Financial Management Solved

A company whose stock is selling at a P/E ratio greater than the P/E ratio of a market index most likely has _________.

Select correct option:

An anticipated earnings growth rate which is less than that of the average firm

A dividend yield which is less than that of the average firm

Less predictable earnings growth than that of the average firm

Greater cyclicality of earnings growth than that of the average firm

Which of the following is called the tax savings of the firm derived from the deductibility of interest expense?

Select correct option:

Interest tax shield

Depreciable basis

Financing umbrella

Current yield

The reduction in income taxes that results from the tax-deductibility of interest payments.

Tax benefits derived from creative structuring of a financing arrangement. For example, usingloan capital instead of equity capital because interest paid on the loans is generally tax deductible whereas the dividend paid on equity is not

Upon which of the following a firm's degree of operating leverage (DOL) depends primarily?

Select correct option:

Sales variability

Level of fixed operating costs

Closeness to its operating break-even point

Debt-to-equity ratio

Discounted cash flow methods provide a more objective basis for evaluating and selecting an investment project. These methods take into account:

Select correct option:

Magnitude of expected cash flows

Timing of expected cash flows

Both timing and magnitude of cash flows

None of the given options

Ref It discounts the cash flow to take into the account the time value of money.

Reference

Expected Portfolio Return = ___________.

Select correct option:

rP * = xA rA + xB rB

rP * = xA rA - xB rB

rP * = xA rA / xB rB

rP * = xA rA * xB rB

What is the most important criteria in capital budgeting?

Select correct option:

Return on investment

Profitability index

Net present value

Pay back period

If stock is a part of totally diversified portfolio then its company risk must be equal to:

Select correct option:

0

0.5

1

-1

For most firms, P/E ratios and risk_________.

Select correct option:

Will be directly related

Will have an inverse relationship

Will be unrelated

None of the above.

Which of the following is the cash required during a specific period to meet interest expenses and principal payments?

Select correct option:

Debt capacity

Debt-service burden

Adequacy capacity

Fixed-charge burden

Which of the following stipulate a relationship between expected return and risk?

Select correct option:

APT stipulates

CAPM stipulates

Both CAPM and APT stipulate

Neither CAPM nor APT stipulate

=====

Which of the following factors might affect stock returns?

Select correct option:

Business cycle Interest rate fluctuations Inflation rates All of the above

If all things equal, when diversification is most effective?

Select correct option:

Securities' returns are positively correlated Securities' returns are uncorrelated Securities' returns are high Securities' returns are negatively correlated

Which of the followings expressed the proposition that the value of the firm is independent of its capital structure?

Select correct option:

The Capital Asset Pricing Model M&M Proposition I M&M Proposition II The Law of One Price

Which of the following will NOT equate the future value of cash inflows to the present value of cash outflows?

Select correct option:

Discount rate Profitability index Internal rate of return Multiple Internal rate of return

Which of the following is related to the use Lower financial leverage?

Select correct option:

Fixed costs Variable costs Debt financing Common equity financing

Why markets and market returns fluctuate?

Select correct option:

Because of political factors Because of social factors Because of socio-political factors Because of macro systematic factors

Which of the following is NOT an example of hybrid equity

Select correct option:

Convertible Bonds Convertible Debenture Common shares Preferred shares

A project that tells us the number of years required to recover our initial cash investment based on the project’s expected cash flows is:

Select correct option:

Pay back period Internal rate of return Net present value Profitability index

A 5-year annuity due has periodic cash flows of Rs.100 each year. If the interest rate is 8 percent, the present value of this annuity is closest to which of the following equations?

Select correct option:

(Rs.100)(PVIFA at 8% for 4 periods) + Rs.100 (Rs.100)(PVIFA at 8% for 4 periods)(1.08) (Rs.100)(PVIFA at 8% for 6 periods) - Rs.100 Can not be found from the given information

To increase a given future value, the discount rate should be adjusted __________.

Select correct option:

Upward Downward First upward and then downward None of the given options

Which of the following is NOT the form of cash flow generated by the investments of the shareholders?

Select correct option:

Income Capital loss Capital gain Operating income

According to the Capital Asset Pricing Model (CAPM), a well-diversified portfolio's rate of return is a function of which of the following:

Select correct option:

Unique risk Reinvestment risk Market risk Unsystematic risk

What is the most important criteria in capital budgeting?

Select correct option:

Return on investment Profitability index Net present value Pay back period

If all things equal, when diversification is most effective?

Select correct option:

Securities' returns are positively correlated Securities' returns are uncorrelated Securities' returns are high Securities' returns are negatively correlated

Which if the following is (are) true? I. The dividend growth model holds if, at some point in time, the dividend growth rate exceeds the stock’s required return. II. A decrease in the dividend growth rate will increase a stock’s market value, all else the same. III. An increase in the required return on a stock will decrease its market value, all else the same.

Select correct option:

I, II, and III I only III only II and III only

As interest rates go up, the present value of a stream of fixed cash flows _____.

Select correct option:

Goes down Goes up Stays the same Can not be found from the given information

Which of the following could be taken same as minimizing the weighted average cost of capital?

Select correct option:

Maximizing the market value of the firm Maximizing the market value of the firm only if MM's Proposition I Minimizing the market value of the firm only if MM's Proposition I holds Maximizing the profits of the firm

Which of the following formulas represents a correct calculation of the degree of operating leverage?

Select correct option:

(Q - QBE)/Q (EBIT) / (EBIT - FC) [Q(P-V) + FC] /[Q(P-V)] Q(P-V) / [Q(P-V) - FC]

The value of a bond is directly derived from which of the following?

Select correct option:

Cash flows Coupon receipts Par recovery at maturity All of the given options

Which statement is NOT true regarding the market portfolio?

Select correct option:

It includes all publicly traded financial assets It is the tangency point between the capital market line and the indifference curve All securities in the market portfolio are held in proportion to their market values It lies on the efficient frontier

In the dividend discount model, _____ which of the following are not incorporated into the discount rate?
Select correct option:
Real risk-free rate
Risk premium for stocks
Return on assets
Expected inflation rate

Which of the following is NOT an example of hybrid equity
Select correct option:
Convertible Bonds
Convertible Debenture
Common shares
Preferred shares

For which of the following costs is it generally necessary to apply a tax adjustment to a yield measure?
Select correct option:
Cost of debt
Cost of preferred stock
Cost of common equity
Cost of retained earnings

The value of the bond is NOT directly tied to the value of which of the following assets?
Select correct option:
Real assets of the business
Liquid assets of the business
Fixed assets of the business
Lon term assets of the business

What are two major areas of capital budgeting?
Select correct option:
Net present value, profitability index
Net present value; internal rate of return
Net present value; payback period
Pay back period; profitability index

Which of the followings are the propositions of Modigliani and Miller's?
Select correct option:
The market value of a firm's common stock is independent of its capital structure
The market value of a firm's debt is independent of its capital structure
The market value of any firm is independent of its capital structure
None of the given options

The weighted average of possible returns, with the weights being the probabilities of occurrence is referred to as ________.
Select correct option:
Probability distribution
Expected return
Standard deviation
Coefficient of variation

In calculating the costs of the individual components of a firm's financing, the corporate tax rate is important to which of the following component cost formulas?
Select correct option:
Common stock
Debt
Preferred stock
None of the above

A statistical measure of the variability of a distribution around its mean is referred to as ________.
Select correct option:
Probability distribution
Expected return
Standard deviation
Coefficient of variation

How "Shareholder wealth" is represented in a firm?
Select correct option:
The number of people employed in the firm
The book value of the firm's assets less the book value of its liabilities
The market price per share of the firm's common stock
The amount of salary paid to its employees

What is potentially the biggest advantage of a small partnership over a sole proprietorship?
Select correct option:
Unlimited liability
Single tax filing
Difficult ownership resale
Raising capital

Total Marks: 1
The benefit we expect from a project is expressed in terms of:
Select correct option:
Cash in flows
Cash out flows
Cash flows
None of the given option

Upon which of the following a firm's degree of operating leverage (DOL) depends primarily?
Select correct option:
Sales variability
Level of fixed operating costs
Closeness to its operating break-even point
Debt-to-equity ratio

Which of the following is the value of beta for the market portfolio?
Select correct option:
0.25
-1.0
1.0
0.5

Which of the following is related to the use Lower financial leverage?
Select correct option:
Fixed costs
Variable costs
Debt financing
Common equity financing

Why common stock of a company must provide a higher expected return than the debt of the same company?
Select correct option:
There is less demand for stock than for bonds
There is greater demand for stock than for bonds
There is more systematic risk involved for the common stock
There is a market premium required for bonds

_______ is equal to (common shareholders' equity/common shares outstanding).
Select correct option:

Book value per share
Liquidation value per share
Market value per share
None of the above

When a bond will sell at a discount?
Select correct option:

The coupon rate is greater than the current yield and the current yield is greater than yield to maturity
The coupon rate is greater than yield to maturity
The coupon rate is less than the current yield and the current yield is greater than the yield to maturity

The coupon rate is less than the current yield and the current yield is less than yield to maturity

In order for the investor to earn more than the current yield the bond must be selling for a discount. Yield to maturity will be greater than current yield as investor will have purchased the bond at discount and will be receiving the coupon payments over the life of the bond.

Which of the following would be considered a cash-flow item from an "operating" activity?
Select correct option:

Cash outflow to the government for taxes
Cash outflow to shareholders as dividends
Cash inflow to the firm from selling new common equity shares
Cash outflow to purchase bonds issued by another company

Upon which of the following a firm's degree of operating leverage (DOL) depends primarily?
Select correct option:

Sales variability
Level of fixed operating costs
Closeness to its operating break-even point
Debt-to-equity ratio

Which of the following is simply the weighted average of the possible returns, with the weights being the probabilities of occurrence?
Select correct option:

Probability distribution
Expected return
Standard deviation
Coefficient of variation

Which of the following is simply the weighted average of the possible returns, with the weights being the probabilities of occurrence?
Select correct option:

Probability distribution
Expected return
Standard deviation
Coefficient of variation

Why companies invest in projects with negative NPV?
Select correct option:

Because there is hidden value in each project
Because there may be chance of rapid growth
Because they have invested a lot
All of the given options

Which of the following is related to the use Lower financial leverage?
Select correct option:

Fixed costs
Variable costs
Debt financing
Common equity financing

Cash budgets are prepared from past:
Select correct option:

Balance sheets
Income statements
Income tax and depreciation data
None of the given options

The cash budget is prepared from forecasted cash collections and disbursements rather

If we were to increase ABC company cost of equity assumption, what would we expect to happen to the present value of all future cash flows?
Select correct option:

An increase
A decrease
No change
Incomplete information

Question # 10 of 10 ( Start time: 06:27:59 PM ) Total Marks: 1
Which of the followings expressed the proposition that the cost of equity is a positive linear function of capital structure?
Select correct option:

The Capital Asset Pricing Model
M&M Proposition I
M&M Proposition II
The Law of One Price

MC080402251 : Irfan Tahir

Quiz Start Time: 11:56 AM Time Left 80

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Question # 1 of 20 ( Start time: 11:56:22 AM ) Total Marks: 1

Which of the following factor(s) do NOT affects the movements in the market index?

Select correct option:

Macroeconomic factors

Socio political factors

Social factors

All of the given options

MC080402251 : Irfan Tahir

Quiz Start Time: 11:56 AM Time Left 17

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Question # 2 of 20 ( Start time: 11:57:01 AM ) Total Marks: 1

Which of the following statements is correct for a firm that currently has total costs of carrying and ordering inventory that is 50% higher than total carrying costs?

Select correct option:

Current order size is greater than optimal

Current order size is less than optimal

Per unit carrying costs are too high

The optimal order size is currently being used

MC080402251 : Irfan Tahir

Quiz Start Time: 11:56 AM Time Left 15

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Question # 3 of 20 ( Start time: 11:58:21 AM ) Total Marks: 1

Which of the following could be taken same as minimizing the weighted average cost of capital?

Select correct option:

Maximizing the market value of the firm

Maximizing the market value of the firm only if MM's Proposition I

Minimizing the market value of the firm only if MM's Proposition I holds

Maximizing the profits of the firm

MC080402251 : Irfan Tahir

Quiz Start Time: 11:56 AM Time Left 40

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Question # 4 of 20 ( Start time: 11:59:40 AM ) Total Marks: 1

If risk and return combination of any stock is above the SML, what does it mean?

Select correct option:

It is offering lower rate of return as compared to the efficient stock

It is offering higher rate of return as compared to the efficient stock

Its rate of return is zero as compared to the efficient stock

It is offering rate of return equal to the efficient stock

MC080402251 : Irfan Tahir

Quiz Start Time: 11:56 AM Time Left 64

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Question # 5 of 20 ( Start time: 12:00:50 PM ) Total Marks: 1

The presence of which of the following costs is not used as a major argument against the M&M arbitrage process?

Select correct option:

Bankruptcy costs

Agency costs

Transactions costs

Insurance costs

MC080402251 : Irfan Tahir

Quiz Start Time: 11:56 AM Time Left 58

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Question # 6 of 20 ( Start time: 12:02:12 PM ) Total Marks: 1

If all things equal, when diversification is most effective?

Select correct option:

Securities' returns are positively correlated

Securities' returns are uncorrelated

Securities' returns are high

Securities' returns are negatively correlated

MC080402251 : Irfan Tahir

Quiz Start Time: 11:56 AM Time Left 53

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Question # 7 of 20 ( Start time: 12:02:53 PM ) Total Marks: 1

Which of the following is correct, if a firm has a required rate of return equal to the ROE?

Select correct option:

The firm can increase market price and P/E by retaining more earnings.

The firm can increase market price and P/E by increasing the growth rate.

The amount of earnings retained by the firm does not affect market price or the P/E.

None of the given options

MC080402251 : Irfan Tahir

Quiz Start Time: 11:56 AM Time Left 33

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Question # 8 of 20 ( Start time: 12:04:12 PM ) Total Marks: 1

You are considering two investment proposals, project A and project B. B's expected net present value is Rs. 1,000 greater than that for A and A's dispersion of net present value is less than that for B. On the basis of risk and return, what would be your conclusion?

Select correct option:

Project A dominates project B

Project B dominates project A

Neither project dominates the other in terms of risk and return

Incomplete information

MC080402251 : Irfan Tahir

Quiz Start Time: 11:56 AM Time Left 38

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Question # 9 of 20 ( Start time: 12:05:17 PM ) Total Marks: 1

Which of the following is NOT the form of cash flow generated by the investments of the shareholders?

Select correct option:

Income

Capital loss

Capital gain

Operating income

MC080402251 : Irfan Tahir

Quiz Start Time: 11:56 AM Time Left 65

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Question # 10 of 20 ( Start time: 12:06:28 PM ) Total Marks: 1

Which of the following is related to the use of higher operating leverage?

Select correct option:

Fixed costs

Variable costs

Debt financing

Common equity financing

MC080402251 : Irfan Tahir

Quiz Start Time: 11:56 AM Time Left 22

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Question # 11 of 20 ( Start time: 12:07:39 PM ) Total Marks: 1

An 8-year annuity due has a present value of Rs.1,000. If the interest rate is 5 percent, the amount of each annuity payment is closest to which of the following?

Select correct option:

Rs.154.73

Rs.147.36

Rs.109.39

Rs.104.72

MC080402251 : Irfan Tahir

Quiz Start Time: 11:56 AM Time Left 11

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Question # 12 of 20 ( Start time: 12:08:57 PM ) Total Marks: 1

A 5-year ordinary annuity has a present value of Rs.1,000. If the interest rate is 8 percent, the amount of each annuity payment is closest to which of the following?

Select correct option:

Rs. 250.44

Rs. 231.91

Rs.181.62

Rs.184.08

MC080402251 : Irfan Tahir

Quiz Start Time: 11:56 AM Time Left 45

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Question # 13 of 20 ( Start time: 12:10:19 PM ) Total Marks: 1

Which of the following is the characteristic of a well diversified portfolio?

Select correct option:

Its market risk is negligible

Its unsystematic risk is negligible

Its systematic risk is negligible

All of the given options

MC080402251 : Irfan Tahir

Quiz Start Time: 11:56 AM Time Left 12

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Question # 14 of 20 ( Start time: 12:11:40 PM ) Total Marks: 1

Which of the following could NOT be defined as the capital structure of the Company?

Select correct option:

The firm's mix of Assets and liabilities

The firm's common stocks only

The firm's debt-equity ratio

All of the given options

MC080402251 : Irfan Tahir

Quiz Start Time: 11:56 AM Time Left 9

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Question # 15 of 20 ( Start time: 12:13:01 PM ) Total Marks: 1

Which of the following examples best represents a passive dividend policy?

Select correct option:

The firm sets a policy such that the proportion of dividends paid from net income remains constant

The firm pays dividends with what remains of net income after taking acceptable investment projects

The firm sets a policy such that the quantity (dollar amount per share) of dividends paid from net income remains constant

All of the given options are examples of various types of passive dividend policies

MC080402251 : Irfan Tahir

Quiz Start Time: 11:56 AM Time Left 56

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Question # 16 of 20 ( Start time: 12:14:27 PM ) Total Marks: 1

Which of the following is simply the weighted average of the possible returns, with the weights being the probabilities of occurrence?

Select correct option:

Probability distribution

Expected return

Standard deviation

Coefficient of variation

MC080402251 : Irfan Tahir

Quiz Start Time: 11:56 AM Time Left 36

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Question # 17 of 20 ( Start time: 12:15:14 PM ) Total Marks: 1

The conventional measure of dispersion is _______.

Select correct option:

A probability distribution

The expected return

The standard deviation

Coefficient of variation

MC080402251 : Irfan Tahir

Quiz Start Time: 11:56 AM Time Left 29

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Question # 18 of 20 ( Start time: 12:16:17 PM ) Total Marks: 1

What does the law of conservation of value implies?

Select correct option:

The mix of senior and subordinated debt does not affect the value of the firm

The mix of convertible and non-convertible debt does not affect the value of the firm

The mix of common stock and preferred stock does not affect the value of the firm

All of the given options

MC080402251 : Irfan Tahir

Quiz Start Time: 11:56 AM Time Left 72

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Question # 19 of 20 ( Start time: 12:17:29 PM ) Total Marks: 1

Which of the following has the same meaning as the working capital to financial analyst?

Select correct option:

Total assets

Fixed assets

Current assets

Current assets minus current liabilities

MC080402251 : Irfan Tahir

Quiz Start Time: 11:56 AM Time Left 54

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Question # 20 of 20 ( Start time: 12:17:56 PM ) Total Marks: 1

Which of the following could be defined as the capital structure of the Company?

Select correct option:

The firm's mix of different securities

The firm's debt-equity ratio

The market imperfection that the firm's manager can exploit

All of the above

MC090200111 : Bilal Ahmad

Quiz Start Time: 12:20 PM Time Left 31

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Question # 1 of 20 ( Start time: 12:20:13 PM ) Total Marks: 1

What would you expect to happen to the price of a share of stock on the day it goes ex-dividend?

Select correct option:

The price should increase by the amount of the 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

MC090200111 : Bilal Ahmad

Quiz Start Time: 12:20 PM Time Left 56

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Question # 2 of 20 ( Start time: 12:21:20 PM ) Total Marks: 1

What is a legal agreement, also called the deed of trust, between the corporation issuing bonds and the bondholders that establish the terms of the bond issue?

Select correct option:

Indenture

Debenture

Bond

Bond trustee

MC090200111 : Bilal Ahmad

Quiz Start Time: 12:20 PM Time Left 80

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Question # 3 of 20 ( Start time: 12:22:00 PM ) Total Marks: 1

When the bond approaches its maturity, the market value of the bond approaches to which of the following?

Select correct option:

Intrinsic value

Book value

Par value

Historic cost

MC090200111 : Bilal Ahmad

Quiz Start Time: 12:20 PM Time Left 59

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Question # 4 of 20 ( Start time: 12:22:23 PM ) Total Marks: 1

Upon which of the following a firm's degree of operating leverage (DOL) depends primarily?

Select correct option:

Sales variability

Level of fixed operating costs

Closeness to its operating break-even point

Debt-to-equity ratio

MC090200111 : Bilal Ahmad

Quiz Start Time: 12:20 PM Time Left 25

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Question # 5 of 20 ( Start time: 12:23:03 PM ) Total Marks: 1

According to MM II, what happens when a firm's debt-to-equity ratio increases?

Select correct option:

Its financial risk increases

Its operating risk increases

The expected return on equity increases

The expected return on equity decreases

MC090200111 : Bilal Ahmad

Quiz Start Time: 12:20 PM Time Left 69

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Question # 6 of 20 ( Start time: 12:24:17 PM ) Total Marks: 1

Which one of the following selects the combination of investment proposals that will provide the greatest increase in the value of the firm within the budget ceiling constraint?

Select correct option:

Cash budgeting

Capital budgeting

Capital rationing

Capital expenditure

MC090200111 : Bilal Ahmad

Quiz Start Time: 12:20 PM Time Left 33

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Question # 7 of 20 ( Start time: 12:24:50 PM ) Total Marks: 1

What would be the result when there is an increase in the number of shares outstanding by reducing the par value of stock?

Select correct option:

Stock split

Stock dividend

Extra dividend

Regular dividend

MC090200111 : Bilal Ahmad

Quiz Start Time: 12:20 PM Time Left 34

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Question # 10 of 20 ( Start time: 12:26:22 PM ) Total Marks: 1

If the probability is written on Y-axis and the rate of return is mentioned on the X-axis, Which kind of relationship it shows when there is higher the standard deviation the higher the risk.

Select correct option:

Indirect relationship

Inverse relationship

Direct relationship

No relationship

MC090200111 : Bilal Ahmad

Quiz Start Time: 12:20 PM Time Left 59

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Question # 13 of 20 ( Start time: 12:28:06 PM ) Total Marks: 1

A capital budgeting technique through which discount rate equates the present value of the future net cash flows from an investment project with the project’s initial cash outflow is known as:

Select correct option:

Payback period

Internal rate of return

Net present value

Profitability index

MC090200111 : Bilal Ahmad

Quiz Start Time: 12:20 PM Time Left 47

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Question # 14 of 20 ( Start time: 12:28:45 PM ) Total Marks: 1

The DuPont Approach breaks down the earning power on shareholders' book value (ROE) as follows: ROE = __________.

Select correct option:

Net profit margin × Total asset turnover × Equity multiplier

Total asset turnover × Gross profit margin × Debt ratio

Total asset turnover × Net profit margin

Total asset turnover × Gross profit margin × Equity multiplier

MC090200111 : Bilal Ahmad

Quiz Start Time: 12:20 PM Time Left 59

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Question # 15 of 20 ( Start time: 12:29:37 PM ) Total Marks: 1

What should be used to calculate the proportional amount of equity financing employed by a firm?

Select correct option:

The common stock equity account on the firm's balance sheet

The sum of common stock and preferred stock on the balance sheet

The book value of the firm

The current market price per share of common stock times the number of shares Outstanding

MC090200111 : Bilal Ahmad

Quiz Start Time: 12:20 PM Time Left 44

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Question # 16 of 20 ( Start time: 12:30:14 PM ) Total Marks: 1

How can a company improve (lower) its debt-to-total asset ratio?

Select correct option:

By borrowing more

By shifting short-term to long-term debt

By shifting long-term to short-term debt

By selling common stock

MC090200111 : Bilal Ahmad

Quiz Start Time: 12:20 PM Time Left 55

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Question # 17 of 20 ( Start time: 12:31:08 PM ) Total Marks: 1

If Deen Muhammad Suppliers receive an invoice for purchases dated 12/12/2002 subject to credit terms of "2/10, net 30", what is the last possible day the discount can be taken?

Select correct option:

January 11

January 22

January 30

December 30

MC090200111 : Bilal Ahmad

Quiz Start Time: 12:20 PM Time Left 45

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Question # 19 of 20 ( Start time: 12:32:10 PM ) Total Marks: 1

When a firm needs guaranteed, short-term funds available for a variety purposes, the bank loan will likely be a __________.

Select correct option:

Compensating balance arrangement

Revolving credit agreement

Transaction loan

Line of credit

MC090200111 : Bilal Ahmad

Quiz Start Time: 12:20 PM Time Left 20

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Question # 20 of 20 ( Start time: 12:33:11 PM ) Total Marks: 1

Which of the following is the cash required during a specific period to meet interest expenses and principal payments?

Select correct option:

Debt capacity

Debt-service burden

Adequacy capacity

Fixed-charge burden

MC090200008 : Samina Mushtaq

Quiz Start Time: 12:40 PM Time Left 77

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Question # 3 of 20 ( Start time: 12:43:05 PM ) Total Marks: 1

Discounted cash flow methods provide a more objective basis for evaluating and selecting an investment project. These methods take into account:

Select correct option:

Magnitude of expected cash flows

Timing of expected cash flows

Both timing and magnitude of cash flows

None of the given options

MC090200008 : Samina Mushtaq

Quiz Start Time: 12:40 PM Time Left 24

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Question # 4 of 20 ( Start time: 12:44:17 PM ) Total Marks: 1

Which of the followings expressed the proposition that the value of the firm is independent of its capital structure?

Select correct option:

The Capital Asset Pricing Model

M&M Proposition I

M&M Proposition II

The Law of One Price

MC090200008 : Samina Mushtaq

Quiz Start Time: 12:40 PM Time Left 64

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Question # 6 of 20 ( Start time: 12:46:30 PM ) Total Marks: 1

Which of the following is related to the use Lower financial leverage?

Select correct option:

Fixed costs

Variable costs

Debt financing

Common equity financing

MC090200008 : Samina Mushtaq

Quiz Start Time: 12:40 PM Time Left 81

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Question # 7 of 20 ( Start time: 12:47:23 PM ) Total Marks: 1

When coupon bonds are issued, they are typically sold at which of the following value?

Select correct option:

Above par value

Below par

At or near par value

At a value unrelated to par

MC090200008 : Samina Mushtaq

Quiz Start Time: 12:40 PM Time Left 48

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Question # 9 of 20 ( Start time: 12:49:07 PM ) Total Marks: 1

What is the present value of Rs. 3,500,000 to be paid at the end of 50 years if the correct risk adjusted interest rate is 18%?

Select correct option:

Rs.105,000

Rs.1,500,000

Rs.3975,000

Rs.1,050

Where the efficient stock combination of risk and return in efficient market should lie?

Select correct option:

On the SML

Below the SML

Above the SML

It may lie anywhere for efficient combination

MC090200008 : Samina Mushtaq

Quiz Start Time: 12:40 PM Time Left 70

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Question # 11 of 20 ( Start time: 12:51:29 PM ) Total Marks: 1

Security market line gives the relationship between _______ and _________.

Select correct option:

Market risk and the required return

Systematic risk and the required return

Non-diversified risk and the required return

All of the given options 1

MC090200008 : Samina Mushtaq

Quiz Start Time: 12:40 PM Time Left 79

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Question # 17 of 20 ( Start time: 12:55:16 PM ) Total Marks: 1

Which of the following would be considered a cash-flow item from an "operating" activity?

Select correct option:

Cash outflow to the government for taxes

Cash outflow to shareholders as dividends

Cash inflow to the firm from selling new common equity shares

Cash outflow to purchase bonds issued by another company

MC090200008 : Samina Mushtaq

Quiz Start Time: 12:40 PM Time Left 82

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Question # 20 of 20 ( Start time: 12:56:59 PM ) Total Marks: 1

At the termination of project, which of the following needs to be considered relating to project assets?

Select correct option:

Salvage value

Book value

Intrinsic value

Fair value

MC090205414 : Imran Khan

Quiz Start Time: 12:58 PM Time Left 65

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Question # 2 of 20 ( Start time: 12:59:07 PM ) Total Marks: 1

Which of the following statements is true?

Select correct option:

The financial risk of a firm decreases when it takes on a risky project

The financial risk of a firm increases when it takes on more equity

The business risk of a firm increases when it takes on a risky project

The business risk of a firm increases when it takes on more debt

MC090205414 : Imran Khan

Quiz Start Time: 12:58 PM Time Left 70

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Question # 5 of 20 ( Start time: 01:00:21 PM ) Total Marks: 1

Which of the following would be considered a cash-flow item from an "investing" activity?

Select correct option:

Cash outflow to the government for taxes

Cash outflow to shareholders as dividends

Cash outflow to lenders as interest

Cash outflow to purchase bonds issued by another company

MC090205414 : Imran Khan

Quiz Start Time: 12:58 PM Time Left 77

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Question # 6 of 20 ( Start time: 01:00:49 PM ) Total Marks: 1

For which of the following costs is it generally necessary to apply a tax adjustment to a yield measure?

Select correct option:

Cost of debt

Cost of preferred stock

Cost of common equity

Cost of retained earnings

MC090205414 : Imran Khan

Quiz Start Time: 12:58 PM Time Left 50

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Question # 8 of 20 ( Start time: 01:01:33 PM ) Total Marks: 1

Which of the following statements (in general) is correct?

Select correct option:

A low receivables turnover is desirable

The lower the total debt-to-equity ratio, the lower the financial risk for a firm

An increase in net profit margin with no change in sales or assets means a weaker ROI

The higher the tax rate for a firm, the lower the interest coverage ratio

MC090205414 : Imran Khan

Quiz Start Time: 12:58 PM Time Left 84

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Question # 12 of 20 ( Start time: 01:05:52 PM ) Total Marks: 1

Which if the following is (are) true? I. The dividend growth model holds if, at some point in time, the dividend growth rate exceeds the stock’s required return. II. A decrease in the dividend growth rate will increase a stock’s market value, all else the same. III. An increase in the required return on a stock will decrease its market value, all else the same.

Select correct option:

I, II, and III

I only

III only

II and III only

MC090205414 : Imran Khan

Quiz Start Time: 12:58 PM Time Left 15

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Question # 12 of 20 ( Start time: 01:05:52 PM ) Total Marks: 1

Which if the following is (are) true? I. The dividend growth model holds if, at some point in time, the dividend growth rate exceeds the stock’s required return. II. A decrease in the dividend growth rate will increase a stock’s market value, all else the same. III. An increase in the required return on a stock will decrease its market value, all else the same.

Select correct option:

I, II, and III

I only

III only

II and III only

MC090205414 : Imran Khan

Quiz Start Time: 12:58 PM Time Left 75

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Question # 15 of 20 ( Start time: 01:08:31 PM ) Total Marks: 1

Which of the following is a payment of additional shares to shareholders in lieu of cash?

Select correct option:

Stock split

Stock dividend

Extra dividend

Regular dividend

MC090205414 : Imran Khan

Quiz Start Time: 12:58 PM Time Left 62

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Question # 16 of 20 ( Start time: 01:09:24 PM ) Total Marks: 1

Why common stock of a company must provide a higher expected return than the debt of the same company?

Select correct option:

There is less demand for stock than for bonds

There is greater demand for stock than for bonds

There is more systematic risk involved for the common stock

There is a market premium required for bonds

MC090205414 : Imran Khan

Quiz Start Time: 12:58 PM Time Left 52

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Question # 18 of 20 ( Start time: 01:11:20 PM ) Total Marks: 1

Which of the following would NOT improve the current ratio?

Select correct option:

Borrow short term to finance additional fixed assets

Issue long-term debt to buy inventory

Sell common stock to reduce current liabilities

Sell fixed assets to reduce accounts payable

MC090205414 : Imran Khan

Quiz Start Time: 12:58 PM Time Left 68

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Question # 19 of 20 ( Start time: 01:12:04 PM ) Total Marks: 1

Upon which of the following a firm's degree of operating leverage (DOL) depends primarily?

Select correct option:

Sales variability

Level of fixed operating costs

Closeness to its operating break-even point

Debt-to-equity ratio

MC090205414 : Imran Khan

Quiz Start Time: 12:58 PM Time Left 52

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Question # 20 of 20 ( Start time: 01:12:49 PM ) Total Marks: 1

Which of the following is NOT an example of hybrid equity

Select correct option:

Convertible Bonds

Convertible Debenture

Common shares

Preferred shares

A company whose stock is selling at a P/E ratio greater than the P/E ratio of a market index most likely has _________.

Select correct option:

An anticipated earnings growth rate which is less than that of the average firm

A dividend yield which is less than that of the average firm

Less predictable earnings growth than that of the average firm

Greater cyclicality of earnings growth than that of the average firm

Which of the following is called the tax savings of the firm derived from the deductibility of interest expense?

Select correct option:

Interest tax shield

Depreciable basis

Financing umbrella

Current yield

The reduction in income taxes that results from the tax-deductibility of interest payments.

Tax benefits derived from creative structuring of a financing arrangement. For example, usingloan capital instead of equity capital because interest paid on the loans is generally tax deductible whereas the dividend paid on equity is not

Upon which of the following a firm's degree of operating leverage (DOL) depends primarily?

Select correct option:

Sales variability

Level of fixed operating costs

Closeness to its operating break-even point

Debt-to-equity ratio

Discounted cash flow methods provide a more objective basis for evaluating and selecting an investment project. These methods take into account:

Select correct option:

Magnitude of expected cash flows

Timing of expected cash flows

Both timing and magnitude of cash flows

None of the given options

Ref It discounts the cash flow to take into the account the time value of money.

Reference

Expected Portfolio Return = ___________.

Select correct option:

rP * = xA rA + xB rB

rP * = xA rA - xB rB

rP * = xA rA / xB rB

rP * = xA rA * xB rB

What is the most important criteria in capital budgeting?

Select correct option:

Return on investment

Profitability index

Net present value

Pay back period

If stock is a part of totally diversified portfolio then its company risk must be equal to:

Select correct option:

0

0.5

1

-1

For most firms, P/E ratios and risk_________.

Select correct option:

Will be directly related

Will have an inverse relationship

Will be unrelated

None of the above.

Which of the following is the cash required during a specific period to meet interest expenses and principal payments?

Select correct option:

Debt capacity

Debt-service burden

Adequacy capacity

Fixed-charge burden

Which of the following stipulate a relationship between expected return and risk?

Select correct option:

APT stipulates

CAPM stipulates

Both CAPM and APT stipulate

Neither CAPM nor APT stipulate

=====

Which of the following factors might affect stock returns?

Select correct option:

Business cycle

Interest rate fluctuations

Inflation rates

All of the above

If all things equal, when diversification is most effective?

Select correct option:

Securities' returns are positively correlated

Securities' returns are uncorrelated

Securities' returns are high

Securities' returns are negatively correlated

Which of the followings expressed the proposition that the value of the firm is independent of its capital structure?

Select correct option:

The Capital Asset Pricing Model

M&M Proposition I

M&M Proposition II

The Law of One Price

Which of the following will NOT equate the future value of cash inflows to the present value of cash outflows?

Select correct option:

Discount rate

Profitability index

Internal rate of return

Multiple Internal rate of return

Which of the following is related to the use Lower financial leverage?

Select correct option:

Fixed costs

Variable costs

Debt financing

Common equity financing

Why markets and market returns fluctuate?

Select correct option:

Because of political factors

Because of social factors

Because of socio-political factors

Because of macro systematic factors

Which of the following is NOT an example of hybrid equity

Select correct option:

Convertible Bonds

Convertible Debenture

Common shares

Preferred shares

A project that tells us the number of years required to recover our initial cash investment based on the project’s expected cash flows is:

Select correct option:

Pay back period

Internal rate of return

Net present value

Profitability index

A 5-year annuity due has periodic cash flows of Rs.100 each year. If the interest rate is 8 percent, the present value of this annuity is closest to which of the following equations?

Select correct option:

(Rs.100)(PVIFA at 8% for 4 periods) + Rs.100

(Rs.100)(PVIFA at 8% for 4 periods)(1.08)

(Rs.100)(PVIFA at 8% for 6 periods) - Rs.100

Can not be found from the given information

To increase a given future value, the discount rate should be adjusted __________.

Select correct option:

Upward

Downward

First upward and then downward

None of the given options

Which of the following is NOT the form of cash flow generated by the investments of the shareholders?

Select correct option:

Income

Capital loss

Capital gain

Operating income

According to the Capital Asset Pricing Model (CAPM), a well-diversified portfolio's rate of return is a function of which of the following:

Select correct option:

Unique risk

Reinvestment risk

Market risk

Unsystematic risk

What is the most important criteria in capital budgeting?

Select correct option:

Return on investment

Profitability index

Net present value

Pay back period

If all things equal, when diversification is most effective?

Select correct option:

Securities' returns are positively correlated

Securities' returns are uncorrelated

Securities' returns are high

Securities' returns are negatively correlated

Which if the following is (are) true? I. The dividend growth model holds if, at some point in time, the dividend growth rate exceeds the stock’s required return. II. A decrease in the dividend growth rate will increase a stock’s market value, all else the same. III. An increase in the required return on a stock will decrease its market value, all else the same.

Select correct option:

I, II, and III

I only

III only

II and III only

As interest rates go up, the present value of a stream of fixed cash flows _____.

Select correct option:

Goes down

Goes up

Stays the same

Can not be found from the given information

Which of the following could be taken same as minimizing the weighted average cost of capital?

Select correct option:

Maximizing the market value of the firm

Maximizing the market value of the firm only if MM's Proposition I

Minimizing the market value of the firm only if MM's Proposition I holds

Maximizing the profits of the firm

Which of the following formulas represents a correct calculation of the degree of operating leverage?

Select correct option:

(Q - QBE)/Q

(EBIT) / (EBIT - FC)

[Q(P-V) + FC] /[Q(P-V)]

Q(P-V) / [Q(P-V) - FC]

The value of a bond is directly derived from which of the following?

Select correct option:

Cash flows

Coupon receipts

Par recovery at maturity

All of the given options

Which statement is NOT true regarding the market portfolio?

Select correct option:

It includes all publicly traded financial assets

It is the tangency point between the capital market line and the indifference curve

All securities in the market portfolio are held in proportion to their market values

It lies on the efficient frontier

In the dividend discount model, _____ which of the following are not incorporated into the discount rate?

Select correct option:

Real risk-free rate

Risk premium for stocks

Return on assets

Expected inflation rate

Which of the following is NOT an example of hybrid equity

Select correct option:

Convertible Bonds

Convertible Debenture

Common shares

Preferred shares

For which of the following costs is it generally necessary to apply a tax adjustment to a yield measure?

Select correct option:

Cost of debt

Cost of preferred stock

Cost of common equity

Cost of retained earnings

The value of the bond is NOT directly tied to the value of which of the following assets?

Select correct option:

Real assets of the business

Liquid assets of the business

Fixed assets of the business

Lon term assets of the business

What are two major areas of capital budgeting?

Select correct option:

Net present value, profitability index

Net present value; internal rate of return

Net present value; payback period

Pay back period; profitability index

Which of the followings are the propositions of Modigliani and Miller's?

Select correct option:

The market value of a firm's common stock is independent of its capital structure

The market value of a firm's debt is independent of its capital structure

The market value of any firm is independent of its capital structure

None of the given options

The weighted average of possible returns, with the weights being the probabilities of occurrence is referred to as ________.

Select correct option:

Probability distribution

Expected return

Standard deviation

Coefficient of variation

In calculating the costs of the individual components of a firm's financing, the corporate tax rate is important to which of the following component cost formulas?

Select correct option:

Common stock

Debt

Preferred stock

None of the above

A statistical measure of the variability of a distribution around its mean is referred to as ________.

Select correct option:

Probability distribution

Expected return

Standard deviation

Coefficient of variation

How "Shareholder wealth" is represented in a firm?

Select correct option:

The number of people employed in the firm

The book value of the firm's assets less the book value of its liabilities

The market price per share of the firm's common stock

The amount of salary paid to its employees

What is potentially the biggest advantage of a small partnership over a sole proprietorship?

Select correct option:

Unlimited liability

Single tax filing

Difficult ownership resale

Raising capital

Total Marks: 1

The benefit we expect from a project is expressed in terms of:

Select correct option:

Cash in flows

Cash out flows

Cash flows

None of the given option

Upon which of the following a firm's degree of operating leverage (DOL) depends primarily?

Select correct option:

Sales variability

Level of fixed operating costs

Closeness to its operating break-even point

Debt-to-equity ratio

Which of the following is the value of beta for the market portfolio?

Select correct option:

0.25

-1.0

1.0

0.5

Which of the following is related to the use Lower financial leverage?

Select correct option:

Fixed costs

Variable costs

Debt financing

Common equity financing

Why common stock of a company must provide a higher expected return than the debt of the same company?

Select correct option:

There is less demand for stock than for bonds

There is greater demand for stock than for bonds

There is more systematic risk involved for the common stock

There is a market premium required for bonds

_______ is equal to (common shareholders' equity/common shares outstanding).

Select correct option:

Book value per share

Liquidation value per share

Market value per share

None of the above

When a bond will sell at a discount?

Select correct option:

The coupon rate is greater than the current yield and the current yield is greater than yield to maturity

The coupon rate is greater than yield to maturity

The coupon rate is less than the current yield and the current yield is greater than the yield to maturity

The coupon rate is less than the current yield and the current yield is less than yield to maturity

In order for the investor to earn more than the current yield the bond must be selling for a discount. Yield to maturity will be greater than current yield as investor will have purchased the bond at discount and will be receiving the coupon payments over the life of the bond.

Which of the following would be considered a cash-flow item from an "operating" activity?

Select correct option:

Cash outflow to the government for taxes

Cash outflow to shareholders as dividends

Cash inflow to the firm from selling new common equity shares

Cash outflow to purchase bonds issued by another company

Upon which of the following a firm's degree of operating leverage (DOL) depends primarily?

Select correct option:

Sales variability

Level of fixed operating costs

Closeness to its operating break-even point

Debt-to-equity ratio

Which of the following is simply the weighted average of the possible returns, with the weights being the probabilities of occurrence?

Select correct option:

Probability distribution

Expected return

Standard deviation

Coefficient of variation

Which of the following is simply the weighted average of the possible returns, with the weights being the probabilities of occurrence?

Select correct option:

Probability distribution

Expected return

Standard deviation

Coefficient of variation

Why companies invest in projects with negative NPV?

Select correct option:

Because there is hidden value in each project

Because there may be chance of rapid growth

Because they have invested a lot

All of the given options

Which of the following is related to the use Lower financial leverage?

Select correct option:

Fixed costs

Variable costs

Debt financing

Common equity financing

Cash budgets are prepared from past:

Select correct option:

Balance sheets

Income statements

Income tax and depreciation data

None of the given options

The cash budget is prepared from forecasted cash collections and disbursements rather

If we were to increase ABC company cost of equity assumption, what would we expect to happen to the present value of all future cash flows?

Select correct option:

An increase

A decrease

No change

Incomplete information

Question # 10 of 10 ( Start time: 06:27:59 PM ) Total Marks: 1

Which of the followings expressed the proposition that the cost of equity is a positive linear function of capital structure?

Select correct option:

The Capital Asset Pricing Model

M&M Proposition I

M&M Proposition II

The Law of One Price

Total portfolio risk is a combination of:

Select correct option:

Systematic risk plus non-diversifiable risk

Avoidable risk plus diversifiable risk

Systematic risk plus unavoidable risk

Systematic risk plus diversifiable risk

MC090200527 : Alina Khan

Quiz Start Time: 01:20 PM Time Left 48

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Question # 4 of 20 ( Start time: 01:27:27 PM ) Total Marks: 1

Which of the following is not the present value of the bond?

Select correct option:

Intrinsic value

Market price

Fair price

Theoretical price

MC090200527 : Alina Khan

Quiz Start Time: 01:20 PM Time Left 38

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Question # 5 of 20 ( Start time: 01:28:16 PM ) Total Marks: 1

Which of the following is not a recognized approach for determining the cost of equity?

Select correct option:

Dividend discount model approach

Before-tax cost of preferred stock plus risk premium approach

Capital-asset pricing model approach

Before-tax cost of debt plus risk premium approach

MC090200527 : Alina Khan

Quiz Start Time: 01:20 PM Time Left 43

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Question # 7 of 20 ( Start time: 01:30:02 PM ) Total Marks: 1

When Investors want high plowback ratios?

Select correct option:

Whenever ROE > k

Whenever k > ROE

Only when they are in low tax brackets

Whenever bank interest rates are high

MC090200527 : Alina Khan

Quiz Start Time: 01:20 PM Time Left 36

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Question # 10 of 20 ( Start time: 01:31:49 PM ) Total Marks: 1

How the beta of the stock could be calculated?

Select correct option:

By monitoring price of the stock

By monitoring rate of return of the stock

By comparing the changes in the stock market price to the changes in the stock market index

All of the given options

MC090200527 : Alina Khan

Quiz Start Time: 01:20 PM Time Left 29

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Question # 11 of 20 ( Start time: 01:32:46 PM ) Total Marks: 1

Cash budgets are prepared from past:

Select correct option:

Balance sheets

Income statements

Income tax and depreciation data

None of the given options

MC090200527 : Alina Khan

Quiz Start Time: 01:20 PM Time Left 61

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Question # 12 of 20 ( Start time: 01:33:58 PM ) Total Marks: 1

Which group of ratios measures a firm's ability to meet short-term obligations?

Select correct option:

Liquidity ratios

Debt ratios

Coverage ratios

Profitability ratios

MC090200527 : Alina Khan

Quiz Start Time: 01:20 PM Time Left 63

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Question # 13 of 20 ( Start time: 01:34:41 PM ) Total Marks: 1

Expected Portfolio Return = ___________.

Select correct option:

rP * = xA rA + xB rB

rP * = xA rA - xB rB

rP * = xA rA / xB rB

rP * = xA rA * xB rB

MC090200527 : Alina Khan

Quiz Start Time: 01:20 PM Time Left 71

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Question # 14 of 20 ( Start time: 01:35:11 PM ) Total Marks: 1

When the bond approaches its maturity, the market value of the bond approaches to which of the following?

Select correct option:

Intrinsic value

Book value

Par value

Historic cost

MC090200527 : Alina Khan

Quiz Start Time: 01:20 PM Time Left 55

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Question # 15 of 20 ( Start time: 01:35:37 PM ) Total Marks: 1

Which of the following statements is correct for a firm that currently has total costs of carrying and ordering inventory that is 50% higher than total carrying costs?

Select correct option:

Current order size is greater than optimal

Current order size is less than optimal

Per unit carrying costs are too high

The optimal order size is currently being used

MC090200527 : Alina Khan

Quiz Start Time: 01:20 PM Time Left 55

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Question # 18 of 20 ( Start time: 01:37:56 PM ) Total Marks: 1

Above the breakeven EBIT, increased financial leverage will __________ EPS, all else the same. Assume there are no taxes

Select correct option:

Increase

Decrease

Either increase or decrease

None of the given options

MC090200527 : Alina Khan

Quiz Start Time: 01:20 PM Time Left 71

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Question # 20 of 20 ( Start time: 01:39:43 PM ) Total Marks: 1

What is yield to maturity on a bond?

Select correct option:

Below the coupon rate when the bond sells at a discount, and equal to the coupon rate when the bond sells at a premium

The discount rate that will set the present value of the payments equal to the bond price

Based on the assumption that any payments received are reinvested at the coupon rate

None of the above

MC090201994 : Shoaib Anjum

Quiz Start Time: 01:45 PM Time Left 81

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Question # 1 of 20 ( Start time: 01:45:20 PM ) Total Marks: 1

As interest rates go up, the present value of a stream of fixed cash flows _____.

Select correct option:

Goes down

Goes up

Stays the same

Can not be found from the given information

MC090201994 : Shoaib Anjum

Quiz Start Time: 01:45 PM Time Left 52

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Question # 2 of 20 ( Start time: 01:45:52 PM ) Total Marks: 1

Which of the following is the stability of a firm's operating income?

Select correct option:

Financial leverage

Weighted-average cost of capital

Capital structure

Business risk

MC090201994 : Shoaib Anjum

Quiz Start Time: 01:45 PM Time Left 52

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Question # 3 of 20 ( Start time: 01:46:38 PM ) Total Marks: 1

Which of the following is correct, if a firm has a required rate of return equal to the ROE?

Select correct option:

The firm can increase market price and P/E by retaining more earnings.

The firm can increase market price and P/E by increasing the growth rate.

The amount of earnings retained by the firm does not affect market price or the P/E.

None of the given options

MC090201994 : Shoaib Anjum

Quiz Start Time: 01:45 PM Time Left 80

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Question # 7 of 20 ( Start time: 01:48:22 PM ) Total Marks: 1

If stock is a part of totally diversified portfolio then its company risk must be equal to:

Select correct option:

0

0.5

1

-1

MC090201994 : Shoaib Anjum

Quiz Start Time: 01:45 PM Time Left 64

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Question # 11 of 20 ( Start time: 01:49:26 PM ) Total Marks: 1

Where the stock points will lie, if a stock is a part of totally diversified portfolio?

Select correct option:

It will lie below the regression line

It will line above the regression line

It will line exactly on the regression line

It will be tangent to the regression line

Which of the following represents a firm's safety stock?

Select correct option:

Inventory having passed quality-control inspection

Largest order size that retains minimum order costs

Inventory of most frequently ordered items

Reorder point that considers lags and uncertainties

MC090201994 : Shoaib Anjum

Quiz Start Time: 01:45 PM Time Left 85

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Question # 14 of 20 ( Start time: 01:50:58 PM ) Total Marks: 1

If the probability is written on Y-axis and the rate of return is mentioned on the X-axis, Which kind of relationship it shows when there is higher the standard deviation the higher the risk.

Select correct option:

Indirect relationship

Inverse relationship

Direct relationship

No relationship

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