Hourly Exam Spring-2021

Department of Business Administration

Subject: Finance Theory Submission Day: Saturday

Instructor: Muhammad Ayub Mehar Submission Date: 10th April 2021
Program: PhD/ MPhil Max. Marks: 10

Please follow the instructions carefully:

1. Write your answers directly on the Black Board (recommended) or upload word file before
the due date on Blackboard.
2. Write your name and registration ID on the first page of your Word file.
3. Answer scripts can only be uploaded on Blackboard only during the submission time.
4. To avoid any unforeseen problems, you are advised to follow the Guide lines communicated
by the Faculty Members.
5. Submission of answer copy(ies) will be considered acceptable through Blackboard only.
Therefore, do not submit your document through email or any other medium.
6. Use 12 pt. font size and Times New Roman font style along with 1-inch page margins.
7. Follow the requirements of the word limit and the marking criteria while writing your
answers.
8. Provide relevant, original and conceptual answers, as this exam aims to test your ability to
examine, explain, modify or develop concepts discussed in class.
9. Do not copy answers from the internet or other sources. The plagiarism of your answers may
be checked through Turnitin.
10. Double check your word file before uploading it on BlackBoard to ensure that you have
uploaded the correct file with your answers.
 Mid Term Examination: I
(Maximum Marks: 10)
Attempt all questions. Your assessment/ scores depend on required, relevant, and complete
explanations, working, computations, derivations and interpretations. The answer script must be
submitted on or before due date and time in MS Word format only.

(Q1; Marks 3)
Derive a model where profit maximization does not lead to wealth maximization.

Vt= Vt-1 + NPV

Vt= Vt-1 + Rev.e-kt
(If NPV of future inflows becomes negative or zero; there will be no change or negative change
in Vt); While zero or negative NPV is possible iff ‘corporate tax rate is 100% or ‘t’ is infinite or
k is ‘infinite’

(Q2; Marks 2)
A) If securities markets are efficient, what is the NPV of any security, regardless
of its risk? “Market Price of security”
B) What is NPV of a project if its IRR is 14 percent? “Obviously zero”

(Q3; Marks 02)

Derive a model to explain the role of ‘Wealth of the existing shareholders’ in investment
decision making’.
Derived in Book

(Q4; Marks 03)

Calculate the IRR for the following set of cash flows: t1: 400; t2: 400; t3: —1000. If the
opportunity cost of capital is 10%, should the project be accepted?
CF d
400 1.1 363.6364
400 1.21 330.5785
-1000 1.331 -751.315
NPV -57.0999
IRR is: 15.83%
The question was not related with NPV calculation. And decision should have based on IRR,
which is greater than discount rate. So, project is acceptable. The problem should not be
solved through trial and error but through factorization.