity?

A. $0

B. $5

C. $22.73

D. none of the options

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7. Which of the following investment rules does NOT use the time value 1/1
of money concept?

A. Net present value

B. Internal rate of return

C. The payback period

D. Profitability index

8. You are given a job to make a decision on project X, which is 1/1

composed of three independent projects A, B, and C that have NPVs of +
$70, -$40 and + $100, respectively. How would you go about making the
decision about whether to accept or reject the project?

A. Accept project X as it has a positive NPV.

B. Reject project X.

C. Break up the project into its components: accept A and C, but reject B.

D. Break up the project into its components: accept C.

9. Given the following cash flows for project A: C0 = -1,000, C1 = +600, 1/1
C2 = +400, and C3 = +1,500, calculate the payback period.

A. one year

B. two years

C. three years

D. cannot be determined

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10. Given the following cash flows for Project M: C0 = -1,000, C1 = +200, 1/1
C2 = +700, C3 = +698, calculate the IRR for the project.

A. 23%

B. 21%

C. 19%

D. 17%

11. If the sign of the cash flows for a project changes two times, then the 1/1
project likely has:

A. one IRR.

B. two IRRs.

C. three IRRs.

D. four IRRs.

12. One should consider net working capital (NWC) in project cash flows 1/1
because:

A. typically, firms must invest cash in short-term assets to produce finished

goods.

B. NWC represents sunk costs.

C. firms need positive NPV projects for investment.

D. inclusion of NWC typically increases calculated NPV.

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13. If the nominal interest rate is 7.5% and the inflation rate is 4.0%, what 1/1
is the real interest rate?

A. 4.0%

B. 9.5%

C. 3.4%

D. 11.5%

14. The real interest rate is 3.0% and the inflation rate is 5.0%. What is the 1/1
nominal interest rate?

A. 3.00%

B. 5.00%

C. 8.15%

D. 2.00%

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3/15/2020 Financial Management Quiz on 15.03.2020 at 11:00 to 11:30 hrs ( Quiz will Activated at 11:00 am and will Close at 11:30 am )

15. Given the following data for Project M: 1/1

A. $25.85.

B. $17.77.

C. $22.65.

D. $35.00.

16. If depreciation is $600,000 and the marginal tax rate is 35%, then the 0/1
tax shield due to depreciation is:

A. $210,000.

B. $600,000.

C. $390,000.

D. cannot be determined from the information given.

Correct answer

B. $600,000.

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17. Stock M and Stock N have had the following returns for the past three 1/1
years: -12%, 10%, 32%; and 15%, 6%, 24%, respectively. Calculate the
covariance between the two securities.

A. -99

B. +99

C. +250

D. -250

18. Stock X has a standard deviation of return of 10%. Stock Y has a 1/1
standard deviation of return of 20%. The correlation coefficient between
the two stocks is 0.5. If you invest 60% of your funds in stock X and 40%
in stock Y, what is the standard deviation of your portfolio?

A. 10.3%

B. 21.0%

C. 12.2%

D. 14.8%

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19. The M&M Company is financed by $10 million in debt (market value) 1/1
and $40 million in equity (market value). The cost of debt is 10% and the
cost of equity is 20%. Calculate the weighted average cost of capital
assuming no taxes.

A. 18%

B. 20%

C. 10%

D. 12%

20. Modigliani and Miller's Proposition I states that: 1/1

A. the market value of any firm is independent of its capital structure

B. the market value of a firm's debt is independent of its capital structure

C. the market value of a firm's common stock is independent of its capital structure

D. none of the options

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