MGT201 Allin One. Wesco eel el nec ot Steak ow can you Hint company-specifc sks? (em goverment and corporate debt eects? > Invest in that company’s bonds > Money market, > Invest ima variety of stocks > Capt mae > Lavat secures that do well ia a recension > Primary racer > Envatnvecuntis that do well. boom, > Secondary macket ‘Why market and masher sum Duc? ‘Which ofthe following would be dedoctble san expense on the > Becouse of politcal ter coxporations income statacat? > Because of social feta 1 Interest paid om outstanding bond > Because of socic-plialfxtons > Cash dividends pid on out in tk > Become of macro systematic factors 1» Cash dividends pid on ttanding prefered stock! “Tae we of personal boroming to change the overs amount of financial > Allof the siveniions leverage wo which the individ is enpoed i called Peper en es > Dividend recapture {hese sime asthe mate. > Final lveraze > Money nadir > Private debr placement > Capital marker > Homemade leverage > Primary market ‘Which of the following best describes the statement: "The value ofan ane is Secondary maker preserved reentles ofthe amie ofthe claims genset”? Febioa Fasm Supplies, lc. has on 8 escent feu on total asses of | > Law’ of dmmnshing marginal eons ‘Whar ill happen the expected ret on stock with aber of 15 anda stock increases over what it would have been without the acquisition. nace premium of ef the Tress bl el nerenss fromm 39610 ‘Which of the folowing tennis sed when the fm cn independently cose oe consuerale sss with avery limited acon of a3" 1 The expected return will nereaze by 2.0% > Jou veanes The expected ream wil remain unchanged > Leveraged buyout (LEO) 1 The expected rerum wil areas by 10% » Spinoff > Tac oxpectd run will sateane by 3086> Consolidation ‘Which of the following would NOT be included in seventy caring cost? > Insurance expense fr te saveaoey > Opportnsty cost of copa ar ventory seetment > Cost of inventory > Cost of self space ‘What would you expect to happen tothe pice of share of stock o the dat oes evsividend” 1 Theprice should increase bythe amount othe dividend > The price should decrease by the amount ofthe dividend 1 Tao price shuld dewrease by one half the amount of the didend 1 The price shuld remain constant ‘Which of the following isthe suggestion of Tradeof theory of capital 1 Firms shoulda leverage whenever ees rte er ow >» Firms with higher operating risk should we les debt 1 Firms should use 50% det and 50% equety >> Fim should use debt overcome high ar values of stock Wha the baie purpose of financial management? >> Finding the best epportunites forthe wse of finance > Mainraining the books of acount ofthe czanizaicn > Hoping manager in managing the employees » Assessing the nate of employees and motivating them ‘Yn line” ea agen n Ammenca ich perfoms which ofthe flowing ‘fection? 1 Caleultes the NPVs > Calculates the Cmelation coefficients > Cacvies the Anmones > Calculates the stock Betas EaNPV (Net Present Value) eaulaions, which of te following i sed? 1 Bscepie nte of eum > Required rate of return Both expected at of reun and Required cae of erurn None of th given options Ina marker where the ML (Security Maker Line) has seep slope, most of theiavesor a Risk over » Riskaverse > Gatien > None ofthe ven options fam ase ha steeper SME (Gecuty met ins) han enter ast A ‘ohich ofthe fllowine stements TRUE? D> ese is more ry than aserB > Asset Bis more risky tham asset A > Auset iva ey ab Asset A > None ofthe even opens ‘Which ofthe following shows ALL possible sk-etum combinations of ll stocks na portfolio, whether these ae efit o nt? Secuity mate Ene » Capatal make ine > Pusch seh > Allo the given options > Weight or Fraction of Total Capital value raised fro: bonds Weight or Fraction of Total Capital vale rived fom preferred stocle Wht er Faction of Total Capital vale ised fom reained earings ‘The dee on nich the firm's ero ave a tenet abo the ssonouncement of dividends nom 2 > Declaration Date > Holder of cecond Date > ExDaidend Date » Pssment Date ‘You ov 150 shares of ABC Company and it offers you the stock pis 2 1 How many additonal stares wil you receive ater ck sli? 109 > 150 » 209 > 300 ‘Te decssons reading working capital managemet of fem ace minty consemed mate which ofthe following? > Cuzeu assets & onsen hablities of balance sheet > Comrent net & crn! ibis of balance shot >» Fined assets & current lnbilties of balance sheet > Face ases& longterm Habis of bance sheet ABC Company wants o use hedgsg apposch to Fasncin ‘he Bem us his apprsch? 1 Finance temporary current assts with long torm Kabir > Finance short em eects vat equity > Finance pormancatvsking capt with ang tam abies Finance ll anets nance with» mixture of 0% equity and SOM lng tem ast Which ofthe following is tue regatdig ancl leverage? Whenaver ef! equy sprouts faster hans bt, Snancal leverage increases > Investors can undo the effects ofthe firm's capital tructre by menage leverage D> Increasing Enancil leverage will always inteae the EPS for sockbolders > The level of financial leverage thar produces the minim fm value athe mou beneficial ro woskilders Suppose tha there sno personal or corporate income tad that the Sls WAC isnot affected by capital truce, then which of the llowin A firm's cost of equity depends onthe firm's business and financial risks D> The value ofthe fir is dependent on its capital stretare The cost of equay creases asthe fumis leverage decreases > The geste he Saancl leverage, the mote Valuable the Sem Which of the folowing is NOT a source of sponranecu financing” Finds credits > Short erm loans > Accel tee > Wages payable Which of the following statements depicts the trade-of theory in «beter way? D irmates a uadsoe bervoen the cov and beneiaof deb Gnancing et How esa According o Tradtonlist Theory, when 2 100% Equity Firm takes on mare It states the tradeoff between the det financing and equity financing ‘aod more debe hich of the fllowone phetonenon is observed? 1m Shae Price ft fils, then acon mise end Sally ss 1 Share Pree fist rises then each minimum snd filly lls > Share Pic first rises, then reaches masinnems and finally falls > None ofthe aiea optcas ‘Which ofthe fllowieg fosulaprevnt the eld to mass? 1 Teen yield + Maker pice 1 Capaal gun yield ~ Book vue > Interest ied + Capital ann ie > Mader pice ~ Capital gs eld Inthe WACC equation x nur Kor oP yrpeesnts which ofthe ‘llomine? > Weight or Faction of Total Capital valu tained fom common stock 1» Therese radeotPbenveen ase an ibis ofthe firm > There sade? benvecn revenues end expenses ofthe fm Valu ofthe firm cane calcuted withthe lp of hich ofthe fllowing Sala? > Price of sharex No.of shares oustanding > Price ofa share x debt equity > Price ofa share No. fares outsoding > Price ofa share x caning afer equity Company has to purchase anther compary. Hove do Company A pay for buying the cher company? Inca > In Shares > Bask Borowing> Allof the given options ‘Which ofthe flowing mathematica expressions dapics deste? > set > 516 > 51-5 > None ofthe given options “What happens tothe otal nk when leverage increases i igh ate? 1 Total itkincreases wit dw sate than he Ivers Tora isincreases with decreasing ate > Tora le remains he se > Total risk increases faster cham the leverage From hich ofthe followings. he stability ofthe fm canbe ued? 1 Financial leverage > Weighted-average cost of apt > Capital structure > Business le ‘You bave 25 Indian Rupees and you wast exchange these Indian Rupees R00 > Res00 » Rsl.000 > Ri2S00 (Companies a individuals runing diferent types of businesses have ro ‘make he choices of the asset according to which ofthe fllowng? Lifespanof the preet, > Validity ofthe poet, > Costa the capital > Return on arse th advantage ofa ange lie ofthe ass? > Cash los fom the set becomes non predictable > Cash flows from the asset becomes more predictable > Cash flows frm the astt becomes sore predictable > Cast cutons Sim the ust becomes mere predictable Consider to bonds, and B. Bot bonds preset are selling at her par ‘ae of Rs. 1000. Each pays srerestof Rs 120 anally. Bond A wall, Wi ‘with Pakistan Rupees. You 20 toa money changer andhe els you the selling mature in years while bond B will mare n 6 years. I-he viel Yo marty sate of Indian Rupees 19041 PKR. Thevate 1 $08] PAR sc efod as > Buse > Forsard ate > rome ate > sskrate ‘The vale at which bayer an aller are willing to uy and ell any sete a > Ligoidanon valve » Book value > sine value > Market val "Do not cope apples with ranges” ithe concept it: > Discounting and Net preset value > Rik © return Iesoance management > Time value of money ‘Which ofthe following statement best describes capital budgeting? Irs tool shich sed ro ealoate the projects and fined asses ofthe company > A teclaique vied wo assas the working capital regret on there bonds change om 1% 0 10 > Bosh bond il neess in value, bar bond A wil increas noe than bond >> Both bonds wll increas in value, br bond B wil increase more than oad A > Bott bonds wil ecene in value, but tond A will decrease more han bond > Both bond will decrease in valve, but bond H wil decrease more than bond A, (Given nochange in reguzed rete the price a tock hove dividend i constant il > Remain unchanged > Decrease over tine at arate afte > arene overtime sara of 6 > Decrease overtime at fate equal tthe dividend growth rte For sist fra, PE ratios and ssh, Wil be divecty related > Will have an inverse relationship > Will bewnrelnes > Wil bot incense as indation increases > Iva help the management to decide whuthr the iw venture should Which of the llewiagstutemaat about prtokostausicss CORRECT? Detakenup or ct > Allof the given options are correct J Pakistan which ofthe folowing assigned to bond eating and risk? >De > Moody's > Standard & poor » PacRa a Goxdoa' fea (¢-g=DIVL/P + 8) yi considered as, > Dividend sie, operating expenses > Dosdead seld, operauay sacome 1 Dividend itd capital oss > Dividend yield, capital grin ‘What isthe long-run objective of financial management? > Maceo caags pr share > Maximize the value ofthe firm's common stock. » Maximize ers on inestnent > Niaeamize marker share ‘Which ofthe following sateen in geural) is court? > A low sosrables turnovers desaable > The loner the total debt-to-equity ratio, the lower the financial siskfora firm 1 An increase net profit aren with no change in sles resets sean svaker ROL ‘The higher the ax rate for fi, the lover the iteres coverage rio ‘What the preset vale of Rs .000 oxdinary anit that emma S82 snaually Soran ine numberof periods? A portfolios expected return sa simple weighted average of expected ‘returns ofthe individual securities comprising the pertfali | pono’ standard devion of ere it spl eightd average of sndisdualscunty ctu standard deviations, ‘Tae squae oot ofa port's standard deviation of err equals it. The square root ofa ports’ standard deviation of erm equals #5 oeficient of raxaton. ‘Which ofthe following i imply the weighted average ofthe posible retume, ‘wth the weights Being the probabilities of occurence? > Aprobublay duehutce > The expected return > The standard devin > Coffcen of vation ‘The square ofthe standard dean e known ashe Bea > Expected rerum > Coeticent ofsantion > Variance ‘Why companies invest x projets with negative NPV? > Because there is hidden value in each project, > Because the have chance of rapid owt > Because they have invested lot Allof the given options ‘An investor was expecting «18% rerum om his porta with ber of 125 before the market uk promis sceaned fom $8610 10% Base on tse hnge, what rerun wl zow be expecta on th potaio®moose > 200% » 205% > 2s0% ‘Which of the following isthe characteristic ofa wall diversified porto? is market risk is negligible > Its unsystematic risk is negligible > ts eystematic neki negligible All ofthe given options Hows the heta of a store oa he calelated? > By monitoring price ofthe stock > By monitoring rate of return ofthe stock > By comparing the changes in the stock market price tothe changes fn the stock market index > all ofthe given options “Which ofthe folowing formula relates bet of the etck to the standard denation? > Covariance of stock with market * variance ofthe market > Covariance of stock with market /varlance of the market > Variance ofthe market / Covariance of stock with market D Slope ofthe eogressica line A bata greater than | fora stock show D> Stock is relatively mare rishy than the market ifthe market moves up by 10% tho stock will move up by 12% > Ss the market moves the stock wall move sn the same drei > all of me given options If stock part of totally diversified portfolio then its company risk must be sold equal to mo » mr ba rie an return combination of any stock is above the SML, what does it is offering loser rate of return a compared 10 the efBieient tock > Itis offering higher rate of return as compared tothe efficient stock Dis sateof rum e zero ab compara to the stficent stock > its offering rte of ret equal fo the efficent sock An arbsrage opportinsty ests sf an nvestor can construct a tnvestment portfolio that will ye a sure pri > Positive > Negative » zer0 > All ofthe given options ‘Which of th following factors might eft stock eturs? > The business cycle terest rte Ductutions > lndlation rtee > ll of the given options i arbivage opportunities ae tobe ruled out, what would be the expected ‘exces retum of each weladiversiied portoio? > inversely proportional to the rsk-fiee rte > Inversely proportional to its standard deviation > Proportional to its standard deviation > Proportional o ts beta coemcient ‘Which ofthe following represent ll Riske-Return Combinations forthe efficiont portfolio nthe capital maker) > Parschuts rap > CML straight line equation > Seouny market ine > ll ofthe given options What should be used fo caleulate the proportional amount of equity financing employedby a frm? The common stock equity account on the fis balance shest >> The ou of common stock and prefered stock on the balance set, > The Book value ofthe fem > The current market price per share of common stock tes the ‘number of shares Outstanding ‘Which of the following isthe marks fr shor term debe? > Money market > Capita market > Real anect marist > Equity market [Bonds stued un the market a > Premium > Discount > Both premium and discount > None of ie given options ‘Why debt i es costly source of and? > Recauce additional interest creates a nev form of tx shield > Because addtional money creates anew form of tax shield > Because banks extend oan at lower interest rates > None of the given options ‘Which of the following ies ERIT? > Funds provi by operations > Eamings before tases > Netincome > Operating profit Calculate the degree of operating leverage (DOL) at 400 000 units of quantity ‘The frm has Rs, 000,000 i fixed costs. The fm anticipates selling ach unit for Rs 25 wth vanable cows oF Rs 5 per ut. mass mas pias Theres not sufficient information provided to calculate the degree of| operating lverage (DOL) ‘A firm has a DOL of 35 at Q wats. What does thi tellus about the Simm? Dif sales rise by 3.5% atthe frm, then EBIT will rise by 19 > LPEBIT rise by 3.5% atthe fm, then EPS willrise by 1% > ISEIT ies by 1s at the frm. then EDS wall rise By 3 5% > Itsales rise by 1% atthe firm, then EBIT will se by 3.5% ‘Which ofthe following represents financial leverage? > Use of more debt capital to increase profit > Debt isnot wea in capt to incteare posit > High depres of solvency > Loi desiee of solvency ‘Which of the following best deserts the statement “The value ofan asset ie prerervad regardless ofthe nature ofthe claims aginst"? Law of diminishing marginal returns > Lave of conservation of value > Law ofretum on eguty > Law of return on assets Firm ABC has Rs5 milion in outstanding deb, curently has 200,000 shares outstanding priced at Rs.60 a share, nd has a borowing rate of 10%, IF the ‘rms return on equity i 159%, what isthe fim's WACC? > 5.00% » 3.238% > 42596 > 216% Which of the following statemansceparding the MAM Propositions without tae is true? > Tefal valu of the im depends on ow cas los ae divided up ‘tween stokbolders and bondholders, under M&M Proposition L D> The ems capital strstie is eleva under M&M Proposition > The cost of equity depends onthe Frm’ business risk bur nots ‘nancial risk, under M&M Proposition I. > The cost of equity rises asthe firm Increases ts use of debt ‘inaneing under M&M Proposition II. ‘Which one ofthe following is cores forthe spot exchange rate?>> This is the rate today for exchanging one currency for another for You are selecting «project fom a mix of projets, wha wou be your Sst mediate delivery Selec in descending orcerto pve yourself the best chance to 284 most to 1 Thus is the ate today for exchaaging one cuency for anther ata ‘he ea vale. when operating wader a sule-paviod capitalanonsag speaie e dae coma? > Thies therate today for exchanging one curency for anther a2 specific locanon on a specifi fue are > Ne present vais (NPU) 1 Thine the rte today for exchanging one currency for another a= > tema ete of earn (RR) specific loeton for immediate delvery > Pasback pesto (PRP) ‘The resroctaring of fm shouldbe undertaken, when Which of the following isa legal agreement berveen the corpration sine > The restructurings expected to erate valu for shareholders ler thr esbleh heres of the bond 896? 1» Therestrocring expected to increase camigs pee share next Yer > Therestrcuring expected to increase the F's marketshare ower > Debestre in inducty > Bond > Tac cutent employees willsecesteaddonal sock options 0 align > Boad wuste enployeoinzerest, ‘What ied to maui on a bond? > Irssbeowthe coupon rae when the bond sells at a discoust, and salto (Question No:37 (Marke: 1) -Pleate cheore one te ‘Which ofthe following term is used when the firm can independent conrol_ > The} considerable assets wid avery anted amount of equy? > done venice D> Tris based an the ansumprion har any payments received ae reinested > Leveraged buyout (LBO) the coupon te > Spinco None ofthe given options > Consolidation ‘The value of dzect claim security ie deived fom which ofthe following? ar pr pear, at cont of Re 750 per order an caring coat of Re 300 pe > Fundamental ana sasomobile? (> Undertring sealant » soca > Supply and demand of secures i the market, yes > Allof the given options > dears ‘is equal (common shareholders equitycommon shares > itecan aan du thacunatae sees th pa le facts 'Dookeaiepeshars Cs Peer > Some un opi VO equ re Per Ou Se cas et ai Ce cg ae an nei lu ~ Gana ‘Which of te flloming tattucatebout porto stistics is CORRECT? 1 Tora ascerramaver » Gross prot marein» Debt aio > Toalanernmover «Net pote arpa > COCCOOG porous senda deviation of urn ia imple waged > Toa ner ramover» Gros prof maria» Say arigie average Which ofthe following NOT major cause of wnvsttate ‘Which cup oft show the exe ohh the financed th a ase Now conpstion =» goose > Liquidity ratioe N he See ae Sikes OODADOS Which of the following isthe characteristic ofa well diversified porto? marks risk is aagisDlbo => 00) Coverage ratios > Proftabiy race Interest pa (ened) on both the crizina principal Hortowed (len) an previous anteest eared is offen refeed 19 95, > Present valve boo » Sipe inerost Issyamaticri sglgie=NG0S0 Fre rive Allof the sien options. DODO —— ‘Which ofthe following fater() do NOT affect the movement inthe ‘A captal budgenngtechngue tats NOT considered as dscouaed cash smaskerindex? ow sethod is Macrocconomie factors 0 > ioeral ate of retom > Netpresea value All of the ghsn options. GOO > Prostata ander How much ream would be offered by the stock whose risk and etre) pair lies belowthe SML?Pro setae > Average tum PEsoesnveretum “Market nak is measured in term ofthe ‘What ithe meaning ofthe term “arbitrage”? vaaalamaaal Negotiating for favorable brokerage foes D Hedging your portfolio through the use of options ‘Which of the folowing i the market where tangible or physical asst change hand? > Money market PEquity market Which of th fllowang se rlaed tothe use Lower Snancillaveraga? P Fixed cost > Variable cos > Debs financing ‘Which ofthe following willbe confonted by the management in deciding the PA tradeoff between lgudity and mak PA tradeoff between equity and debt A tnd ofP between short erm votes long-term bots Which of he following an example ofa natural hedge? D> The prices are determined nthe glotel marketplace and core are Setermine inthe desnestic mavket place The cost ae daterminad in the plobal mars place and pices are determined inthe domestic matket place. Xone of the given options is coast For which of th following strategy economies of scale, marketshare ofthe market portfolio expected to grow tha ash flow at 5% nto pepe > totrnal ate of return > Net present vale > Profitability index Assume a compny had Ro billion i fee cash low last year snd 8 ty. Assuming a 9% cost of value ofthe company? > Rel6.15 ballon > Red 16bilion > Re 1667 hilon ‘What ithe preset value of Rs 1,000 tobe paid atthe end ofS years ithe inter sempounded annually? > Rs1.462.23, > e522 69) > Resor 98 What wll b the market nee premntm for stock C ifthe average chats of stock Chas a sequired return of 15% and treasury bonds yield 38 1094? tock wsing SML equation EXCEPT: > Risk fice rte > Maret na prema > stock's bea > (On which ofthe following ground, the Arbitrage Pring Model is different ‘rom the Capital Asse Pricme Mode? > itplaces more emphasis on market risk selina > Itzecommizes multiple unsystematc risk factors According to Traditionalis Theory when a 100% Equity Fim takes on more and more debt, which ofthe following phenomanon is observed? > Share Price fet fale, than sches miami and finally ses None of the given options Supetmay orgy merge approval provision ‘Which of the fllowang is sncorect regarding the costs and benefits of holding inventories snd cack? The benefit of higher inventory levels isthe reduction in onder cost associted wih restocking andthe reduoed chances of ring out of materia. The costs of higher inventory levels are the carving costs, which elude the cost of space, insurance, spilage, and the opportunity cos ofthe capital ‘ied up am ventory Cash provides liquidity, butt dose! pay interest, Securities pay interest, ‘Which of the following ss the dividend that 8 rommally pid to shareholder?” In © siook split > Stock dividend ‘A technique that ells us the numberof years requined to recover our initial = > Intecestyiala~ Market price > Market price ~ Capital sain yield ‘Bisd-n-the-hand drvidend theory was proposed by which ofthe following? > Henry Feyot > Wilhem Jotn and Lehman XYZ Corporation has offered its shareholders the option that ther dividends willbe used to purchase additonal shares of this corporation, This offer of XYZ Corporation is rfered 2: > > stock dindends > Stock alte ‘When IRR < WACC it means that D> Investment ie acceptable as required rate of etm ie equal othe oost of capital None ofthe given options iste ‘Which of the following statment depict the dissdvantage of iaruing debt? Dee financing leads toward tala aby1 Tecan improve the etm on Us > Not fixed payment of terest rquied by investors The decnions eguring exptal ucts of erm are maul concerned wth ‘which ofthe followin? 1 Expense ede of profit and loss account > Incomes side of profit and fess account Comet assets = Rs. 16,000, (Coment nbes= Re. 10,000 025 an investor isk ave, then which of the following options best st fed > Debenties| > Common tock —.. Capital acre theory ic precente by which of the flowing? » Rober Ann Hall Brigham & Houston » Vian Home & Gita ‘Which of the following i tive regarding inca everage? > Whenever a fms equ nceases fata tan ste Jeb, aunt > Sacscasng nana leverage ll always incense the EPS for stockholders 1» The level of financial leverage tha rode the mii fen ave ts the most benefit stockholder: fa fim ant owe short-term bak fon o finance ite temporary arent > Horizonat Merger > Verical Me > Conglomuate Meraer ‘What happen othe total risk when leverage increases at a slow rate? > Total risk increases with slow rte han th leverage Tota rick ncence ith decreasing ete > Total risk remnins the same According ta the e's ost of equity ncteases wih greater debe Sncing whee WACC fit decreases and then increases > MEM Propostion I wth res > MEM Proposition I wihout aes ‘Which of the folowing is incorrect regarding Modighan and Millets (MMS) famous debt saclevance proposition? [Ketter that firm value cant be ncrace by changing capital suctre > MAM show that the exaretur and extra nick balance out, easing shareholders no bene oe worse of? PMNs argumcat os oe smiling asumptons fe efficient copia maths and ignores axes and cots of financial dire ‘Wich of the folowing refer to a ungve ype of apaneve comport cegeization based ona close partctipberweun zovarzca! an trusses? > chacbols > Lem ead nese > Options Cleve the Forvard Rate for Rapes ifthe interest on 1 Year Maraioy se Patan 0eann Attn al coe tate R76 arene) > Rs 76 per AUD. PRs HC per AUD sect and ven toby some fst pene cnet vent th wich of Cala te Fouad Rat fr Raps ig terest Rate Paty te nteret > Conseremee working eal policy > Aguessive working capital poly > Any ofthe given policy Which ofthe following statement depicts he wade-off theory ina beer > ataes adeoff between the cots and benefits of debt Gnancing Sel Thee i radeosTberwsen ant and Lait ofthe fir, > Toe is ade borwsen revenues ad expense ofthe far Modistsi sn Miller presented capital structure theory in which of the following year’? > 1950 > 1953 > 1965 Te hich ofthe following synergies are not expected?” > Operating merge > Verucal Merger > Hivzontl Merger ‘Company X wants to merge with Company Y but Company X's ‘mmagementisresisting the merger. Company X asks the shareholders of ‘Compan’ ¥ to tender the shar sa exchange the offre pice" Tass ssuterent fers to which ofthe fallowing? ‘on 1 Yer Maturity in Pakistanis 18 and on Euro 65 andthe forward rte ‘Re 124/ EUR. > Rs 6 per EUR > Rs 1240 pec EUR > leu lone ter dt by nee > Sel comtion soak to cece cumrent abites > Sel iad anc to cede account payable ‘Which aoup oration menses how effvey the fm in uig it anes? Lge ssn > Deteesios Coverage ratios > Action ‘The RBS ps5, compounded ni (bsed on 360 dvs. 89th cemest€epoet 9 poet Re 20, 000 som wo exper ere Sond inineest, Rs = PRL Acs hn the nee te ic renter thn seo, Which ofthe flow ac ow steams fottine Re 1.500 would you pee? The cash ons ae ‘sedan ode for Var 1, Year 2, md Yea 3 ropeRe 300 Re RA 700 > Epeced rerun Re 300 Re 300 Re 300 > Coeticen ofantion > Aay ofthe above, since they each sum to Rs 1.500 ‘Whueh of the fllowing would be considered a cah-Hw tz Somat Which ofthe following ss NOT asaaor cause of systematic risk — A worldie recession > A wore wae > Cash outflow to sareoders as dividends > World energy supply 1 Cath inflow t the fn frm sling new common equity hares > Cachouttow to purchase bonds issued by another company rears expanding the number of investments which over Which ofthe following will NOT equte he fur ale of ash inflows to diferent ads the prevent ave of ash cations? Discount ate > suadard deviation > Vaniance > laeual ate of vere > Covance Mulpe ena ae oF ene ‘Whi ofthe folowing would NOT be the prt of the sk ifthe stock v8 ‘Which ofthe following is egal aprcment between the corporation ins stock investment? one der that etablch the tems ofthe bond eae? > Company specific risk > Undieaiabe sk iat > betes > bons Prin © Bond wes Tel eligyat shoul be the appropit action? Iba highs, pki Bod oy © Zavcoupes bond > Tochec stocks pace dal Tow uta Ew ecans Steckbond | b Novwstesin ct sess > eon bes Incite os poe open pan he qed eo hich A coupon bond pays annual ners has apa value of Bs. 1,000, mates in 4 depends ype yeas, has coupoa a2 of 10%, and hav 2 eld to matuny of 128%, Whats Soumagye tse? — > Dee ie a Poem bose: TT a ae bs Se efpone in vie elt? TS CaS ecu ad tec i —— is peatan yd omy [ Decten efor peti ct Pee ckertaicu oman Tucoren eegend rengenrefepiaemepandf iad > The coupon ate i ess than the curent yield and the cure yeld ic averages of which ofthe following?” ate hua the eld to mati The cout of ecrmon aqusty and the cou of debt The cos af common suit and the cos a prefered stock > The com of prefered soc andthe com of dt ‘What the price of sock” The fue vale of al expected fe dividends, discousted at the The present value of al expected fore dividends, discouted atthe “1 indend growth ate 1 Thefts valu of ll expected fe dividends dicount tthe > Baddett lowes investors require ram > Production Inber Assume th somiaal tees ate (annul) athe cous of Freedonia and ‘he Unsed States are 66 and 12% rexpeciely. What the pid 90-day ‘ovat sat the cunent spot ate i 5 Freodonian mas FM) per US a aoa oe = apmarenar armel Pa: Sms bor Praca eee reece ee ae cae nee omy Vos ih inkineset oes a — rose — _— ree 1 Allof the given options ‘When afi can acquire anther firm? TT are Pe ST casein Pee > Only by purchasing the common stock of the ge ars» Operating Revenve =Price/ Quanine “Variable cost > Operming Revere =Sals price Qaninity > None ofthe sea options > Operating Revenue = Vanable cost * Quasi / Fixed cost ‘Which of the following is NOT a type of financial lease smangemeas? ‘Wash ofthe fllovaag statements se ERUE about an agzenive approach to finance working capital? > Financing seasonal requiemens of curent assets with sbor-term debt | > Leveraged esses spd permanent requirement of caren assets wth Long tem debt > Allof the given options > Financing permanent quirements of cent ares woth chert erm ‘The Board of Directors announce the amount and date ofthe next dividend debe onthe ae: he the ‘te isthe Sit dae on which ‘the purchaser ofa sock i no lenge eile the recently declared rind, assets wi 1 Devisrtion secoed D> Financing seasonal ay wel as permanent requires of cures soets » Even scored sth lone tem debe ‘Capital suuctre theory is preseated by which ofthe folowana? Payment seco What would you expect to happen ts the price ofa share of tock on he day it = a [> Tepe sholdincae bythe mona the diend > Vente Gra a reer ca oe a cpm Seng ENCEEE TREE SS SS ee : > The pie shold remain costar > Conn Lib eae a ueura smi — Deterer steer er eee ene P Ra26, 000 Which ofthe cllowings proposes tha the val ofthe fm independent of Ta tiene ne — ae Daven ‘itn Sack Reng Mas Ap on Vises nae ep afc ine SSS ane a Dein CECT SIE cus FPS cn pina cntemtinctatnteten deine entcteres ni eee mnie Sse Tees > Equay Geunoug (common & prefered stock) sacar + otaunscouicre re 1 Nemes at Saifanesto test eps ite conga hus rt er cng Hev Cope pet ov upto P Een case teat t : iste PEt Sho ——— 1 dito gen pie Maspeth ft aig Wht tng nnn dpi dan? Tibia aa » Sea tsk coapa Ri ris P Alte seenopene ae ee mt ee co WAC cate ene i sigh aval ihe log “aoa 1 Comneni Uap oe ome ean > Smwunetamce The dwn ene onesie So Tans epne Unerin sos et en WAC cee th manatomnss pete Se ota Piterstecer ome eee mene mada Semete tuum 1 Operating Revenue = Fixed cost * Quantity + Varuble cost Operingrevenve cam be clewnted from which of the fling formas? Pear men etter eet>» Increase in EPS > Incense EBIT > Saving in cos of det ‘Whuch ofthe following statzzcats is uve about busines? 1» The financial risk of firm decreases when i takes ona risky project a Under Net income approach, ich ofthe following comet sequence af Net income -WACC - ttl Em's market vale WACC = Netincome - are alse of cb > Masket vale of fan - WACC - Net income Fe & ‘et ncome ean be called? PNI=EAT-« 2) Te) > ss@amT+x 1 )-T) pI @BT-x 2) d-To ‘Which ofthe allowing setts wo a unique ype of Tapsnene corporate on ox slow patchy buteen goverment aa ‘si > Keiret > chacbols > Lean and mean > Opcons ‘Which ofthe flowing is» South Koren type busines in that “Sern > Chacbols > Lean and mean a tte Recon » Basing > Seling ate ofcureney > Fors at of curency Aa rteofeutreney ESR ORE > Askate shouldbe greater than bite > Aakrape shuld be equal tba ate > Bid eae shoul be erenterthan ask ate pee" > Operational: financial management > Financial management ccoustine > Accouanng financial management > Financial management. operations w the total debt-to-equty ratio, the lower the Saancial risk fora firm An increas in net profit marzin with o change in ales or amcts nents ses RO “Tr higher the ax ate fo fem, the Lowes the tees coverage aio Whi 1's ably to met chor term bl > Liquidity ratios > Demos » Coverage ratios > Profitability ratior ‘Which group of toe meaoues how effectively the Sm is using aust? Liquidity sanos > Activity ratios Which erp of tos shore he extent to hich the fim i financed th am > Coverage tics > Prosar ratios Tateres pasments, principal opments, and cash dividends ore the ‘ypicl badaetng cach Dow anaes because they are cath Bowe cluded. operating > Excluded fom: operting ‘Which of the following make the calculation oF NPV deiclt” > Estimated cath ons > Discount ate saan a company issues bons shares, whar willbe ts effet ca te debt equy > rll mprove > ell detenorte None ofthe given options For aust fm, PE ratios and isk, > Will be directy relates > Wil beonrelnes > Wil bok incense inflation ncressen Which ofthe flowing i the vara of rtm on tocks or portfooe aot splined by general market movements tis avoidable tzouzh (diveraieston? Systematic rik > Standard deviation =—= ‘he wider the range of possible outcomes i= Eee The aeeer he variability in potential Returns hat can ce, the lesser the Rik The arene he variability in potentat Rerum that can occu, the lve fis ena const > None ofthe given options Accum tha the expected retusof the porflioe ae the sme bt thei standard desations are given inthe options given belo. which ofthe epson eprovat the most ky polo according to standard Jevauee? rise fea drawback of percentage of sales method? nis arovgh approximation > Therese change in fed nse cnn the foesaeted pied > Lumpy assis are aot taken to account ‘The object of financis management iste maximize west > Srakcolders » Bondhokier: > Diector| ‘Which ofthe following is comet segatding the opportunity ost of capital or project” DF The opporanity cost of capitis the rata tht investors give up by vesting in the projet raher han in secunis oF equivalent se> Financial manages ve the capa set pring model to exinate the Which ‘opportnity est of apt Tus compa con of eptl isthe expected ate of erm decanded 1 The covariance benween the ecu and marke reams divided by the standard desianon of the matt ressns 1m Tae variance ofthe sours ets divided by the covariance em the secu and musket rts > Thesanaace ofthe seshrin rere divided by the vanance ofthe asker sens risk and enum combination of ny stock s above te SML, what does it 1 is ae of rerun i zero as compare to the efficent stock > Iris efterng ate of rerum equal othe efficient soc. we invent in many securities which are each ober hentia pomibleto reduce overall sk for your investment, > Comparable » Dualit > Highly coreaed the fling sateen inmost conect sit eles tthe eon oF capa ease? > The capital leas is sown ou the lene’ balance shes as an sit and ine ‘Acai leas sted aan anton the lenses balance set and oust be amortized over the la period A capital ease sisted as an asset on the ese’ lance shee ant rut be amortized over the abet use ie ‘Which ofthe lowing the dividend tht snomally pata shareholders? Stock sit sock cidend Ena dividend Regular dividend Which of the follow sen is mos likey 0 eit a esreas i saze rice fe slow growth wily company tat arent pats 8 sal end? A repurchase of 5s of the fan's sock 2 aang >» Boring fn inorder to psy a enth iden ‘The presence af which ofthe following costs s NOT used a a major srgument asin the MEM sbtage proces? Tiss > Bankuptey cous > Agency cote ‘Why common tock ofa sompany must provide abigher expected tu than Which tem would mos likely be attocited with the plrse "actions epee the debe of the same company? 1 Theres vs demand for tock han for bods ialiihiieiiamiiiluadaiaa 1 There sa marke prem requed fr bonds Tac ABC Compu sels ca profited stock bonds, ad common soc for ‘ts ong crm Brsnoing Rak i ascending ocr (121 = Lowest, ale 3= [ishen th Ukely ftersae component cont af the ABCs 1 Copal aser pcing model apeoach > Beforetax cost of debt pas risk premium approsch Which ofthe allowing wil be contonte bythe manapement in deciding the Whit i the prevent value of Re 6500 tobe pai a the end ofS year the > Atinde-ott dense igi’ ad nak Ateade-offbenneen equity and debt > A tradeoff beeen short-term versus long-term borowing ‘Your Sm bas a pllowopy tats analogous to the hedping (catty ‘atching) approach, Which of te follwing isthe mot sppepriae non spontaneous Soom fr Sancing dhe excess seasonal cures ssc needs? nde sree > 6-xoath back aotes > Accounts payable Which of te fllowing isthe common cureney eeated bythe erp of| Eoropean counties? Tee EU cunensy > The European Union hha! over than words?” > lncemive signaling > Shareholder wealth maxiniation 5 — nice ‘When taxes ave considered the value ofa levered Sra equle he vale of the © Diver frm imide > Unlvered fm plus the value ofthe debi plus the valve of the a shield ‘When nancial ssn looming why management may bowow to vest se projects ving anepaive expcted NPV? The fim s bea is now negate > Taxes aren longer a concern > The interest ra sild wl coves te oun cous aaa etme > Re5.890, > R.3.190, > R430) ‘What the pesca valve of R727 tobe pd at the and oF? year ifthe “sor > Real > Rus > R558 Allof the felowang are the components of CMI (capital market ine) gaion EXCEPT > Rise ate of renin > Rick ofthe mathe, a NPV (Net Present Value calculations, which of the flowing is wed?> Exceptd ene ofcerm > Both expected ate of eum and Requised cae of earn > Nong ofthe even options i = flowing? 1 Share in cxaniy ay or volatile) asthe RSE market, 1 Shae isa ar cy (or volte) athe KSE make > Share would be exacts vole a the KSE matket BUT inthe ‘opposite way ‘Beta coefficient i cual the slope ofthe fine tha shows the slaonship ‘bemesn which ofthe follwing? jimi Stok rie ete of etm on Sasa sk expected ene of een on ‘Which ofthe flowing i'r ideal source(s) of capt fr profitable Se ‘beease fo transaction costs? Sizeabe Cosh > Resins Eamings Po ise Cashand Reine Eanes > Noos ofthe even options According o Teadiuonalt Theory, when an un leveraged fem takes on mee and more debe, which of th llowieg phenomzon is obsaved?” eisai aeincaammaniaciaia > Cont of Capa creases, reaches a maxuium pou, and thea ass > None ofthe even options Jn the WAC squation ¢ ote #2 BF 9 PE fallow 1 Weight or Faction of Total Capital value rained fom bonds iia > Wet of Fraction of Trl Capa aie raised fom éebeares J the WACC equation e uote aes px sepia ach othe ‘llomiag? presets which of the > Weight or Fraction of Total Capital valve cased fom prefed stock > Weight or Faction of Total Capital valve nated fom commun tock Weight or Faction of Total Capital value isd from retained raringe aes erm ror roe Poo ora ence enn inte Pon ncaa Investment acceptable as required rate of eur sequal the cost of| cepa 1 None ofthe given options ee ABC Compan moves fiom 3 “conservative” working capital policy toa aggressive” poli. Which ofthe following resus i should expest 10 achieve? > Liguiity to decease, whereas expected profitability would increase Liquid inarese, wheres risk wold alo increase > Risa wellas profil t decrease ‘Me. A. a sole propor has purchased th aw matron cre this ‘raneaton las geneate which ofthe following? Short-em Lear Allof the given options (Capital soc that minimizes the WACC is aso store tht maximizes she ems > Edagsbefoe inet tes EBT) > Rena on uty (ROE) Ta caloulatins regarding lene, at advantage of leasing isthe difeence bersen hich ofthe following? Prescot ale of cost of ing the asset and present value of et cash ws None fe even options ‘Acar manuterring frm bys selon ate il Bot these eis combined together to form anew frm Inert which of he followsna” > Horioatl Merge (> Verseal Merger > Conseetc Me > Conalemeat Merger ‘Which ofthe following sa form of tives ia which sbsiiay or vii becomes an independent company? F scot = > Merzer gas income canbe calculated? bNISGAT-x 1) (1-To) pNI-@BIT+x Z) (To Comporate tar rate x Markat value of dab, > Corporate trate Marker value of debt > Corporate tx ate + Marker se of cebt > Compras tx ate - Masket value of debt Which one ofthe fllowang ie cmect for the spo exchange ras? Immediate delivery at spesifc location Desc theaffecuve exchange rte fra freon currency for daltery 32 specific fre dae DF Tris the ffostvecuchange rte fra foreign eueney fo dalvery on she erent dav hgguameer acerca: Thsktmha.> Goes down » Goes up > stays the same > Cen not be found A S-year ordinary annuity has a future value of Rs1,000, If the interest rate is 8 percent, dhe amount ofeach anmity payment is closest to wich ofthe following? > Rs231.91 > Be 18408 > Reisis2 PRsI7048 *-asyayya <(1.08)*(1-(1(1.08)'S))0.0 PV=10004.312127-231.91 ‘Managers prefer IRR over net present valte beemuse they evaluate > In terms of dollars > In terms of Percent > Intuitively > Losiealiy ‘When tere is single period capital rationing, what would be the most sensible way of making investment decisions? > Choose all projects witha positive NPV > Group projects together to allocate the fands available and seleet the group of projects with the highest NPV > Choose the project with the highest NPV > Calculate IRR aad select ue projects with the highest RRs Whish of the following isthe value of bond that we expect the bond to ke > Intrinsic value > Fair value > Both intrinsic aud fair value > Market price ‘An investment opportunity set formed with nwo securities thar are > A probability distribution > The expected return > The standard deviation > Coefficient of variation, ‘The ratio ofthe standard deviation ofa distribution to the mean ofthat istribution is refezed to as DA probebilty distribution > The expected retum > The standard deviation > Coefficient of variation ‘The Higher the Risk of a Shave, the ins Rate of Rerum sand the its Market Price. > Higher; Lower > Lower; Higher > Higher: Higher > Loner: Lower are employed to assess the financial viability ofthe project. > Financial planing > Financial forecasting > Capital budgeting > Capital rationing The logic behind is thot instead of looking at net cash flows you look at sash inflows and outflows separstely for each point > iRR >» MIRR >ev »xpy Expected Portfolio Return = P= sArA+xB IB PbS antl BB bp texara xa iD t= SAA BB ‘Market rs measured in tens ofthe ofthe matket perfectly negatively correlated, What will be standaxd deviation in the portotio or index. ‘lob minimum variance portfolio? > Equal o zero > Greater than zer0 > Equal to the sum of the securities standand deviations > Equal 0-1 ‘Which ofthe following value of the shares changes with investor's ‘perception about the company’s future and supply and demand snistion? > Parvalve > Market value > Intrinsic value > Face value Which of the following statement about portfliostatstice is CORRECT? > A portfoli's expected retura isa simple weighted average ‘of expected returns of the individual securities comprising the portfolio. > A portfolios standard deviation of retum isa simple weighted average of individual security return standard deviations. > The square root of a portfolios standard deviation of return, ‘equals its veriance > The square root of port equals its coefficient of variation ‘Which ofthe following is simply the weighted average ofthe possible etm, with the weights being the probabilities of oseurrence? sstandand deviation of return > Variance > Covariance > Standard deviation > Conslaton coefficient ‘Which of the following represent all Risk -Retum Combinations for the efficient portfolios in the capital market? > Pasachte graph > CML straight line equation > Security market line > Allof the given options Generally companies want ro keep the balaace inthe fem of > Debt > Equity > Hybrid security > Both debt and equity (A firm ne a DFL of 3.5 2t em? > fsales rise by 3.5% at the frm, then EBIT will rise by 1% > IEEBIT rises by 3.5% atthe fim, then EPS will rise by > ICEBIT rises by 1% at the firm, then EPS will ise by 3.5% D LFsales rise by 1% atthe firms, then BAIT wil sise by 3.5% ‘Which of the following isthe maximum amount of debt (and other ‘Sxed-chaige financing) that a firm can adequately service? > Debt capacity > Debr-service basen dolla, What docs thi ell us about he> Adequacy capacity > Pixed-charge bade Which ofthe following represents finial leverage? > Use of more debt capital to increase profit > Debt is not used in capital inerease profit > High degree of solvency > Low degree of solvency ‘Which ofthe following statements regarding leverage i rue? A technique that tells us the numberof years required fo recover our initial cash invesnent based on the project's expected cash flows i » Pay back period > Internal rete ofretura > Net present value > Proftsbilty index ‘Which iste best mensae of rise fr a single asst eld in an ‘isolation, and which isthe best measure for an asset held ina > The ultimate effect of leverage depends on the firm's EBIT diversified portolio? > Le things go poorly for the firm, increased leverage provides greater remms fo shareholders, > Asa firm lever up, shareholders are exposed to less risk > The benefits of leverage always outweigh the eoss of financial distress > Vaziance, correlation coefficient > Standard deviation, correlation coefficient > Beta, variance > Coefficient of variation, beta Allof the following ae vse in calculation of required return on 8 ‘Your frm hae a philosophy thst i analogous to the hedging (aaturity particular stock sing SML equstion EXCEPT: matching) approach, Which of the following isthe moet appropriate form fr financing a new capital investment in plant and equipment? > G-month bank notes > Accounts payable > Common stock equity > Trade crest Which ofthe following term is used when the firm ean independently addition, easury bonds yield is 10° ‘control considerable assets with a very limited amount of exuity? > Joint venture > Leveraged buyout (LBO) > spinoff > Consolidation Which of the following ie NOT a form of short-tsm, epontancous credit? > Accrued wages > Trade credit, > Commercial paper > Acomed taxes > Rise fee sate > Market risk premiam > stock's beta > Stock’s price ‘What will be the Stosk V's ris premium ifthe average share of toc ‘Y has a required retum of 20% and beta for that stock is 1.07 In > » 10% > 20% » 30% Question No: 34 (Marks: 1) ‘What shold be used to calelate the proportional amount of equity financing employed by a fim? The book value ofthe fim > The sum of common stock end preferred stock on the balance sheet > The current market price per share of common stock times Please choose one ‘Which of the following would NOT be inciided in inventory conryingthe number of shares outstanding > Insurance expense for the inventory > Opportunity cost of capital for inventory investment > Cost of inventory > Cost of shelf space What woul be te result when ther is an increase inthe umber of shares oustanding by reducing the par value of stock? > Stock split > Stoce dividend > Exira dividend > Regular dividend What would you expect to happen tothe price of share of stock on, the day it oes exeividend?” The price should increase by the amount ofthe 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 Which ofthe following add up to the costs of financial distress? > Direct bankruptcy costs, primarily legal and administrative costs > Indirect bankruptcy costs, reflecting the difficulty of managing 9 company hea # isin baalnapey proceedings > Costs ofthe threat of bankruptey, such as poor investment > Weight or Fraction of Total Capi > The common stock equity aecount onthe fim’s balance sheet According to Traditionalist Theory, when an un-leveraged firm takes on more and more debt, which ofthe following piewomenon is observed? > Cost of Capital increase, reaches a miniraum point, and then falls > Cost of Capital decreases, reaches a minimum point, and then rises > Cost of Capital increases, reaches a muinuum point, aud then rises None of the given options In the WACC equation (r xp-oex fx J g represents which of the following? | value raised from bonds > Weight or Fraction of Total Capital value raised fom preferred stole mw stock > Weight or Fraction of Total Capital value raised fom setained. In residual dividend model, what does the tera Conservatism’ refer? > Overvaluation office eas flows > Underestimation of fre cash flows > Overestimation of fee eas flows None of the given option or Fraction of Total Capital value raised from common ‘decisions resulting fom conflicts of intrest berween debrholders ax The date on which the names of stockholders in the Stock Transfer stockholders > Allof the given options are correct Register of firm are documented is refered as > Declaration Date» Holder-of record Date > Ex-Dividend Date > Payment Date XYZ Corporation hos offered ite shareholders the option that their dividends will be used to purchase additonal sates ofthis ‘corporation, This offer of XYZ Conporation i referred as > Stoce repurchases >» Dividend reinvestment > Stock dividends > stock splits When IRR Investment is acceptable as required rate of return is less then ‘cost of capital > Investment is not acceptable as required rate of return is less then cost of capital > Investment is acceptable as required rate of return i equal to the cost of capital > None ofthe given options is tue Which ofthe following statement depicts the advantage of raising ‘cpital thacugh debe? > Debt adds to company specific rsk > Lfcompany does not pay interest t con be close down > Irean improve the return on equity > Not require to pay fixed amount of interest Which ofthe following ean be defined as “additonal risk faced by ‘common stockholders if fins tale debt."? > Unaysterati rise > systematic ike > Business rise > Financial rise ‘The decisions reganding working eapital management ofa firm are mainly concerned with which ofthe following? > Current assets de long-term lnbilitis of balance sheet > Current assets & current Kabilities of balance sheet » Fixed assets & current liabilities of balance sheet > Fixed assets & longeterm linbilities of balance sheet If Current assets = Rs. 16,000 Current Hailtin= Rs. 10,000 Inventary= Rs, 2800 (Caleulate quik ratio for the firm? > 138 > 60 > 1.60 mos Question No: 4S (Marks: 1) Please choose one ‘Which of the following states that "Cash is King nd only Cash can pay the bills"? > Fat cat working capital policy > Lem & Mean perspective > Balance Sheet Perspective > Moderate working capital policy ‘Which ofthe following depicts the break even point in best way? > EBIT-0 > EBIT <0 > eBIT>0 > None ofthe given options ‘Financial leverage is considered good in which of the fllowing? D Eaming after interest & tax Total asset > Interest cost > Baming after interest & tax | Total asset “Interest cost > Eaming before interest & tax/ Total astet Earning before interest & tax / Total asset» Interest cost ‘Suppose that there is uo persoual or corporate income tax aud that the firm's WACC is not affected by its capital structure, then whieh of the following statements ie true? > A firm's cost of equity depends on the firm's business and ‘inanclal risks > The value of the fim is dependent om its capital structure The cost of equity increases as the fr’ leverage deereases > The greater the financial leverage, the more valuable isthe fim Company’ hae to purchase another company. How do Company pay for buying the other company? > nC > In Shares > Bonk Borrowing > Allof the given options Among the pairs given below select a(n) example ofa principal and (a) example of an agent respectively. > Shareholders manager > Manager; owner » Accountant: bondhalder > Shareholder; bondholder ‘Who determines the market price ofa share of common stock? > Individuals buying and selling the stock D The board of directors ofthe firma > The stock exchange on which the stock is listed > The president of the company ‘Which of the following would be deductible os an expense on the corporation’ insome statement? Interest pai on outstanding bonds > Cash dividends paid on outstanding common stock > Cash dividends paid on outstanding prefered stock > All of the given options How a company ca improve (love) ite debrtonotal asset satio? » By borrowing more > By shifting short-term t9 long-term debt > By shilling long-term to short-tenm debt > By selling common stack ‘Which of the following statement is most accurate? > Coverage ratios also shed light onthe "liquidity" of eurent ratios > Receivable- and inventory-based activity ratios also shed on the "liquidity" of current assets > Reocivable- and inventory-based activity satins also sed light on the fim’s ue of financial lever > Liquidity ratios alo shed light om the firm's use of financial leverage ‘Which of the following statements is most comect? > The future value of an annuity due is greater than an otherwise identical ordinary annuity > A reduction in the discoust rate will increase the fore value ofan otherwise identical eat flow treamn > Continuous compounding will result in a higher present value selative to an otherwise ideatial investment that is compounded ‘monthly atthe same nominal rate > The FVIFA (i%, N periods) equals the sum of the PVIF( forn=1 toN periods ‘The estimated benefits from a capital budet as cash flows rater than income flows because > It is more difficult to calculate income Dows than cash flows > Itis cash, not accounting income that is central tothe firm's capital budgeting decision =) project are expected:> This is required by the accounting profession > This is required by the Intemal Revenne Service (IRS) and enforsed through flings with the Securities and Exchange ‘Which ofthe following technique would be wsed for a project that has Lf ris and retuma combination of aay stock is abave the SML,w nonsnormal eash flows? > Ietemnal ete of enum > Multiple internal rate of return > Modified internal rate of return > Net present value ‘Which one of the following is NOT the disadvantage ofthe asset with ‘very short life? > Money has tobe reinvested in some other project with ‘uncertaia NPV > Money has to he reinvested in some other project with ‘certain NPV > Money has tobe reinvested in some other project with rturm so risky > None ofthe given options ‘When s bond will sll ata discoust? > The coupon rate is greater than the curent yield and the ‘curent yield is greater thon yield to maturity > The coupon rate is greater than yield to maturity > The coupon rate is less than the cunent yield ané the eureat ‘yield is greater than the yield to maturity > The coupon rates les than the current yield and the ‘current yield is less than yield to maturity Whish of the following is designated by the individual investors ‘optimal portfolio? > The point oftangeney with the opportunity set andthe capital allocation line > The point of highest sewed to variability satio in the ‘opportnity set > The point of tangency with the indifference curve and the allocation line > The point of the highest reward to variability ratio in the inditference curve ‘Which ofthe following statement about portfolio statistics CORRECT? > A portfolio's expected return Isa simple weighted average ‘of expected returns of the individual securities comprising the portfolio. > A portfolios standard deviation of retum isa simple weighted sverage of individual sevurity retwm standard devistions > The equate root of portfolio’ standard deviation of rena ‘equals its vasimee > The square root of a portfolios standard deviation of return equals its coefficient of variation. ‘Which of the following ie simply the weighted average ofthe possible etums, sith the weights being the probabilities of occurrence? > A probability cistribution > The expected return > The standard deviation > Cocllicien of variation How can you limit company-speifi risks? > Invest in that coupany’s bonds > Invest in a variety of stocks > Invest in securities dat do well ina recession > Invest in securities tat do well in a booms ‘To limit volatility what should be the appropriate action? > To diversity > To checkese stocks prices daly > To own just afew securities > Nott invest in risky securities does it mean? > Iris ofering lower sate of remim as compared to the efficient stock > tis offering higher rate of return as compared to the lfcient stock Its rate of rerum i zero as compared tothe efficient stock > [eis offering rte of rtum equal to the efficient stock ‘What is the meaning ofthe term “abitrage™? > Buying low and eelling high > Earning rick free economic profits > Negotiating for favorable brokerage fees > Hedging your portfolio through the use of options ‘The ABC Company relies on prefered stock, bonds, and common stock for its ongeterm financing. Rankin ascending order (i... ~ lowest, while $= highest) the likely after-tax component costs ofthe ABC’ long-term financing » 1 =bonde; 2 = common stock; 3 = preferred stock ‘bonds; 2 = prefered stock: 3= common stock > 1 common stocks 2 ~ preferred stocks 3~ bonds > 1 =preferred stock; 2 = common stoek; 3 = bonds ‘Which of the following ie NOT a recognized approach for Aetensining the cost of qi?) > Dividend discount mode! approach > Before-tax cost of preferred stock plus risk premium approseh > Capitalasset pricing model approach > Beforetax cost of debt plus risk premium approach ‘The overall (weighted average) cost of capital is composed of weighted averages of which of the following? The cost of common equity and the cost of debt > The cost of common equity andthe cost of preferred stock > The cost of prefered stock and the eost of debt > The cost of common equity. the cost of preferred stock, and the cost of debt ‘Which of the following is related tothe use Lower financial leverage? > Fixed cost > Variable cost > Debt financing > Common equity financing ‘Which of the following isthe cash required during a specific period to ice interest expenses and principal payments? > Debi capacity > Debt-service burden > Adequacy capacity > Fixed-charge buen Suppose that the Eo is selling at a forward discount in the forwaed= cexliange market. This implies that most Likely The Euro has low exchange-rate tsk > The Euro is gaining strength in relation to the dollar > Interest rates are higher in Euroland than in the United States Interest rates are declining in Europe ‘Which of the following iss season suggested bythe authors fora divestiture, suchas selloff or spin-off? > Symersy > Reverse synergy > Hubris> Economies of sale The wade terms "1/10, net 45" indicat that A. 45% discount is permitted if payment is made within 10 days > A 1% discount is permitted if payment ie made within 10 days > A 10% discount is permitted if payment is made within 45 days > A 1% discount is permited if payment is made within 45 days Which of the following eters to a policy of dividend "smoothing"? > Maintaining a constant dividend payout ratio. > Keeping the regular dividend at the same level indefinitely Maintaining a steady progression of dividend increase over time > Alternating cash dividends with stock dividends ‘Why Investors may prefer lower dividends to higher dividends? > The low dividends are more predictable > Capital gsine may be taxed les heavily than dividends > Of the "bird in the hand” log > Low dividends indicate hen Which ofthe following is NOT correct regarding issuing company’s repurchase of thei shares? > Companies pay out money to sharcholders by repurchasing their shares > Stock repurchases have grown slowly but gradually in recent years: however they do not substitute for dividends > Instead, repurchases are generally used to make major one-off ‘changes tothe firm's capital structure, particularly when cash resourses have outrun good investment opportunities > Repurchateseaa be like bumper dividends; they cavee large sesotnte of cath to be pail t investae when the firm buys back their shares Ip Thighered mograw- fvestment forthe fiture {In a market where the SML (Seewrty Market Line) has low slope, sioat ofthe investors ae > Risk lover > Bink averse > Professional investors > None of the given options ‘What isthe assumed value of ris fre rate of return in Pakistan? » mse > 10% iD In term of diversification, the efficient portfolios mst lie on which of > Capital market line > Money madcet line > Security market line > None of the given options ‘Which of the following is/are ideal souee(s) of eapital for profitable fins becavse of no transaction costs? > Sizeable Cash > Retained Earnings > Both Sizeable Cash and Retained Earnings > None ofthe given options ‘Which f the following is/are the assunption(s) of MM’ (Miller Moditani) Theory? > There are no brokerage costs > There are na taxes > There are no bankruptey costs > Allof the given options il com sites/0073012386'student_view0/chapterI6imultiple choice_ How many approaches are used to caleulat the required rate of renum uizhtal Ascording to MAIL, wit happens when firms debt-to-es > Tes financial risk increases > Its operating risk increases > The expected return on equity Increases > The expected rtura om equity decreases the following are the balance sheet changes, which one of tesa \would NOT represent use of funds by a company? > Rs, 8,950 decrease in net fixed assets, > Rs, 5,005 decrease in accounts receivable > Rs, 10,001 iavease in accounts payable > Rs, 12,012 decrease in antes payable or common equity? ma >? mS ms ‘Whick of the following allows to by-pass the exors of forecasting? > Capital asset pricing model > Gordon's forma > Share valuation formula > Standard deviation ‘The Impairment of Capital Rule refers to what? Cash Dividends can only be paid from cash > Dividends can not exceed Retained Earnings Assuune a company had Rs 1 billion in fre cashflow last year. sd it Restricting te dividend payout if eamsings are too low to pay interest is expeeted 10 grow that cash flow at 3% into perpetuity. Assumin 9% cost of equity. what ie the preset value ofthe company? > Rs.12.08 billion > ReA8AS billion > Re 14.16 billion > Be.1667 billion Forsnala tobe wee in this question ie CF (12) (0CE-2) *(140.09)/(0.09-0.03) 8.16667 ‘While caleulating the stock Beta graphically, y-intereept is known as is one ofits stockholders being the owner of 250 stocks. How man > Alpha > Bers > Gamma > None of the given options > Investors buy stocks whoze dividend poliy they ike Question No: 42 (Marks: 1) Please choose one “Tax Preference Theavy sggest that shareholder wealth is maximized by low dividend payout because of which ofthe following reasons? ‘Marginal tox rate on dividends is lower thsa on capital gaine ‘Marginal tax rate on dividends is higher than on capital gains ‘Marginal tax rae on dividends s equal t capital gains [None of the given options ‘Company ABC offers its stockholders 10 % stock dividends and Me: slunves Mr. Sas after availing the stock dividend? ms > 50 m2 > 250All ofthe following are considered while composing the working pital of firm EXCEPT: > Inventory > Accounts Receivables > Accrued expenses > Matkstable Securities ‘The financial risk ofa firm decreases when it takes on a risky project “he financial risk of a frm increases when itakes on more equity ‘The business risk of a firm increases when it takes on a risky project ‘The business risk of firm increases when it takes on more debt ‘Which ofthe fllowing typeof lease isa long-term lease that is not Finns inerease financial leverage because ofthe increase in which of cancelable % its life sian natches the useful life of te arse? the following? > Aveets > Deb > Equity > Expenses ‘Which ofthe following is called the father of corporate finance? > Prosanna Chandra > Modigliani & Miller > Van Home & Gita > Robert Alan Hill Capital structure theory is presented by whieh ofthe following? > Robert Alaa Hill > Modigliani & Miller > Brigham & Houston > Van Home & Gita If selling price per unt falls and all other factors remain constant, the ‘operating tneak-even points (units) will > Fall > Rise > Remain the same > None of the given options A cor manufacturing company purcnses mdiatrs, axles and other puts to be used in manufaeturing the ear from suppliers rather tha taking them itelE| This refers to which ofthe following? > Ontconrcing > ust in time > Agaressive approach > Conservative approach, From which ofthe following, negative net worth of the company is ‘expressed? > Experiencing a project faiure > Compette’s insolvency > Experiencing technical insolvency > Experiencing accounting insolvency Under which ofthe fllowing conditions, suppliess may sefiee to supply the raw material? > When there is rumor of bankruptey ofthe firm > When fies ae financed shrough debt > When finns are financed through equity > Under uncertain market conditions Which ofthe following is not one of the types of merger? > Horizontal Merger > Vertical Merger > Diagonal Merger > Conglomerate Merger In which of the following theory the value ofthe firm increases > An operating > Both financial & operating lease > None of the given options ‘Which of the following would enuse the gross profit margin to remain ‘wichanged, but the net profit margin declined over the saine period? > Cost Cost of goods sold insreared relative to sales > Sales increased telative toe > Di DiDivicends were decreased ‘The accounting statement of eash flows reports a firms cash flows aa into which ofthe sans cas order? > Investing, operating, and finansing > Financing, operating and investing > Financing investing, and operating ‘Managers prefer IRR over net present value because they evaluate ‘investments > In terms of dollars > lamiively > Logically From which ofthe following category would be the eash flow received fiom sales reveuve ad oer income during the life ofthe project? > Cash flow from financing activity > Cash flow from operating activity » i activity Bond is a typeof Dizect Claim Seenrity whose vale is NOT secured by > aii assets > Fined ansets > Real asset ‘Which one ofthe following isthe right ofthe issuer to callback or retie the bond by paying off the boudholders before the maturity date? > callin > call option > Put option ‘Which of the following is designated by the individual investor's optimal porflia? > The point oftangency with the opportunity set and the capital allocation line The point of highest reward to variability rato in the _macually because of tax savings but with excessive leverage the value opportunity > Trade off theory > Law of diminishing retums > Signaling theory ‘Which ofthe following statements is true about busines isk? The point ofthe highest reward to variability rato in the indifference curve ‘Which of the following is NOT the form of cash low generated by the investuents of the shareholders?> Income > Capital loss » sii gain ‘You wis to cana tum of 13% on ech of to stock, X and Y. Sock is expected to pay adhvidend of. 3 inthe vpcoming earl Stock Vis expected to pea dvidend of Rs inthe ‘peomting yer. The expected grow re of ividends fr both osks 27%. The nai ale of xk X Wille geste than the inne value of tock ¥ > Wile the sme athe nisi vale of tock Y > Wille ee han he intrinsic ale ofstocke ¥ >» Cannot be exuated without nosing the mache at of etn ‘Which of the following is CORRECT, if Gra bw reuse at of rerum equal tothe ROE? > Your rise wil stay the some > Your renum willbe lower In efficient mazket the stock price depends upou the required retura which depends | > Total rise > Diversified risk > Non Systematic rise “How sch rerum woul be offered by the stock whose (ssl and return) pair les above the SML? > Noretum > Lower return > sai “The frm can increase mast price and PIE by setaining more mings Find the Expected Remar on the Maser Posto given that the The firm can increase market price and P/E by easing the growth Expected Return on Stock is 17%, the Risk-Free Rate is 1.1%, and the > None of the given options Which ofthe following is NOT a major cause of unsystematic tisk. > New competitors > New i aa” > stikes ‘Assune that the expected rete of the portfolios ae the same bt their standard deviations are given in the options given below, which ‘Which of the following represent all Risk -Retum Combinations for the efficient portfolios in the capital market? > Parachute ce > Security matket line > lof the given options Assume te nominal interest rates (annual) inthe country of ‘of the option represent the most risky portfolio according to standan Freedonia andthe United States are 6% and 12% respeetively. What is deviation? The logie behin is that instead of looking at net cash ‘he implied 90-dsy-forwnrd cate ifthe cucent spot sae is § Fresdenian marks (FM) per US. dolla’? 4732 > 5283 flows you look at cash inflows and outlows separately for each point Which ofthe following statements is most comect as it eates to the > RR bev paey In which ofthe fllowing approach you need to bring all the projects to the same length in time? > MIRR approosh > Going concern approach > Eau eat anaal approach ll The covariance bereen the secuity and marker renums divided by the standard deviation ofthe market's retums > The variance ofthe security's returns divided by the covariance ‘between the security aud market returns The variance ofthe security's returns dived by the vatiaace ‘ofthe market's returns you become more agaressive with your investments, which one of The presence of which ofthe following consis NOT used asa ma the following is likely to oscar? > Your risk will decease seconding ofa apital esse? > The capital lease is shown on the lessees balance sheet as a asset. : smortized over the asset's useful ie 1 A copital lease i listed as an asset on the lessee’ balance sheet ‘and must be amortized over the lease period. > A copitl eat is listed as an asset on the lesee' balance sheet sad aust be amortized over the assets efile 1% discount is permitted if payment is made within 10 days 10% discount is permitted if payment ie made within 4S days > A 1% discount ie permitted ifpayment ie made within 48 days ‘When the buyer purchases securities through a brokerage house ts called a: > Open-marke operstion > Frinsvaming operation srgument against the MAEM arbitrage process? > Transaction costs> Bankraptey cose > Agency costs A implicit cost of adding debt to the capital structure is that it > Adds interest, oa the: cia i. > Reduces the expected return on assets > Decreases the fim’ beta When financial disarter is looming, why management may boirow to invest in projects having a negative expected NPV? > The firm's beta now negative > Taxes arena longer 8 concer is + the loan costs \Whatisclference herseen shares and bonds? > Bonde: mai = sshereas shares do not > shares and bonds both represent equity > Bonds epresent equity whereas shares do not ‘What isthe preset value of Rs £3,000 to be paid atthe end of 15 years ifthe interest rate is 9% compounded annually? > Re25,500 > Rs.11,989 ‘Market portion of isk oa be sepreseuted through which of the oe > Bera coefficient > Correlation coefficient > Variance “The KSE (Karachi Stock = 100 tases sia shit? > The value of Portfolio of al Stocks > The value of Prtolioof lowest volume stocks > None ofthe given options Allof the fllwing are wed in cleulation of reuived eum on a particular stoek using SML equation EXCEPT: > Risk fice ate > Maske sk premium Stock’ bia (> Stocks price ‘What wil be the Stock Y's premium ifthe average share of took Yass required rtm of 2% ad beta fora tock ie 1.07 In addition, easy bonds yeld ie 10°47 iS ms ‘Which ofthe following represen the tax shield? > Dividends to shareholders > Retained camings > Establishment expenses Which of the following theory suggests that shareholder wealth is maximized by s low Dividend Payout? > MIM Inelevance Theory > Bird in the Hand Theory > Signaling Theory In residual dividend model, what does the term "Conservatism refer? > Overalustion office cash flows > Overestination of fee sh flows > None of the given option ‘Which of the following states that dividends con not exceed retained cmiige wich are show in balance sheet? > > Birdhinthe-hand ale > Tox preference theory ‘Mr. X is going to purchase the stock of ABC Coupany. Mr. X should purchase the stock on which date so tat he ean be entitled to ressive the dividend, keeping in mind the ex-dividend date is Decetaber 7? > December 7 > December § > December? ‘Which of the following statement shows the total stand alone vik of a Sem? > Unique risk + Market risk > Diversified sisk ~ Financial ri » Business risk ~ Market risk Which ofthe following best matches this statement: "A policy under which relatively large amount of cash, marketable securities. and inventories are curied and under which sles are stimulated by a liberal credit a sai in ue level of receivable"? > Lean & Mean working capital policy > Moderate wotking capital policy > None of the given options CCaleulate the return on equity (ROE) of ABC Company using Ds Pont equation and the data given below Profit Margin= 30% Asset Trmave= 50% Leverage Factor ’ 3 ‘ > 14% » 35 ‘Which ofthe following i the total eost formula? > Fixed cost * Quantity + Variable cost > Variable cost * Quantity «Fixed cost D Fixed cost * Quantity - Variable cost ‘Capital structure theory is presented by which ofthe following? > Rober alan Hill, > Brigham & Houston > Van Home & Gittman ‘Which of the following statements is comect egarding an aggressive Snancing policy for a frm relative toa previous conservative poligy? term inaneing to finance al fixed and The fim will see a decline in its overall risk profile> The firm will need to issue additonal common stock this petiod to finance the assets ‘Under which of the following opel a nitions, suppliers may refuse to > When finns are financed through debt > When fms ae financed through equity > Under uncertain market conditions Which ofthe following is also known as service leate? > Capital Lease > Financial Lease > Sale & Lease-Bock > The lower the total debt-to-equity ratio, the lower the Simancial risk fora firma DA increate in nt profit margin with no change in sles or sssets meaus a weaker ROL > The higher the tax rate for a firm, the lower the intrest coverage ratio ‘What isthe present value of Rs.1,000 ondinary anny thet earns 89% sanualy for an infinite namber of periods? > Bs.80 > Res00 > Rs.1,000 > Rs.12,500 (Companies and individuals raming diferent types of businesses have Company A lias to purchase suther company. How de Company A. to-nske the choices ofthe asset according to which ofthe following? psy for buying the other company? P InCash > In Shares » wing > Tivo businesses at the same level of production are merging together Tier > Vertical Merger > Congenerie Merger > Conglomerate Menger Und Ww, ange with > Change in PS > Change financial expenses > Change in business rise > Lifespan ofthe projest > Validity ofthe project > Cost ofthe capital > Return on asset ‘What isthe advantage of a longer life ofthe asset? » Cas flows from the asset besomes non-predicable > Cash flows from the asset becomes more predictable > Cash inflows from the asset becomes more predictable > Cash outflows fiom the asset becomes more predictable Consider two bonds, A aad B. Both bonds preseatly are selling at their par value of Rs. 1,000. Bach pays interest of Re. 120 snasally Bond A will mature in 5 years wile bond B will mature in 6 years 1 the yields to maturity on the two bonde chaage fom 12% to 10%, [Both bonds will ieresse in value, but boad A will increase move than bond B > Both bonds will increase in value, but bond B will increase Accouding to the tnde off theory. value ofthe frm rises av «result of move than ond A > Increase in EPS > Increase in EBIT > Saving in cost of debt > Both bonds will desrease in value, but bond A will decrease sore than boad B > Both bonde will deerease in value, but bond B will derease more than bond A. Given no change in required seturs, the price ofa stock whose From wil uct income can be caleuated?dividend is constant wil > Remain anchanged tata im) @EBIT+x 1 )(1-Te) io >y > Decrease overtime at ate of > Increase overtime at arate of 1 > Decrease overtime at arate equal to the dividend growth rate Caleaanerse BamrmwhiRes fenRupep using lterest Rate Parity ifthe For most firms, P/E ratios and risk, interest on 1 Year Maturity ta Pakistan is 10% and on Eure is 6% and the forward rate is Rs.124 EUR > Be. 6 per EUR Rs. 120 per EUR > Rs, 1240 per EUR. *eellabi ‘is known as selling price for eureney? > astcrste > Forward rate > Spot ate What isthe long-run objective of financial management? > Maximize earnings per share > Maximize the value ofthe firms comanon stock. > Maximize etum on investment > Maximize marketshare Which ofthe following statement (in general) is emnest? > a low eceivables mumoveris desirable > Will be direetly related > Will have an inverse relationship > Will be warlated > Will both inctesse at inflation increases ‘Which ofthe following statement about portfolio statistics is CORRECT? > A portfoio's expected return Isa simple weighted average of expected returns of the individual securities comprising the portfolio. > A portfolio’ standan deviation of return is a simple weighted average of individual security retum standard deviations > The square root of a portfolio’ standard deviation of return equals its variance The square root of a portfolios standard deviation of return equals its coefficient of variation, Which of the following is simply the weighted average of the possible tums, with the weights being the probabilities of oseurence? > A poobsblitycistribution> The expected ret > The standard deviation > Coefficient of variation The equate ofthe standard deviation ie known as the > Bea > Expected return > Coefficient of variation > Variance Why companies invest in pojeste with negative NPV? > Because there is hidden value in exch project > Because they have chance of rapid growth Because they have invested alot > all ofthe given options ‘Aa investor was enpesting a 18% retur on his postfolio with beta of 1.25 before the mavzet rise premiam increased from 8% t0 1 Based on this change, what retum will now be expected om the portflia? > 228% > 200% » 205 > 26.0% Which of the following isthe characteristic of swell diversified portfolio? > Its market sis is negligible > Tes uncystematie risk is negligible > Its systematic ris is negligible > All ofthe given options How the beta ofa stock ean be caleulated? > By monitoring price ofthe stock > By monitoring rate ofretum of the stock > Allof the given options fabitsnge opportunities are tbe mnled ont what woul be the ‘expected excess return of each welliversified portfolio? > laversely proportional t the rsefive rate > Inversely proportional to its standard deviation > Proportional to its standard deviation » Proportional tote beta coeficient ‘Which ofthe following represent all isk -Return Combinations for the efficient portfolios in the capital market? > Parachute graph > CML straight line equation > Security market line > All ofthe given options Which of the following best describes the statement; "The vale of sa asst is preserved regardless of the nate of the claims against i”? > Law of diminishing marginal returns > Law of conser > Law of return on equity > Law of return on assets Fir ABC hias RS million in outstanding deb, curently has 200,000 shares outstanding priced at Rs.60 a share, and has a borrowing rate of 10% Ifthe firm's retum on equity is LS, what is the fim's WACC? > S09! jm of vale ‘Which of the following statements repaiding the M&eM Propositions without rages i rue? The total value of the firm depends on how cash flows are divided up between stockholders and bondholders, under M&M > By comparing the changes in the stock market price tothe Proposition | ‘changes inthe stock market index All ofthe given options Whish of he following fonmula slate beta ofthe etl tothe standavd deviation? > Covariance of stack with market * variance ofthe market > The firm's copital structure is relevant under M&M Proposition 1 > The sos of equity depends on the firm's busines vile but not its financial risk, under M&M Proposition T > The cost of equity rises as the firm increases is use of debt > Covariance of stock with market / variance ofthe market financing under M&M Proposition Il > Variance of the marice/ Covariance of stake mith marker > Slope ofthe regression line ‘Abeta grester than 1 fora stock shows: > Stock is relatively more risky than the market > Ifthe market moves up by 10% the stock will move up by 12% As the market moves the stock will move in the same direction > All of the given options ris: and setur combinstion of say stock is above the SML, what does it mean? Tis offering lower rte of rum as compared tothe eieent stock It fs offering higher rate of return as compared to the efficient stock > Lis rate of retum i zero op compared tothe efficient stock An atbiteage opportunity exist if aa invertor ean constrict a javestment portfolio that will yield a sure profit > Positive > Newative > Zero > All ofthe given options ‘Which ofthe following factors might affeor stock retams? > The business cycle > Interest rate Hoctuations > Intlation sates ‘Which one of te following is corect for the spot exchange sate? > This the rate today for exchanging one currency for another for immediate delivery > This i the rate today for exchanging one currency for another a a specific future date > This isthe rte today for exchanging one ensreney for another ata specific oeation ona specifi future date This the rte today for exchanging one currency for another sta epecife location for immediate delivery ‘The resteruring ofa firm should be undertaken, when: > The restructuring is expected to eneate value for shareholders > Therestructuring is expected to increase eamings per share est year > The restructuring is expected to increase the firm's market share power in industry > The curent employees will receive additonal stock options to align employee interest, ‘Which of the following term is used when the finn can independently control considerable assets with a very limited amaunt of equity? > Joint venture > Leveraged buyout (LBO) > Spit> Consolidation What isthe evonamic order quantity fo an automobile dealer selling 2,000 cars per year, ata cost of Rs.750 per order, nd a earying cost ‘of Rs, 300 per attomobile? > 40 cars > Thears > 100 cars > 126em, ‘As the amount of incresses the preset value of nt tox shield benefits of debt increnes. > Debt > Common equity > Prefered equity > Aves Why the present value of the cost of financial distress inerenees with increases in the debt ratio? > Expected retum on assets increases > Present value ofthe interest tax shield is greater > Eauity tax shield is depleted > Probability of default and/or bankruptcy is greater ‘Who determines the market price ofa share of common stock? Individuals buying and selling the stock > The board of directors ofthe firm > The stack exchange on which the stock is listed > The president of the company Which ofthe following would ease the grove profit margin to remsia ‘unchanged, but the net profit nargin delined over the same period? > Cost Cost of goods sold increased relative to sales > Sales increased relative to expenses > Govt increased the tax rate > DiDiDivideads were decreased ‘Which of the following make the calculation of NPV difficult? > Esimated eash ows > Discount rate > Anticipated life ofthe business > allof the given options ‘Who is responsible forthe decisions selating capital budgeting and expital rationing? > Chief executive officer > Junior management > Division heads > All ofthe given option Mortgage bonds are seoured by ral property whose value is generally tha that ofthe vate ofthe boude ise > Higher > Lower > Equal > Higher or lower “The value of dest claim security is derived fiom which of the following? > Fundamental analysis > Underlying real asset > Supply and demand of securities in the market > Allof the given options ‘Which ofthe following would tend to reduce a finn's PIE ratio? > The frm significantly decrestes nancial leverage The firm inereases return on equity forthe long term > The level of inflation is expected to increase to doublesdisit levels > The rate of return on Treasury bills desreares How the beta of stock can be calculated? > By monitoring prise ofthe stock > By monitoring sate of senam ofthe stock > By comparing the changes inthe stock market price tothe chauges in the stock market index. > All of the given options ‘Where the stock points willie, ifa stock is a pat of totally, diversified portfolio? > Ir will ke below the regresion line > Iti line above the regression line > ie will line exactly on the segression line > Te will be tangent to the regression ine ‘Why debt is less costly source of find? > Because additional interest creates a new form of ax shield > Because additional money creates a new form of tx shield > Because banks extend loan at lover intexest ates > None of the given options Wher a firm ean aequire nother fim? > Only by purchasing the asses of the target firm > Only by purchasing the common stock of the target frm > By either purchasing the assets othe common equity of the target firm > None of the given options ‘What is the economic order quantity for an automobile dealer selling 2.000 ears per year aa sort of Rs. 750 per onder aad a carrying east ‘of R300 per automobile? » a0 care > Tease > 100 cars > 126 cars “The stock in your portfolio was selling for Rs. 40 per sare yesterday, ‘but hae today declared a thee for two stock split, Which of the following statements seems to be trie? > There will be twosthinds as many shares oustanding, and they will sell for Rs. 60,00 each > Thete will be four times as many shares outstanding, and they will sll for Rs. 160.00 cach > Thete will be $0 percent more shares outstanding and they will sell for Rs26.67 each > There will be one-ond-one-half times as many shaves outstanding, and they will sel for Rs.60.00 each ‘Which ofthe following’s existence on the balance sheet generates tax advantages thot directly inshence the capita stnaetare of te firm? > Longeterm debt > Retained earings > allofthe given asewers are conest > A large proportion of fied assets ‘Which ofthe following isan example of restructuring the firm? > Dinidende are increased fiom Re.1 to Re2 per shave > A new investment increases th fr’ busines rile > New equity issued and the proceeds repay debt > A now Board of Directors i elected tothe fmm ‘While calculating the Stock Portfolio Risk using 3x3 Matrix Approsch, the terms shown in Boxes ou Diagonal are called > Covariance > Variance > Coctfcieat > Conrelation ‘Wha isthe basis of CAPM which deseribes how the expected retum, ‘of stock or portfolio is correlated tothe return ofthe financial market asa whole?> Correlation > Bers > NPv > Cosh flow Alumad isa 40-year-old employee and he wants to invest his money, He should put how much money in socks? > The amount tobe invested isa matter of personal preference, based on the Alimac!s goa for his money > The amount is a matter of personal preference, based om the investment ssi only > The ule of thumb suggests that 49% of his assets be in ‘cash bonds sud the remaining 60% in stocks > The rule of thumb suggests that 69% of his assets bein ‘ces bonds sud the remaining 40% instock fs stock is part of totally diversified portfolia then which ofthe {allowing is TRUE for that stock? > Stock’ total Rsk = Company Rise > stock's total Risk = Market Risk > Stocks total Risk ~ Market Risk + Company Risk > Allof the given options Which of the following i the characteristic of Arbitrage Pricing Model tht offers the grestst potential advantage over the Capital ‘Asset rising Model? > It gives the variability of eneficents of sensitivity fora given asset over time > It provides accurate measurement ofthe rskiee rate of eta ‘over histvial time periods > Truses several factors instead of a single market index to enlighten the riskeretum relationship > Ttidentifies the anticipated changes tesm stonetare a key factors in explaining the rskesenan relationship ‘Which ofthe following is tue about the security market line (SML) esived from the Asbitrage pricing model? > The benchmark portfolio forthe Security marker Hine may be sniy welliversified portfolio > The Secuvity masket lin for the Arbitrage pricing mode! has ‘an intercept equal to the expected retum on the market portfolio > The Secutity market line forthe Arbitrage pricing model shows expected return in relation to portfolio standard deviation > The Security market line has a downward slope ‘What should be used to caleulate the proportional amount of equity Einancing exaployed by a fia? > The book vale ofthe frm ‘The sum of common stock and preferred stock on the balance shest > The curent market prise per share of common stock times the muber of shares outstanding > The common stock equity aeeount onthe finn’ balance sheet Inthe WACC equation (r xoWarx # 2x ja g represents which of the following? Weight or Fraction of Total Capital vale snsed from bonds ‘Weight ot Fraction of Toal Capital value raised ftom prefered stock Weight or Fraction of Total Capital vale rused from common stole Weight or Fraction of Total Capital value raised from debentures ‘The Impairment of Capital Rule refers to what? Cash Dividends can only be paid from cash Dividends ema not exszed Retained Eamings Restricting the dividend payout if eamings are to low to pay interest Investors buy stocks whose dividend policy they like Bird-inthe-hand dividend theory wos proposed by which of the following? > Miller Modigliani > Myroa Gordon and Joa Lintner > Henry Fayol > William John snd Lehman, ‘The date on which the right to dhe euvent dividend no longer accompanies a stock is tenmed as Declaration Date > Holderof-re2ord Date > Ex-Dividead Date > Payment Date ‘Which of the following industry is not the exemple of igh leveraged ‘na? > Tentile industry > Cement plant > Education sector > LT industry Which of the following current ase innvestment policy leads fim to ‘maintain small amount of current assets? > Fat cat working capital policy > Lenn & Mean working capital policy > Moderate working capital poliey > Allof the given options ‘Which of the following industries is considered as capital intensive? > Pharmaceutical industry > Textile industry > Information technology > automobile industry Iftoral asets ofthe firm are equal to Rs. 0 and debris Rs. 1,000 then the financial leverage of the firm is equal to which of the production, inflation andfolloning? (FL = Debt (Debt ~Equity)) > 40% ‘Which of the fllowing is called the father of corporat finance? > Prasanna Chanda > Modigliani & Miller > Van Home & Gitanan > Robert Alan Hill, [XYZ Company is financing its seasonal requirements of curent assets with short-term debt and permanent requirement of eusreat assets with Jong term debs, The fim is using which of the following Approach to finance its working capital? > Aggressive approach > Conservative approosh > Moderate agproach > Hybrid approach [NM Corporation is financing its seasonal as well as permanent requirements of eusrentaets wit long term dabt. The frm is using ‘which of the following approaches to finance ite working capital? & Aggressive approach > Conservative approach > Moderate approach > Hybrid approach Mi A.a sole proprietor has purchased the raw material on credit; this ‘nsaction has generated which ofthe following? > Permanent Financing > Spontaneous Financing > Shorter Loon » Allofthe given optionsWhish ofthe following isNOT # souree of spontaneous financing? » Trade credits » shor term loans > Accrued taxes > Wages payable It's useful as an indicator of projects liquidity ait gives an idea ‘hat how long twill ake to recover the fans invested in a projest ‘The regular payback method was widely used, but virtually no companies even caloulae the payback today ‘Which ofthe following describes a set of projects where only one ‘Optimal deb equity ratio lies between which of the following range? project ean be selected? > 20.80 10 7030 > 507010 5050, > 40,60 10 60:40, > 208019 60:40 Company A and Company B merged together in such a way that the ‘combined vale and performance of both these companies is greater ‘than the sum of their separate individual pats. This phenomenon is refered a6 > synecey. > Acquisition > Leveraged buy-out > Hostile merger ‘Which ofthe following is not one of the types of merger? > Horizontal Merger > Verical Merger > Diagonal Merger > Conglomerate Menger AA taget fim does not want to be acquired. That's wy it has taken an excessive shor-term debt to appear unhealthy for the aequizin fim, This phenomenon i refered a > White Knight > Poison Pill > Leveraged Buy-Outs > White squire Under efficient masket, the effect of debt on WACC ena be ‘epeesented with the help of which ofthe following? > Straightline > U shaped curve > Concave > Time to time Huctuation With the increased rate of total isk of the firm, which of the following sill be greatly affected? > Required rate of retumn > Expected rate of return > Muliple sate of cerara > Internal rate of tum Which ofthe following is called ax spontaneous facing? > Cuirent assets > Fixed assets > Curent liabilities > Fixed liabilities ‘Which of the following ie NOT the interest ate used for discomating caleulation? > Benchmark interest rate > Effective interest rate > Peziode interest rate > Nominal interest rate ‘Which ofthe following is tee about payback period? The regular paybsck method recognizes all cashflows over a projest's life Itrecognizes all cashflows over a projee' life, and it also adjusts these cashflows to aeconnt forthe time vale of money > Mutually exclusive projects > Supplementary projects > Complementary projects > Independent projects, Risk em be measured with which of the following statistical tool? > Standard deviation > Totest > Mens, median and mode ‘Which isthe best measure for an » Beta > Variance > Standard deviation > Coefficient of variation ‘Which of the following ype of lease i a long-term lease that is not “| le and it i tatches the wef life ofthe asset? > An operating » Both financial & operating lame > None of th given options ‘What is potentially the bigest advantage ofa small partership over a sole proprietorship? > Unlimited ability sinale as filing > Difficult ownership resale «Raising capita "Whats the present vale of a Rs 1,000 ordinary anit that ears ‘annually fran infinite numberof periods? > R80 » Rss00 > Re1000 > Rs12.500 1000/.08 [As interest rates go up, the present value ofa streatm of Fixed en fovg Gee down > Goerup > Stays the same > Connot be found ‘A capital budgeting tesanique thiough which diseonat este equates ‘he present value ofthe firure net eash flows from an investment project with the project's initial cash outflow is known as > sila Net present value > Profitability index ‘Whicl of the following has "Beta" asa measure of isk? > Firm specific risk, > Diversiiable risk > Unique sk set held in a divesified portfolio? ‘Which of the following risk ean be diversified away? > 4 > Beta rile > Firm specific risk> Make risk is equal to (common shareholdes’equity/eomaman shares outsiand | Liquidation value per shave > Market value per share > None of the above ‘Which ofthe following isthe variability of etum en stocks or portfolios nt explained by geueral mavzet moverneats,Itis avoidable ‘thiougl divesifcstion? > systematio risk > Standard deviation > Financial isk “The Higher the Ris: of a Share, the snd the its Market Price. ine Rate of Rena > Lower: Higher > Higher; Higher > Lower: Lower ‘Which ofthe following is NOT a major eause of systematic risk, > A worldwide recession. > A world war World energy suppl | Capital badgeting is » deveatrlized function sesigued to: > tndivicuale > Departments > Teams ‘Macket ree i meseured in tens ofthe [portflio or inde. > Variance > Covariance ofthe macket > Correlation coeficient > Stay the same > Incomplete information ‘Which of the following represents financial snip Debt is not sed in capital to increase profit > High degree of solvency > Low degree of solvency Which of the fllori ‘isin fo aternatoual investment? > To gain access to important raw materials, > To produce products and or services mote efficiently than possible domestically >> lntetnational investments have less politcal isk than domestic investments Assuming thatthe fim can ether hold cash paying no intrest oF invest in mavketable seeusities, whieh ofthe following might induce the ni to bold wi cosh balances? 1 Future cashflows ate relatively predictable > The cost of cash balances is relatively high > Bonk interest ates are expected to increase ‘The stock in your portfolio was selling for Rs. 40 per share yesterday, but hae today declared a thee fr two stock split. Which of the a statements seems to be tre? There will be four times as many shares outstanding, and they will sell for s.150.00 each > Thete will be $0 percent more shares outstanding and they will sell for R826 67 each > There will be one-ond-one-half times as many shares outstanding, and they will sel for Rs.60.00 each After the payment of 25% stock dividend, an investor has $00 shazes ‘Why market values ae often used in computing the weighted average of stock and Rs. 400 total value. What did the iavestr have pre to ‘cost of capital? This i the simplest way ta do the caleulation ‘his is consistent with te goal of maximizing shareholder value This is required inthe US. by the Seeurites and Exchange Commission Caloulate the breakeven (quanti) point given the following information. The fim ba Re 1, 000000 in fed cose, The fina produces only one predict and anticipate selling each nit for Re 25 With variable costs of R$ per unit > 200,000 > 50.000 > 20,000 > There not ufcien information provided to ealeuate the sales break-even pont ‘Which of he fellowing costs would be considered a fixed cost? > Raw > Badndebt losses > Production labor In the contest of operating leverage break-even analysis, if selling price per unit falls and all other vasiables remain constant, what will be the effect on the operating break-even point in units? the stock dividend? 375 shares of tock and Re 375 total value ‘400 shares of stock and Rs, 400 ttl value 400 shares of tosk and Rs, 500 total value > 625 shares of tock and Re, 400 total vale ‘Which term would mos likely be associsted withthe phrase "actions speak louder than words? > Incentive signaling Shareholder wean sximization The value of Portfolio of all Stocks > The value of Portfolio of lowest volume stocks > None of the given options ‘While calculating the stock Beta graphically, y-intereept refers to: > Market risk > Syotemati ae > Nondiversifiable rise Which of he salah ae portflio's risk?> Own a basket of securities that don't behave alike > stock splits > Own a bach of socks fom the same industry CCalenlate the renin on equity (ROE) of ABC Conpaay using Ds > Oven less risky secusities only ont equation and the data given below If stock is part of totally diversified postflio then whic ofthe Profit Margia= 3 following is TRUE for that stoek? Asset Tumover= 50% > Stocks total Risk ~ Company Risk Leverage Factor = 60% > Stoci’s total Risk ~ Market Rise 3.505 P allof the given options the Market Risk ofa stock is 2 rnd Stock’s Beta i 2.0, then soft Margin x Asset Tumover x Leverage Factor (or Equity ‘what is the Relevant Market Risk Component ofthat stock? Maltplier) > 50% (Net IncomeSales) x (Salew/Assets) x (Total Assets Equity) > et Income | Equity ‘Business risk stems ftom operations and the, ofthe finn, > 60% > Liability Lf the Market Risk ofa stock is 18% and Stock’ Beta is 2.5 then wisst, is the Relevant Market Risk Component ofthat stock? > Capital > Revenue ‘Which ofthe following statements is TRUE about an aggeessive proach fo finanee working capital? Pane Which ofthe following isthe main feature to adopt the Asbitrage Pricing Model? > Risk need not to be considered > Finaneing permanent requirements of eurent assets with short thas covered all the shortfalls ofthe Capital Asset Pricing Model term debt aad seasonal requirement of current assets with long tera > The model requies a specific benclmare maszet porfalio debt > Financing seasonal os well as permanent requirements of ccurent assets with short-tenn debt ‘Wit should be used 0 caleulate the proportional amount of equity > Financing seasonal as wel as permanent requirements of| ‘inaasing employed by a fia? ccarent assets with long term debt “The book value ofthe fim Every firm stives to achieve which of the following? ‘The sum of common stack and preferred stock on the balance sheet ‘To keep Return on Equity (ROE) lower than Expected return (¢2) enutn on Equity (2OF) equal to Expected rain UBTED > The common stock equity account onthe firm's balance sheet ll ofthe given option ‘Tax Preference Theory suggests that shareholder wealth is maximized Capital st which ofthe following? by low dividend payout because of which ofthe fllowing reasons? See eee ee eee ao Lam Ves cm D Marginal neon vides equal mpl as > Reber ale il > Son oft isa opens “Which ofthe ellie the characters of peating lense? Bzdinahe and dnd enya proposed by which ofthe > Levor main and ances he Aer falvinn? > Kien tly amozed > Nile: Modis lis cmesate Hey Fay “When rat ale of moter snl ins ess than the ost of > Willa faa Lehn replacing te ae of our ots Et nbeterto by anther Sr ‘The date en hic tes of seks in he Stok Treas Tsing Register of fina re doomed refed > ra » Detarsion Due > Deena “ Holderoreco Date > Spine PExDrvend Dae > Anse siping > paymsit Date Mos ofthe fins wih to matin tr api sete he frm 12 Corporat i fied its sharcholes the pio at it of ich ofthe lly dssdend il eed prasad share of his biotic erprtion Th offer of XYZ Comoran tela eae Perret xy 1 Divided sevenineat > 100% om he pron > StoccdividendsCalculate the Forward Rate for Rupes using Interest Rate Parity ifthe interest on 1 Year Matty in Pakistanis 10% and on Eno is 6% and the forward rate is Rs.124 EUR > Be, 6 per EUR, > Rs 120 PRs, 1240 per EUR, If Return on Equity (ROE) is higher than the Expected Return (ROE To pay our the dividend this will raise the share price > To finance short-term need with long-term debt > To finance seasonal needs with long-term funds ‘Which ofthe following iss boud that could be defined ae “a bond bearing a yield that may ise oe fll according tothe actuation inthe smuacket"? > si ii bond Low coupon bond > Bure bond ‘Which of the sini can be used as mensie of return? > Forecasted purchase price > Forecasted dividend > Forecasted time span of project When 4, ~ Oit means that: Investments ate-not correlated > Investments are perfectly positively correlated > Investments are sia a comelated