FIN622 PAPER 2012
Q1
Which of the following is a tool that identifies the
strengths, weaknesses, opportunities and threats of an organization?
(a) SWOT
Analysis
(b) Trend
Analysis
(c) Fundamental
Analysis
(d) Technical
Analysis
Q2
Which one of the following is an offering in which the shares
of a company are offered to a limited number of investors?
(a) Initial
Public Offering
(b) Private
Placement
(c) Direct
Public Offering
(d) Primary
Offering
Q3
If you want to earn 8 percent, approximately how much
should you pay for a security which matures in one year at Rs. 1,000?
(a) Rs.
1,080
(b) Rs.
940
(c) Rs.
920
(d) Rs.
926
Q4
Which of the following reflects the real cost of funds to
the borrowers and the real yield to the lenders?
(a) Real
interest rate
(b) Nominal
interest rate
(c) Annual
interest rate
(d) Quarterly
interest rate
Q5
A Company's common stock is currently selling at Rs.3.00
per share, its quarterly dividend is Rs.0.07, and the stock is expected to rise
to Rs.3.30 in a year. What is its expected rate of return?
(a) 9.3%
(b)
19.3%
(c)
10.0%
(d)
11.0%
Q6
Which
of the following would lower a firm's operating break-even point?
(a)
An increase in the cost of goods sold
(b)
An increase in selling price
(c)
An increase in wages paid to employees
(d)
An increase in total sales
Q7
The percentage change in a firm's operating profit (EBIT)
resulting from a 1% change in output (sales) is known as the ________.
(a) Degree
of operating leverage
(b) Degree
of profit leverage
(c) Degree
of total leverage
(d) Degree
of financial leverage
Q8
The employment of fixed costs associated with the actual
production of goods or services is known as:
(a) Financial
leverage
(b) Volume
discounting
(c) Operating
leverage
(d) Covariance
Q9
Which one of the following is a major limitation of Linear
Programming Techniques of capital projects selection?
(a) Relative
size of the Investment is ignored
(b) Time
value of money is not considered
(c) Project
cash flows are ignored
(d) Project
profitability is ignored
Q10
Which of the following conditions, if exist, will
make the diversification of stocks more effective?
(a) Securities
contained in a portfolio are positively correlated
(b) Securities
contained in a portfolio are negatively correlated
(c) Securities
contained in a portfolio have high market values
(d) Securities
contained in a portfolio have low market values
Q11
Which
one of the following terms refers to the variability of return on stocks or
portfolios, associated with changes in return on the market as a whole?
(a) Unsystematic
risk
(b) Unique
risk
(c) Systematic
risk
(d) Company
specific risk
Q12
Which one of the following terms refers to the variability
of return on stocks or portfolios not explained by general market movements,
and is avoidable through proper diversification?
(a) Total
risk
(b) Systematic
risk
(c) Unsystematic
risk
(d) Market
risk
Q13
Which
of the following is known as market portfolio?
(a) A
portfolio consists of all risk free securities available in the market
(b) A
portfolio consists of securities of the same industry
(c) A
portfolio consists of all aggressive securities available in the market
(d) A
portfolio consists of all securities available in the market
Q14
What will be the risk premium if the market portfolio has
an expected return of 10% and the risk free rate is 4%?
(a) 4%
(b) 5%
(c) 6%
(d) 7%
Q15
Which of the following is the principal advantage of high
debt financing?
(a) Tax
savings.
(b) Low
Bankruptcy costs
(c) Minimum
financial risk
(d) Low
financial leverage
Q16
Which of the following statements is true regarding
Weighted Average Cost of Capital (WACC)?
(a) WACC
of a levered firm is greater than that of an un-levered firm
(b) WACC
of a levered firm is lesser than that of an un-levered firm
(c) WACC
of a levered firm is equal to that of an un-levered firm
(d) An
Un-levered firm has zero WACC.
Q17
XYZ Airlines will pay a Rs.4.00 dividend next year
on its common stock, which is currently selling at Rs.100 per share. What is
the market’s required return on this investment if the dividend is expected to
grow at 5% forever?
(a) 9%
(b) 4%
(c) 5%
(d) 7%
Q18
A Pure Play method of selecting a discount rate is most
suitable in which of the following situations?
(a) When
the intended investment project belongs to industry other than the firms operating
in
(b) When
the intended investment project has a conventional stream of cash flows
(c) When
the intended investment project has a Non-conventional stream of cash flows
(d) When
the intended investment project is a replacement project
Q19
Which of the following statements is TRUE regarding a firm
that is totally (100%) financed by equity?
(a) Its
Return on Equity (ROE) is equal to its Return on Assets (ROA)
(b) Its
Return on Equity (ROE) is less than its Return on Assets (ROA)
(c) Its
Return on Equity (ROE) is greater than its Return on Assets (ROA)
(d) Its
Return on Equity (ROE) and Return on Assets (ROA) are zero
Q20
Which of the following statements is TRUE regarding an
Un-levered firm?
(a) Its
Return on Equity is equal to Return on Assets
(b) Its
Return on Equity is equal to Return on Investment
(c) Its
Return on Equity is equal to Return on Sales
(d) Its
Return on Equity is equal to Return on Non-fixed Assets
Q21
Which of the following risks is independent of capital
structure of a firm?
(a) Financial
risk
(b) Systematic
risk
(c) Business
risk
(d) Total
risk
Q22
Which of the following is the objective of an optimal
capital structure?
(a) To
minimize the cost of capital
(b) To
minimize cost of equity
(c) To
minimize cost of debt
(d) To
minimize cost of sales
Q23
Which of the following methods would be most suitable
for selecting capital project(s) in case of multi-period capital rationing?
(a) Simple
payback period
(b) Discounted
payback period
(c) Multiple
Internal Rate of Return
(d) Linear
Programming
Q24
What will be the effect of reduction in the cost of
capital on the accounting break-even level of revenues?
(a) It
raises the break-even level.
(b) It
reduces the break-even level.
(c) It
has no effect on the break-even level.
(d) This
cannot be determined without knowing the length of the investment horizon.
Q25
All
of the following are the disadvantages of a Corporate form of an organization EXCEPT:
(a) Double
taxation
(b) Limited
liability
(c) Legal
restrictions
(d) None
of the given options
Q26
Which
of the following reasons justifies the need for Financial Statement Analysis ?
(a) It
improves capital budgeting process of the company
(b) It
helps improve future planning
(c) It
helps improve accounting policies of the company
(d) It
helps improve purchasing polices of the company
Q27
Palo
Alto Industries has a debt-to-equity ratio of 1.6 compared with the industry
average of 1.4. What do these ratios tell about this company?
(a)
The company will be viewed as having high
creditworthiness
(b)
The company has greater than average financial risk
when compared to other firms in its industry
(c)
The company will not experience any difficulty with its
creditors
(d)
The company has less liquidity than other firms in the
industry
Q28
Which of the following transactions affects the acid-test
ratio?
(a) Receivables
are collected
(b)
Inventory is liquidated for cash
(c)
New common stock is sold and used to retire a debt
issue
(d)
New common stock issue is sold and equipment
purchased
Q29
Short-term
creditors would be most interested in which of the following ratios of a firm?
(a) Coverage
ratios
(b)
Liquidity ratios
(c)
Profitability ratios
(d)
Debt ratios
Q30
Which
one of the following is a long-term contract under which a borrower agrees to
make payments of interest and principal on specific dates?
(a) Common
stock
(b)
Preferred stock
(c)
Equity contract
(d)
Bond
Q31
Which
one of the following statements best describes the relationship between market
interest rates and bond prices?
(a) Market
interest rates and bond prices move in the same direction
(b)
Market interest rates and bond prices move in
opposite directions
(c)
Sometimes move in the same direction, sometimes in
opposite directions
(d)
Market interest rate and bond prices have no
relationship with each other
Q32
Which
of the following statements would be CORRECT regarding nominal interest
rate when inflations is expected to occur over the foreseeable future?
(a) Nonimal
interest rate would be equal to real interest rate
(b)
Nonimal interest rate would be more than real
interest rate
(c)
Nonimal interest rate would be half of real
interest rate
(d)
Nonimal interest rate would be less than the real
interest rate
Q33
How
much should you pay for a bond with Rs.1,000 face value, a 10 percent coupon
rate, and seven years to maturity if your appropriate discount rate is 8
percent and interest is paid annually? (Answers
are rounded to the nearest dollar)
(a) Rs.1,000
(b)
Rs.903
(c)
Rs.1,104
(d)
Rs.560
Q34
How much should you pay for a bond with Rs.1,000 face
value, an 8 percent coupon rate, and seven years to maturity if your
appropriate discount rate is 10 percent and interest is paid annually? (Answers are rounded to the nearest dollar)
(a) Rs.1,104
(b) Rs.560
(c) Rs.1,000
(d) Rs.903
Q35
Which
of the following is reflected by the price of a share of common stock?
(a) Earnings
after tax divided by the number of shares outstanding
(b) The
board of directors' assessment of the intrinsic value of the firm
(c) The
book value of the firm's assets less the book value of its liabilities
(d) The
market's evaluation of a firm's present and future performance
Q36
Which of the following is a method of evaluating
securities by analyzing statistics generated by market activity, such as past
prices and volume?
(a)
Technical analysis
(b)
Fundamental analysis
(c)
Common size analysis
(d)
Ratio analysis
Q37
Which of the following method of stock evaluation tries to
predict the future movement of a stock based on past data?
(a) Trend
analysis
(b) Fundamental
analysis
(c) Horizontal
analysis
(d) Vertical
analysis
Q38
In which of the following situations market price of a
security will move down?
(a) When
market price of the security is above the intrinsic value of the security
(b) When
market price of the security is equal to the intrinsic value of the security
(c) When
market value of the security is equal to the face value of the security
(d) When
market price of the security is below the intrinsic value of the security
Q39
Which of the following statements is CORRECT regarding the
fundamental analysis?
(a) Fundamental analysts use only Economic indicators to
evaluate a stock
(b) Fundamental analysts use only financial information
to evaluate a company’s stocks
(c) Fundamental analysts use financial and non-financial
information to evaluate a company’s stocks
(d) Fundamental analysts use only non-financial
information to evaluate a company’s stocks
Q40
If
the Internal Rate of Return (IRR) for a project is 15%, then the project's NPV
would be:
(a) Negative
at a discount rate of 10%.
(b) Positive
at a discount rate of 20%.
(c) Negative
at a discount rate of 20%.
(d) Positive
at a discount rate of 15%.
Q41
ABC manufacturer company produces a particular item for
Rs.2.50 and sells it for Rs.3. Fixed costs associated with the item are
Rs.10,000 a year. Suppose the firm is contemplating the addition of a new piece
of equipment to reduce manufacturing costs. Variable costs will be reduced to
Rs. 2.25, but fixed costs will be increased by Rs.2,000 a year. How will this
proposed change in the manufacturing process influence the break-even point? Marks:
5
Q42
How
are the costs of debt and equity (common stocks) calculated? Marks: 5
No comments:
Post a Comment