UNIVERSITY OF a2kGOS \ SCHOOL OF POSTGRADUATE STUDIES i DEPARTMENT OF BINANCE MDE/PGD QUALIFYING £ AMINATION 2014/2015 F CORPORATE FIN a ‘ INSTRUCTION: ATTEMPT ALLO IN: MCQs in the OMR sheet provide y required af you in the OMR shee! OMR sheet must be submitted togeth ; TIME ALLOWED: 40 MINUT: hade with HB pencil th correet d. Eusure that you prdvide all t. Both the question paper and (the end of the cxantination. 1. Bobby Pie. has an issue 11.5% B 2, 000, 001 0 irredeemable preferende share ith a current market value of 8 2,9 75,000. Determine the cost of prdference share. | a 7% b. 7.6% 7.7% 4.725% es nel | = 2. The most prefer forni of dividends payment in Nigeria tock split. B-Stock dividend. —_e, Cash dividend. —_d. Reverse iB split. 3. One of the disadvantages of stable dividend policy is. a. It ensures regularity in the payment of dividend, b. It tends (o reduce the level of uncertainty ¢. It enables company to retain more especially in a boom year, Profit or earnings for internal financing, 4. In case of making loses, the company must pay dividend, 4. Charles Ple, as at 31° December, 2013 is financed by 1,000,000 ordinary shares of 8 1.00 each currently selling at 4 9.68. An ordinary dividend of 70 Kobo is expected to be paid at the end of the current year and the annual rate of growth of dividend has been stagnant at 8%. What is the company’s cost of , equity? a. 172% b.14% ©. 14.2% 4. 15.2% ®, Dividend decision in a corporate firm is based on the... a. Profit maximization b. W minimization ++ objective ealth maximization c. Risk management d. Value 6. Dividend policy is usually decided upona. at thejcompany’s annual general meeting - ». After the company’s annual general meeting ¢- At the company’s extra ordinary mecting, d. Prior to the company’s annual general meeting. 7. Dividend clientele ¢ ct is based on the a variable in determining the company v An active, ssumption that dividend nue, policy is b. Not an active, ¢. Constant. i. passive, 8. Modigliani and Miller hypothesis is b: ased on... a. Imperfeetamarket b, Pr market ¢ Monopoly market d. Oligop “9. Modigliani and Miller believe that the v a. Dividend decision . d. All ofithe above poly market alue of a company is based on b. Financing decision ¢, Investment dee 10. Dividend theory of Modigliani and a. Dividend Relevant Payment d. All of the above Miller is known as b, Dividend Yrrelevanc, ©. Dividend 11. Which of the following is not an assumption of the Modigliani and Mille theory? : ‘ a, No corporate tax b. Capital Market Imperfection e. There is no risk at all d. Perfect market situation 12. The bird.in hand theory of dividend polic a. Gordon b. Waiter y Was first propounded by c. Modigliani d. John Litner 13. In Gardon model, retention ratio is denoted as aeche i b. EPS e. DPS db 14. The dividend annual growth rate is defined as a, Earnings per share X Dividend per share b. Retention ratio X Warnings per share ; - Retention ratio X Internal rate of return Gd. Retained earning 15. The sien relev: ancy theory is not supported by a. Gord ln b. Walter ©. Modig! niand Miller ‘da and b fs ©16, Abu Pl period of S ye asan issue 14% N 1,000 face vaiue bond which has a maturity - Catculate the current market price of the bond, if thre yield to maturity is 12% and interest is paid twice in a year, 4 1,063.60 b. 8 1,073.60 eM LL 60, d. none of the above 17. One of the a ‘sumptions of Walter model is that a. Dividend per share is not constant : ning per share is constant tention ratio is constant d. Growth rate is constant 18. The following are factors affeeting dividend policy except a. Age of the director’sb. Size of the firm. e. Inflation d. Loan agreement . One of the effect of reverse split is that he aumber of outstand split. shares increases proportionately with reverse b. ‘The par value of company share decreases. c. Reverse split serves 1n indication that future dividend thust decrease, «i, Cash position, and liquidity position of a company remained unaffected 20. One of the following is not true about stock split. ‘tock split serves as tax benefit to the existing ordinary shareholders of a firsa. }. Stock split serves as an indication that future earning will decrease. e. Stock split serves as an indication that future dividend will increase. 4. Stock split makes shares of a company more attractive to rational investors, 21, The most preferred fornt of dividend payment in Nigeria is........ 1. Stock split. b. Stock dividend. ce. Cash dividend. d. Reverse split. 22, A bond with 10 years until maturity pays an annual coupon of N90 and will also pay NI, 000 a maturity. What is the price of the bond, if the interest rate 6 9%? aM 1,000 boN 1,100 ©. M1140 d. None of the above One of the following is not a type of dividend policy. : - Stock dividend policy. __b, Residlual dividend policy. c. Stable dividend policy. d. Constant dividend policy.24. Dividend decision is based on the. objective a, Profit mhaximization b. Wealth maximization c. Risk man: d. Value minimization 25. How long will it take an investment to triple itself if th, terest rate is 14.5% per annum compounding interest? 7 a. 7years b. 8years ©. 9years dy LOyears 26, What interest rate compounded quarterly will make to N 20,000 for 4 years? a. 9% b.36% 24% 00 te accumulate d. 37% 27, Kind the present value of N 15, 500 promised to be paid in 5 years’ time. Interest if compounded continuously at 20% a. 85,759 b.N6,500 ©, 85,702 d. N5,800 28. How long will it take N 5,000 invested now to accumulate $ 36,000 if interest rate is 12% per annum? a. 10 years b. 11 years ©. “Ars d. 13 years 29. The first important steps involved in ca a, Identifying possible alternative to the proj b. Identifying possible investment projects c, Project selection d. project monitoring and control. al budgeting ct being evaluated 30, The expected annual rate of inflation is 12% and the money cost of is 20%. Caleulate the real cost of capital. a. 8% b. 9% 7% a. 5% apical 31. Kolex is thinking of acquiring some shares of Beta Ble. The rate of return expectation are given as follows: Return Probability wii>:* 0.40 | 0.12 0.50 0.18 0.10 What is the extpeted return or mean on his investment? is a. 18% | b.14% ©. 19% 18.4% | | | 4-d - An account holder deposits N85, 000 in a savings account paying 12% interest compounded quarterly. How much will be in the account at the end of the 5 years? F153, 819 ©. 149,799 4d. 149,800 One of the condition for using weighted average eost of eapital as a discount rate for investment project appraisal is that... a. The capital is optimal i. The capital structure is not optimal ¢. The new project and proposed proj re not optimal d. New funds are raised in such a way that the capital structure remains: unchanged 34, GOODLUCK Pic. has been offered an opportunity to receive N350, 000 in S years’ time from now. If the firm can earn 10% on its money, how much is it worth today? a. PF 197,566 b. N 620,046 e. N177,566 — d. 8217, 322 35. The overall cost of capital is known as .. a. Weighted average b. cost of capital —c._ weighted average cost of capital d. cost of equity 36. Kenny wishes to determine how much depositing 4 15, 000 at the end of ©: r will amount to in the next 5 years. Lf annual interest rate is 15%, how much will be in his account? a, 101, 136 b. 8 106,728 ¢. BE 95,293, d. N 54,072 37. Which of these is not relevant in computing cost of equity? a, Propose dividend per share, b. Annual Corporate tax rate ¢. Annual dividend growth rate. xisting dividend per share 35, The Net Present Value pf a project have been estimated as follows: Discount Rate (%) Net Present Value (2, 000) 20 25 -15 Use the above data to determine the best approximation of the preicct’s internal rate of return (IRR). a. 22.67% b. 24.09% ce. 23.13% a. 23.25% ™39. Cost of preference share is best defined as the. wee expeeted by the provider of preference s a.Maximum b. Highest -rate of return e capital. c. Biggest d. Minimuns For Questions 40, 41 and 42, A project has a cost of N 53, 500 and its expected né per annum for 6 years. If the cost of eapital i ‘ash inflows are N Li, 500 40. Calculate the project’s payback period to the nearest year. a. 4.65 years b. 4.7 years ed yours ds Seyairs 41. The project’s Net Present Value is a. 378,221 b. N81, 087 c. NSB, 376 d. N4, 870 42, The project’s profitability index is aloo b. 1.06 ©. 0.09 d. 0.06 43. One of these is correct about cost of debenture stock. a, Cost of funds raised by firms, b. Discount rate of return that equate terminal value of de! from the debt. ©. Discount rate of return that equate current market value of debt with the proceeds from the debt. d. It has a fixed dividend return. . be with the proceeds 44, The most risky managerial function of a liability company is a. Investment decision b. Dividend decision d, Acquisition decision. » financial manager in a limited 45.-Johinson ple, has an issue 16% N1, 000 irredeem selling at 8 4,020. What is the cost of debt if the corp: a. 10% b. 19% ©. 20% ble Debenture currently orate tax rate is 35%? d. 14% 46. A project cost N8 million and it will gener: Year 1 -N3.2 million _ Year 2 -/N3,250,000 Year 3 -/N3,300,000 ‘ate cash profit as follows: Year 4 -|N3,350,000 If the company cost of eapital is 18%, what is the project’s accounting rate of return? a. 30% b.31% 6.32% “d. 33% | | 6 | | |47, What is meant by the trade-off between risk and return’? Risk should he higher than return ~ b. Risk and return go hand in hand ©. Return should be higher than risk d. Return and risk move in opposite direction 48. One of the following stateme st of funds raised by firms, count 1 ¢. Minimum nts is not true about cost of eapital. te of returns for discounting a project’s cash flows. Ate of return expected by the provider of a company funds. d. Maxinrum rate of return expected by the provider of a company funds. c. None of the above. 49. The element of cost of capital is among other the following: a. Risk free rate of return b. Premium for investment risk ¢, Premium for insurance risk d. Premium for dividend risk 50. is the risk associated with introduction of debt into a company capital structure. a. Business 5 b. Specific risk. ¢. Interest rate ri 51. ABC Ltd has in issue 2,000,000 ordinary share of N 1.00 each with a current market value of 8 10.60 per share. Ordii ary dividend of % 1.56 million was recently paid and dividend annual growth rate is 12%. What is the cost of equi % 2.20% b.21% €.22% 23% Kk d. Financial risk. 52. Calculate the number of years needed to accumulate 8 155, 000 if & 10,500 deposited into an account at 25 percent compounded annual interest. acliyears ~ b.12 years c. 13 years a, 10 years 53. What will be the total amount receivable from an investment of N 800, 000 inade for 5 and half years at 14% compounded annual interest? a. ™ 1,644,624 b.N 1,664,624 c. 8 1,540,332 d. 8 896,000 54. One of the effect of reverse split is'that .. he number of outstanding shares iner apt i b. The par value of compas . Reverse split)serves as i d. Cash positio ses proportionately with reverse hare decreases. n indication that future dividend must decrease. ud liquidity position of a company remained unaffected 755. Aboki Ple. has 19.5% -N 1, 000 irredeemable debenture with a current market value of N 865. If the corporate tax rate is 40%, calculate the cost of debt, a, 10% b.12% * &13% ~ d.1d% 56. One of the following is not true about stock split. a. Stock split serves as tax benefit to the existing ordinary shareholders of a firm. b, Stock split serves as an indication that future earning will decrease. ¢. Stock split serves as an indication that future dividend will increase. d. Stock split makes shares of a company more attractive to rational investors. For Questions 57, 58 and 59 ABC Ple, and XYZ Ple. are in same risk class and similar in most respeets. ABC Ple. is levered applying 8 1,200,000 debentures at 20% interest rate while XYZ Plc. is unlevered. Both firms earn 30% before interest and taxes and their total assets is 8 12 million, If capitalisation rate for an all equity firm is 25%, 57. The value of ABC Ple, using the Net Income (NI) approach is~ a. N 14,600,000 b.N 14,640,000 ¢.84.14,400,000 dN 16,400,000 58, The value of XYZ Ple. using the Net Income (NI) approach is ------ a. 14,640,000 .b.N 14,600,000 ¢. 8 14,400,000 . 8 16,400,000 59. The overall cost of capital of ABC Ple. using Net Income (NI) approach a. 24, 6% b. 24.8% ©. 24.9% 4d. 26% 60. The most risky managerial function of a financial manager in a limited iability company is a. Investment decision b. Dividend decision e. Financial ion.IVERSITY OF LAGOS SCHOOL OF POSTGRADUATE STUDLES DEPARTMENT OF FINANCE, MDIV/PGD QUALIFYING EXAMINATION 2014/2015 ECONOMICS INSTRUCTION: ATTEMPT ALL, QUESTIONS. answers to these MCQs in the OMR sheet provided. Ei ‘details required of you in the OMR sheet. Both the qui submitted together at the end of the examination, TIME ALLOWED: 20 MINUTES Shade with HB pencil the correct nsure that you provide all necessary estion paper and OMR sheet must be 1, A measure of real na ra GDP derived by valuing production at the prices of both the hace nt Sear and previous year and linking those prices back to the prices of the reference base yeas is known as a. Chained-naira real GDP b, Nominal GDP ©, Real GDP ¢ 4. Real per capita GDP e, None of the above 2, he fall in (otal surplus that results from a market distortion, such as a tax is referred to as a, deadweight loss b. lightweight loss e-heavyweight toss 4. small-weight loss ©. None of the above 3. A person who receives the benefit of a good but avoids paying for it is called a.freerider b. free agent © rent secker d economic thief 4. indexation means 3. the automatic correction by law or contract of an amount for the effects of inflation b. the automatic correction by law or contract of an amount for the effects of exchange rate «- the automatic correction by law or contract of an amount for the effects of unemployment 4. the automatie correction by law or contract of an amount for the effects of deficit in the balance of payment 5. If real GDP for a given year is N 4500 billion and nominal GDP is ®¥ 4500 billion, this implies that a. this year is the base year for the GDP deflator. a b, the GDP deflator for this year is 1.25. ©. the GDP deflator for this year is 0.8. 4, the GDP deflator for this year is 1.10, e. None of the above 6. Which pf the following is true of a cartel? cartel Is a coalition of firms that seek to coordinate their decisions so all firms ean earn a higher economic profit. b. A cartel is a way for firms to earn more by playing their dominant strategies, ©. A cartel is considered stable. a. A cartel seeks (o maximize total revenue of its members. ¢. Noue of the above7, Which of the following statements about a firm’s production function are true? 1. When total product is at its maximum, marginal product is zero. U1. When total product rises, marginal product is rising. TUL. When marginal product is greater than average product, average product is rising. TY. When marginal product is less than average produet, average product is falling, a, Land TI only b, I and II only c. [and IV only d. 1, Ul and LV only e. None of the above 8, With a Cobb-Douglas production function, the share of output going to labors a, decreases as the amount of labor increases. b. increases as the amount of labor increases. c. increases as the amount of capital increases. d. is independent of the amount of labor. e. None of the above 9. Which of the following is true of a pure monopolist's demand curve? ¢. IL is perfectly inelastic, . b. It is perfectly elastic. [coincides with its marginal revenue curve. 4. Ttlies below its marginal revenue curve. ce. It lies above its marginal revenue curve. 10. A steeper LM curve means that the demand for money is a, more interest elastic b. less interest elastic ¢. interest inelastic d. unitary interest elastic, none of the above 11. A flatter LM curve means that the demand for money is a, more interest elaétic . less interest elastic c. interest inelastic d. unitary interest elastic e, none of the above 12. The analyzes the income distribution effects of trade in the short run, when resources are immobile among industries. a, Stolpher-Samuelson theory b, Factor endowment theory ¢. Specific factors theory 6. Overlapping demand theory 13, The first country to establish a formal inflation-targeting regime is a, New Zealand b. Canada ¢ Australia a. United Kingdom e. none of the above 14. Which of the following countries has a statute that allows the governor to be dismissed if inflation performance is inadequate? a, New Zealand b. Canada c. Australia 4. United Kingdom e. none of the above The doctrine of purcbasing-power paria. fy a completely accurate deseription of the real world, 's, would be entirely accurate if only goods were ir & Would be entirely aceuvate if all consumers had the same peeferences, 4. provides a reason to expect that mov, small or temporary, aded. ements in the real exchange te will typically be 10. Which of the following is common to self-deel: 4. announcement of inflation rule. fared inflation targeting countries’? targeting as a new monetary .poliey approach or objective or principal goal of monetary © a mechanism for accountability 4. a high degree of transparency with regard to monetary policy formulation ¢. all of che above 17, Conceptually, the best intermediate targets of monetary policy is the one which, once fixed a. Results in the lowest variance of the ultimate objective around its target value b. Results in the lowest variance of the ultimate objective around its largest value c. Results in the lower variance of the ultimate objective around it largest value 4. Resulis in the lower variance of the ultimate objective round ils largest value v. Nune of the above 18. According to the » the export of the product that embodies large amounts of the relatively cheap, abundant resource results in an increase in its price and income; at the same time, the price and income of the resource used intensively in the import-competing product decreases as its demand falls, 4, Ricardian equivalence theorem b, Smithian equivalence theorem ¢. Stolpher-Samuelson theorem 4, Horaanke-Greenspan theorem 19. Seigniorage is: . tie difference between the face value of money and the cost of producing the m b. the offference between the face value of Treasury bills and the Treasury bills ¢. the difference between the par value of money and the face value of money d, the difference between the par value of Treasury bills and the face value of Treasury bills ney ost of producing the 20. Euipirically, which of the following is the longest lng in monetary policy? 4. Action lig b, Recoguitionlag — c, Outside Lag «Inside Lag © none of the above 21, Assume that sume nvestment tax eredit, investment: foreign countries begin (o subsidize investment by instituting an Then, if world saving does not depend on the interest rate, world a. will rise and home country investment will fall, b, will rise and home country investment will remain unchanged. . ©. will remain unchanged and honte country investment will fall. 4. home country investment will both remain unchanged. ¢. None of the above 422. Which of the following is true of an indicator uf monetary policy? 2, It must be easily observable with time lag b. It must not be affected by the policy undertaken ¢. It must be related to the target and to the g d. All of the above e. None of the above 23. One of the folloiving prefers the use of money supply as the Intermediaty ‘Target of monetary policy. a. Classical Economist b. Keynesian Economist c. Fisealist d. all of the above e. none of the above 24, One of the following is referred (0 as an instrument of lust resort? a. bank rate b. open market operation —_c, cash reserve ratio 4. Special deposit €. none of the above 25. Which of the following is regarded as a residual instrument of monetary policy? a. bank rate b. open market operation _¢. cash reserve ratio d. Special deposit €. none of the above 26. The marginal rate of substitution between food and shelter for a gi indifference curve a. is equal {o the absolute value of the slope of the indifference curve at that point. b. is equal to the rate at which the consumer is willing to exchange the two goods in the marketplace. ¢. reflects the relative values the consumer attaches to the two good. 4d. is deseribed, in part, by each of the above statements. point on an 27. Which of the following is not an assomption of ordinal utility analysis? a. Consumers are consistent in their preferenc: b, Consumers can measure the total utility ree: ¢. Consumers are non a. All are necessary. e. None of the above, ed from any given basket of pood. tiated with respect fo the goods they confront. 28. The budget allocation rule states that a, the marginal ulility of x equals the marginal uiility of y at maximum utility, b. the marginal utility of x divided by its price be equal to m divided by their prices. ¢, the marginal utility of x equals the marginal rate of substitution of x for y. 4. the ratio of prices of x to y be greater than the ratio of marginal utility of x to the margins utility of y. e. none of the above, rginal utility of all other goods 29. In spending all his or her income, the consumer chooses the market basket that maximizes his or her utility. * Which of the following statements will be correct? 1, The marginal utility is the same for each commodity, a bs j2. The marginal utility per dollar spent is the same for each commodity 3. The marginal utility of each commodity is proportional to its price, a. i only. b. 2 only, ¢. Land 2 only, a. 2 and 3 only. e.1,2, and 3, ished from necessities by 4, the number of substitutes available for each. b. the fact that luxuries have high prices and necessities have low ones. © the high price elasticity of demand for luxuries and the lew price elasticity of demand for necessities. ¢. the high income elasticity of demand for luxuries and the low income elasticity of demand for 8s absolute slope of the Engel curve. arginal rate of technical substitution is eat whieh 4 producer is able to exchange, without affecting the quantity of output produced, a little bit of one imput for a little hit of another input. b. the rnte at whieh a producer is able (o exchange, without affecting the total cost of inputs, a little bit of one input for a little bit of another input. ©. the rate at which a producer is able (o exchange, without affecting the total inputs used, 2 litile bit of one output for a little bit of another output, d. a measure of the ease or difficulty with which a producer c production for another, n substitute one technique of 32, If (4c eapital-labor ratio changes from £00 to 150, while the marginal rate of technical substitution between capital and labor changes from 50 to 100, the clasticity of input substitution ot be calculated. b, remains unchanged. s equals 2, d. equals 0.5. a, can 33. The expansion path identifies a, the least costly combination of inputs required to produce various levels of output, , the ffrm’s demand eurves for the inputs. ¢, the various combinations of inputs that can be used to produce a given level of output. d. the jeast-cost combination of outputs. 34, A tangency point between an isoquant and an isocost line identifies 4, the least enstly combinstion of inputs required to produce various levels of outputs, b, the various levels of output that can be produced using a given level of imputs, © the various combinations of inputs that can be used to produce a given level of output, (the least costly combination of inputs required to produce a given ievel of output. 1$35. A firm is employing 100 units of labor and 50 units of capital to produce 200 widgets. Labor costs N10 per unit LK and capital NS per unit. For the quantities of inputs employed, MP =2 and MP = 5. in this situation, the firm a. is producing the maximum out the inputs. b. could lower its production costs by using more labor and less capital, ©. could inerease its output at no extra cost by using more capital and less labor, 4. should use more of both inputs in equal proportions, z put possible given the prices and relative productivities of 36. The efficacies and virtues of market system is greatly extolled in one of the following, schools of thought. a. Keynesianism bh, Monetarism c. classiealism d. democracy e, sovialism 37, Macroeconomics is concerned basically a, Sustainable increase in national output b, optimal allocation of national resources ¢. overall increase in the general prices of goods and services 4. employment of national resources ¢. setflement of balance of payment crises. with the following except one 38: 4 fashion designer charges 45000.00 for each cloth that she makes. The fashion designer 2 pays her shop apprentice 8500.00 per cloth made in return for sweeping the floor and other chores and occasionally tips her N200 for helping to take of her children b by taking them to nearby school. For each clothe sown, what is the total contribution of the tailor and her apprentice (© GDP? a. N5500.00 b, NSO0.00 5000.00 4. 8200.00 + &5700.00 39. Keynes suggested that the most effective mean sof eliminating recession in ain economy is for a. Nigerian citizens to demand for the Nigerian produets : b. US Government (o render finaucial assistance to the Nigerian government ¢. Nigerian Government to spend on construction more hospitals and schools a. only a and b, ¢. all of the above 40. The expenditure,by the Lagos state government is said ( be autonomous becanse a, Fashola has decided to pass the state budget to the Lay gos State House of Assembly for approval », Fashola has not received the state subyention from the Federal Government of Nigeria ¢, Fashola has decided on how much it wishes to spend level of the state financial resources d. All of the above e. none of the above, and hold to these plans whatever theUNIVERSITY OF LAGOS SCHOOL OF PosTGRaDUATE STUD i TMEN "AR MDE /PGD QUALIF INSTRUCTION, TTEMPT ALL QUESTIONS. Shade with junswers to these MCQs in the OMR shen Provided, Ensure that you eal Recessary details required of you in tne OMR sheet. Both the Sieation Paper and OMR sheet must be subymiticd topethier at the end of the HB pencil the TIME ALLOWED: 1. The essential femture of a is thatit immediately fixed the rate tigullich a specified amount oFoae currency isto be delivered in exchange far # specific umount uf anther at a future ds forward contract bh. spot contract S miuney contract d. bid contract 2 Scigniorage iy ————— (6) the.difference-hetween-the-tace-value-of my eyaind the cost af producing ihe mouey (b) the difference between the fren value of Treasury bills and the (ost of producing the Treasury bills (e} the differ nee between the par value of Teeas i bile alte OF money (a) the difference herecee gee par valec of Freasury bills and the face value of Treasury bate ‘ete aftechoieal substitution (MRIS), 4K a (oy) 4. What is the MRIS, 1f 243 and 1-181 (a) 0.534 (b) 5.034 (6) 0.654 (a) -0.895 : 5. Which school of thought believes in the neutrality of money? ‘the Mercantitist (bj the Classicals fe) ihe Kegneisace (0) the new Keynesians 6 Which of the following statements is correct? @) Asymmetric information leads to severe selection (b) adverse selection a ‘$seads to asymmetric information (c) adverse selection lewds tw an insurance Problem (d) murat huzard leads to asymmetric information, 7. Hom can the problem of adverse selection be overcome’ (G) By buyers getting mare information uo te yuality or the ROO oF senice (b) by sellers providing more information of the quality of the Bovd or service ic) by brand ugmes and chain retailers (4) by profesiongt licensing {e) att of the above. & dn an economy: of ta individuals (A und 2) and two commodities (X and 9) Eevera! eguiliprium of production and exchange occurs when (2) MRT. = P./P, (b) MRS,, for A and B= Polly (6) (MRS,,)4 = (MERS,,)y (0) MRT, = (MIRS,,), = (MRS, Jo Palit distribution of two commodities bercen two individunte irs Pareto optimal if (2) one individual eannot be made better off without making the otherwweine afl, () the indi on their consumption contenct curve, {ey the individuats 0 their wiility-poss 1 (a) sO the above, il Io be Th. Ths locas of penera! equilibrium points ofexchange i a two Sudividuet, wna commodity econumy is called {2) ie consumption contract curve (b) the production contrac} curve (e the scl 1 welfare function (d) the transformatian curve, Ui. When the perfectly competitive firm equilibriam (@)P=MR nat the industry is im fony-r C (b) P=MR=LNIC= LAC LMC #84C=LAC SMC = LMC#SAC= lowest point an the LAC curve, Fane eg TEterenee ta the Couraot mode Sersrniine wiht of thd filleden statements is false, (9 The duopolists do not recognize their interdependence (2) Each duopolist assumes the other will keep is quantity constant {9 Each duapolist assumes the other will keep ils price tacts (@).The solution is stable. 13. Which of he following is the way in whict extubtished Sirns within an 2 %industry can set price with the objective of preventing new entry? {a) Vransfer Pricing (b) Limit Pricing (c) Unit Pricing (d) Entrance Pricing 14. The centralized cartel (a) leads to the munupoly solution (b) behaves as the TULiplant muanopotist i it wants to wiinimize the total costs of production (e} is illegal in the United States of America (d) nlf of the above, 15."Phe Lerner index for s firm increases when {a) the number: of substitutes for the firm's product increases (0) herter substitutes for the firm's product are intraduccd (c) more competitors enter the markel (d) the price clusticity vf deniand for the firm's product decreases 16. Which of the following statements is correct with regard tw the theory: of revealed preference? : (2) It infers a consumer's preferences from that person's market choices (yin can he uscd! to derive a consumer's indifference curve (c) it can br usedh to derive a consumer's demand ewrve, or (dl) ll of the above. 7. Which of the following repre : (5) an audvanee of the new approach 10 consemer theory-overtend tignal ca Somer Theary? (2) Substitute goods are exptained in terms of possessing some common characteristics, (b) the introduction wf new goods can he euiisidered, (c) ‘quality changes enn be considered, or (¢) all of the above, 18, IT the MTS, equals 2, then the MP,/MT, is (a2 at (4 a . AF we plot cupital 6m the vertical axis and labur on the borizontal axis, the slope uta straigh(tin isocost drawn on such a praph i (Pur ()PalP (0- Pub (2)-PelPy, 20.At the puint of producer equilibrium (@) the isoquant is tangent to the isocost _(b) the MRTS,x, equals Plt, (MPU. = MEAP (#) all of the above. 21. The elasticity of technical substitution is measured by () the stope of theisoquant (bj the change in the slope ofthe isoquamt (©) the ratio of factor inputs (a) none of tive above. 22. When a= 3/4 and B= 1/4 for the Cobb-Douglas production function, returns - 17to scale are (6) constam (b) increwsing (e} decrensing (4) first increwsing und then decreasing. 23. The output elasticity of tabour mesures ) 30/aL. (b) BAQMoat. (e) SLINQ (d) %ALHAQ, 24. Which of the following statements is false with regerd tu N-incitivienee? (a) It measures the degree by which the owiput ofa commodity falls sort of she marin indicated by the production function (b) it results drum lath of adequate mgtivation (¢) it has been found to cxisl, necarding 1 several empirical studies (d) all of the above. : 25. Vechnological progress refers ww {a) on increase in MP, and Bit: (b) the reduction in Bind K ta prosiuce any level of output (c) a shift of the isoquants toward the-ripin (a) all ofthe atic, 26, Laubor-using technological prog (a) ments L-déepening th) means Kam EEKAL, oF (0) all af the above 7 27. According to occur (2) only if there are w large number of firms inthe industry (b) ifentey into the jnfustey is absolutely free and exit from the industry is enGrely castes (c) one in the absence of government regulation (a) only in the presence at laren competiiie thea? of domtestanie markets, perfect competition can 28. Transfer pricing refers 10 the price (2) that a firm pays for the iutermediaie prducts of another firm (h) that a forcign firm pays for the final products of a domestic firm (c) of the intermediate products sold by one semiautonorsous division of a firs to onath ar Semiautonomous division of the same enterprise (2) of the finsl products snk hy one seiniautonomous division of a firm 1 another seraiautnnomous division ar the same enterprise : 29. Asymmetric information refers tw the enae where (3) the seller of 2 product of servive has morc information than die buyer (6) the buyer of a produet has mare information than the seller (¢) the setler or the buyer of « product or service has more information than the orher (4) information is irrelevant to che transaction {a30. Credit companies rays lem that they fuew tiy Keren etal cred hiteries wish aire Fredit companies (1) ashi herrowers fur a medical hurrowers ty purchase health insurance (¢) asking checkup (d) all af the ahove LWhich of the fallowing is mor related 1 moral hararu? (2) The: probability ur an itinese {b) the probability of x Avo te) the Probability ofa car aecident (a) the Probability ofa fire, 2-4 Principa+agent protean can be on ereume by the firm ecttering golden parachutes tu tae {oP tmanszers (1) setting wp generous itferred-compénsation schemes for ere aARETS. Ce) setting “un pron harion schemes for ts workers jal erat bove. 33. Which of the following stipulates thal the susn of the price clustieitice wt the Gomestic demand for imports goal she foreign deniang ust exceed unity? Te hsthallerner Condition (hy Heckseher-Ohtin theorcen,(c) Ryhezynski Theorem (d) Stalper-Samuclinn Theorem : 14. One of the following BS the shape ofthe time pull the current necou 3 follow if time is platied on the levi {he Yalance of trade un the vertical agg (3) Z curve (bb) U curve fe) FD eurve (a) HT curve tal axis and The effect by which » holder of an 4 selling it because Coy tilt in its market value and the ean tent Joss that would be incurred ig (0) Logralling effce(b} Loching-in-effere {¢) Lockont effect (d) Lucier effect 26. When bunks generate synergistic cost sa re Eetine tultiple products is refered ve as Ki) Reonomies of scope (b) ceonomiee oF scale (c) economics of synergies (a) None of the ahave oF inputs in 37. Which of the following is true of spec securities? Gutsy are used when other instruments fall fo aehieve their targets. (0) th Crees utSOFY when used (c) they wouta reduce the cash reserves, credit 3 mancy supply (@) none of the above (¢) all of the above "deposits and stabilizat3H. Which of the follas ing is an indicator of manctury policy”? 12) the pire level (b) demand for muney fe) mones supply (al) consainer price indes 39. The Keynesian innowation as a concerns the theory of demand for mney (2) transactionary mative (by precautionary mative tet speculative motive (0) transactionury. precautionary, and speculative motives AU. Fhe exchange rate is kept the same across peographically separa markets hy A Hedging b.speculation c. xovernment reputation. arbitrage oudlackUNIVERSITY OF LAGOS SCHOOL OF POSTGRADUATE STUDIES DEPARTMENT OF FINANCE M.SeMDE/PGD QUALIFYING EXAMINATION 2012/2013 CORPORATE FINANCE NSTRUCTION: ATTEMPT ALL QUESTIONS, Shade with HB pencil the Correct answers to these MCQs in the OMR sheet provided. Ensure that you provide all necessary details required of you in the OMR sheet. Both the suestion paper and OMR sheet must be submitted together at the end of the ination, TIME ALLOWED: 45 MINUTES ‘Lhe size and import primarily on the (a) Financial structure af the firm (>) Profitability of the firm's operation (©) Custom and practice in the country in which the firm is domiciled, (@) Size of the firm ance of the finance function in a business firm depends firms can be classified as investment intermediaries because (a) They invest in real and financial assets (b) They raise funds from the investing public and invest them in real and financial assets (c) They employ professional managers to manage their affairs (4) They distribute their surplus profits to investors in form of dividends Wealth maximization is considered superior to profit maximisation as an objective of the firm on the following basis with the exception of {a) Explicit consideration of risks in investments (b) Recognition of the prospect of a firm in the short-run (Recognition of the perception of shareholders about the returns realizable from their investments Recognition of the importance of distributing returns to shareholders. (a) ‘nfotek Lid has identified 4 three-year investment paying 11% per annum. If it invests N850, how much will its investment be worth ut the end of the 3 years? (a) N9SL () M622 (e) NLL An account holder deposits N7,500 i compounded quarterly. How much years.? (a) 811,020 (b) NB.281 (©) MILI44 (d)—_NB,100 2d) N72 savings account paying 8% interest be in the account at the end of 510. AL. em ia: 14, _ buyer? “Which of these would be Assuming the account holder's savings of AFT instead, how much will be in rate remains the same? (a) -NIL189 (bh) N14,381 (0) NL1,020 (a) NII,144 Lekki Ple. has been offered an time from now. If the firm can e: today? (a) N442,890 {b) N 124,180 (¢) N 125,188, (da) 500 is compounded continuously the account at the end of 5 years if interest opportunity to receive N 250,000 in 6 years ‘arn 10% on its money, how much is it worth A 141,125 Bello wishes to determine how much year will amount to in the next 6 much will be in his account? (@) 47,097 (bh) -N52,278 (ce) N94,95 A computer shop offers its second-hand Ipad for N 30, charges N5,500 per quarter for the n compounded quarterly, what is the depositing N 12,000 at the end of each years. If annual interest rate is 11%, how (@) 22,445 ,000 down payment and ext 2 yenrs. If interest is charged at 14% equivalent cash value to a prospective (@) _-N67,808 (O)N75,258—(c) 37,148 (4) 38,233 A 55-year old worker will retire at age 60 and expects to live to age 75. Assuming a 10% rate of return, calculate the amount he must have available at age 60 in order to receive 8 15,000 annually from retirement until death, (476,587. (b)' 76,061. (6) | 2462,659 (a) 114,092 A customer of Pizza Bank Ple borrowed N2 loan, principal and interest af 14% by equal payments over the next 10 Years, the first due in one year. What is the annual repayment on his loan? (a) -N4,793(b)-N3,834 (¢) 5,394 (d)—-N3,345 Individuals who given a choice between more or less risky investments with the same expected monetary benefits would prefor the latter are know 000 and agreed to amortize his as(i), and have their utility function (ii) , (a) (i) Risk averters (ii) Concave (b) (i) Risk averters (i) Convex (c) @ Risk seekers Gi) Linear @ Gi) Risk sockers (i) Convex ignored in the estimation of relevant eash flows when considering the replacement of an existing machine with a uew one? (a) Last year’s value of the existing machine and fixed overheade (>) Current market value of the existing machine (©) Fixed overheads only (4) Losses in sales due to the replacement of the old machine. The net present values of a project have been estimated assfollows 7-2=—16. iy. Discount Rate(%) 18 20 2 we(N°000) Using the above data, determine the best approximation of the project’s internal rate of retura(IRR) @) 209% — (b) 20.6% © 21.28% = dy —-22.67% A firm has provided the following data relating to revenues, and operating osts (including depreciation charges) for its old and new equipment Annual Annual Net Profits Before Revenues Operating Costs Dep. & Taxes Depreciation S000 n000 7000 N’000 Gld machine — 170 70 100 30 New machine 200 40 160 50 Foe crborate tax rate is 40%, what are the ineremental after-tax cash inflows for each year? (@) 24,000 (b)_44,000 Ge) N60,000-(@)-—-20,000 uestions 16 and 17 The following information relate to the revenues and costs of a new project. Building and equipment 490,000 Annual revenues $520,000 Annual operating costs 380,000 Useful life 25 years Corporate income tax 35% If depreciation is on straight line basis What is the payback period of the project? @)-35years (b) Syears —()_—8.2 years (4)6.3 years What is the project's accounting (average) rate of return assuming average initial cost or investment? (a) 14.1% (b) 15.9% (©) 28.3%) 31.9% westions 18 and 19, iven the following data for a proposed project Initial cost or outlay N80,000 Annual savings in operating costs 21,000 Salvage value 3,000 Useful life T years Cost of capital 12%21. 2, What is the project’s NPV (a) 17,197 (b) 815,840 (6) N67,000 — (@)_—-N30,304 Ignoring the salvage value of 43,000, what is the project's IRR? (a) 18.0% (b) 22.0% (@) 14.0% (@) 12.0% A firm is considering a project with an initial cost of 850,000, Expected cash flows and certainty equivalent factors are as follows Year After-tax Cash flows(°000) Certainty Equivalent Factor 1 10 0.95 2 15 0.80 3 20 0.70 4 35 0.60 If the risk free rate of return is 7% and the required rate of return is 14%, “what is the certainty equivalent NPV? (a) -NB 191 (b)- NI4,101 (c) -NS,634 (d)_—-NSO0 ‘The estimates of a project’s after-tax cash flows and probability distribution are as follows After-tax Cash flows (N7000) Prot: 50 0.2 30 03) fee 10 0.3 25 0.2 If the expected life of the project is 4 years, the initial cost is 835.000 and the risk-adjusted after-tax discount rate is 15%, what is the risk-adjusted NPV? (a) 835,396 (b) 838,748) N24,955._ @) 8106.50 An Abuja-based firm is considering four projects in locations at the Federal Capital Territory whose details are as follows Project Initial Cost PY of Net Cash flows 4000 AP 000 Asokéro 500 630 Wuse 800 900 Bwari 300 400 Kuje 100 150 If the projects are divisible and non-postponable but budgeted funds are limited to NS00,000 which pair of projects should be selected assuming Asokoro and Bwari as well as Wuse and Kuje projects are mutually exclusive? (a) Bwari and Kuje (b) Kuje and 80% Asokoro (©) 12.5% Wuse and 80% Asokoro — (d)_ Bwari and 25% Wuseus 23. Tie following information relate to 4 project under consideration by a Lagos- based manufacturing firm. Initial outlay 300,000 Estimated useful life S years Corporation tax + 35% Cost of capital 12% Unit sales 600 Price per unit SOO Variable cost per unit Ni00 Annual fixed cost 120,000 Ifa variance of 10% is projected from the base case scenario, what is the best case scenario NPV of the project? (a) 890,301 (b) 271,000 (c) N71,150 (d) -N119,869 ‘The equipment to produce a new product whose demand is estimated at 5000 units annually will cost N50,000. There will be no salvage value for it at the end of 6 Years. ‘The new product is expected to sell at M12 per unit and involve labour and material Costs of SIS and N4 per unit respectively. If the cost of capital is 10% wu, At what level of sales volume will the project's NPV be zero? (a) 2,870 units (b) 2,296 units (c) 3,827 units (d) 957 units Atwhat level of sales revenue per unit will the project’s NPV he zero? (a) N6.70(b) 11.30 (ec) 87.30 @) 6.30 26. Given the return and risk performance of the under-listed financial assets over a period of time, which of them is most risky? Average Annual Standard Deviation Rate of Return (%) (%) ‘Treasury bills 45 4.0 Government bonds 3.7 17 Corporate bonds 1.0 11.2 Ordinary shares 12. 19.5 (a) Ordinary shares (b) Govt. bonds (e) C orate bonds (d) Treasury bills 27, Which of them would a risk-hating investor prefer?) : (s) Treasury bills (b) Govt. bonds (c) Ordinary shares (4) Corporate bonds 28, What is meant by the trade-off between risk and return? (@) Risk and return go hand in hand (o) Risk should be higher than return (2) Return and risk move in opposite direction (4) Return should be higher than risk 29. Two components of return are (a) Current return and historical return (>) Current return and capital return (©) Capital return and relative return (d) Current return and relative return, rs