QUESTION 1

'That there is no corporate tax' is assumed by:

Net Income Approach
Net Operating Income Approach
Traditional Approach
All of these
QUESTION 2
Between corporate managers and stockholders, this can create ethical dilemmas.
Agency relationship
Auditors
Boards of Directors
Venture capitalist
QUESTION 3
Choose the statement below that is not correct.
With the addition of risk-free borrowing and lending, the old Markowitz efficient
frontier is dominated by a new efficient frontier.
With the introduction of risk-free borrowing and lending, the new efficient
frontier will be a straight line.
With the introduction of risk-free borrowing and lending, the new efficient
frontier will be an arc that is higher than the old Markowitz arc representing the
efficient frontier.
In equilibrium, all risky assets must be in the market portfolio.
QUESTION 4
Which of the following is true?
Under Traditional Approach, overall cost of capital remains same
Under NI Approach, overall cost of capital remains same
Under NOI Approach, overall cost of capital remains same
None of the above.
QUESTION 5
Minimum Rate of Return that a firm must earn in order to satisfy its investors, is also known
as :
Average Return on Investment
Weighted Average Cost of Capital
Net Profit Ratio
Average Cost of borrowing
QUESTION 6
Which of the following is generally untrue for manufacturing firm?
High level of raw material
High level of cash balance
High level of fixed assets
Higher level of Debtors and Creditors
QUESTION 7
Which of the following does not usually affect working capital requirement?
Operating leverage
Financial leverage
Both (a) and (b)
None of (a) and (b)
QUESTION 8
Which of the following should be reduced to minimum by a firm?
Receipt of Float
Payment Float
Concentration Banking
All of the above
QUESTION 9
Shareholders of the company receive positive value added when the return from capital
employed in the business operations is less than the cost of that capital.

 True

 False
QUESTION 10
Kannan Committee suggested for full discretion banks for determining borrowing limits of
borrowers.

 True

 False
QUESTION 11
ABC analysis helps to ascertain the minimum level of stock of raw material.

 True

 False
QUESTION 12
An annuity is ___________________.
more than one payment
a series of unequal but consecutive payments
a series of equal and consecutive payments
a series of equal and non-consecutive payments
QUESTION 13
If an individual stock's beta is higher than 1.0, that stock is:
exactly as risky as the market.
riskier than the market.
less risky than the market
none of the above
QUESTION 14
You just purchased a parcel of land for $10,000. If you expect a 12 percent annual rate of
return on your investment for in 10 years, the land could be sold for $25000.

 True

 False
QUESTION 15
A sinking fund is a requirement in the bond indenture that the firm pay off a portion of the
bond issue each year.

 True

 False
QUESTION 16
The more frequent the compounding, the less a person will earn on a savings account.

 True

 False
QUESTION 17
If you have $20,000 in an account earning 8 percent annually, the constant amount withdrawn
each year would be $5008.76 and have nothing remaining at the end of 5 years.

 True

 False
QUESTION 18
Inflation risk is diversifiable risk.

 True

 False
QUESTION 19
Dividends, in India, can be paid only out of profits.

 True

 False
QUESTION 20
Select the incorrect statement. The:
SML uses beta as the measure of risk.
SML is a relationship between expected return and risk for efficient portfolios
only.
beta for a stock measures its contribution to the risk of the market portfolio.
larger the beta for a security, the larger its equilibrium expected return.
QUESTION 21
Trade credit is:
a source of short term lending
really another term for bank loans
the same thing as commercial paper
credit for the time between receipt of the goods and payment
QUESTION 22
If you have $1000 and you plan to save it for 4 years with an interest rate of 10%, the future
value of your savings would be $1464.

 True

 False
QUESTION 23
Credit Analysts examine a firm's financial strength for its debt holders.

 True

 False
QUESTION 24
Equity financing includes both securing trade credit and issuing new ownership shares.

 True

 False
QUESTION 25
The value of $750 invested at 7.5% compounded quarterly for 4.5 years (round to nearest $1)
would be $808.

 True

 False
QUESTION 26
Financing seasonal needs with short-term funds is consistent with an aggressive approach to
financing working capital.

 True

 False
QUESTION 27
An underpriced security will plot
on the Security Market Line.
below the Security Market Line.
above the Security Market Line.
either above or below the Security Market Line depending on its covariance with
the market
QUESTION 28
Capital market securities fall into two categories: bonds and stocks.
  True

 False

QUESTION 29
A firm becomes bankrupt when the value of its debt equals the value of its assets.

 True

 False
QUESTION 30
Sustainability refers to meeting the needs of the present without compromising the ability of
future generations to meet their own needs

 True

 False
QUESTION 31
Which of the following statements best summarizes the conclusions reached regarding the
stability of betas?
Betas for individual securities and large portfolios are unstable.
Betas for individual securities are unstable.
Betas for individual securities and large portfolios are stable.
Betas for large portfolios are unstable.
QUESTION 32
Dividend irrelevance argument of MM Model is based on arbitrage.

 True

 False
QUESTION 33
A non-negotiable check payable to a company account at a concentration bank is Depository
Transfer Check (DTC)

 True

 False
QUESTION 34
Since capital budgeting uses cash flows instead of accounting flows, the financial manager
must add back _____________ to the analysis.
the cost of fixed assets
the cost of accounts payable
investments
depreciation
QUESTION 35
_____________ is the point at which firm profit is equal to zero.
 breakeven
operating breakeven
financial leverage
combined breakeven

QUESTION 36
EBIT is also known as operating profits.

 True

 False
QUESTION 37
A change in the company's capital structure will change the amount of taxes paid but will not
change the WACC.

 True

 False
QUESTION 38
A firm will borrow long-term if the extra interest cost of borrowing long-term is less than the
expected cost of rising interest rates before it retires its debt.

 True

 False
QUESTION 39
Compound interest pays interest for each time period on the original investment plus the
accumulated interest.

 True

 False
QUESTION 40
Operating leverage analyses the relationship between sales level and EPS.

 True

 False
QUESTION 41
A low price/earnings ratio usually means that a firm:
is a growth stock
has positive expectations for the future
is a mature firm
is doomed in the marketplace
QUESTION 42
The discount factor measures the present value of $1 received in year t.
  True

 False
QUESTION 43
Financing short-term needs with long-term debt is consistent with a conservative approach to
financing working capital.

 True

 False
QUESTION 44
Receivables management involves a tradeoff between costs and benefits of receivable.

 True

 False
QUESTION 45
The Excel function for Number of periods is NPER (rate, pmt, PV, FV).

 True

 False
QUESTION 46
DP ratio of a firm should be directly related to future growth plans of the firm.

 True

 False
QUESTION 47
Allowing the managers to have as many perks as they request is an example of aligning
managers' personal interests with those of the owners.

 True

 False
QUESTION 48
To accurately reflect the costs associated with a project, you should exclude interest expenses
in the computation of operating cash flows.

 True

 False
QUESTION 49
Liquidity moves together with risk.

 True

 False
QUESTION 50
Cash Discount term 3/15, net 40 means
3% Discount if payment in 15 days, otherwise full payment in 40 days
15% Discount if payment in 3 days, otherwise full payment 40 days
3% Interest if payment made in 40 days and 15%
QUESTION 51
Which of the following is not incorporated in Capital Budgeting?
Tax-Effect
Time Value of Money
Required Rate of Return
Rate of Cash Discount

QUESTION 52
Systematic risk of a security can be measured by beta.

 True

 False
QUESTION 53
In case of Gordon’s Model, the MP for zero. It means that shares are not traded.

 True

 False
QUESTION 54
Number of IRR for a project is equal to :
Number of Cash Flows
Number of Cash Outflows
Life of the Project
Changes in the signs of cash flows
QUESTION 55
At 8 percent compounded annually, it will take it to double $750 in 9 years.

 True

 False
QUESTION 56
Tax-rate is relevant and important for calculation of specific cost of capital of :
Equity Share Capital
Preference Share Capital
Debentures
(a) and (b) above
QUESTION 57
Risk avoidable through proper diversification is known as:
 Portfolio Risk
Unsystematic Risk
Systematic Risk
Total Risk
QUESTION 58
Combined leverage establishes the relationship between operating leverage and financial
leverage.

 True

 False
QUESTION 59
How much interest will be earned in the next year on an investment paying 12% compounded
annually if $100 was just credited to the account for interest?
$88
$100
$112
$200
QUESTION 60
You are going to pay $100 into an account at the beginning of each of the next 40 years. At
the beginning of the 41st year you buy a 30 year annuity whose first payment comes at the
end of the 41st year (the account pays 12%). How much will you receive at the end of the
41st year (i.e. the first annuity payment). Round to nearest $100.
$93,000
$7,800
$11,400
$10,700
QUESTION 61
You are considering the purchase of two different insurance annuities. Annuity A will pay
you $16,000 at the beginning of each year for 8 years. Annuity B will pay you $12,000 at the
end of each year for 12 years. Assuming your money is worth 7%, and each costs you
$75,000 today, which would you prefer?
$102228 and $95312
$103228 and $93312
$102228 and $93312
$103228 and $93312
QUESTION 62
What is the after-tax cost of preferred stock that sells for $10 per share and offers a $1.20
dividend when the tax rate is 35%?
0.042
0.078
0.0833
0.12
QUESTION 63
How much interest is earned in the third year on a $1,000 deposit that earns 7% interest
compounded annually?
$70.00
$80.14
$105.62
$140.00