ACC501 Finalterm Solved MCQs With Reference by Students

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ACC501 Current 11 Solved Finalterm Papers and

Important MCQS
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EXAMINATION
Question No: 1 ( Marks: 1 ) - Please choose one
The accounting definition of income is:

►Income = Current Assets -Current Liabilities
►Income = Fixed Assets - Current Assets
►Income = Revenues - Current Liabilities
►Income = Revenues - Expenses pg 17
What would be the capital spending for an organization who has purchased fixed assets of Rs. 200,000 and sold fixed assets of
Rs. 45,000?
►Rs. 245,000
►Rs. 200,000
►Rs.1 55 , 0 0 0
►Rs. 45,000
200000-
45000=155000
Selected information from SNT Company's accounting records is as follows:
o Cash paid to retired common shares Rs. 15,000
o Proceeds from issuance of preferred shares Rs. 20,000 o Cash dividends paid Rs. 8,000
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o Proceeds from sale of equipment Rs. 25,000

On its cash flow statement for the year, SNT Company should report net cash flow from financing activities as:
►Rs. 3,000 net cash inflow
►Rs. 3,000 net cash outflow

SNT Company has a current ratio of 3:2. Current Liabilities reported by the company are Rs. 30,000 . What would be the Net
Working Capital for the
company?
►Rs. 45,000
►Rs. 15,000
► ( R s . 4 5 ,0 0 0 )
►( Rs. 15,000)

Which of the following would not improve the current ratio?
►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
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Which of the following are incorporated into the calculation of the Du -Pont Identity?
I. Return on assets II.
Equity Multiplier
III. Total Assets Turnover
IV. Profit Margin
►I, II, and III only
►I, III, and IV only
► II, III and IV only pg 45
►I, II, III, a n d IV

The concepts of present value and future value are:
►Directly related to each other

►Not related to each other
►Proportionately related to each other

►Inversely related to each other
Which of the following is a special case of annuity, where the stream of cash flows continues forever?
►Special Annuity
►Ordinary Annuity
►Annuity Due
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►Perpetuity
Which of the following is an unsecured bond for which no specific pledge of property is made?
►Mortgage
►Debenture
►Collateral
►Note Payable
Debenture is an unsecured bond
for which no specific pledge of
property is made
Which of the following type of return refers to the percentage change in the amount of money you have?
►Nominal return
►Real return
►Inflation return
►None of the given option
Your nominal return is the
percentage change in the amount
of money you have.
When real rate is _____, all interest rates will tend to be _____.
►Low; higher
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►High; lower
►High; higher
►None of the given options
When real rate is high, all interest
rates will tend to be higher and
vice versa.
Which of the following is the extra yield that investors dem and on a taxable bond as a compensation for the unfavorable tax
treatment?
►Interest rate risk premium

►Inflation risk premium
►Default risk premium
►Taxability premium
Investors demand extra yield on a taxable bond as a compensation for the unfavorable tax
treatment, known as
taxability premium

In which type of the market, previously issued securities are traded among investors ?
►Primary Market
►Secondary Market pg 100
►Tertiary Market

Secondary Market
The market in which previously
issued securities are traded among
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investors
Place the following items in the proper order of completion regarding the capital budgeting process.
(I) Perform a post-audit for completed projects; (II) Generate project proposals;
(III) Estimate appropriate cash flows; (IV)
Select value-maximizing projects; (V)
Evaluate projects.
►II, V, III, IV, and I
►III, II, V, IV, and I
►II, III, V, IV, and I
►II, III, IV, V, and I

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An investment w ill be ___________ if the IRR doesn’t exceed s the required return and ___________ otherwise.
►Accepted; rejected
►Accepted; accepted
►Rejected; rejected
►Rejected; accepted pg 109
IRR and NPV rules always lead to identical decisions as long as :
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►Cash flows are conventional
►Cash flows are independent
►Cash flows are both conventional and independent

A project whose acceptance does not prevent or require the acceptance of one or more alternative projects is referred to as :
►A mutually exclusive project

►An independent project
►A dependent project
►A contingent project
Finding Net Present Value comes under which type of capital budgeting criteria
?
►Discounted Cash Flow Criteria pg 118
►Accounting Criteria
►Payback Criteria

___________ Cost is an outlay that has already occurred and hence is not affected by
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the decision under consideration.

►Sunk
►Opportunity
►Fixed
►Variable
Which of the following is the overall return the firm must earn on its existing assets to maintain the value of the stock ?
►WACC (Weighted Average Cost of Capital)

►AAR (Average Accounting Return)
►IRR (Internal Rate of Return)
►MIRR (Modified Internal Rate of Return)
Mr. A, as a financial consultant, has prepared a feasibility report of a project for XYZ Company that the company is
planning to undertake. He has suggested that the project is feasible. The consultancy fee paid to Mr. A will be considered as:
►Sunk cost
►Opportunity cost
►Both sunk cost and opportunity cost
►Neither sunk cost nor opportunity cost
The current price of SNT stock is Rs. 50. Dividends are expected to grow at 7 percent indefinitely and the most current
dividend was Rs. 1.00. What is the
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required rate of return on SNT stock?
►9.00 percent
►9.14 percent
►9.33 percent
►10.65 percent

Which of the following are rights of an owner of a share of common stock for firm which has no preferred share?
►The right to vote for directors
►The right to share proportionately in dividend paid

►The right to vote on stockholder matters of great importance ►All of the given options

Which one of the following typically applies to preferred stock but not to common stock?
►Dividend yield
►Cumulative dividends
►Voting rights
►Tax deductible dividends
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You must own which of the following to vote against a merger proposal from another corporation?
►Preferred share
►A debenture
►Common stock
►Cumulative dividend stock

Which of the following strategy belongs to flexible policy regarding size of investments in current assets ?
►To maintain a high ratio of current assets to sales
►To maintain a low ratio of current assets to sales

►To maintain less short-term debt and more long-term debt ►To maintain more short-term debt and less long-term debt
Size of investments in current assets

•Flexible policy
•maintain a high ratio of current assets to sales
•Restrictive policy
•maintain a low ratio of current assets to sales Financing of current assets
•Flexible policy
•less short-term debt and more long-term debt
•more short-term debt and less long-term debt
If policies
Which of the following strategy belongs to flexible policy regarding financing of
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current assets ?
►To maintain less short-term debt and more long-term debt
►To maintain more short-term debt and less long-term debt

Suppose you have Rs. 10,000 on deposit. One day, you write a cheque for Rs. 2,000 and deposit Rs. 4,000. What is your
collection float ?
►Rs. 4,000
►+ Rs. 2,000
►Rs. 2,000
►+ Rs. 4,000

Which of the following is known as the group of assets such as stocks and bonds held by an investor ?
►Stock Bundle
►Portfolio
►Capital Structure
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Which of the following is referred as the ratio of the standard deviation of a distribution to the mean of that distribution ?
►Probability distribution
►The expected return
►The standard deviation

►Coefficient of variation

The MC Inc. purchased a share of common stock exactly one year ago for Rs. 45.
During the past year the common stock paid an annual dividend of Rs. 2.40. The
firm sold the stock today for Rs. 80. What is the rate of return the firm has
earned?
►5.3%
►194.2%
►83.11%
►94.2%

Mr. Sami has bought 50 shares of a corporation one year ago at Rs. 20 per share. Over
the last year, he received a dividend of Rs. 2 per share. At the end of the
year, the stock sells for Rs. 25. As per given information, what will be his total percentage return ?
►10 %
►20 %
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►35 %
►45 %
Dividend yield= 2/20=0.1%
Capital gain yield =(25-20)/20=0.25%
Total percentage return 0.1+0.25*100=35%
While performing the feasibility analysis for a project, an operating cash flow of Rs.
225,000 has been calculated. Net working cap ital has declined by Rs. 40,000. There w as a net capital sp ending of Rs. 100,000 d
u ring the year. What w ill be the
total cash flow for the project?
►Rs. 85,000
►Rs. 165,000
►Rs. 285,000
►Rs. 365,000
Operating cash
flow - change in
NWC - Capital
spending
225000-(-40000)-
100000=165000
The total market value of a company s stocks is calculated as Rs. 250 million and the total market value of the company s debt are
calculated as Rs. 150 million.
What percent of the firm s financing is debt?
►37.50%
►50.00%
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►62.50%
►70.00%
250+150=400
250/400=0.625
0.625*100=62.5 is equity and
100-62.5=37.5 is debt
Suppose a firm borrow s Rs. 800,000 at 7%. What w ill be the after -tax interest rate if tax rate is 34%?
►3.00%
►4.62%
►5.20%
►8.00%
RD x (1
- TC).
7%X(1-
0.34)=4
.62

Opportunity losses from having inadequate inventory are termed as:
►Carrying costs
►Opportunity costs
►Restocking costs
►Safety reserve costs

Restocking costs - costs of placing an order with suppliers or the cost of setting up a production
run
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•Safety reserve costs - opportunity losses from having inadequate inventory e.g. lost sales and goodwill
•A trade-off
•Carrying costs increase with inventory levels and shortage or restocking costs decline with inventory levels
•The goal of inventory
management is to minimize
the sum of these two costs
What w ill be the Economic Order Quantity (EOQ) if total u nit sales (T) = 400, fixed costs (F) = Rs. 30 and carrying costs (CC)
= Rs. 5 ?
►65 units
►69 units
►89 units
►95 units
EOQ = (2T x F
/ CC)1/2
2*400=800
800*30=24000
24000/5=4800
4800^0.5=69.28
The cost of common equity for a firm is:

►The required rate of return on the company's stock ►The yield to maturity on the bond
►The risk-free rate
►The market risk premium
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A firm has 3 million in comm on stock, 1 million in preferred stock and 2 million in debt. What is the percentage of firm s
financing that is debt ?
►20%
►33%
►40%
►67%
The book value of a system is Rs. 50,350 at the end of year 3 of its life. What will be the
total after-tax cash flow from sale if we sell this system for Rs. 30,000 at this time? (Tax rate is 34%)
►Rs. 20,350
►Rs. 30,919
►Rs. 36,919
►Rs. 80,350
50350-30000=20350x34%=6919
30000+6919=36919

What w ill be the variance if standard deviation for the returns of an investment is
0.2829 ?
►0.0800
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►0.0892
►0.5319
►Cannot be estimated without more information
Question No: 43 ( Marks: 3 )
Write down the components of total return in terms of dividend growth model. Answer
R = D1 /P0 + g
This tells us that the total return, R, has two components
D1/P0 is called the Dividend Yield. Because this is calculated as the expected cash dividend by
the
current price, it is conceptually similar to the current yield on a bond
Growth rate, g, is also the rate at which the stock price grows. So it can be interpreted as
capital
gains yield
What is the difference between operating cycle and cash cycle?

The operating cycle is the sum of the inventory and receivable periods
Operating cycle = Inventory period + Receivable period
Cash cycle
•The time between cash disbursement and cash collection. (We spend cash on day 30, but don't collect until
day 105. so we have to arrange finances $1,000 for 105 - 30 = 75 days)
•So we can describe the cash cycle as:
Cash cycle = Operating cycle - Accounts payable period
75 days = 105 days - 30 days
How a firm s overall cost of capital is calculated ?
We know that a firm’s overall cost of capital will reflect the required return on the firm’s assets as a
whole.
•Given that a firms uses both debt and equity capital, this overall cost of capital will be a mixture
of the
returns needed to compensate its creditors and stockholders.
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•Cost of capital will reflect

•Cost of equity capital
•Cost of debt capital
Cost of Equity
Define the following terms:
(i) Dealer
An agent who buys and sells securities from a maintained inventory
It stands ready to buy securities from investors wishing to sell them and sells securities to investors
wishing to buy them
(ii) Broker
An agent who arranges security transactions among investors, matching investors wishing to buy securities with investors wishing to sell
securities
They do not buy or sell securities for their own accounts. Facilitating trades others is their business
(iii) Bid Price
(iv) Strike Price

The price that the dealer wishes to pay is the bid price and the price at which the dealer sells the
securities is called the
strike price.
(v) Spread
The difference
between the bid and
ask price is called the
spread
A firm has a total value of Rs. 1 million and debt valued at Rs. 400,000. What is the
after-tax weighted average cost of capital if the cost of debt is 12%, the cost of equity is
15% and tax rate is 35% ?
SNT & Co. has the following Target capital structure :
Debentures = Rs. 5.00 Billion
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Preferred shares = Rs. 2.65 Billion

Common shares = Rs. 9.35 Billion
Total = Rs. 17 Billion

Bonds carry an interest rate of 11.5%. Common stocks and Preferred stocks have a return of 15.50 % and 12%
respectively and corporate tax rate is 40%. Compute the present Weighted Average Cost of Capital (WACC) for SNT & Co.

Standard Manufacturing Company (SMC) need s one of two machines. Machine X
costs Rs. 25,000 and has cash flow s of Rs. 8,000 a year for six years. Machine Y costs Rs. 30,000 and has cash flow s Rs.
7,000 a year for six years. SMC has 12% cost of
capital. Calculate each machine s Payback Period and NPV (N et Present Value) and
evaluate the results.
Paper 2
Which of the following is the difference between current assets and current? Liabilities?
►Surplus Asset
►Short-term Ratio
►Working Capital
►Current Ratio

A business owned by a single person is known as:
►Sole-proprietorship
►General partnership
►Limited partnership
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►Corporation
In a common-size balance sheet, all items are shown as a percentage of:
►Total Assets
►Total Liabilities
►TotalOwnersEquity

A company's ability to meet long-term obligations can be estimated by using
which of the following set of ratios?
►Liquidity Ratio
►Solvency Ratios
pg 34
►Asset Management Ratios
►Market Value Ratios

According to Du Pont Identity, ROE is affected by which of the following?
►Operating efficiency
►Asset use efficiency
►Financial Leverage
►All of the given options
The Du Pont identity tells us that ROE is affected by three things:
Operating efficiency (as measured by profit margin)
Asset use efficiency (as measured by total assets turnover)
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Financial Leverage (as

measured by equity multiplier)
Which of the following is a series of constant cash flows that occur at the end of? each period for some fixed number of
periods?
►Ordinary annuity
►Annuity due
►Perpetuity
A series of constant, or level, cash flows that occur at the end of each period for some fixed number of
periods is called an ordinary
Annuity
A portion of profits, which a company distributes among its shareholders, is known as:
►Dividends
►Retained Earnings
►Capital Gain
►nterest

What amount a borrower would pay at the end of fourth year with a 4 -year, 12%, interest-only loan of Rs. 3,000?
►Rs. 360
►Rs. 2,000
►Rs. 3,000
►Rs. 3,360
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A company issues bonds with a Rs. 1,000 face value. What is the coupon rate if the coupon payments of Rs. 45 are paid every
6 months?
►3 percent
►6 percent
►9 percent
►12 percent
Given two bonds identical but for maturity, the price of the longer-term bond will change _ _ _ _ _ _ _ _ that of the
shorter-term bond, for a given change in market interest rates.
►More than
►Lessthan
►Equal to

When corporations borrow, they generally promise to:
I. Make regular scheduled interest payments
II. Give the right of voting to bondholders
III. Repay the original amount borrowed (principal) IV. Give an ownership interest in the firm
►I and II
►I and III pg
77
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►II and IV
►I, III, and IV

Which of the following allows a company to repurchase part or all of the bond? issue at a stated price?
►Repayment
►Seniority
►Call provision
►Protective covenants

Sumi Inc. has policy of paying a Rs. 9 per share dividend every year. If this
policy is to continue indefinitely, what will be the value of a share of stock at a 12% required rate of return?
►Rs. 30
►Rs. 45
►Rs. 60
►Rs. 75
9/0.12=75

Primary Market
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Secondary Market
Tertiary Market
None of the given options

An investment should be accepted if the net present value is __________ and rejected if it is ________.
Positive; positive
Positive; negative
Negative; negative
Negative; positive

The XYZ Corporation is considering an investment that will cost Rs. 80,000 and have a useful life of 4 years. During the
first 2 years, the net incremental after-tax cash flows are Rs. 25,000 per year and for the last two years they are Rs. 20,000
per year. What is the payback period for this investment ?
3.2 Years
3.5 Years
4.0 Years
Cannot be determined from the given information
Which of the following statement is INCORRECT regarding a normal project ?
If the IRR of a project is greater than the discount rate, k, then its PI will be
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greater than 1
If the NPV of a project is greater than 0, then its PI will exceed 1

If the IRR of a project is 8%, its NPV, using a discount rate, k, greater than 8%, will be less than 0
If the PI of a project equals 0, then the project's initial cash outflow equals the PV of its cash flows

Which of the following set of cash flows represent the change in the firm s total cash flow that occurs as direct result of
accepting the project ?
Relevant Cash Flows

Incremental Cash Flows
Negative Cash Flows
All of the given options
Which of the following is NOT a problem while determining incremental cash flows?
Merchandize cost
Sunk cost
Opportunity cost
___________ Cost refers to the cash flows that could be generated from an asset the firm already owns provided it is not used
for the project in question.
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Sunk
Opportunity
Fixed
Variable
The overall (weighted average) cost of capital is composed of a weighted average

of :
The cost of common equity and the cost of debt pg

146
The cost of common equity and the cost of preferred stock The cost of preferred stock and the cost of debt
The cost of common equity, the cost of preferred stock, and the cost of debt

Which of the following is a characteristic of preferred stock?
These stocks have not stated liquidating value

Dividends on these stocks can be cumulative pg100
These stocks hold credit ratings quite different from bonds
These stocks have not any kind of priority over common stocks

Mr. A, as a financial consultant, has prepared a feasibility report of a project for
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XYZ Company that the company is planning to undertake. He has suggested that the project is feasible. The
consultancy fee paid to Mr. A will be considered as:
Sunk cost
Opportunity cost
Both sunk cost and opportunity cost
Neither sunk cost nor opportunity cost

One would be indifferent between taking and not taking the investment when:
NPV is greater than Zero

NPV is equal to Zero
NPV is less than Zero
Which of the following is a measure of accounting profit relative to book value?
Net Present Value

Profitability Index
Internal Rate of Return
Average Accounting Return
•AAR is a measure of accounting profit relative to book value
•AAR rule is to take an investment
if its AAR exceeds a benchmark
AAR
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Which of the following M&M propositions states that it is completely irrelevant how a firm chooses to arrange its finances ?
1st proposition
2nd proposition
3rd proposition

According to 2nd M&M proposition, cost of equity does NOT depend upon which of the following ?
The required return of firm s assets
The firm s cost of debt
The firm s stockholders pg 153
The firm s debt-equity ratio

Which of the following risk is associated with the unique circumstances of a particular company ?
Financial Risk
Business Risk found

on internet
Functional Risk
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Which of the following type of risk influences a large number of assets ?
Systematic Risk
Unsystematic Risk
Diversifiable Risk
Asset-specific risk
The true risk of an investment is the unanticipated or surprising part of the return.
•If we always receive exactly what we expect then the investment will be risk-free.
•Systematic Risk
•A risk that influences a
large number of assets. It is
also called market risk
Which of the following is an example of unsystematic risk ?
Increasing Recession
Rise in Interest Rate
Rise in Inflation
Strike call in a company pg
140
A set of possible values that a random variable can assume and their associated probabilities of occurrence are referred as :
Probability distribution
The expected return
The standard deviation
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Coefficient of variation
Mr. Sami has bought 50 shares of a corporation one year ago at Rs. 20 per share.
Over the last year, you received a dividend of Rs. 2 per share. At the end of the year, the stock sells for Rs. 25. If Mr. Sami
sells the stock at the end of the year,
what will be his total cash inflow ?
Rs. 100
Rs. 250
Rs. 1,000
Rs. 1,350
50*20=1000
50*25=1250
1250-1000=250
250,000 has been calculated . Net working capital has increased by Rs. 50,000. There was no capital spending during the year.
What w ill be the total cash flow
for the project?
Rs. 170,000
Rs. 200,000
Rs. 215,000
Rs. 230,000
2050000-
(+50000)
200000
Autos & computers are included in which of the following MACRS property
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class?
3-year
5-year
7-year
3-year Equipment used in research
5-year Autos, Computers
7-year Most industrial equipment
The next dividend for a company is Rs. 5 per share. The stock current price is Rs. 50 per share. What w ill be the cost of capital
if the dividend s are estimated to
Grow steadily at 5%?
12.88%
13.07%
14.22%
15.00% pg
142

Trade credit is more likely to be granted if:
The selling firm has a cost advantage over other lenders
The selling firm can engage in price discrimination
The selling firm can obtain favorable tax treatment
Trade Credit is more likely to be granted if:
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•The selling firm has a cost advantage over other lenders.

•The selling firm can engage in price discrimination.
•The selling firm can obtain favorable tax treatment.
•The selling firm has no established reputation for quality products or services.
•The selling firm perceives a long-term strategic relationship.
•The optimal credit policy depends on the characteristics of particular firms.
•Excess capacity
A firm makes a sale of Rs. 2,000 on January 05, 2005. The firm is offering credit term of 3/10 net 30. How much it will
receive if the customer makes the payment on January 09, 2005 ?
Rs. 1,000
Rs. 1,940
Rs. 2,000
Rs. 2,100

Shortage or Restocking costs with inventory
levels
Rise
Decline
Remain unaffected
Carrying costs increase with
inventory levels and shortage or
restocking costs decline with
inventory levels
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Which one of the following motives refers to the need for holding cash to satisfy norm al disbursement and collection
activities associated with a firm s ongoing Operations?
Speculative motive
Transaction motive
Precautionary motive
Personal motive
Speculative Motive - the need to hold cash to take advantage of additional investment opportunities,
such as bargain purchases, attractive interest rates and favorable exchange rater fluctuations.
•Reserve borrowing utility and Marketable securities
•Transaction Motive - the need to hold cash to satisfy normal disbursement and collection activities
associated with a firm’s
ongoing operations.
What would be the standard deviationof returns for aninvestmentthat has a Variance of 0.008?
0.08944
0.09101
0.09487
0.10521

A firm has 3 million in common stock, 1 million in preferred stock and 2 million in debt. What is the that is debt ?
20%
33%
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40%
67%
Which of the following statement is INCORRECT regarding financial leverage ?
Financial leverage can dramatically alter the payoffs to the shareholders. Financial leverage refers to the extent to which a
firm relies on the debt.
Financial leverage must affect the overall cost of capital in any condition. pg 149
Financial leverage may not affect the overall cost of capital.

Define Net Present Value (NPV) and write down the NPV rule to accept a project.
What do you mean by the terms of business risk and financial risk?

Suppose there is an operating cash flow of Rs. 520,000. Net working capital has
increased by Rs. 200,000 and there is a net capital spending of Rs. 120,000 during the year. Calculate total cash flow.

A replacement project has an initial investment of Rs.10,000; and cash flows are
Rs.3,400; Rs. 2,500; Rs.3,900; and Rs.5,200 for years 1 through 4, respectively. The
firm has decided to assume that the appropriate cost of capital is 10%. What will be the net present value of the project? Is the
project feasible?
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Describe the relationship between capital structure and weighted average cost of capital (WACC).

The capital budgeting director of MKJ Inc. is supposed to analyze two proposed
capital investments projects S and T. Each project has a cost of Rs.100,000, and the cost of capital (discounting rate) for each
project is 12%. The projects
expected net cash flows are as follows :
Cash flow rs
Year Project A Project B
1 30000 30000
2 30000 30000
3 35000 20000
4 25000 30000
5 25000 250000
Calculate Internal Rate of Return (IRR) for both projects. On the basis of findings in (i):
a. Which project should be selected if projects are mutually exclusive?
b. Which project or projects should be selected if projects are independent
Identify the sources and uses of cash and complete the table by following the example.
Example Increasing current liabilities Increase Sourc

e
1. Increasing fixed asset
2. Decreasing equity
3. Increasing long-term debt
4. Decreasing fixed assets
5. Increasing current assets other than cash
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6. Increasing equity
7. Decreasing long-term debt
8. Decreasing current assets other than cash
9. Accounts Payable go up by Rs. 1,500
10. Accounts receivable go up by Rs.
2,000
Paper 3
FINALTERM EXAMINATION
Which of the following refers to a conflict of interest between principal and agent?
Management Conflict
Interest Conflict
Agency Problem
The Agency Problem
Agency relationship
Principal hires an agent to represent their interest
Stockholders (principals) hire managers (agents) to run the company
Agency problem
Conflict of interest between principal and agent
Management goals and agency
costs
Which of the following term refers to the ease and quickness with which assets can be converted to cash?
Analysis
Structuring
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Budgeting
Liquidity pg 14
Product costs do NOT include which of the following?
Raw material
Direct labor
Manufacturing overhead
Administrative expenses
Which of the following can be computed by using the information only from balance sheet?
Equity multiplier
Inventory turnover
Receivable turnover
Return on equity
Which of the following is CORRECT regarding the present value discount factor?
It is always greater than 1.0

It decreases as the discount rate increases
It is equal to zero when discount rate is zero
It increases as the time period increases
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How much must be deposited at 8% each of the next 20 years to have Rs. 10,296.44?
Rs. 225
Rs. 341
Rs. 410
Rs. 452
In order to compare different investment opportunities (each with the same risk) with interest rates reported in different manners you
should:
Convert each interest rate to an effective annual rate Convert each interest rate to a monthly nominal rate Convert each
interest rate to an annual nominal rate Compare the published annual rates

You have Rs. 1,0 0 0 to invest. You have 2 choices; first is the savings account A, which
earns 8.75 percent com pounded annually and second is the savings account B, which earns
8.50 percent com pounded monthly. Which account
should you choose and why?
Account A; because it has a higher effective annual rate
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Account B; because it has a higher effective annual rate Account A; because it has the higher quoted rate Account B; because the
quoted rate is higher
What will be the value of a Rs. 1,0 0 0 face-value bond with an 8% coupon rate at
8% required rate of return?
More than its face value
Less than its face value
Equal to its face value
Cannot be determined without more information
Which of the following statement is FALSE regarding debt?
Debt is not an ownership interest in the firm.

Unpaid debt can result in bankruptcy or financial failure.
Debt provides the voting rights to the bondholders. pg

78
Corporations payment of interest on debt is fully tax deductible.
The relationship between real and nominal returns is described by the:
M&M Proposition
Capital Asset Pricing Model
Fisher s Effect
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BCG Matrix
Investors dem and a higher yield as compensation to the risk of possible default. This extra premium is called:
Default risk premium

Taxability premium
Interest rate risk premium
Inflation risk premium
For which type of stocks, the dividends grow at a constant rate?
Zero Growth Stocks pg 91
Constant Growth Stocks

Non-Constant Growth Stocks

In which type of voting, each shareholder is entitled one vote per share times the number of directors to be elected?
Straight Voting
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Statutory Voting
Cumulative Voting

In which of the following procedure of voting for a company's directors, each shareholder is entitled to one vote per share ?
Straight Voting
Proportional Voting
Cumulative Voting
Which of the following is the price that the dealer wishes to pay for a share ?
Simple Price
Bid Price
Strike Price pg 100
Complex Price
Suppose the initial investment for a project is Rs. 160,000 and the cash flows are Rs. 40,000 in the first year and Rs. 90,000 in
the second and Rs. 50,000 in the third. The project will have a payback period of:
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2.6 Years
3.1 Years
3.6 Years
4.1 Years

The XYZ Corporation is considering an investment that will cost Rs. 80,000 and have a useful life of 4 years. During the first 2
years, the net incremental after-tax cash flows are Rs. 25,000 per year and for the last two years they are Rs. 20,000 per year.
What is the payback period for this investment ?
3.2 Years
3.5 Years
4.0 Years

Which of the following measures the present value of an investment per dollar invested ?
Net Present Value (NPV)

Average Accounting Return (AAR)
Internal Rate of Return (IRR)
Profitability Index (PI) pg
119
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Which of the following set of cash flows should be considered in the decision at
hand?
Relevant Cash Flows

Negative Cash Flows

___________ Cost is an outlay that has already occurred and hence is not affected by the decision under consideration.
Sunk
Opportunity
Fixed
Variable

of :
The cost of common equity and the cost of debt

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Over the past four years, a company has paid dividends of Rs. 1.00, Rs. 1.10, Rs.
1.20 and Rs. 1.30 respectively. This pattern is expected to continue into the future. This is an example of a company pay a dividend
that grows:
By 10 percent each year
At a constant rate
By a decreasing amount
At a decreasing rate

Which of the following statement is INCORRECT regarding Average Accounting Return?
AAR is a rate that makes the NPV equal to zero
AAR is a measure of accounting profit relative to book value

An investment is acceptable if its AAR is greater than a benchmark AAR

worng questions

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1st proposition
2nd proposition
3rd proposition
SNT Corporation has a WACC of 16% (ignoring taxes). It can borrow at 9% . Assuming that SNT has a target capital
structure of 75% equity and 25% debt, what will be its cost of equity ?
13.00%
15.23%
18.33%
20.98%
25%/75%==0.33
16%+(16%-9%)x0.33
0.16+(0.16-0.09)x0.33
0.16+0.0231=18.31%
Which of the following activities decreases cash ?
Increasing current liabilities

Decreasing long term debt
Decreasing fixed assets
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Increasing equity
Activities that decrease cash (uses of cash)
•Decreasing long term debt
•Decreasing equity
•Decreasing current liabilities
•Increasing current assets other than cash
•Increasing fixed assets
Which of the following describes how a product moves through the current asset accounts ?
Cash Cycle
Operating Cycle
Current Cycle

An operating cycle describes how a product moves through the current asset accounts
•It begins life as inventory
•Converted to a receivable when it is sold
•Converted to cash when we
collect from the sale
Which of the following is the time between sale of inventory and collection of receivables ?
Inventory period
Accounts receivable period pg 164

Collection period
Accounts payable period
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disbursement float ?
Rs. 4,000
+ Rs. 2,000
Rs. 2,000
+ Rs. 4,000

Suppose you have Rs. 70 in stock A and Rs. 120 in another stock B in your
portfolio. Stock A has an expected return of 25% and stock B has an expected return of 20%. What will be the portfolio expected
return ?
18.27%
21.84%
22.50%
25.13%

Which of the following statement(s) is (are) true regarding Return on Investment?
One of the responsibilities of the financial manager is to assess the value of the proposed investment
The return consists of income earned and capital gain
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The dollar returns are the sum of the cash received and the change in dollar value of the asset

During the past year the common stock paid an annual dividend of Rs. 2.40. The firm sold the stock today for Rs. 80. What is the
rate of return the firm has earned?
5.3%
194.2%
83.11%
94.2%

What will be the cash inflow if we have sales of Rs. 400,000 and accounts receivable are increased by Rs. 70,000?
Rs. 70,000
Rs. 230,000
Rs. 330,000
Rs. 470,000

What will be the cash inflow if we have sales of Rs. 300,000 and accounts receivable are decreased by Rs. 70,000?
Rs. 70,000
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RS 230000
Rs. 370,000
correct
Rs. 470,000
300000-
70000=230000
Su p pose a firm borrow s Rs. 800,000 at 7%. What w ill be the total interest bill p er year if tax rate is 34% ?
Rs. 19,040
Rs. 36,960
Rs. 56,000
Rs. 800,000
800000*7%=56000
56000*34%=19040

Which one of the following motives refers to the need for holding cash as a safety margin to act as a financial reserve?
Speculative motive
Transaction motive
Personal motive
•Precautionary
Motive - the need to
hold cash as a safety
margin to act as a
financial reserve
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Suppose market value exceed s book value by Rs. 225,000. What w ill be the aftertax proceeds if there is a tax rate of 34 percent?
Rs. 105,600
Rs. 148,500
Rs. 191,000
Rs. 225,000
225000*34%=765,00
225000-765000=148500
Question No: 39
( Marks: 1 ) - Please choose one
Su p pose you have bou ght 100 shares of a corporation one year ago at Rs. 18 per share.
Over the last year, you have received a d ivid end of Rs. 2 p er share. At the end of the year, the stock sells for Rs. 27. As p er given
inform ation, w hat w ill be
the capital gains yield?
15
%
25
%
35
%
50
%
(27-18)/18=0.5%
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SN T Com pany p u rchased a vehicle for Rs. 450,000. Based on historical averages, this vehicle is w orth 25% of the p u rchase
price now and it is being sold at this
p rice. What is the vehicle s m arket valu e ?
Rs. 14,875
Rs. 112,500
Rs. 337,500
Rs. 230,000
Standard deviations for Investment A and Investment B are 19% and 28% respectively. This indicates that:
Investment A is more volatile than Investment B
Investment A is equally volatile to Investment B
Investment B is less volatile than Investment A
Investment B is more volatile than Investment A

Financial leverage can dramatically alter the payoffs to the shareholders. Financial leverage refers to the extent to which a firm
relies on the debt.
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Financial leverage must affect the overall cost of capital in any condition.
What is the difference between dealer and broker ?
What does Static Theory of Capital Structure state?

Suppose there is an expected rate of 20%. What will be the risk premium if risk free rate is (i) 8% and (ii) 12% ?
What is the difference between Leverage and Un -levering?
Match the capital budgeting techniques are given in Column A to the criteria in Column
B. Provide the correct answer in Column C.
Column A Column B Column C

Net Present Value Discounted Cash Flow Criteria
Average Accounting Return Payback Payback Criteria
Period Discounted Cash Flow Criteria
Internal Rate of Return Accounting Criteria
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Each of the following mutually exclusive investment projects involves an initial ou tlay of Rs. 240,000. The com p any s
required rate of return is 11 percent. The estimated net cash flows for the projects are as follows:
Cash flow rs
1 140000 20000
2 80000 40000
3 60000 60000
4 20000 100000
5 20000 180000
Calculate the NPV and PI for both projects. If both projects are mutually
exclusive then which project should be chosen and why?
Consider the following chronological events:
Day Activity Cash effect

0 Acquire inventory on credit None
35 Pay for inventory Rs 5000
70 Sell inventory on credit None
110 Collect on sale +Rs 6000
From the given information, find out:

(i) inventory period
(ii) Accounts receivable period
(iii) Accounts payable period
(iv) Operating cycle
(v) Cash cycle
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The next dividend for a company is Rs. 6 per share. The stock current price is Rs. 57 per
share. What will be the cost of capital if the dividends are estimated to grow steadily at
5% ?
Select correct option:
12.88%
13.07%
14.22%
15.53%
D1 = D0 x (1 + g)
RE = D1 / P0 + g
6x(1+0.05)=6.3
6.3/57+0.05=16.
Which of the following is the time period between the acquisition of inventory and the collection of cash from receivables
Select correct option
Operating Cycle pg 164
Cash Cycle
Current Cycle
Question # 2 of 15 ( Start time: 04:07:41 PM ) Total Marks: 1

Which of the following is the time between receipt of inventory and payment for it ? Select correct option:
Operating Cycle
Cash Cycle
Current Cycle
Business risk depends on which of the following risk of the firm’s assets ? Select correct option:
Systematic Risk pg 155
Diversifiable Risk
Unsystematic Risk

What will be the affect of capital structure on the value of the firm and WACC when there are no taxes and bankruptcy
costs ?
Value of the firm increases and WACC decreases
Value of the firm decreases and WACC increases
Value of the firm and WACC both are not affected pg 158
Capital structure have to do nothing with value of the firm and WACC
Sources of cash always involve ______ a liability (or equity) account or ______ an asset account.
increasing; decreasing pg 163
decreasing; increasing
increasing; increasing
decreasing; decreasing

Which of the following refers to the use of borrowed money to increase the return on equity of an investment purchase ?
Financial Leverage
Operating Leverage
Structural Leverage
The value of the firm’s cash flows (or the value of the firm) is __________ when the WACC is __________.
minimized; minimized
maximized; maximized
maximized; minimized pg 149
A firm’s equity is worth 4 million and its debt is worth 2 million. What is the percentage of firm’s financing that is debt ?

20%
33%
40%
67%
Ref:
4+2=6
4/6=0.66
0.66*100=66.67 is equity and
100-67=33 is debt

Financial Risk
Business Risk
Functional Risk
The required return of firm’s assets
The firm’s cost of debt
The firm’s stockholders pg 153
The firm’s debt-equity ratio

Which of the following is the difference between the current assets and the current liabilities ?
Net difference
Net working capital
Current ratio
Net available capital
Question # 1 of 15 ( Start time: 02:38:01 PM ) Total Marks: 1 Operating cycle = ________________
Collection period - accounts payable period
Inventory period - accounts receivable period

Inventory period + accounts receivable period pg 164
Inventory period + account payable period
Question # 2 of 15 ( Start time: 02:39:24 PM ) Total Marks: 1 A firm’s capital structure may include which of the following ?
Common stocks
Preferred Stocks not sure
Bonds

Mr. Nadeem has bought 100 shares of a corporation one year ago at Rs. 22 per share.
Over the last year, he received a dividend of Rs. 2.50 per share. At the end of the year, the stock
sells for Rs. 28. As per given information, what will be the capital gains yield ? Select correct
option:
15.85%
25.10%
27.27%
45.00%
Capital gain yield formula
(28-22)/22
=0.2727

Which of the following term refers to the situation when investors loan out the money ? Select correct option:
Leverage
Levering
Un-levering pg 152
Loaning
Question # 1 of 15 ( Start time: 11:23:11 AM ) Total Marks: 1

Which of the following activities does not increase cash ? Select correct option:
Increasing equity
Increasing current assets other than cash pg 163
The increase in debt financing raises the required return on equity because the risk born by the investors increases which is
called:
Financial Risk pg 155
Business Risk
Functional Risk
Question # 5 of 15 ( Start time: 11:27:05 AM ) Total Marks: 1 What will happen to cash cycle if payable period is lengthened
? Select correct option:
Cash cycle increases
Cash cycle decreases 167
Cash cycle remain unaffected
Cash cycle has to do nothing with payable period
1st proposition pg 153
2nd proposition
3rd proposition

The total market value of a company’s stocks is calculated as Rs. 250 million and the
total market value of the company’s debt are calculated as Rs. 150 million. What percent of the firm’s financing is equity ?
33.33%
50.00%
62.50%
85.00%
=250+150=400
250/400=62.5equity and remaining 37.5 is debt
Which of the following is referred as the ratio of the standard deviation of a distribution to the mean of that distribution ?

The expected return
Question # 10 of 15 ( Start time: 11:32:28 AM ) Total Marks: 1 Cash cycle = ________________
Inventory period + accounts receivable period
Operating cycle - accounts payable period pg 165
According to which of the following theory, the firm's capital structure is determined by a trade-off of the value of tax
shields against the costs of bankruptcy.
M&M Proposition
Modern theory of bankruptcy costs
Static theory of capital structure not sure
Dividend growth theory
Question # 13 of 15 ( Start time: 11:34:55 AM ) Total Marks: 1 The cost of common equity for a firm is:
The required rate of return on the company's stock The yield to maturity on the bond
The risk-free rate
The market risk premium
Standard deviations for Investment A and Investment B are 25% and 12% respectively. This indicates that :
Investment A is less volatile than Investment B
Investment B is equally volatile to Investment A
Operating Cycle
Cash Cycle
Current Cycle
None of the given options pg 165
Which of the following is the overall return the firm must earn on its existing assets to maintain the value of the stock?
IRR (Internal Rate of Return)
MIRR (Modified Internal Rate of Return)
WACC (Weighted Average Cost of Capital) 146
AAR (Average Accounting Return)

What will happen to cash cycle if inventory and receivable periods get longer ? Select correct option:
Cash cycle increases pg 167
Cash cycle decreases
Cash cycle has to do nothing with inventory and receivable periods
Which of the following term refers to the use of personal borrowing to alter the degree of financial leverage ?
Un-levering
Homemade leverage pg 151
Levering
Loaning
Which of the following is the return that firm’s creditors demand on new borrowings ? Select correct option:
Cost of debt pg 143
Cost of preferred stock

Cost of common equity
Cost of retained earnings
A firm’s equity is worth 4 million and its debt is worth 2 million. What is the percentage of firm’s financing that is equity ?
20%
33%
40%
67%
4+2=6
4/6=0.67

Under what situation, we can safely say that one capital structure is better than the other ? Select correct option:
If it results in a higher weighted average cost of capital
If it results in a lower weighted average cost of capital pg 149
If it results in a lower value of the firm
Capital structure has to do nothing with weighted average cost of capital
ACC 501 Quiz Conference lecture 1 to 35

Suppose market value exceeds book value by Rs. 200,000. What will be the after-tax proceeds if
there is a tax rate of 35 percent ?
Rs. 97,500
Rs. 105,600
Rs. 130,000
Rs. 150,000
200000*35%=70000
200000-70000=130000

In which type of projects, the unequal lives of the projects do affect the analysis ? Select correct option:
Mutually exclusive
Dependent
Independent
Correlated
Mr. Naveed has bought 100 shares of a corporation one year ago at Rs. 23 per share.
Over the last year, he received a dividend of Rs. 1.50 per share. At the end of the year,
the stock sells for Rs. 31. As per given information, what will be his total percentage
return ?
10.63%
20.20%
35.12%
41.30%
First find dividend yield then capital gain yield then plus both answer
Let see
Dividend yield= 1.50/23=0.06521%
Total percentage return 0.06521+0.3478*100=41.30
The book value of a system is Rs. 35,500 at the end of year 4 of its life. What will be the total
after-tax cash flow from sale if we sell this system for Rs. 20,000 at this time? (Tax rate is
35%)
Rs. 15,000
Rs. 15,220
Rs. 20,327
Rs. 25,425
Which one of the following statement is INCORRECT regarding MACRS depreciation ? Select correct option:
Every asset is assigned to a particular class which establishes asset’s life for tax purposes. Depreciation is computed for each year
by multiplying the cost of the asset by a fixed
percentage.
Annual depreciation remains constant every year even by using different rates.
The expected salvage value and the actual expected economic life are not explicitly considered in calculation of depreciation.
Total portfolio risk is equal to :
systematic risk plus non-diversifiable risk
unsystematic risk plus diversifiable risk
systematic risk plus market risk
systematic risk plus diversifiable risk
Over the last year, he received a dividend of Rs. 2.50 per share. As per given information what will be the dividend yield ?
9.92%
11.36%
21.12%
40.00%
d.y= 2.50/22=0.1136%

Which of the following type of risk can be eliminated by diversification ? Select correct option:
Systematic Risk
Market Risk
Unsystematic Risk
Cost of debt
What will be the risk premium for a stock that has an expected return rate of 14% and a
risk-free rate of 5% ?
6%
9%
15 %
24%
14-5=9
Which of the following is NOT an example of systematic risk ? Select correct option:
Interest Rate
Inflation
Strike call in a company
Gross Domestic Product
Your gain (or loss) on an investment that you buy is called your : Select correct option:
Risk on investment
Return on investment
Gain on investment
loss on investment
Standard Company purchased a vehicle for Rs. 450,000. Based on historical averages, this vehicle is worth 25% of the
purchase price now and it is being sold at this price. What is the vehicle’s market value ?
Rs. 14,875
Rs. 112,500
Rs. 337,500
Rs. 230,000
ABC Corporation has two shareholders; Mr. Aamir with 50 shares and Mr. Imran with 70
shares. Both want to be elected as one of the four directors but Mr. Imran doesn’t want Mr. Aamir to be director. How much votes
would Mr. Aamir be able to cast as per cumulative voting procedure?
70
120
200
280
4*50=200
In MACRS property classes, 7-year class includes which of the following ? Select correct option:
Equipment used in research
Autos & computers
Most industrial equipment
Standard deviations for Investment A and Investment B are 15% and 32% respectively.
This indicates that :
Question # 6 of 15 ( Start time: 05:27:45 PM ) Total Marks: 1 Systematic Risk is also known as :
Diversifiable Risk
Market Risk
Residual Risk
Asset-specific Risk
A project has an initial investment of Rs. 600,000. What would be the NPV for the project if it has a profitability index of
1.12?
Rs. 40,000
Rs. 55,000
Rs. 65,000
Rs. 72,000
600000*1.12=672000
672000-600000=72000
Question # 8 of 15 ( Start time: 05:29:04 PM ) Total Marks: 1 Unsystematic Risk is also known as :
Diversifiable Risk
Market Risk
Non-diversifiable Risk

Which of the following is NOT included in discounted cash flow criteria for capital budgeting decision?
Payback Period
Net Present Value
Profitability Index
Question # 10 of 15 ( Start time: 05:30:21 PM ) Total Marks: 1 Which of the following is NOT a quality of IRR?
Most widely used
Ideal to rank the mutually exclusive investments
Easily communicated and understood
Can be estimated even without knowing the discount rate
Stock Bundle
Portfolio
Capital Structure

Which of the following set of cash flows represent the change in the firm’s total cash flow that occurs as direct result of accepting
the project ?
Relevant Cash Flows

Negative Cash Flows
What would be the standard deviation of returns for an investment that has a variance of
0.0075 ?
0.08660
0.09101
0.09487
0.10521
Investors demand a higher yield as compensation to the risk of possible default. This extra premium is called:
Taxability premium
What will be the cash inflow if we have sales of Rs. 400,000 and accounts receivable are decreased by Rs. 70,000 ?
Rs. 70,000
Rs. 230,000
Rs. 330,000 not sure
Rs. 470,000
The relationship between real and nominal returns is described by the: Select correct option:
M&M Proposition

Fisher’s Effect
BCG Matrix
Which of the following set of cash flows should be considered in the decision at hand? Select correct option:
Relevant Cash Flows
Negative Cash Flows
What will be the real rate if the nominal rate is 14% and the inflation rate is 6%? Select correct option:
6.02%
7.55%
10.0%
14.3%
(1+r)/(1+h)
1.14/1.06=1.07
1.07*100=107.55
107.55-100=7.55
total market value of the company’s debt are calculated as Rs. 100 million. What percent of the firm’s financing is debt ?
28.57%
50.00%
62.50%
70.00%
250/350*100-100=28.57

Which of the following is referred as a statistical measure of the variability of a distribution around its mean ?
The expected return

A set of possible values that a random variable can assume and their associated probabilities of occurrence are referred as :
The expected return
A project whose acceptance does not prevent or require the acceptance of one or more alternative projects is referred to as
a(n):
mutually exclusive project
independent project
dependent project
contingent project
Which of the following is the most common capital budgeting technique? Select correct option:
Payback Period
Net Present Value
Profitability Index
500,000 has been calculated. Net working capital has declined by Rs. 45,000. There was no capital spending during the year.
What will be the total cash flow for the project ? Select
correct option:
Rs. 200,000
Rs. 315,000
Rs. 455,000
Rs. 545,000
Which of the following formula is used to calculate the price of a zero growth stock? Select correct option:
Po = D / R
Po = Do (1+g) / R
Po = Do(1+g) / (R - g)
Po = D1 / (R - g)
Which of the following statement is NOT correct regarding cost of preferred shares ? Select correct option:
Preferred stock has fixed dividend paid every period forever
Fixed dividend paid every period makes preferred stock a perpetuity
Cost of preferred stock can be estimated by using firm’s bond ratings
Cost of preferred stock can be estimated by observing the required return on other similarly rated shares of preferred stock
IRR and NPV rules always lead to identical decisions as long as: Select correct option:
Cash flows are conventional
Cash flows are independent
Cash flows are both conventional and independent
_________ paid by corporation is tax deductible but _________ paid are not tax deductible.
Interest; dividend
Dividend; interest
Bonus; interest
Which one of the following costs refers to an outlay that has already occurred and hence is not affected by the decision under
consideration ?
Sunk
Opportunity
Fixed
Variable
Suppose the initial investment for a project is Rs. 16 million and the cash flows are Rs. 4 million in the first year and Rs. 9 million
in the second and Rs. 5 million in the third. The project will have a payback period of:
2.6 Years
3.1 Years
3.7 Years
4.1 Years

Which of the following statement is TRUE regarding Average Accounting Return? Select correct option:
An investment is acceptable if its AAR is greater than a benchmark AAR An
investment is acceptable if its AAR is less than a benchmark AAR None of the
given options
Sumi Inc. has just paid a dividend of Rs. 7 per share. The dividend of this company grows at a steady rate of 5% per year. What
will be the dividend in 5 years?
Rs. 4.41
Rs. 6.12
Rs. 7.35
Rs. 8.93
5/100=0.05+1=1.05^5=1.2762*7=8.93
An investment should be accepted if the Net Present Value (NPV) is ________ and rejected if it is ______.
Positive; positive
Positive; negative
Negative; negative
Negative; positive
___
ACC 501 Quiz Conference lecture
This Mcqs for Final Term
1. Which of the following is an example of positive covenant?
Maintaining firm’s working capital at or above some specified minimum level Furnishing audited financial statements periodically
to the lender
Maintaining any collateral or security in good condition
Restricting selling or leasing assets wrong question option d is negative and all is positive example
Wrong, wrong, wrong question it is unfair discipline
2. AST Company’s debt-to-total assets ratio is 0.45. What is its debt -to-equity
ratio?
0.101
0.220
0.667
0.818
Reference:(1-0.45=0.55)
=0.45/0.55=0.818
3. What amount a borrower would pay at the end of fourth year with a 4-year,
12%, interest-only loan of Rs. 8,000?
Rs. 1,360
Rs. 2,000
Rs. 5,625
Rs. 8,960
Reference: 8000*12/100=8960
4. What will be the price per share if there is a current dividend of Rs. 4.75,
required rate of return of 12% and growth rate of 5%?
Rs. 30.19
Rs. 43.52
Rs. 56.53
Rs. 71.25
Reference: D*1+g/r-g
4.75*(1+0.5/4.75-0.5)=71.25
5. A given rate is quoted as 9 percent APR, but the EAR is 9.38 percent. What
is the compounding period?
Semiannually
Quarterly
Monthly
Daily
Reference:(1+APR/m)^m-1
APR=9
M=30
(1+9/30)^30-1=9.38
6. Mr. Aslam owns 100 shares of a company and there are four directors to be
elected. How much votes Mr. Aslam would have as per cumulative voting
procedure?
100 votes
200 votes
300 votes
400 votes
Reference: 100*4=400
7. SNT Corporation has policy of paying a Rs. 6 per share dividend every year.
If this policy is to continue indefinitely, what will be the value of a share of
stock at a 15% required rate of return?
Rs. 30
Rs. 40
Rs. 50
Rs. 60
Reference: 6/0.15=40
8. Which of the following process can be defined as the process of generating

earnings from previous earnings?
Discounting
Compounding
Factorization
9. Which of the following is the amount of cash we would get if we actually sell
an asset?
Market Value
Book Value
Intrinsic Value
10.
11. Which of the following financial statement shows both dollars and
percentages in the report?
Balance Sheet
Common-Size Statement
Income Statement
Relative Statement of Equity
12. in which form of Business, owners have limited libility.

sole proprietorship
partnership
joint stock company
none of the above
13. Suppose the initial investment for a project is Rs. 16 million and the cash
flows are Rs. 4 million in the first year and Rs. 9 million in the second and
Rs. 5 million in the third. The project will have a payback period of:
2.6 Years
3.1 Years
3.7 Years
4.1 Years
14. Which of the following is NOT a shortcoming of Payback Rule?

Time value of money is ignored

It fails to consider risk differences
Simple and easy to calculate
15. When a corporation wishes to borrow from public on a long-term basis, it

does so by issuing or selling:
Debt securities or bonds pg 71

Common Stocks
Preferred Stock
16. Treasury notes and bonds are examples of which of the following types of
bonds?
Government bonds 85
Zero coupon bonds
Floating-rate bonds
Euro bonds
17. When real rate is _____, all interest rates will tend to be _____.
Low; higher
High; lower
High; higher pg 88
18. Which of the following statements is(are) CORRECT regarding a bond?

A bond is an evidence of debt issued by a corporation or a governmental body. A bond represents a loan made by investors to
the issuer.
When a corporation wishes to borrow from public on a long term basis, it does so by issuing or selling bonds.
19. Between the two identical bonds having different coupon, the price of the
________ bond will change less than that of ________ bond.
Higher-coupon; lower-coupon
Lower-coupon; higher-coupon
Long-term; short-term
20. As the dividend is always same for a zero growth stock, so the stock can also
be viewed as:
Ordinary Annuity
Annuity Due
Ordinary perpetuity pg 91
21. The coupon rate of a floating-rate bond is capped and upper and lower rates
are called:
Float
Collar pg 86
Limit
Surplus
22. Internal Rate of Return (IRR) is sometimes referred to as:

Simple Interest Rate

Compound Interest Rate
Economic Rate of Return
Required Rate of Return
23. If the dividend for a share is growing at a steady rate then which of the
following formula(s) can be used to find the dividend in two periods?
D2 = D1 x (1 + g )
D2 = Do x ( 1 + g )2
D2 = Do x ( 1 + g )2
All of the given options pg 92
24. A project whose acceptance does not prevent or require the acceptance of
one or more alternative projects is referred to as a(n):
independent project
dependent project
contingent project
25. A project has an initial investment of Rs. 600,000. What would be the NPV
for the project if it has a profitability index of 1.12?
Rs. 40,000
Rs. 55,000
Rs. 65,000
Rs. 72,000
Reference=600000*1.12=672000-600000=72000
26. Which of the following statement is TRUE regarding debt?

Debt is an ownership interest in the firm.
Unpaid debt can result in bankruptcy or financial failure. Pg 78
Debt provides the voting rights to the bondholders.
Corporation’s payment of interest on debt is fully taxable.
27. If a firm is allowed to miss a coupon payment on a bond in a year in which it

reports an operating loss, the bond is most likely a(n) _______ bond.
Income
Zero coupon
Floating-rate
Put
28. A ______ covenant limits or prohibits actions that company might take.
Positive
Negative pg 80
Neutral
29. IRR and NPV rules always lead to identical decisions as long as:
Cash flow s are conventional

Cash flow s are independent
Cash flow s are both conventional and independent pg 110
30. Which of the following allows a company to repurchase part or all of the
bond issue at a stated price?
Repayment
Seniority
Call provision
Protective covenants
31. Which of the following is NOT a quality of IRR?
Most widely used
Ideal to rank the mutually exclusive investments pg 116
32. In which type of the market, previously issued securities are traded among
investors?
Primary Market
Secondary Market pg 100
Tertiary Market
33. A model which makes an assumption about the future growth of dividends is
known as:
Dividend Price Model
Dividend Growth Model
Dividend Policy Model
34. Which of the following represents the linear relation between Net Present
Value (NPV) and Profitability Index (PI)?
If Profitability Index > 1, NPV is Negative (-) If Profitability Index < 1, NPV is Positive (+)
If Profitability Index > 1, NPV is Positive (+)
If Profitability Index > 1, NPV is Zero (0)
35. Which of the following comes under the head of discounted cash flow criteria
for capital budgeting decisions?
Payback Period
Net Present Value pg 118
36.
Payback Period pg 119
Net Present Value
Profitability Index

Limiting the amount of dividend according to some formula Restricting pledging assets to other lenders
Barring merger with another firm
38. Which of the following is the most common capital budgeting technique?
Payback Period
Net Present Value

Profitability Index
39. Which of the following measures the present value of an investment per
dollar invested?
Profitability Index (PI) pg 119
40. Which of the following is a measure of accounting profit relative to the book
value?
Net Present Value
Profitability Index
Average Accounting Return pg 119
41. Which one of the following typically applies to preferred stock but not to
common stock?
Dividend yield
Cumulative dividends
Voting rights
Tax deductible dividends
bonds?
Government bonds pg 86
Zero coupon bonds
Floating-rate bonds
Euro bonds
43. Expectation of a ____ inflation rate will push long term interest rates ____
than short term rates reflected by an upward term structure.
Lower; higher
Higher; lower
Higher; higher pg 88
44. A company issues bonds with a Rs. 1,000 face value. What is the coupon rate
if the coupon payments of Rs. 60 are paid every 6 months?
3 percent
6 percent
9 percent
12 percent
60+60=120/1000=12%
45. The projected cash flows from a project are: Year 1: Rs. 100 Year 2: Rs. 300
Year 3: Rs. 400 Year 4: Rs. 800 The Project cost is Rs. 800. What would be
the payback period for the project?
2.00 Years
2.67 Years
3.00 Years
3.67 Years
Project=800 paid in 1 year=100, 2nd year=300 and 3rd year=400 total 800 paid in 3rd
year
In which of the following type of annuity, cash flows occur at the beginning of each period?
Ordinary annuity
Annuity due pg 66
Perpetuity
46. Which of the following is NOT an important feature of treasury notes and
bonds?
Default free
Taxable
Least liquid pg 90
Highly liquid
Which of the following is NOT a determinant of term structure?
Real rate of interest
Internal rate of interest pg 88
Expected inflation
Interest rate risk
47. Which of the following is the amount of time required for an investment to
generate cash flows sufficient to recover its initial cost?
Yield to maturity
Maturity Period
Payback period pg 104
Accounts Receivable period
m.q .z
48. In which type of the market, securities are originally sold to the investors?
Primary Market
Secondary Market
Tertiary Market
49. A _________ is an agent who arranges security transactions among investors.

Broker pg 100
Dealer
Member
Specialist
volatile
50. Which of the following is a characteristic of preferred stock?
Dividends on these stocks can be cumulative pg 100
These bonds hold credit ratings quite different from bonds
51. Which of the following type of bond pays no coupon at all and are offered at
a price that is much lower than its stated value?
Government bonds
Zero coupon bonds pg 85
Floating-rate bonds
Euro bonds
52. An investment will be _________ if the IRR doesn’t exceeds the required
return and _________ otherwise.
Accepted; rejected
Accepted; accepted
Rejected; rejected
Rejected; accepted pg 109 conceptual
53. Which of the following comes under the head of accounting criteria for
capital budgeting decision?
Payback Period
Net Present Value
Profitability Index
54. Which of the following is a series of constant cash flows that occur at the end
of each period for some fixed number of periods?
Ordinary annuity pg 63
Annuity due
Perpetuity
55. Which of the following term refers to the difference between the present
value of cash inflows and the present value of cash outflows?
Profitability Index (PI)
56. One would be indifferent between taking and not taking the investment
when:
NPV is equal to Zero pg 104 doubt ask question in mdb

57. Which one of the following terms refers to the risk arises for bond owners
from fluctuating interest rates?
Fluctuations Risk
Interest Rate Risk pg75
Real-Time Risk
Inflation Risk
58. All else equal, the market value of a corporate bond is always inversely
related to its:
Time to maturity
Coupon rate
Yield to maturity
59. Which of the following issue is NOT covered by “Investment” area of

finance?
Best mixture of financial investment
International aspects of corporate finance
Associated risks and rewards
Pricing financial assets
60. Period costs include which of the following?

Selling expense
Raw material
Direct labor
61. Product costs include which of the following?

Selling expenses
General expenses
62. Financial policy is evaluated by which of the following?

Profit Margin
Total Assets Turnover
Debt-equity ratio
63. Cash flow from assets involves which of the following component(s)?
Operating cash flow

Capital spending
Change in net working capital
64. Which of the following refers to the cash flows that result from the firm’s
day-to-day activities of producing and selling?
Operating Cash Flows
Investing Cash Flows
Financing Cash Flows
65. Finance is vital for which of the following business activity (activities)?
Marketing Research
Product Pricing
Design of marketing and distribution channels
66. Which of the following costs are reported on the income statement as the cost
of goods sold?
Product cost
Period cost
Both product cost and period cost
Neither product cost nor period cost
67. Standard Company had net sales of Rs. 750,000 over the past year. During
that time, average receivables were Rs. 150,000. Assuming a 365-day year,
what was the average collection period?
5 days
36 days
48 days
73 days
750000/150000=5
365/5=73days
68. Which of the following terms refers to the use of debt financing?
Operating Leverage
Financial Leverage
Manufacturing Leverage
69. In which type of market, new securities are traded?
Primary market
Secondary market
Tertiary market
70. Which of the following ratios are particularly interesting to short-term

creditors?
Liquidity Ratios
Long-term Solvency Ratios
Profitability Ratios
Market Value Ratios
71. shows the sources from which cash has been generated and how it has been
spent during a period of time?
Income Statement
Balance Sheet
Cash Flow Statement
Owner’s Equity Statement
72. Standard Corporation sold fully depreciated equipment for Rs. 5,000. This
transaction will be reported on the cash flow statement as a(n):
Operating activity
Investing activity
Financing activity
73. me: Quick Ratio is also known as:

Current Ratio
Acid-test Ratio
Cash Ratio
74. of the following statement measures performance over a specific period of

time?
Income Statement
Balance Sheet
Cash Flow Statement
Retained Earning Statement
75. Which of the following statement shows assets, liabilities, and net worth as of
a specific date?

Income Statement
Balance Sheet
Cash Flow Statement
76. A portion of profits, which a company retains itself for further expansion, is
known as:
Dividends
Retained Earnings
Capital Gain
77. Which one of the following is NOT a liquidity ratio?

Current Ratio
Quick Ratio
Cash Coverage Ratio
Cash Ratio
78. Which of the following ratio gives an idea as to how efficient management is
at using its assets to generate earnings?
Profit Margin
Return on Assets
Return on Equity
79. Which of the following is an example of capital spending?

Purchase of Fixed Assets

Decrease in Net Working Capital
Increase in Net Working Capital
80. Which of the following is measured by profit margin?

Operating efficiency
Asset use efficiency
Financial policy
Dividend policy
81. Who of the following make a broader use of accounting information?
Accountants
Financial Analysts
Auditors
Marketers
82. Which of the following set of ratios is used to assess a business's ability to
generate earnings as compared to its expenses and other relevant costs
incurred during a specific period of time?
Liquidity Ratios
Leverage Ratios
Market Value Ratios
83. A company having a current ratio of 1 will have __________ net working
capital.
Positive
Negative
zero
84. which of the following is not a form of business organization

sole proprietorship
partnership
joint stock company
cooperative Society
85. Which of the following ratios are intended to address the firm’s financial
leverage?
Liquidity Ratios
Asset Management Ratios
86. The accounting definition of income is:

Income = Current Assets - Current Liabilities
Income = Fixed Assets - Current Assets
Income = Revenues - Current Liabilities
Income = Revenues - Expenses
87. Which of the following item(s) is(are) not included while calculating
Operating Cash Flows?
Depreciation
Interest
Expenses related to firm’s financing of its assets
88. Suppose market value exceeds book value by Rs. 250,000. What will be the
after-tax proceeds if there is a tax rate of 34 percent ?
Rs. 105,600
Rs. 148,500
Rs. 165,000
Rs. 225,000
Solution=250000*34%=85000
250,000-85000=165000

Debt securities or bonds lec 17

Common Stocks
Preferred Stock
90. In which type of market, used securities are traded?

Primary market
Secondary market
Tertiary market

Accountants
Financial Analysts lec 2
Auditors
Marketers
92. Which of the following is (are) a non-cash item(s) ?

Revenue
Expenses
Depreciation
93. What will be the coupon value of a Rs. 1,000 face-value bond with a 10%
coupon rate?
Rs. 100
Rs. 510
Rs. 1,000
Rs. 1,100
Solution:
=1000/10
=100
Payback Period lec 28
Net Present Value

Selling expense
Raw material
Direct labor
96. The value of net working capital will be greater than zero when:
Current Assets > Current Liabilities
Current Assets < Current Liabilities
Current Assets = Current Liabilities
97. According to Du Pont Identity, ROE is affected by which of the following?

Financial Leverage

finance?
Operating activity
Investing activity
Financing activity
100. Balance sheet for a company reports current assets of Rs. 700,000 and
current liabilities of Rs. 460,000. What would be the Current Ratio for the
company if there is an inventory level of Rs. 120,000?
1.01
1.26
1.39
1.52
Solution= 700000/460000=1.52
101. In which type of business, all owners share in gains and losses and all
have unlimited liability for all business debts?
Sole-proprietorship
General Partnership pg 6
Limited Partnerhsip
Corporation
102. a firm uses cash to purchase inventory, its current ratio will:
Increase
Decrease
Remain unaffected
Become zero
103. Which of the following is a special case of annuity, where the stream
of cash flows continues forever?
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity

105. Which of the following refers to the difference between the sale price
and cost of inventory?
Net loss
Net worth
Markup
Markdown
106. Which of the following allows a company to repurchase part or all of

the bond issue at a stated price?
Repayment
Seniority
Call provision
107. ____________ shows the sources from which cash has been generated
and how it has been spent during a period of time?
Income Statement
Balance Sheet
Cash Flow Statement
108. Which of the following is a cash flow from financing activity?

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
109. Which of the following form of business organization is least

regulated?
Sole-proprietorship
General Partnership
Limited Partnership
Corporation
110. The principal amount of a bond at issue is called:

Par value
Coupon value
Present value of an annuity
Present value of a lump sum
111. Which of the following relationships holds TRUE if a bond sells at a
discount?
Bond Price < Par Value and YTM > coupon rate
Bond Price > Par Value and YTM > coupon rate
Bond Price > Par Value and YTM < coupon rate
Bond Price < Par Value and YTM < coupon rate
112. When a corporation wishes to borrow from public on a long-term

basis, it does so by issuing or selling:
Debt securities or bonds
Common Stocks
Preferred Stock
113. Which of the following item provides the important function of

shielding part of income from taxes?
Inventory
Supplies
Machinery
Depreciation
114. A firm reports total liabilities of Rs. 300,000 and owner’s equity of Rs.
500,000. What would be the total worth of the firm’s assets?
Rs. 300,000
Rs. 500,000
Rs. 800,000
Rs. 1100,000
sol
Asset= liabilities+ capital so 300+500=800,000
115. Which of the following forms of business organizations is created as a
distinct legal entity owned by one or more individuals or entities?
Sole-proprietorship
General Partnership
Limited Partnership
Corporation

sole proprietorship
partnership
joint stock company
none of the above
117. Which of the following equation is known as Cash Flow (CF) identity?
CF from Assets = CF to Creditors - CF to Stockholder
CF from Assets = CF to Stockholders - CF to Creditors
CF to Stockholders = CF to Creditors + CF from Assets
CF from Assets = CF to Creditors + CF to Stockholder
118. The difference between current assets and current liabilities is known
as:
Surplus Asset
Short-term Ratio
Working Capital
Current Ratio
119. A borrower is able to pay Rs. 40,000 in 5 years. Given a discount rate
of 12 percent, what amount of money the lender should lend?
Rs. 14,186
Rs. 18,256
Rs. 22,697
Rs. 28,253
solution
40000*1/(1+0.12)^5=22697.07
120. Which of the following statement is considered as the accountant’s
snapshot of firm’s accounting value as of a particular date?
Income Statement
Balance Sheet
Cash Flow Statement
Par value
Coupon value
122. Which of the following statement about bond ratings is TRUE?

Bond ratings are typically paid for by a company’s bondholders.
Bond ratings are based solely on information acquired from sources other than the bond
issuer.
Bond ratings represent an independent assessment of the credit-worthiness of bonds.
123. Which of the following is the acronym for GAAP?
Generally Applied Accountability Principles General Accounting Assessment Principles
Generally Accepted Accounting Principles
General Accepted Assessment Principles
124. Which of the following is NOT an internal use of financial statements
information?
Planning for the future through historic information
Evaluation of performance through profit margin and return on equity Evaluation of credit standing of new customer
125. A firm has paid out Rs. 150,000 as dividends from its net income of
Rs. 250,000. What is the retention ratio for the firm?
12 %
25 %
40 %
60 %
Solution
Net income-dividend / net income *100
250000-150000/250000*100=40%
A company having a current ratio of 1 will have __________ net working capital. Select correct option:
Positive
Negative
zero
126. A portion of profits, which a company distributes among its

shareholders, is known as:
Dividends
Retained Earnings
Capital Gain
127. Which of the following is(are) the basic area(s) of Finance?

Financial institutions
International finance
Investments
128. Which of the following ratios is NOT from the set of Asset
Management Ratios?
Inventory Turnover Ratio
Receivable Turnover
Capital Intensity Ratio
Return on Assets
129. You just won a prize, you can either receive Rs. 1000 today or Rs.
1,050 in one year. Which option do you prefer and why if you can earn 5
percent on your money?
Rs. 1,000 because it has the higher future value
Rs. 1,000 because you receive it sooner
Rs. 1,050 because it is more money
Either because both options are of equal value
Operating Leverage
Financial Leverage
b
131. You need Rs. 10,000 to buy a new television. If you have Rs. 6,000 to
invest at 5 percent compounded annually, how long will you have to wait to
buy the television?
8.42 years
10.51 years
15.75 years
18.78 years
6000(1+5%)^10.51=around 10,000

Maintaining firm’s working capital at or above some specified minimum
level
Furnishing audited financial statements periodically to the lender Maintaining any collateral or security in good condition
Restricting selling or leasing assets
133. Which of the following is measured by retention ratio?

Financial policy
Dividend policy
134. Which of the following statement shows assets, liabilities, and net
worth as of a specific date?
Income Statement
Balance Sheet
Cash Flow Statement
Armaan: b

Selling expenses
General expenses
136. An account was opened with an investment of Rs. 3,000 ten years ago.
The ending balance in the account is Rs. 4,100. If interest was compounded,
how much compounded interest was earned?
Rs. 500
Rs. 752
Rs. 1,052
Rs. 1,100
4100-3000=1100
137. What is the effective annual rate of 7 percent compounded monthly?

7.00 percent
7.12 percent
7.19 percent
7.23 percent
138. Which of the following cash flow activities are reported in the Cash
Flow Statement and Income Statement?
Operating Activities
Investing Activities
Financing Activities
139. Which of the following term refers to establish of a standard to follow

for comparison?
Benchmarking 48
Standardizing
Comparison
Evaluation

Operating efficiency pg 44
Financial policy
Dividend policy
141. Rule of 72 for finding the number of periods is fairly applicable to

which of the following range of discount rates?
2% to 8%
4% to 25%
5% to 20%
10% to 50%
142. Which of the following refers to a conflict of interest between

principal and agent?
Management Conflict
Interest Conflict
Agency Problem
143. Which of the following is a series of constant cash flows that occur at
the end of each period for some fixed number of periods?
Ordinary annuity 63
Annuity due
Perpetuity
144. Which of the following area of finance deals with stocks and bonds?
Investments
145. 7:03 AM Which of the following is NOT an external use of financial
statements information?
Evaluation of credit standing of new customer
Evaluation of financial worth of supplier
Evaluation of potential strength of the competitor
Evaluation of performance through profit margin and return on equity

Investments
147. If a firm has a ROA of 8 percent, sales of Rs. 100,000, and total assets
of Rs. 75,000. What is the profit margin?
4.30%
6.00%
10.70%
16.73%
solution
Net income =ROA*total asset
Net income=8%*75000=6000
Profit margin=net income/ sales*100
Profit margin=6000/100000*100= 6%
148. Which of the following is the process of planning and managing a

firm’s long-term investments?
Capital Structuring
Capital Rationing
Capital Budgeting
Working Capital Management
149. Which of the following refers to the cash flows that result from the
firm’s day-to-day activities of producing and selling?

150. Quick Ratio is also known as:
Current Ratio
Acid-test Ratio
Cash Ratio
151. Mr. Y and Mr. Z are planning to share their capital to run a business.
They are going to employ which of the following type of business?
Sole-proprietorship
Partnership
Corporation
152. If you have Rs. 30 in asset A and Rs. 120 in another asset B, the
weights for assets A and B will be __ and __ respectively.
20%; 80%
37%; 63%
63%; 37%
80%; 20%
153. When corporations borrow, they generally promise to: I. Make
regular scheduled interest payments II. Give the right of voting to
bondholders III. Repay the original amount borrowed (principal) IV. Give an ownership interest in the firm
I and II
I and III
II and IV
I, III, and IV
154. Which of the following is NOT included in a bond indenture?

The basic terms of bond issue
The total amount of bonds issued
A personal profile of the issuer
A description of the security
155. What would be the present value of Rs. 10,000 to be received after 6
years at a discount rate of 8 percent?
Rs. 6,302
Rs. 9,981
Rs. 14,800
Rs. 15,869
157. The preferred stock of a company currently sells for Rs. 25 per share.
The annual dividend of Rs. 2.50 is fixed. Assuming a constant dividend
forever, what is the rate of return on this stock?
5.00 percent
7.00 percent
8.45 percent
10.0 percent
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity
159. JJ Inc. has a 4 percent return on total assets of Rs. 500,000 and a net
profit margin of 5 percent. Total sales for JJ Inc. would be :
Rs. 150,000
Rs. 200,000
Rs. 250,000
Rs. 400,000
ROTA = N.P / Total Assets
4 % = N.P / 500,000
4% * 500,000 = N.P
N.P = Rs. 20,000
N.P Margin = N.P / Sales

5 % = 20,000 / Sales
5% * Sales = 20,000
Sales = 20,000 / 5%
Sales = 400,000
160. Which of the following rate makes the Net Present Value (NPV) equal
to zero?
Internal Rate of Return (IRR) pg 109
Required Rate of Return (RRR)
Weighted Average Cost of Capital (WACC)
161. Which of the following is the expected rate of return on a bond if

bought at its current market price and held to maturity
Current Yield
Yield To Maturity
Coupon Yield
Capital Gains Yield
162. If a firm uses cash to purchase inventory, its quick ratio will:
Increase
Decrease
Remain unaffected
Become zero
Increase
Decrease
Remain unaffected
Become zero
ACC501 3 Finalterm Papers and Important MCQS

Solved…
By Armaan Makhani
Paper 1
The accounting definition of income is:

►Income = Current Assets -Current Liabilities
►Income = Fixed Assets - Current Assets

►Income = Revenues - Current Liabilities
►Income = Revenues - Expenses pg 17
What would be the capital spending for an organization who has purchased fixed assets of Rs. 200,000 and sold fixed
assets of Rs. 45,000?
►Rs. 245,000
►Rs. 200,000
►Rs.1 55 , 0 0 0
►Rs. 45,000
200000-
45000=155000
Selected information from SNT Company's accounting records is as follows:
o Cash paid to retired common shares Rs. 15,000
o Proceeds from issuance of preferred shares Rs. 20,000 o Cash dividends paid Rs. 8,000
o Proceeds from sale of equipment Rs. 25,000
On its cash flow statement for the year, SNT Company should report net cash flow from financing activities as:
►Rs. 3,000 net cash outflow

SNT Company has a current ratio of 3:2. Current Liabilities reported by the company are Rs. 30,000 . What would
be the Net Working Capital for the
company?
►Rs. 45,000
►Rs. 15,000
► ( R s . 4 5 ,0 0 0 )
►( Rs. 15,000)
Which of the following would not improve the current ratio?
►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

Which of the following are incorporated into the calculation of the Du -Pont Identity?
I. Return on assets II.
Equity Multiplier
III. Total Assets Turnover
IV. Profit Margin
►I, II, and III only
►I, III, and IV only
► II, III and IV only pg 45
►I, II, III, a n d IV

The concepts of present value and future value are:
►Directly related to each other
►Not related to each other
►Proportionately related to each other
►Inversely related to each other

Which of the following is a special case of annuity, where the stream of cash flows continues forever?
►Special Annuity
►Ordinary Annuity
►Annuity Due
►Perpetuity

Which of the following is an unsecured bond for which no specific pledge of property is made?
►Mortgage
►Debenture
►Collateral
►Note Payable
Debenture is an unsecured bond
for which no specific pledge of
property is made
Which of the following type of return refers to the percentage change in the amount of money you have?
►Nominal return
►Real return
►Inflation return
►None of the given option

Your nominal return is the
percentage change in the amount
of money you have.
When real rate is _____, all interest rates will tend to be _____.
►Low; higher
►High; lower
►High; higher

When real rate is high, all interest
rates will tend to be higher and
vice versa.
Which of the following is the extra yield that investors dem and on a taxable bond as a compensation for the
unfavorable tax treatment?
►Interest rate risk premium

►Inflation risk premium
►Default risk premium
►Taxability premium
Investors demand extra yield on a taxable bond as a compensation for the unfavorable tax
treatment, known as
taxability premium

►Primary Market
►Secondary Market pg 100
►Tertiary Market

Secondary Market
The market in which previously
issued securities are traded among
investors
Place the following items in the proper order of completion regarding the capital budgeting process.
(I) Perform a post-audit for completed projects; (II) Generate project proposals;
(III) Estimate appropriate cash flows; (IV) Select value-maximizing projects; (V) Evaluate projects.
►II, V, III, IV, and I
►III, II, V, IV, and I
►II, III, V, IV, and I
►II, III, IV, V, and I

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An investment w ill be ___________ if the IRR doesn’t exceed s the required return and ___________ otherwise.
►Accepted; rejected
►Accepted; accepted
►Rejected; rejected
►Rejected; accepted pg 109
IRR and NPV rules always lead to identical decisions as long as :
Note: Solve these papers by yourself

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►Cash flows are conventional
►Cash flows are independent
►Cash flows are both conventional and independent ►None of the given options
A project whose acceptance does not prevent or require the acceptance of one or more alternative projects is referred
to as :
►A mutually exclusive project

►An independent project
►A dependent project
►A contingent project

Finding Net Present Value comes under which type of capital budgeting criteria
?
►Discounted Cash Flow Criteria pg 118
►Accounting Criteria
►Payback Criteria

___________ Cost is an outlay that has already occurred and hence is not affected by
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the decision under consideration.
►Sunk
►Opportunity
►Fixed
►Variable

Which of the following is the overall return the firm must earn on its existing assets to maintain the value of the stock
?
►WACC (Weighted Average Cost of Capital) ►AAR (Average Accounting Return)
►IRR (Internal Rate of Return)
►MIRR (Modified Internal Rate of Return)

XYZ Company that the company is planning to undertake. He has suggested that
the project is feasible. The consultancy fee paid to Mr. A will be considered as:
►Sunk cost
►Opportunity cost
►Both sunk cost and opportunity cost
►Neither sunk cost nor opportunity cost

The current price of SNT stock is Rs. 50. Dividends are expected to grow at 7
percent indefinitely and the most current dividend was Rs. 1.00. What is the

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required rate of return on SNT stock?
►9.00 percent
►9.14 percent
►9.33 percent
►10.65 percent

Which of the following are rights of an owner of a share of common stock for firm which has no preferred share?
►The right to vote for directors
►The right to share proportionately in dividend paid

►The right to vote on stockholder matters of great importance ►All of the given options

Which one of the following typically applies to preferred stock but not to common stock?
►Dividend yield
►Cumulative dividends
►Voting rights
►Tax deductible dividends

You must own which of the following to vote against a merger proposal from another corporation?
►Preferred share
►A debenture
►Common stock
►Cumulative dividend stock

Which of the following strategy belongs to flexible policy regarding size of investments in current assets ?

Size of investments in current assets

•Flexible policy
•maintain a high ratio of current assets to sales
•maintain a low ratio of current assets to sales Financing of current assets
•Flexible policy
•less short-term debt and more long-term debt
•more short-term debt and less long-term debt
If policies
Which of the following strategy belongs to flexible policy regarding financing of

current assets ?


Suppose you have Rs. 10,000 on deposit. One day, you write a cheque for Rs. 2,000 and deposit Rs. 4,000. What is
your collection float ?
►Rs. 4,000
►+ Rs. 2,000
►Rs. 2,000
►+ Rs. 4,000

►Stock Bundle
►Portfolio
►Capital Structure

Which of the following is referred as the ratio of the standard deviation of a distribution to the mean of that
distribution ?
►Probability distribution
►The expected return
►The standard deviation

►Coefficient of variation

During the past year the common stock paid an annual dividend of Rs. 2.40. The
firm sold the stock today for Rs. 80. What is the rate of return the firm has
earned?
►5.3%
►194.2%
►83.11%
►94.2%

Mr. Sami has bought 50 shares of a corporation one year ago at Rs. 20 per share. Over the last year, he received a
dividend of Rs. 2 per share. At the end of the
year, the stock sells for Rs. 25. As per given information, what will be his total percentage return ?
►10 %
►20 %
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►35 %
►45 %
Dividend yield= 2/20=0.1%

Total percentage return 0.1+0.25*100=35%

While performing the feasibility analysis for a project, an operating cash flow of Rs. 225,000 has been calculated.
Net working cap ital has declined by Rs. 40,000. There w as a net capital sp ending of Rs. 100,000 d u ring the year.
What w ill be the
total cash flow for the project?
►Rs. 85,000
►Rs. 165,000
►Rs. 285,000
►Rs. 365,000
Operating cash
flow - change in
NWC - Capital
spending
225000-(-40000)-
100000=165000
The total market value of a company s stocks is calculated as Rs. 250 million and the total market value of the
company s debt are calculated as Rs. 150 million.
What percent of the firm s financing is debt?
►37.50%
►50.00%
►62.50%
►70.00%
250+150=400
250/400=0.625
0.625*100=62.5 is equity and
100-62.5=37.5 is debt
Suppose a firm borrow s Rs. 800,000 at 7%. What w ill be the after -tax interest rate if tax rate is 34%?
►3.00%
►4.62%
►5.20%
►8.00%
RD x (1
- TC).
7%X(1-
0.34)=4
.62
Opportunity losses from having inadequate inventory are termed as:
►Carrying costs
►Opportunity costs
►Restocking costs
►Safety reserve costs

Restocking costs - costs of placing an order with suppliers or the cost of setting up a production
run
•Safety reserve costs - opportunity losses from having inadequate inventory e.g. lost sales and goodwill
•A trade-off
•Carrying costs increase with inventory levels and shortage or restocking costs decline with inventory levels
•The goal of inventory
management is to minimize
the sum of these two costs
What w ill be the Economic Order Quantity (EOQ) if total u nit sales (T) = 400, fixed costs (F) = Rs. 30 and carrying
costs (CC) = Rs. 5 ?
►65 units
►69 units
►89 units
►95 units
EOQ = (2T x F
/ CC)1/2
2*400=800
800*30=24000
24000/5=4800
4800^0.5=69.28
The cost of common equity for a firm is:

►The required rate of return on the company's stock ►The yield to maturity on the bond
►The risk-free rate
►The market risk premium

A firm has 3 million in comm on stock, 1 million in preferred stock and 2 million in debt. What is the percentage of
firm s financing that is debt ?
►20%
►33%
►40%
►67%

The book value of a system is Rs. 50,350 at the end of year 3 of its life. What will be the total after-tax cash flow
from sale if we sell this system for Rs. 30,000 at this time? (Tax rate is 34%)
►Rs. 20,350
►Rs. 30,919
►Rs. 36,919
►Rs. 80,350
50350-30000=20350x34%=6919
30000+6919=36919

What w ill be the variance if standard deviation for the returns of an investment is 0.2829 ?
►0.0800
►0.0892
►0.5319
►Cannot be estimated without more information
Write down the components of total return in terms of dividend growth model. Answer
R = D1 /P0 + g
This tells us that the total return, R, has two components
D1/P0 is called the Dividend Yield. Because this is calculated as the expected cash dividend by
the
current price, it is conceptually similar to the current yield on a bond
Growth rate, g, is also the rate at which the stock price grows. So it can be interpreted as capital
gains yield
What is the difference between operating cycle and cash cycle?

The operating cycle is the sum of the inventory and receivable periods
Operating cycle = Inventory period + Receivable period
Cash cycle
•The time between cash disbursement and cash collection. (We spend cash on day 30, but don't collect until
day 105. so we have to arrange finances $1,000 for 105 - 30 = 75 days)
•So we can describe the cash cycle as:
Cash cycle = Operating cycle - Accounts payable period
75 days = 105 days - 30 days
How a firm s overall cost of capital is calculated ?
We know that a firm’s overall cost of capital will reflect the required return on the firm’s assets as a whole.
•Given that a firms uses both debt and equity capital, this overall cost of capital will be a mixture
of the
returns needed to compensate its creditors and stockholders.
•Cost of capital will reflect
•Cost of equity capital
•Cost of debt capital
Cost of Equity
Define the following terms:

(i) Dealer
An agent who buys and sells securities from a maintained inventory
It stands ready to buy securities from investors wishing to sell them and sells securities to investors
wishing to buy them
(ii) Broker
An agent who arranges security transactions among investors, matching investors wishing to buy securities with investors
wishing to sell securities
They do not buy or sell securities for their own accounts. Facilitating trades others is their business
(iii) Bid Price
(iv) Strike Price

The price that the dealer wishes to pay is the bid price and the price at which the dealer sells the
securities is called the
strike price.
(v) Spread
The difference
between the bid and
ask price is called the
spread
A firm has a total value of Rs. 1 million and debt valued at Rs. 400,000. What is the after-tax weighted average cost
of capital if the cost of debt is 12%, the cost of equity is 15% and tax rate is 35% ?
SNT & Co. has the following Target capital structure :
Debentures = Rs. 5.00 Billion

Preferred shares = Rs. 2.65 Billion
Common shares = Rs. 9.35 Billion
Total = Rs. 17 Billion
Bonds carry an interest rate of 11.5%. Common stocks and Preferred stocks have a return of 15.50 % and 12%
respectively and corporate tax rate is 40%. Compute the present Weighted Average Cost of Capital (WACC) for
SNT & Co.

Standard Manufacturing Company (SMC) need s one of two machines. Machine X costs Rs. 25,000 and has cash
flow s of Rs. 8,000 a year for six years. Machine Y costs Rs. 30,000 and has cash flow s Rs. 7,000 a year for six
years. SMC has 12% cost of capital. Calculate each machine s Payback Period and NPV (N et Present Value) and
evaluate the results.
Paper 2
Which of the following is the difference between current assets and current? Liabilities?
►Surplus Asset
►Short-term Ratio
►Working Capital
►Current Ratio

A business owned by a single person is known as:
►Sole-proprietorship
►General partnership
►Limited partnership
►Corporation
In a common-size balance sheet, all items are shown as a percentage of:
►Total Assets
►Total Liabilities
►TotalOwnersEquity

A company's ability to meet long-term obligations can be estimated by using which of the following set of ratios?
►Liquidity Ratio
►Solvency Ratios
pg 34
►Asset Management Ratios
►Market Value Ratios
According to Du Pont Identity, ROE is affected by which of the following?
►Operating efficiency
►Asset use efficiency
►Financial Leverage
►All of the given options
The Du Pont identity tells us that ROE is affected by three things:
Operating efficiency (as measured by profit margin)
Asset use efficiency (as measured by total assets turnover)
Financial Leverage (as
measured by equity multiplier)
Which of the following is a series of constant cash flows that occur at the end of? each period for some fixed
number of periods?
►Ordinary annuity
►Annuity due
►Perpetuity
A series of constant, or level, cash flows that occur at the end of each period for some fixed number of
periods is called an ordinary
Annuity
A portion of profits, which a company distributes among its shareholders, is known as:
►Dividends
►Retained Earnings
►Capital Gain
►nterest
What amount a borrower would pay at the end of fourth year with a 4 -year, 12%, interest-only loan of Rs. 3,000?
►Rs. 360
►Rs. 2,000
►Rs. 3,000
►Rs. 3,360
A company issues bonds with a Rs. 1,000 face value. What is the coupon rate if the coupon payments of Rs. 45 are
paid every 6 months?
►3 percent
►6 percent
►9 percent
►12 percent
Given two bonds identical but for maturity, the price of the longer-term bond will change _ _ _ _ _ _ _ _ that of the
shorter-term bond, for a given change in market interest rates.
►More than
►Lessthan
►Equal to

When corporations borrow, they generally promise to:
I. Make regular scheduled interest payments
II. Give the right of voting to bondholders
III. Repay the original amount borrowed (principal) IV. Give an ownership interest in the firm
►I and II
►I and III pg
77
►II and IV
►I, III, and IV
Which of the following allows a company to repurchase part or all of the bond? issue at a stated price?
►Repayment
►Seniority
►Call provision
►Protective covenants
Sumi Inc. has policy of paying a Rs. 9 per share dividend every year. If this
policy is to continue indefinitely, what will be the value of a share of stock at a 12% required rate of return?
►Rs. 30
►Rs. 45
►Rs. 60
►Rs. 75
9/0.12=75

Primary Market
Secondary Market
Tertiary Market

An investment should be accepted if the net present value is __________ and rejected if it is ________.
Positive; positive
Positive; negative
Negative; negative
Negative; positive

The XYZ Corporation is considering an investment that will cost Rs. 80,000 and have a useful life of 4 years.
During the first 2 years, the net incremental after-tax cash flows are Rs. 25,000 per year and for the last two years
they are Rs. 20,000 per year. What is the payback period for this investment ?
3.2 Years
3.5 Years
4.0 Years
Which of the following statement is INCORRECT regarding a normal project ?
If the IRR of a project is greater than the discount rate, k, then its PI will be
greater than 1
If the NPV of a project is greater than 0, then its PI will exceed 1

If the IRR of a project is 8%, its NPV, using a discount rate, k, greater than 8%, will be less than 0
If the PI of a project equals 0, then the project's initial cash outflow equals the PV of its cash flows

Which of the following set of cash flows represent the change in the firm s total cash flow that occurs as direct
result of accepting the project ?
Relevant Cash Flows

Negative Cash Flows

Which of the following is NOT a problem while determining incremental cash flows?
Merchandize cost
Sunk cost
Opportunity cost

___________ Cost refers to the cash flows that could be generated from an asset the firm already owns provided it
is not used for the project in question.
Sunk
Opportunity
Fixed
Variable

of :
The cost of common equity and the cost of debt pg 146

Which of the following is a characteristic of preferred stock?
Dividends on these stocks can be cumulative pg100

These stocks hold credit ratings quite different from bonds

XYZ Company that the company is planning to undertake. He has suggested that
the project is feasible. The consultancy fee paid to Mr. A will be considered as:
Sunk cost
Opportunity cost
Both sunk cost and opportunity cost
Neither sunk cost nor opportunity cost
One would be indifferent between taking and not taking the investment when:


Which of the following is a measure of accounting profit relative to book value?
Net Present Value

Profitability Index
•AAR is a measure of accounting profit relative to book value
•AAR rule is to take an investment
if its AAR exceeds a benchmark
AAR
Which of the following M&M propositions states that it is completely irrelevant how a firm chooses to arrange its
finances ?
1st proposition
2nd proposition
3rd proposition

The required return of firm s assets
The firm s cost of debt
The firm s stockholders pg 153
The firm s debt-equity ratio

Financial Risk
Business Risk found

on internet
Functional Risk
Which of the following type of risk influences a large number of assets ?
Systematic Risk
Unsystematic Risk
Diversifiable Risk
Asset-specific risk
The true risk of an investment is the unanticipated or surprising part of the return.
•If we always receive exactly what we expect then the investment will be risk-free.
•Systematic Risk
•A risk that influences a
large number of assets. It is
also called market risk
Which of the following is an example of unsystematic risk ?
Increasing Recession
Rise in Interest Rate
Rise in Inflation
Strike call in a company pg
140

A set of possible values that a random variable can assume and their associated probabilities of occurrence are
referred as :
The expected return
Mr. Sami has bought 50 shares of a corporation one year ago at Rs. 20 per share.
Over the last year, you received a dividend of Rs. 2 per share. At the end of the year, the stock sells for Rs. 25. If
Mr. Sami sells the stock at the end of the year,
what will be his total cash inflow ?
Rs. 100
Rs. 250
Rs. 1,000
Rs. 1,350
50*20=1000
50*25=1250
1250-1000=250
While performing the feasibility analysis for a project, an operating cash flow of Rs. 250,000 has been calculated .
Net working capital has increased by Rs. 50,000. There was no capital spending during the year. What w ill be the
total cash flow
for the project?
Rs. 170,000
Rs. 200,000
Rs. 215,000
Rs. 230,000
2050000-
(+50000)
200000
Autos & computers are included in which of the following MACRS property
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class?
3-year
5-year
7-year
3-year Equipment used in research
5-year Autos, Computers
7-year Most industrial equipment
The next dividend for a company is Rs. 5 per share. The stock current price is Rs. 50 per share. What w ill be the
cost of capital if the dividend s are estimated to
Grow steadily at 5%?
12.88%
13.07%
14.22%
15.00% pg
142
Trade credit is more likely to be granted if:

The selling firm has a cost advantage over other lenders
The selling firm can engage in price discrimination
The selling firm can obtain favorable tax treatment
Trade Credit is more likely to be granted if:
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•The selling firm has a cost advantage over other lenders.
•The selling firm can engage in price discrimination.
•The selling firm can obtain favorable tax treatment.
•The selling firm has no established reputation for quality products or services.
•The selling firm perceives a long-term strategic relationship.
•The optimal credit policy depends on the characteristics of particular firms.
•Excess capacity
A firm makes a sale of Rs. 2,000 on January 05, 2005. The firm is offering credit term of 3/10 net 30. How much it
will receive if the customer makes the payment on January 09, 2005 ?
Rs. 1,000
Rs. 1,940
Rs. 2,000
Rs. 2,100
Shortage or Restocking costs ___________ with inventory levels

Rise
Decline
Remain unaffected
Carrying costs increase with
inventory levels and shortage or
restocking costs decline with
inventory levels

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Which one of the following motives refers to the need for holding cash to satisfy norm al disbursement and
collection activities associated with a firm s ongoing
Operations?
Speculative motive
Transaction motive
Personal motive
Speculative Motive - the need to hold cash to take advantage of additional investment opportunities,
such as bargain purchases, attractive interest rates and favorable exchange rater fluctuations.
•Reserve borrowing utility and Marketable securities
•Transaction Motive - the need to hold cash to satisfy normal disbursement and collection activities
associated with a firm’s
ongoing operations.
What would be the standard deviationof returns for aninvestmentthat has a Variance of 0.008?
0.08944
0.09101
0.09487
0.10521

A firm has 3 million in common stock, 1 million in preferred stock and 2 million in debt. What is the that is debt ?
20%
33%
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40%
67%
Financial leverage can dramatically alter the payoffs to the shareholders.
Financial leverage refers to the extent to which a firm relies on the debt.
Financial leverage must affect the overall cost of capital in any condition. pg 149

Define Net Present Value (NPV) and write down the NPV rule to accept a project.
What do you mean by the terms of business risk and financial risk?

Suppose there is an operating cash flow of Rs. 520,000. Net working capital has increased by Rs. 200,000 and
there is a net capital spending of Rs. 120,000 during the year. Calculate total cash flow.
A replacement project has an initial investment of Rs.10,000; and cash flows are
Rs.3,400; Rs. 2,500; Rs.3,900; and Rs.5,200 for years 1 through 4, respectively. The
firm has decided to assume that the appropriate cost of capital is 10%. What will be the net present value of the
project? Is the project feasible?
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Describe the relationship between capital structure and weighted average cost of capital (WACC).

The capital budgeting director of MKJ Inc. is supposed to analyze two proposed capital investments projects S and
T. Each project has a cost of Rs.100,000, and the cost of capital (discounting rate) for each project is 12%. The
projects
expected net cash flows are as follows :
Cash flow rs
1 30000 30000
2 30000 30000
3 35000 20000
4 25000 30000
5 25000 250000
Calculate Internal Rate of Return (IRR) for both projects. On the basis of findings in (i):
a. Which project should be selected if projects are mutually exclusive?
b. Which project or projects should be selected if projects are independent
Identify the sources and uses of cash and complete the table by following the example.
Example Increasing current liabilities Increase Sourc

e
1. Increasing fixed asset
2. Decreasing equity
3. Increasing long-term debt
4. Decreasing fixed assets
5. Increasing current assets other than cash
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6. Increasing equity
7. Decreasing long-term debt
8. Decreasing current assets other than cash
9. Accounts Payable go up by Rs. 1,500
10. Accounts receivable go up by Rs.
2,000
Paper 3
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Which of the following refers to a conflict of interest between principal and agent?
Management Conflict
Interest Conflict
Agency Problem
The Agency Problem
Agency relationship
Principal hires an agent to represent their interest
Stockholders (principals) hire managers (agents) to run the company Agency problem
Conflict of interest between principal and agent
Management goals and agency
costs
Which of the following term refers to the ease and quickness with which assets can be converted to cash?
Analysis
Structuring

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Budgeting
Liquidity pg 14
Raw material
Direct labor
Which of the following can be computed by using the information only from balance sheet?
Equity multiplier
Inventory turnover
Receivable turnover
Return on equity
Which of the following is CORRECT regarding the present value discount factor?
It is always greater than 1.0

It decreases as the discount rate increases
It is equal to zero when discount rate is zero
It increases as the time period increases

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How much must be deposited at 8% each of the next 20 years to have Rs. 10,296.44?
Rs. 225
Rs. 341
Rs. 410
Rs. 452
In order to compare different investment opportunities (each with the same risk) with interest rates reported in different
manners you should:
Convert each interest rate to an effective annual rate Convert each interest rate to a monthly nominal rate Convert each
interest rate to an annual nominal rate Compare the published annual rates
You have Rs. 1,0 0 0 to invest. You have 2 choices; first is the savings account A, which earns 8.75 percent com
pounded annually and second is the savings account B, which earns 8.50 percent com pounded monthly. Which
account
should you choose and why?
Account A; because it has a higher effective annual rate

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Account B; because it has a higher effective annual rate
Account A; because it has the higher quoted rate
Account B; because the quoted rate is higher
What will be the value of a Rs. 1,0 0 0 face-value bond with an 8% coupon rate at
More than its face value
Less than its face value
Equal to its face value
Cannot be determined without more information
Which of the following statement is FALSE regarding debt?
Debt is not an ownership interest in the firm.

Debt provides the voting rights to the bondholders. pg
78
Corporations payment of interest on debt is fully tax deductible.
The relationship between real and nominal returns is described by the:
M&M Proposition
Fisher s Effect
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BCG Matrix
Investors dem and a higher yield as compensation to the risk of possible default. This extra premium is called:

Taxability premium
For which type of stocks, the dividends grow at a constant rate?
Zero Growth Stocks pg 91
Constant Growth Stocks

Non-Constant Growth Stocks

In which type of voting, each shareholder is entitled one vote per share times the number of directors to be elected?
Straight Voting

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Statutory Voting
Cumulative Voting

In which of the following procedure of voting for a company's directors, each shareholder is entitled to one vote per
share ?
Straight Voting
Proportional Voting
Cumulative Voting
Which of the following is the price that the dealer wishes to pay for a share ?
Simple Price
Bid Price
Strike Price pg 100
Complex Price
Suppose the initial investment for a project is Rs. 160,000 and the cash flows are Rs. 40,000 in the first year and Rs.
90,000 in the second and Rs. 50,000 in the third. The project will have a payback period of:
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2.6 Years
3.1 Years
3.6 Years
4.1 Years

The XYZ Corporation is considering an investment that will cost Rs. 80,000 and have a useful life of 4 years. During
the first 2 years, the net incremental after-tax cash flows are Rs. 25,000 per year and for the last two years they are Rs.
20,000 per year. What is the payback period for this investment ?
3.2 Years
3.5 Years
4.0 Years

Which of the following measures the present value of an investment per dollar invested ?

Profitability Index (PI) pg
119

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Which of the following set of cash flows should be considered in the decision at hand?
Relevant Cash Flows

Negative Cash Flows

___________ Cost is an outlay that has already occurred and hence is not affected by the decision under consideration.
Sunk
Opportunity
Fixed
Variable

of :
The cost of common equity and the cost of debt

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Over the past four years, a company has paid dividends of Rs. 1.00, Rs. 1.10, Rs.
1.20 and Rs. 1.30 respectively. This pattern is expected to continue into the future. This is an example of a company pay
a dividend that grows:
By 10 percent each year
At a constant rate
By a decreasing amount
At a decreasing rate

Which of the following statement is INCORRECT regarding Average Accounting Return?
AAR is a measure of accounting profit relative to book value
An investment is acceptable if its AAR is greater than a benchmark AAR

worng questions

Which of the following M&M propositions states that it is completely irrelevant how a firm chooses to arrange its finances
?
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1st proposition
2nd proposition
3rd proposition
SNT Corporation has a WACC of 16% (ignoring taxes). It can borrow at 9% . Assuming that SNT has a target capital
structure of 75% equity and 25% debt, what will be its cost of equity ?
13.00%
15.23%
18.33%
20.98%
25%/75%==0.33
16%+(16%-9%)x0.33
0.16+(0.16-0.09)x0.33
0.16+0.0231=18.31%
Which of the following activities decreases cash ?

Decreasing long term debt
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Increasing equity
Activities that decrease cash (uses of cash)
•Decreasing long term debt
•Decreasing equity
•Decreasing current liabilities
•Increasing current assets other than cash
•Increasing fixed assets
Which of the following describes how a product moves through the current asset accounts ?
Cash Cycle
Operating Cycle
Current Cycle
An operating cycle describes how a product moves through the current asset accounts
•It begins life as inventory
•Converted to a receivable when it is sold
•Converted to cash when we
collect from the sale
Which of the following is the time between sale of inventory and collection of
receivables ?
Inventory period
Accounts receivable period pg 164
Collection period
Accounts payable period

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disbursement float ?
Rs. 4,000
+ Rs. 2,000
Rs. 2,000
+ Rs. 4,000
Suppose you have Rs. 70 in stock A and Rs. 120 in another stock B in your
portfolio. Stock A has an expected return of 25% and stock B has an expected return of 20%. What will be the portfolio
expected return ?
18.27%
21.84%
22.50%
25.13%

Which of the following statement(s) is (are) true regarding Return on Investment?
One of the responsibilities of the financial manager is to assess the value of the proposed investment
The return consists of income earned and capital gain

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The dollar returns are the sum of the cash received and the change in dollar value of the asset
During the past year the common stock paid an annual dividend of Rs. 2.40. The firm sold the stock today for Rs. 80.
What is the rate of return the firm has earned?
5.3%
194.2%
83.11%
94.2%

What will be the cash inflow if we have sales of Rs. 400,000 and accounts receivable are increased by Rs. 70,000?
Rs. 70,000
Rs. 230,000
Rs. 330,000
Rs. 470,000

What will be the cash inflow if we have sales of Rs. 300,000 and accounts receivable are decreased by Rs. 70,000?
Rs. 70,000

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RS 230000
Rs. 370,000
correct
Rs. 470,000
300000-
70000=230000
Su p pose a firm borrow s Rs. 800,000 at 7%. What w ill be the total interest bill p er year if tax rate is 34% ?
Rs. 19,040
Rs. 36,960
Rs. 56,000
Rs. 800,000
800000*7%=56000
56000*34%=19040

Which one of the following motives refers to the need for holding cash as a safety margin to act as a financial reserve?
Speculative motive
Transaction motive
Personal motive
•Precautionary
Motive - the need to
hold cash as a safety
margin to act as a
financial reserve
Suppose market value exceed s book value by Rs. 225,000. What w ill be the aftertax proceeds if there is a tax rate of 34
percent?
Rs. 105,600
Rs. 148,500
Rs. 191,000
Rs. 225,000
225000*34%=765,00
225000-765000=148500
Question No: 39
( Marks: 1 ) - Please choose one
Su p pose you have bou ght 100 shares of a corporation one year ago at Rs. 18 per share. Over the last year, you have
received a d ivid end of Rs. 2 p er share. At the end of the year, the stock sells for Rs. 27. As p er given inform ation, w
hat w ill be
the capital gains yield?
15
%
25
%
35
%
50
%
(27-18)/18=0.5%
SN T Com pany p u rchased a vehicle for Rs. 450,000. Based on historical averages, this vehicle is w orth 25% of the p
u rchase price now and it is being sold at this
p rice. What is the vehicle s m arket valu e ?
Rs. 14,875
Rs. 112,500
Rs. 337,500
Rs. 230,000
Standard deviations for Investment A and Investment B are 19% and 28% respectively. This indicates that:

Financial leverage can dramatically alter the payoffs to the shareholders.
Financial leverage refers to the extent to which a firm relies on the debt.
What is the difference between dealer and broker ?
What does Static Theory of Capital Structure state?

Suppose there is an expected rate of 20%. What will be the risk premium if risk free rate is (i) 8% and (ii) 12% ?
What is the difference between Leverage and Un -levering?
Match the capital budgeting techniques are given in Column A to the criteria in Column
B. Provide the correct answer in Column C.
Column A Column B Column C
Net Present Value Discounted Cash Flow Criteria

Average Accounting Return Payback Criteria
Payback Period Discounted Cash Flow Criteria
Internal Rate of Return Accounting Criteria
Each of the following mutually exclusive investment projects involves an initial ou tlay of Rs. 240,000. The com p any s
required rate of return is 11 percent. The estimated net cash flows for the projects are as follows:
Cash flow rs
1 140000 20000
2 80000 40000
3 60000 60000
4 20000 100000
5 20000 180000
Calculate the NPV and PI for both projects. If both projects are mutually
exclusive then which project should be chosen and why?
Consider the following chronological events:
Day Activity Cash effect

0 Acquire inventory on credit None
35 Pay for inventory Rs 5000
70 Sell inventory on credit None
110 Collect on sale +Rs 6000
From the given information, find out:

(i) inventory period
(ii) Accounts receivable period
(iii) Accounts payable period
(iv) Operating cycle
(v) Cash cycle
Acc501 lec 1 to 40
The next dividend for a company is Rs. 6 per share. The stock current price is Rs. 57 per
share. What will be the cost of capital if the dividends are estimated to grow steadily at
5% ?
12.88%
13.07%
14.22%
15.53%
D1 = D0 x (1 + g)
RE = D1 / P0 + g
6x(1+0.05)=6.3
6.3/57+0.05=16.
Which of the following is the time period between the acquisition of inventory and the collection of cash from
receivables
Select correct option
Operating Cycle pg 164
Cash Cycle
Current Cycle

Operating Cycle
Cash Cycle
Current Cycle
Business risk depends on which of the following risk of the firm’s assets ? Select correct option:
Systematic Risk pg 155
Diversifiable Risk
Unsystematic Risk

What will be the affect of capital structure on the value of the firm and WACC when there are no taxes and
bankruptcy costs ?
Value of the firm increases and WACC decreases
Value of the firm decreases and WACC increases
Value of the firm and WACC both are not affected pg 158
Capital structure have to do nothing with value of the firm and WACC
Sources of cash always involve ______ a liability (or equity) account or ______ an asset account.
increasing; decreasing pg 163
decreasing; increasing
increasing; increasing
decreasing; decreasing

Which of the following refers to the use of borrowed money to increase the return on equity of an investment purchase
?
Financial Leverage
Operating Leverage
Structural Leverage

The value of the firm’s cash flows (or the value of the firm) is __________ when the WACC is __________.
minimized; minimized
maximized; maximized
maximized; minimized pg 149

A firm’s equity is worth 4 million and its debt is worth 2 million. What is the percentage of firm’s financing that is
debt ?
20%
33%
40%
67%
Ref:
4+2=6
4/6=0.66
0.66*100=66.67 is equity and
100-67=33 is debt

Financial Risk
Business Risk
Functional Risk
The required return of firm’s assets
The firm’s cost of debt
The firm’s stockholders pg 153
The firm’s debt-equity ratio

Which of the following is the difference between the current assets and the current liabilities ?
Net difference
Net working capital
Current ratio
Net available capital
Question # 1 of 15 ( Start time: 02:38:01 PM ) Total Marks: 1 Operating cycle = ________________
Collection period - accounts payable period
Inventory period + accounts receivable period pg 164
Question # 2 of 15 ( Start time: 02:39:24 PM ) Total Marks: 1 A firm’s capital structure may include which of the
following ? Select correct option:
Common stocks
Preferred Stocks not sure
Bonds

Over the last year, he received a dividend of Rs. 2.50 per share. At the end of the year, the stock sells for Rs. 28. As
per given information, what will be the capital gains yield ? Select correct option:
15.85%
25.10%
27.27%
45.00%
Capital gain yield formula
(28-22)/22
=0.2727

Which of the following term refers to the situation when investors loan out the money ? Select correct option:
Leverage
Levering
Un-levering pg 152
Loaning
Question # 1 of 15 ( Start time: 11:23:11 AM ) Total Marks: 1 Which of the following activities does not increase
cash ? Select correct option:
Increasing equity
Increasing current assets other than cash pg 163
The increase in debt financing raises the required return on equity because the risk born by the investors increases
which is called:
Financial Risk pg 155
Business Risk
Functional Risk
Question # 5 of 15 ( Start time: 11:27:05 AM ) Total Marks: 1 What will happen to cash cycle if payable period is
lengthened ? Select correct option:
Cash cycle increases
Cash cycle decreases 167
Cash cycle has to do nothing with payable period
Which of the following M&M propositions states that it is completely irrelevant how a firm chooses to arrange its
finances ?
1st proposition pg 153
2nd proposition
3rd proposition

total market value of the company’s debt are calculated as Rs. 150 million. What percent of the firm’s financing is
equity ?
33.33%
50.00%
62.50%
85.00%
=250+150=400
250/400=62.5equity and remaining 37.5 is debt
Which of the following is referred as the ratio of the standard deviation of a distribution to the mean of that distribution
?
The expected return
Question # 10 of 15 ( Start time: 11:32:28 AM ) Total Marks: 1 Cash cycle = ________________
Inventory period + accounts receivable period
Operating cycle - accounts payable period pg 165
According to which of the following theory, the firm's capital structure is determined by a trade-off of the value of
tax shields against the costs of bankruptcy.
M&M Proposition
Modern theory of bankruptcy costs
Static theory of capital structure not sure
Dividend growth theory
Question # 13 of 15 ( Start time: 11:34:55 AM ) Total Marks: 1 The cost of common equity for a firm is:
The required rate of return on the company's stock The yield to maturity on the bond
The risk-free rate
The market risk premium
Investment A is less volatile than Investment B
Investment B is equally volatile to Investment A
Operating Cycle
Cash Cycle
Current Cycle
Which of the following is the overall return the firm must earn on its existing assets to maintain the value of the
stock?
IRR (Internal Rate of Return)
MIRR (Modified Internal Rate of Return)
WACC (Weighted Average Cost of Capital) 146
AAR (Average Accounting Return)

What will happen to cash cycle if inventory and receivable periods get longer ? Select correct option:
Cash cycle increases pg 167
Cash cycle decreases
Cash cycle has to do nothing with inventory and receivable periods
Which of the following term refers to the use of personal borrowing to alter the degree of financial leverage ?
Un-levering
Homemade leverage pg 151
Levering
Loaning
Cost of debt pg 143
A firm’s equity is worth 4 million and its debt is worth 2 million. What is the percentage of firm’s financing that is
equity ?
20%
33%
40%
67%
4+2=6
4/6=0.67

Under what situation, we can safely say that one capital structure is better than the other ? Select correct option:
If it results in a higher weighted average cost of capital
If it results in a lower weighted average cost of capital pg 149
If it results in a lower value of the firm
Capital structure has to do nothing with weighted average cost of capital
Finished last quiz of acc 501
Good bye all V U students
Badal pe chalta hu mai
Ghirta sambhalta hu mai
Khuwishein krta hu mai
Khony se darta hu mai
Jaga na soya hu mai

Musafir khoya hu mai
Kch sir fira sa hu mai
Budhu zara sa hu mai………
Starting lec 1 to 35 Date :19-jan-2011
Suppose market value exceeds book value by Rs. 200,000. What will be the after-tax proceeds if
there is a tax rate of 35 percent ?
Rs. 97,500
Rs. 105,600
Rs. 130,000
Rs. 150,000
200000*35%=70000
200000-70000=130000

In which type of projects, the unequal lives of the projects do affect the analysis ? Select correct option:
Mutually exclusive
Dependent
Independent
Correlated
Mr. Naveed has bought 100 shares of a corporation one year ago at Rs. 23 per share.
Over the last year, he received a dividend of Rs. 1.50 per share. At the end of the year,
the stock sells for Rs. 31. As per given information, what will be his total percentage
return ?
10.63%
20.20%
35.12%
41.30%
First find dividend yield then capital gain yield then plus both answer
Let see
Dividend yield= 1.50/23=0.06521%
Total percentage return 0.06521+0.3478*100=41.30
The book value of a system is Rs. 35,500 at the end of year 4 of its life. What will be the total after-tax cash flow
from sale if we sell this system for Rs. 20,000 at this time? (Tax rate is 35%)
Rs. 15,000
Rs. 15,220
Rs. 20,327
Rs. 25,425
Which one of the following statement is INCORRECT regarding MACRS depreciation ? Select correct option:
Every asset is assigned to a particular class which establishes asset’s life for tax purposes. Depreciation is computed
for each year by multiplying the cost of the asset by a fixed
percentage.
Annual depreciation remains constant every year even by using different rates.
The expected salvage value and the actual expected economic life are not explicitly considered in calculation of
depreciation.
Total portfolio risk is equal to :
systematic risk plus non-diversifiable risk

unsystematic risk plus diversifiable risk
systematic risk plus market risk
systematic risk plus diversifiable risk
Over the last year, he received a dividend of Rs. 2.50 per share. As per given information what will be the dividend
yield ?
9.92%
11.36%
21.12%
40.00%
d.y= 2.50/22=0.1136%

Which of the following type of risk can be eliminated by diversification ? Select correct option:
Systematic Risk
Market Risk
Unsystematic Risk
Cost of debt
What will be the risk premium for a stock that has an expected return rate of 14% and a
risk-free rate of 5% ?
6%
9%
15 %
24%
14-5=9
Which of the following is NOT an example of systematic risk ? Select correct option:
Interest Rate
Inflation
Strike call in a company
Gross Domestic Product
Your gain (or loss) on an investment that you buy is called your : Select correct option:
Risk on investment
Return on investment
Gain on investment
loss on investment
Standard Company purchased a vehicle for Rs. 450,000. Based on historical averages, this vehicle is worth 25% of the
purchase price now and it is being sold at this price. What is the vehicle’s market value ?
Rs. 14,875
Rs. 112,500
Rs. 337,500
Rs. 230,000
ABC Corporation has two shareholders; Mr. Aamir with 50 shares and Mr. Imran with 70
shares. Both want to be elected as one of the four directors but Mr. Imran doesn’t want Mr. Aamir to be director. How
much votes would Mr. Aamir be able to cast as per cumulative voting procedure?
70
120
200
280
4*50=200
In MACRS property classes, 7-year class includes which of the following ? Select correct option:
Equipment used in research
Autos & computers
Most industrial equipment
Standard deviations for Investment A and Investment B are 15% and 32% respectively.
This indicates that :
Question # 6 of 15 ( Start time: 05:27:45 PM ) Total Marks: 1 Systematic Risk is also known as :
Diversifiable Risk
Market Risk
Residual Risk
Asset-specific Risk
A project has an initial investment of Rs. 600,000. What would be the NPV for the project if it has a profitability
index of 1.12?
Rs. 40,000
Rs. 55,000
Rs. 65,000
Rs. 72,000
600000*1.12=672000
672000-600000=72000
Question # 8 of 15 ( Start time: 05:29:04 PM ) Total Marks: 1 Unsystematic Risk is also known as :
Diversifiable Risk
Market Risk
Non-diversifiable Risk

Payback Period
Net Present Value
Profitability Index
Question # 10 of 15 ( Start time: 05:30:21 PM ) Total Marks: 1 Which of the following is NOT a quality of IRR?
Most widely used
Ideal to rank the mutually exclusive investments Easily communicated and understood
Stock Bundle
Portfolio
Capital Structure
Which of the following set of cash flows represent the change in the firm’s total cash flow that occurs as direct result
of accepting the project ?
Relevant Cash Flows

Negative Cash Flows
What would be the standard deviation of returns for an investment that has a variance of
0.0075 ?
0.08660
0.09101
0.09487
0.10521
Investors demand a higher yield as compensation to the risk of possible default. This extra premium is called:
Taxability premium

What will be the cash inflow if we have sales of Rs. 400,000 and accounts receivable are decreased by Rs. 70,000 ?
Rs. 70,000
Rs. 230,000
Rs. 330,000 not sure
Rs. 470,000

The relationship between real and nominal returns is described by the: Select correct option:
M&M Proposition
Fisher’s Effect
BCG Matrix

Which of the following set of cash flows should be considered in the decision at hand? Select correct option:
Relevant Cash Flows
Negative Cash Flows

What will be the real rate if the nominal rate is 14% and the inflation rate is 6%? Select correct option:
6.02%
7.55%
10.0%
14.3%
(1+r)/(1+h)
1.14/1.06=1.07
1.07*100=107.55
107.55-100=7.55

total market value of the company’s debt are calculated as Rs. 100 million. What percent of the firm’s financing is
debt ?
28.57%
50.00%
62.50%
70.00%
250/350*100-100=28.57

Which of the following is referred as a statistical measure of the variability of a distribution around its mean ?
The expected return
A set of possible values that a random variable can assume and their associated probabilities of occurrence are
referred as :
The expected return

A project whose acceptance does not prevent or require the acceptance of one or more alternative projects is
referred to as a(n):
independent project
dependent project
contingent project
Which of the following is the most common capital budgeting technique? Select correct option:
Payback Period
Net Present Value
Profitability Index
500,000 has been calculated. Net working capital has declined by Rs. 45,000. There was no capital spending during
the year. What will be the total cash flow for the project ? Select correct option:
Rs. 200,000
Rs. 315,000
Rs. 455,000
Rs. 545,000
Which of the following formula is used to calculate the price of a zero growth stock? Select correct option:
Po = D / R
Po = Do (1+g) / R
Po = Do(1+g) / (R - g)
Po = D1 / (R - g)
Which of the following statement is NOT correct regarding cost of preferred shares ? Select correct option:
Preferred stock has fixed dividend paid every period forever
Fixed dividend paid every period makes preferred stock a perpetuity
Cost of preferred stock can be estimated by using firm’s bond ratings
Cost of preferred stock can be estimated by observing the required return on other similarly rated shares of preferred
stock
IRR and NPV rules always lead to identical decisions as long as: Select correct option:
Cash flows are conventional
Cash flows are independent
Cash flows are both conventional and independent None of the given options
_________ paid by corporation is tax deductible but _________ paid are not tax deductible.
Interest; dividend
Dividend; interest
Bonus; interest
Which one of the following costs refers to an outlay that has already occurred and hence is not affected by the decision
under consideration ?
Sunk
Opportunity
Fixed
Variable
Suppose the initial investment for a project is Rs. 16 million and the cash flows are Rs. 4 million in the first year and
Rs. 9 million in the second and Rs. 5 million in the third. The project will have a payback period of:
2.6 Years
3.1 Years
3.7 Years
4.1 Years

Which of the following statement is TRUE regarding Average Accounting Return? Select correct option:
An investment is acceptable if its AAR is greater than a benchmark AAR An investment is acceptable if its AAR is
less than a benchmark AAR None of the given options
Sumi Inc. has just paid a dividend of Rs. 7 per share. The dividend of this company grows at a steady rate of 5% per
year. What will be the dividend in 5 years?
Rs. 4.41
Rs. 6.12
Rs. 7.35
Rs. 8.93
5/100=0.05+1=1.05^5=1.2762*7=8.93
An investment should be accepted if the Net Present Value (NPV) is ________ and rejected if it is ______.
Positive; positive
Positive; negative
Negative; negative
Negative; positive
Ending lec 1 to 35
19-Jan-02
___
[email protected]
Date :4-jan-2011
This Mcqs for Final Term
Maintaining firm’s working capital at or above some specified minimum level Furnishing audited financial statements
periodically to the lender
Restricting selling or leasing assets wrong question option d is negative and all is positive example
Wrong, wrong, wrong question it is unfair discipline
2. AST Company’s debt-to-total assets ratio is 0.45. What is its debt -to-equity
ratio?
0.101
0.220
0.667
0.818
Reference:(1-0.45=0.55)
=0.45/0.55=0.818
3. What amount a borrower would pay at the end of fourth year with a 4-year,
12%, interest-only loan of Rs. 8,000?
Rs. 1,360
Rs. 2,000
Rs. 5,625
Rs. 8,960
Reference: 8000*12/100=8960
4. What will be the price per share if there is a current dividend of Rs. 4.75,
required rate of return of 12% and growth rate of 5%?
Rs. 30.19
Rs. 43.52
Rs. 56.53
Rs. 71.25
Reference: D*1+g/r-g
4.75*(1+0.5/4.75-0.5)=71.25
5. A given rate is quoted as 9 percent APR, but the EAR is 9.38 percent. What
is the compounding period?
Semiannually
Quarterly
Monthly
Daily
Reference:(1+APR/m)^m-1
APR=9
M=30
(1+9/30)^30-1=9.38
6. Mr. Aslam owns 100 shares of a company and there are four directors to be
elected. How much votes Mr. Aslam would have as per cumulative voting
procedure?
100 votes
200 votes
300 votes
400 votes
Reference: 100*4=400
7. SNT Corporation has policy of paying a Rs. 6 per share dividend every year.
If this policy is to continue indefinitely, what will be the value of a share of
stock at a 15% required rate of return?
Rs. 30
Rs. 40
Rs. 50
Rs. 60
Reference: 6/0.15=40
8. Which of the following process can be defined as the process of generating

earnings from previous earnings?
Discounting
Compounding
Factorization
9. Which of the following is the amount of cash we would get if we actually sell
an asset?
Market Value
Book Value
Intrinsic Value
10.
11. Which of the following financial statement shows both dollars and
percentages in the report?
Balance Sheet
Common-Size Statement
Income Statement
Relative Statement of Equity

sole proprietorship
partnership
joint stock company
none of the above
13. Suppose the initial investment for a project is Rs. 16 million and the cash
flows are Rs. 4 million in the first year and Rs. 9 million in the second and
Rs. 5 million in the third. The project will have a payback period of:
2.6 Years
3.1 Years
3.7 Years
4.1 Years



Debt securities or bonds pg 71
Common Stocks
Preferred Stock
bonds?
Government bonds 85
Zero coupon bonds
Floating-rate bonds
Euro bonds
17. When real rate is _____, all interest rates will tend to be _____.
Low; higher
High; lower
High; higher pg 88
18. Which of the following statements is(are) CORRECT regarding a bond?

A bond is an evidence of debt issued by a corporation or a governmental body. A bond represents a loan made by
investors to the issuer.
When a corporation wishes to borrow from public on a long term basis, it does so by issuing or selling bonds.
19. Between the two identical bonds having different coupon, the price of the
________ bond will change less than that of ________ bond.
Higher-coupon; lower-coupon
Lower-coupon; higher-coupon
Long-term; short-term
20. As the dividend is always same for a zero growth stock, so the stock can also
be viewed as:
Ordinary Annuity
Annuity Due
Ordinary perpetuity pg 91
21. The coupon rate of a floating-rate bond is capped and upper and lower rates
are called:
Float
Collar pg 86
Limit
Surplus
22. Internal Rate of Return (IRR) is sometimes referred to as:

Simple Interest Rate

Compound Interest Rate
Economic Rate of Return
Required Rate of Return
23. If the dividend for a share is growing at a steady rate then which of the
following formula(s) can be used to find the dividend in two periods?
D2 = D1 x (1 + g )
D2 = Do x ( 1 + g )2
D2 = Do x ( 1 + g )2
All of the given options pg 92
24. A project whose acceptance does not prevent or require the acceptance of
one or more alternative projects is referred to as a(n):

independent project
dependent project
contingent project
25. A project has an initial investment of Rs. 600,000. What would be the NPV
for the project if it has a profitability index of 1.12?
Rs. 40,000
Rs. 55,000
Rs. 65,000
Rs. 72,000
Reference=600000*1.12=672000-600000=72000


Unpaid debt can result in bankruptcy or financial failure. Pg 78
27. If a firm is allowed to miss a coupon payment on a bond in a year in which it

reports an operating loss, the bond is most likely a(n) _______ bond.
Income
Zero coupon
Floating-rate
Put
28. A ______ covenant limits or prohibits actions that company might take.
Positive
Negative pg 80
Neutral
29. IRR and NPV rules always lead to identical decisions as long as:
Cash flow s are conventional

Cash flow s are independent
Cash flow s are both conventional and independent pg 110
30. Which of the following allows a company to repurchase part or all of the
bond issue at a stated price?
Repayment
Seniority
Call provision
31. Which of the following is NOT a quality of IRR?

Most widely used
Ideal to rank the mutually exclusive investments pg 116
32. In which type of the market, previously issued securities are traded among
investors?
Primary Market
Secondary Market pg 100
Tertiary Market
33. A model which makes an assumption about the future growth of dividends is
known as:
Dividend Price Model
Dividend Growth Model
Dividend Policy Model
34. Which of the following represents the linear relation between Net Present
Value (NPV) and Profitability Index (PI)?
If Profitability Index > 1, NPV is Negative (-)
If Profitability Index < 1, NPV is Positive (+)
If Profitability Index > 1, NPV is Positive (+)
If Profitability Index > 1, NPV is Zero (0)
Payback Period
Net Present Value pg 118
36.
Payback Period pg 119
Net Present Value
Profitability Index

38. Which of the following is the most common capital budgeting technique?
Payback Period
Net Present Value
Profitability Index
39. Which of the following measures the present value of an investment per
dollar invested?
Average Accounting Return (AAR) Internal Rate of Return (IRR)
Profitability Index (PI) pg 119
40. Which of the following is a measure of accounting profit relative to the book
value?
Net Present Value
Profitability Index
41. Which one of the following typically applies to preferred stock but not to
common stock?
Dividend yield
Cumulative dividends
Voting rights
Tax deductible dividends
bonds?
Government bonds pg 86
Zero coupon bonds
Floating-rate bonds
Euro bonds
43. Expectation of a ____ inflation rate will push long term interest rates ____
than short term rates reflected by an upward term structure.
Lower; higher
Higher; lower
Higher; higher pg 88
44. A company issues bonds with a Rs. 1,000 face value. What is the coupon rate
if the coupon payments of Rs. 60 are paid every 6 months?
3 percent
6 percent
9 percent
12 percent
60+60=120/1000=12%
45. The projected cash flows from a project are: Year 1: Rs. 100 Year 2: Rs. 300
Year 3: Rs. 400 Year 4: Rs. 800 The Project cost is Rs. 800. What would be
the payback period for the project?
2.00 Years
2.67 Years
3.00 Years
3.67 Years
Project=800 paid in 1 year=100, 2nd year=300 and 3rd year=400 total 800 paid in 3rd year
In which of the following type of annuity, cash flows occur at the beginning of each period?
Ordinary annuity
Annuity due pg 66
Perpetuity
46. Which of the following is NOT an important feature of treasury notes and
bonds?
Default free
Taxable
Least liquid pg 90
Highly liquid
Which of the following is NOT a determinant of term structure?

Real rate of interest
Internal rate of interest pg 88
Expected inflation
Interest rate risk
47. Which of the following is the amount of time required for an investment to
generate cash flows sufficient to recover its initial cost?
Yield to maturity
Maturity Period
Payback period pg 104
Accounts Receivable period
m.q .z
48. In which type of the market, securities are originally sold to the investors?
Primary Market
Secondary Market
Tertiary Market
49. A _________ is an agent who arranges security transactions among investors.

Broker pg 100
Dealer
Member
Specialist
volatile
50. Which of the following is a characteristic of preferred stock?
Dividends on these stocks can be cumulative pg 100
These bonds hold credit ratings quite different from bonds
51. Which of the following type of bond pays no coupon at all and are offered at
a price that is much lower than its stated value?
Government bonds
Zero coupon bonds pg 85
Floating-rate bonds
Euro bonds
52. An investment will be _________ if the IRR doesn’t exceeds the required
return and _________ otherwise.
Accepted; rejected
Accepted; accepted
Rejected; rejected
Rejected; accepted pg 109 conceptual
53. Which of the following comes under the head of accounting criteria for
capital budgeting decision?
Payback Period
Net Present Value
Profitability Index
54. Which of the following is a series of constant cash flows that occur at the end
of each period for some fixed number of periods?
Ordinary annuity pg 63
Annuity due
Perpetuity
55. Which of the following term refers to the difference between the present
value of cash inflows and the present value of cash outflows?
Profitability Index (PI)
56. One would be indifferent between taking and not taking the investment
when:
NPV is equal to Zero pg 104 doubt ask question in mdb
57. Which one of the following terms refers to the risk arises for bond owners
from fluctuating interest rates?
Fluctuations Risk
Interest Rate Risk pg75
Real-Time Risk
Inflation Risk
58. All else equal, the market value of a corporate bond is always inversely
related to its:
Time to maturity
Coupon rate
Yield to maturity
Made By Armaan Makhani

[email protected]
Date :25-11-2010
This Mcqs for Midterm
finance?


Selling expense
Raw material
Direct labor

Selling expenses
General expenses

Profit Margin
Debt-equity ratio
Operating cash flow

Capital spending
64. Which of the following refers to the cash flows that result from the firm’s
day-to-day activities of producing and selling?

Marketing Research
Product Pricing
66. Which of the following costs are reported on the income statement as the cost
of goods sold?
Product cost
Period cost
67. Standard Company had net sales of Rs. 750,000 over the past year. During
that time, average receivables were Rs. 150,000. Assuming a 365-day year,
what was the average collection period?
5 days
36 days
48 days
73 days
750000/150000=5
365/5=73days
Operating Leverage
Financial Leverage

Primary market
Secondary market
Tertiary market
70. Which of the following ratios are particularly interesting to short-term

creditors?
Liquidity Ratios
Market Value Ratios
71. shows the sources from which cash has been generated and how it has been
spent during a period of time?
Income Statement
Balance Sheet
Cash Flow Statement
Operating activity
Investing activity
Financing activity

Current Ratio
Acid-test Ratio
Cash Ratio
74. of the following statement measures performance over a specific period of

time?
Income Statement
Balance Sheet
Cash Flow Statement
75. Which of the following statement shows assets, liabilities, and net worth as of
a specific date?
Income Statement
Balance Sheet
Cash Flow Statement
76. A portion of profits, which a company retains itself for further expansion, is
known as:
Dividends
Retained Earnings
Capital Gain

Current Ratio
Quick Ratio
Cash Coverage Ratio
Cash Ratio
78. Which of the following ratio gives an idea as to how efficient management is
at using its assets to generate earnings?
Profit Margin
Return on Assets
Return on Equity


Financial policy
Dividend policy

Accountants
Financial Analysts
Auditors
Marketers
82. Which of the following set of ratios is used to assess a business's ability to
generate earnings as compared to its expenses and other relevant costs
incurred during a specific period of time?
Liquidity Ratios
Leverage Ratios
Market Value Ratios
83. A company having a current ratio of 1 will have __________ net working
capital.
Positive
Negative
zero
sole proprietorship
partnership
joint stock company
cooperative Society
85. Which of the following ratios are intended to address the firm’s financial
leverage?
Liquidity Ratios

Income = Current Assets - Current Liabilities

Income = Fixed Assets - Current Assets
Income = Revenues - Current Liabilities
Income = Revenues - Expenses
87. Which of the following item(s) is(are) not included while calculating
Operating Cash Flows?
Depreciation
Interest
88. Suppose market value exceeds book value by Rs. 250,000. What will be the
after-tax proceeds if there is a tax rate of 34 percent ?
Rs. 105,600
Rs. 148,500
Rs. 165,000
Rs. 225,000
Solution=250000*34%=85000
250,000-85000=165000


Common Stocks
Preferred Stock

Primary market
Secondary market
Tertiary market

Accountants
Auditors
Marketers

Revenue
Expenses
Depreciation
93. What will be the coupon value of a Rs. 1,000 face-value bond with a 10%
coupon rate?
Rs. 100
Rs. 510
Rs. 1,000
Rs. 1,100
Solution:
=1000/10
=100

Net Present Value

Selling expense
Raw material
Direct labor

Financial Leverage

finance?
Operating activity
Investing activity
Financing activity
100. Balance sheet for a company reports current assets of Rs. 700,000 and
current liabilities of Rs. 460,000. What would be the Current Ratio for the
company if there is an inventory level of Rs. 120,000?
1.01
1.26
1.39
1.52
Solution= 700000/460000=1.52
101. In which type of business, all owners share in gains and losses and all
have unlimited liability for all business debts?
Sole-proprietorship
Limited Partnerhsip
Corporation
Increase
Decrease
Remain unaffected
Become zero
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity

105. Which of the following refers to the difference between the sale price
and cost of inventory?
Net loss
Net worth
Markup
Markdown
106. Which of the following allows a company to repurchase part or all of

the bond issue at a stated price?
Repayment
Seniority
Call provision
107. ____________ shows the sources from which cash has been generated
and how it has been spent during a period of time?
Income Statement
Balance Sheet
Cash Flow Statement

109. Which of the following form of business organization is least

regulated?
Sole-proprietorship
General Partnership
Limited Partnership
Corporation

Par value
Coupon value
111. Which of the following relationships holds TRUE if a bond sells at a
discount?
112. When a corporation wishes to borrow from public on a long-term

basis, it does so by issuing or selling:
Common Stocks
Preferred Stock
113. Which of the following item provides the important function of

shielding part of income from taxes?
Inventory
Supplies
Machinery
Depreciation
114. A firm reports total liabilities of Rs. 300,000 and owner’s equity of Rs.
500,000. What would be the total worth of the firm’s assets?
Rs. 300,000
Rs. 500,000
Rs. 800,000
Rs. 1100,000
sol
115. Which of the following forms of business organizations is created as a
distinct legal entity owned by one or more individuals or entities?
Sole-proprietorship
General Partnership
Limited Partnership
Corporation

sole proprietorship
partnership
joint stock company
none of the above
118. The difference between current assets and current liabilities is known
as:
Surplus Asset
Short-term Ratio
Working Capital
Current Ratio
119. A borrower is able to pay Rs. 40,000 in 5 years. Given a discount rate
of 12 percent, what amount of money the lender should lend?
Rs. 14,186
Rs. 18,256
Rs. 22,697
Rs. 28,253
solution
40000*1/(1+0.12)^5=22697.07
120. Which of the following statement is considered as the accountant’s
snapshot of firm’s accounting value as of a particular date?
Income Statement
Balance Sheet
Cash Flow Statement
Par value
Coupon value
Bond ratings are based solely on information acquired from sources other than the bond issuer.
Generally Applied Accountability Principles
General Accounting Assessment Principles
124. Which of the following is NOT an internal use of financial statements
information?
125. A firm has paid out Rs. 150,000 as dividends from its net income of
Rs. 250,000. What is the retention ratio for the firm?
12 %
25 %
40 %
60 %
Solution
250000-150000/250000*100=40%
Positive
Negative
zero
126. A portion of profits, which a company distributes among its

shareholders, is known as:
Dividends
Retained Earnings
Capital Gain

Investments
128. Which of the following ratios is NOT from the set of Asset
Management Ratios?

Receivable Turnover
Return on Assets
129. You just won a prize, you can either receive Rs. 1000 today or Rs.
1,050 in one year. Which option do you prefer and why if you can earn 5
percent on your money?

Operating Leverage
Financial Leverage
b
131. You need Rs. 10,000 to buy a new television. If you have Rs. 6,000 to
invest at 5 percent compounded annually, how long will you have to wait to
buy the television?
8.42 years
10.51 years
15.75 years
18.78 years
6000(1+5%)^10.51=around 10,000

Maintaining firm’s working capital at or above some specified minimum
level
Furnishing audited financial statements periodically to the lender Maintaining any collateral or security in good
condition
Financial policy
Dividend policy
134. Which of the following statement shows assets, liabilities, and net
worth as of a specific date?
Income Statement
Balance Sheet
Cash Flow Statement
Armaan: b

Selling expenses
General expenses
136. An account was opened with an investment of Rs. 3,000 ten years ago.
The ending balance in the account is Rs. 4,100. If interest was compounded,
how much compounded interest was earned?
Rs. 500
Rs. 752
Rs. 1,052
Rs. 1,100
4100-3000=1100

7.00 percent
7.12 percent
7.19 percent
7.23 percent
138. Which of the following cash flow activities are reported in the Cash
Flow Statement and Income Statement?
139. Which of the following term refers to establish of a standard to follow

for comparison?
Benchmarking 48
Standardizing
Comparison
Evaluation

Financial policy
Dividend policy
141. Rule of 72 for finding the number of periods is fairly applicable to

which of the following range of discount rates?
2% to 8%
4% to 25%
5% to 20%
10% to 50%
142. Which of the following refers to a conflict of interest between

principal and agent?
Management Conflict
Interest Conflict
Agency Problem
143. Which of the following is a series of constant cash flows that occur at
the end of each period for some fixed number of periods?
Ordinary annuity 63
Annuity due
Perpetuity
Investments
145. 7:03 AM Which of the following is NOT an external use of financial

statements information?


Investments
147. If a firm has a ROA of 8 percent, sales of Rs. 100,000, and total assets
of Rs. 75,000. What is the profit margin?
4.30%
6.00%
10.70%
16.73%
solution
Net income=8%*75000=6000
Profit margin=6000/100000*100= 6%
148. Which of the following is the process of planning and managing a
firm’s long-term investments?
Capital Structuring
Capital Rationing
Capital Budgeting
149. Which of the following refers to the cash flows that result from the
firm’s day-to-day activities of producing and selling?

Current Ratio
Acid-test Ratio
Cash Ratio
151. Mr. Y and Mr. Z are planning to share their capital to run a business.
They are going to employ which of the following type of business?
Sole-proprietorship
Partnership
Corporation
152. If you have Rs. 30 in asset A and Rs. 120 in another asset B, the
weights for assets A and B will be __ and __ respectively.
20%; 80%
37%; 63%
63%; 37%
80%; 20%
153. When corporations borrow, they generally promise to: I. Make

regular scheduled interest payments II. Give the right of voting to
bondholders III. Repay the original amount borrowed (principal) IV. Give an ownership interest in the firm
I and II
I and III
II and IV
I, III, and IV

155. What would be the present value of Rs. 10,000 to be received after 6
years at a discount rate of 8 percent?
Rs. 6,302
Rs. 9,981
Rs. 14,800
Rs. 15,869

157. The preferred stock of a company currently sells for Rs. 25 per share.
The annual dividend of Rs. 2.50 is fixed. Assuming a constant dividend
forever, what is the rate of return on this stock?
5.00 percent
7.00 percent
8.45 percent
10.0 percent
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity
159. JJ Inc. has a 4 percent return on total assets of Rs. 500,000 and a net
profit margin of 5 percent. Total sales for JJ Inc. would be :
Rs. 150,000
Rs. 200,000
Rs. 250,000
Rs. 400,000
ROTA = N.P / Total Assets
4 % = N.P / 500,000
4% * 500,000 = N.P
N.P = Rs. 20,000
N.P Margin = N.P / Sales

5 % = 20,000 / Sales
5% * Sales = 20,000
Sales = 20,000 / 5%
Sales = 400,000
160. Which of the following rate makes the Net Present Value (NPV) equal
to zero?

Internal Rate of Return (IRR) pg 109
Required Rate of Return (RRR)
Weighted Average Cost of Capital (WACC)
161. Which of the following is the expected rate of return on a bond if

bought at its current market price and held to maturity
Current Yield
Yield To Maturity
Coupon Yield
Capital Gains Yield
162. If a firm uses cash to purchase inventory, its quick ratio will:
Increase
Decrease
Remain unaffected
Become zero
Increase
Decrease
Remain unaffected
Become zero
QUIZ # 01
SPRING SEMESTER 2007 Total
ACC501 - BUSINESS FINANCE Marks
10
SOLUTION
Most Appropriate Answer among the given choices has been chosen.
1. ________________ is considered as bottom line in Income Statement?
E. Total Assets
F. Total Liabilities
G. Net Profit
H. Gross Profit
2. ____________ can be considered as a snapshot of a company's financial position?
E. Income Statement
F. Balance Sheet
G. Cash Flow Statement
14
Business Finance (ACC501) Solution quiz 01
Fall Semester 2006
H. Owner's Equity Statement
3. ______________ involves the sale of used securities from one investor to another?
E. Primary Market
F. Secondary Market
G. Tertiary Market
H. None of the given options
4. _______________ Ratios shows a firm's ability to pay its bills in short term?
E. Liquidity
F. Financial Leverage
G. Profitability
H. Market Value
5. The process of planning and managing a firm's long-term investments is called:
E. Planning Process
F. Capital Structure
G. Capital Budgeting
H. Managing Process
6. Income statement for Sumi Inc. shows the net income of Rs. 363,000 whereas
the total sales are Rs. 2,311,000. The profit margin for the Sumi Inc. will be:
E. 6.37 %
F. 8.37 %
G. 15.7 %
H. 12.5 %
7. S&T Company have 35 thousands shares outstanding and the stock sold for Rs. 99 per share at the end of year.
Income Statement reported a net income of Rs. 385,000. The Price Earning Ratio for S&T Company will be:
E. 8 times
F. 9 times
G. 10 times
H. 11 times
8. While making Common-Size statement, Balance Sheet items are shown as a percentage of :
E. Total Assets
15
Fall Semester 2006
G. Total Capital
H. Net Profit
9. A business, created as a distinct legal entity owned by one or more individuals or entities, is known as:
E. Sole Proprietorship
F. Partnership
G. Corporation
10. Which one of these is considered as a non-cash item?
E. Inventory
F. Accounts Payable
G. Accounts Receivable
H. Depreciation
QUIZ # 02 (Solution)
10
Instructions:
• Due Date and Time to submit the Quiz is . . .
Friday, Apr. 20, 2007 - - - Before 12’O Clock Midnight • Quiz
includes Lecture # 11 to Lecture # 18 of your course.
• You can choose the right option by Highlighting, Making Bold or Changing Color.
• Cheating will harm you only & not to anyone else as copied quiz gets no credit.
• Quiz will not be acceptable in any way after the mentioned Date and Time.
Most Appropriate Answer among the given choices has been selected..
1. _________ is a special case of annuity, where the stream of cash flows continues forever.
16
Fall Semester 2006
I. Ordinary Annuity
J. Perpetuity
K. Dividend
L. Interest
2. If a bank offers 15% annual rate of return compounded quarterly, what would be the Effective Annual Rate (EAR)?
I. 15.00 %
J. 15.34 %
K. 15.87 %
L. 16.42 %
3. A bond represents a _______________ made by an investor to the ________________.
I. loan; receiver
J. dividend; issuer
K. dividend, receiver
L. loan; issuer
4. When the interest rates fall, the bond is worth ______________.
I. More
J. Less
K. Same
L. All of the given options.
5. If SNT Corporation pays out 30% of net income to its shareholders as dividends. What would be the Retention
Ratio for SNT Corporation?
I. 30 %
J. 50 %
K. 70 %
L. 90 %
6. If sales are to grow at a rate higher than the sustainable growth rate, the firm must:
I. Increase Profit Margin
J. Increase Total Assets Turnover
K. Sell new shares
7. ____________ is the current value of the future cash flow discounted at an appropriate discount rate.
17
Fall Semester 2006
I. Present Value
J. Future Value
K. Capital Gain
L. Net Profit
8. SUMI Inc. has outstanding bonds having a face value of Rs. 500. The promised annual coupon is Rs. 50. The
bonds mature in 30 years and the market’s required rate on
similar bonds is 12% p. a. What would be the present value of each bond?
I. Rs. 319.45
J. Rs. 390.75
K. Rs. 419.45
L. Rs. 463.75
9. The sensitivity of Interest Rate Risk of a bond directly depends upon:
I. Time to maturity
J. Coupon rate
K. A and B
L. None of the given options
10. An insurance company offers to pay you Rs. 1000 per year if you pay Rs. 6,710 up front. What would be the
rate applicable in this 10-year annuity?
I. 8%
J. 10 %
K. 12 %
L. 14 %
QUIZ # 03 (SOLUTION)
10
Instructions:
• Due Date and Time to submit the Quiz is . . .
Wednesday, June 13, 2007 - - - Before 12’O Clock Midnight • Quiz
includes Lecture # 23 to Lecture # 35 of your course.
• You can choose the right option by Highlighting, Making Bold or Changing Color.
• Cheating will harm you only & not to anyone else as copied quiz gets no credit.
18
Fall Semester 2006
• Quiz will not be acceptable in any way after the mentioned Date and Time. Choose the Most Appropriate
Answer among the given choices.
1. _______________ refers to the most valuable alternative that is given up if a particular investment is undertaken.
M. Sunk cost
N. Opportunity cost
O. Financing cost
P. All of the given options
2. SNT company paid a dividend of Rs. 5 per share last year. The stock’s current price is Rs. 50 per share.
Assuming that the dividends are estimated to grow steadily at 8% per year, the cost of the capital for SNT
company will be?
M. 13.07 %
N. 15.67 %
O. 16.00 %
P. 18.80 %
3. ________________ is the group of assets such as stocks and bonds held by an investor.
M. Portfolio
N. Diversification
O. Stock Bundle
P. None of the given options
4. Which of the following measures the present value of an investment per dollar invested?
M. Net Present Value (NPV)
N. Profitability Index (PI)
O. Average Accounting Return (AAR)
P. Internal Rate of Return (IRR)
5. If we have Rs. 150 in asset A and Rs. 250 in asset B, then the percentage of asset B in the portfolio will be:
M. 37.5 %
N. 47.5 %
O. 62.5 %
P. 72.5 %
6. A risk that influences a large number of assets is known as:
M. Systematic Risk
19
Fall Semester 2006
N. Market Risk
O. Non-diversifiable Risk
7. Which of the following risk can be eliminated by diversification?
M. Systematic Risk
N. Unsystematic Risk
O. A & B
8. Suppose the initial investment for a project is Rs. 160,000 and the cash flows are Rs. 40,000 in the first year and
Rs. 90,000 in the second and Rs. 50,000 in the third. The project will have a payback period of:
M. 2.6 Years
N. 3.1 Years
O. 3.6 Years
P. 4.1 Years
9. A model which makes an assumption about the future growth of dividends is known as:
M. Dividend Price Model
Q. Dividend Growth Model
N. Dividend Policy Model
O. All of the given options
10. Which of the following is not a quality of IRR ?
M. Most widely used
R. Ideal to rank the mutually exclusive investments
N. Easily communicated and understood
O. Can be estimated even without knowing the discount rate
Choose the Most Appropriate Answer among the given choices.
1. In the formula ke >= (D1/P0) + g, what does (D1/P0) represent?
A. The expected capital gains yield from a common stock
B. The expected dividend yield from a common stock
C. The dividend yield from a preferred stock
D. The interest payment from a bond
2. If you owned 100 shares of a company and there are three directors to be elected.
How much votes you would have as per cumulative voting procedure?
A. 100 Votes
B. 200 Votes
C. 300 Votes
D. 400 Votes
3. SNT Corporation has policy of paying a Rs. 6 dividend per share every year. If
this policy is to continue indefinitely, what will be the value of a share of stock at a
A. Rs. 30
B. Rs. 40
C. Rs. 50
D. Rs. 60
4. Which of the following is NOT a characteristic of preferred stock?
A. Dividends on these stocks cannot be cumulative
B. These stocks have dividend priority over common stocks
C. These stocks have stated liquidating value
D. These bonds hold credit ratings much like bonds
5. A project has an initial investment of Rs. 400,000. What would be the NPV for the
project if it has a profitability index of 1.15?
A. Rs. 30000
B. Rs. 40,500
C. Rs. 50,000
D. Rs. 60,000
6. What will be the proper order of completion regarding the capital budgeting
process?
( I ) Perform a post-audit for completed projects;
( II ) Generate project proposals; ( III ) Estimate appropriate cash flows;
( IV ) Select value-maximizing projects; ( V ) Evaluate projects.
A. II, V, III, IV, and I
B. III, II, V, IV, and I
C. II, III, V, IV, and I
D. II, III, IV, V, and I
7. Following are the two cases:
Case I: Mr. A, as a financial consultant, has prepared a feasibility report for a project for ABC Company that
the company is planning to undertake. He has suggested that the project is feasible.
Case II: Mr. A, as a financial consultant, has prepared a feasibility report of a project for XYZ Company that
the company is planning to undertake. He hassuggested that the project is not feasible.
The consultancy fee paid to Mr. A will be considered as:
A. Sunk cost in Case I and opportunity cost in Case II
B. Opportunity cost in Case I and sunk cost in Case II
C. Sunk Cost in both Case I and Case II
D. Opportunity cost in both Case I and Case II
8. Suppose you buy some stock for Rs. 35 per share. At the end of the year, the price is Rs. 43 per share. During
the year, you get a Rs. 4 dividend per share. What will be the total percentage return?
A. 22.85 %
B. 25.16 %
C. 30.52 %
D. 34.29 %
9. If you have a portfolio with Rs. 10,000 in asset A and Rs. 15,000 in another asset B
then what will be the weight of Asset B in your portfolio?
A. 0.30
B. 0.40
C. 0.60
D. 0.75
10. Which of the following set of cash flows represents the change in the firm’s total cash flow that occurs as
direct result of accepting the project?
A. Relevant Cash Flows
B. Incremental Cash Flows
C. Negative Cash Flows
D. All of the given option
1. 2. Time value of money is an important finance concept because:
A. It takes risk into account

B. It takes time into account
C. It takes compound interest into account
D. All of the given options
2. The present value of a sum of Rs. 100 to be received in the future will be:
A. More than Rs. 100
B. Equal to Rs. 100
C. Less than Rs. 100
D. None of the given options
3. You want to buy an ordinary annuity that will pay you Rs. 3,000 a year for the
next 20 years. You expect annual interest rates will be 8 percent over that time
period. The maximum price you would be willing to pay for the annuity will be
closest to:
A. Rs. 29,454
B. Rs. 34,325
C. Rs. 39,272
D. Rs. 49,023
4. You have Rs. 1,000 that you want to save. If four different banks offer four
different compounding methods for interest, which method should you choose to
maximize your Rs. 1,000?
A. Compounding quarterly
B. Compounding monthly
C. Compounding semi-annually
D. Compounding annually
5. If a bond sells at a high premium, then which of the following relationships hold
true?
A. Bond Price < Par Value and YTM > coupon rate
B. Bond Price > Par Value and YTM > coupon rate
C. Bond Price > Par Value and YTM < coupon rate
D. Bond Price < Par Value and YTM < coupon rate
6. What will be the value to you of a Rs. 2,000 face-value bond with an 8% coupon
rate when your required rate of return is 12% and time till maturity is 5 years?
A. Rs. 1,556
B. Rs. 1,712
C. Rs. 2,082
D. Rs. 2,420
7. Which of the following carry the provision that within a stipulated time period,
the bond may be converted into a certain number of shares of the issuing
corporation's common stock at a pre-stated price?
A. Convertible Bonds
B. Income Bonds
C. Put Bonds
8. Interest rates and bond prices :
A. Move in the same direction
B. Move in the opposite direction
C. Sometimes move in the same and sometimes in the opposite direction
D. Have no relation with each other
9. Long-term bonds have _________ risk of loss resulting from changes in interest
rates than do short-term bonds.
A. Less
B. Zero
C. More
10. What will be real rate if the nominal rate is 17%, and the inflation rate is 5% ?
A. 6.639%
B. 8.251%
C. 10.00%
D. 11.43%
Highlight the correct option:
1) The alternative name used for Interest Coverage Ratio is _____________________.
a. Time interest earned

b. Cash coverage ratio
c. Profit margin ratio
d. None of the given option
2) If you want to evaluate the performance of an organization, which one of the following ratios will be
helpful to you in evaluating the performance of an organization?
a. Return on short as well as long term investments

b. Return on equity and return on debt
c. Return on equity and profit margin
d. All of the given options
3) Imran Corporation is a firm dealing in hardware industry. It sold 5000 units of its product to Mr. Younas
for a sum of Rs.150, 000 whose cost was Rs.160, 000.What would be the effect of this transaction on current
ratio of the company if the current ratio was 0.80 before this transaction?
a. Increase
b. Decrease
c. Remain unchanged
4) Mehran Corporation is dealing in furniture industry. It has an equity multiplier of 1.78 times. The debt to
equity ratio would be _________________?
a. 0.38 times
b. 0.58 times
c. 0.78 times
d. 0.98 times
5) What would be the level of EBIT if Imran Corporation uses both debt as well as equity financing in its
capital structure, it has a cash coverage ratio of 7.5 times, annual interest expense is Rs.1 million and
annual depreciation is Rs.3 million?
a. Rs. 2.5 million
b. Rs. 3 million
c. Rs. 3.5 million
d. Rs.4.5 million
6) Suppose, Neumann Corporation has a debt to equity ratio of 0.45 times. Its return on equity is 18%.The
return on assets would be _______________.
a. 9.414 %
b. 10.414 %
c. 11.412 %
d. 12.414 %
7) Suppose, Ilyas Corporation is one of the dominant firms in electronics equipment industry. Its policy is
very clear about dealing with stackholders. It pays out 30% of its income in the form of dividend. If it pays
a total sum of Rs.150 millions as a dividend, then what would be the amount transferred to the retained
earning balance from current year profit?
a. Rs.150 millions
b. Rs.250 millions
c. Rs.350 millions
d. Rs.500 millions
8) Sian Corporation is one of the largest firms in the electronics industry covering 70% of the market share.
During the current year its performance is analysed by judging the various indicators. It has return on
assets of 12.5% and retention ratio is 3/5. What would be the internal growth rate of the Sian Corporation?
a. 12.29%
b. 14.29%
c. 16.29%
d. 18.92%
9) What would be the sustainable growth rate if the Corporation has a Return on equity (ROE) of 20% and a
retention ratio of 4/6?
a. 25 %
b. 35 %
c. 29%
d. 45%
10) Rehan Corporation is dealing in agriculture products. Its annual gross sales are Rs.1975 millions. Out of
which 34% are on cash basis. Their past collection experiences show that it has an average collection period
of 76 days. What would be the balance of accounts receivable at the end of the year?
a. Rs.251.415 millions
b. Rs.261.415 millions
c. Rs.271.415 millions
d. Rs.281.415 millions
1. ROE in DuPont identity is affected by:
a. Operating efficiency
b. Asset usage efficiency
c. Financial leverage
2. A decrease in the percentage of net income paid out as a dividend, will increase the:
a. Return on assets ratio
b. Retention ratio
c. Leverage ratio
d. Profit margin
3. Which of the following does not change Current ratio of a business:

a. Efficient usage of current assets
b. Change in the nature of the firm
c. Change in Accounting method of the firm
d. Change in the management of the firm
4. Present value factor is:

a. (1+r) t
b. (1-r) t
c. 1/ (1+r) t
d. 1/ (1+r) 1/t
5. Depreciation expense is:

a. Operating expense
b. Investing expense
c. Financing expense
6. Internal growth rate tell how rapidly:

a. The firm grows
b. Sales of the firm grows
c. Profit of the firm grows
d. None of the given options
7. You can determine the number of periods (n) in a present value calculation, if you know:
a. Future amount
b. Present value
c. Interest rate
8. Which one of the present value factor is larger?

a. PV of 1 factor for 10%
b. PV of 1 factor for 12%
c. Both have the same effect
d. It cannot be determined
9. If we deposit Rs. 5,000 toady in an account paying 10%, how long does it take to
grow to Rs. 10,000?
a. 5.27 years
b. 6.27 years
c. 7.2 7 years
d. 7.57 years
10.The future value of first Rs. 100 in 2 years at 8% discount is:

a. Rs. 116.64
b. Rs. 111.64
c. Rs. 164.64
d. Rs. 164.61
1. Investing activities include:
a. Purchase of property, plant and equipment

b. Cash received from the issuance of stock or equity in the business.
c. Purchases of stock or other securities (other than cash equivalents)
d. Both a & c
2. Changes in cash from financing are "cash in" when:
a. Capital is raised
b. Assets increased
c. Liabilities decreased
d. Cash withdrawn
3. Generally, changes made in cash, accounts receivable, depreciation, inventory and accounts
payable are reflected in:
a. Cash from operations activities

b. Cash from financing activities
c. Cash from investing activities
4. _________are short-term, temporary investments that can be readily converted into cash.
a. marketable securities
b. Cash equivalents
c. Treasury bills
Fall Semester 2006
Highlight the correct option:
1) The alternative name used for Interest Coverage Ratio is
_____________________.
a. Time interest earned
b. Cash coverage ratio
c. Profit margin ratio
2) If you want to evaluate the performance of an organization, which one of the
following ratios will be helpful to you in evaluating the performance of an
organization?
a. Return on short as well as long term investments
b. Return on equity and return on debt
c. Return on equity and profit margin

3) Imran Corporation is a firm dealing in hardware industry. It sold 5000 units
of its product to Mr. Younas for a sum of Rs.150, 000 whose cost was Rs.160,
000.What would be the effect of this transaction on current ratio of the
company if the current ratio was 0.80 before this transaction?
a. Increase
b. Decrease
c. Remain unchanged
4) Mehran Corporation is dealing in furniture industry. It has an equity
multiplier of 1.78 times. The debt to equity ratio would be
_________________?
a. 0.38 times
b. 0.58 times
c. 0.78 times
d. 0.98 times
Fall Semester 2006
5) What would be the level of EBIT if Imran Corporation uses both debt as well
as equity financing in its capital structure, it has a cash coverage ratio of 7.5
times, annual interest expense is Rs.1 million and annual depreciation is Rs.3
million?
a. Rs. 2.5 million
b. Rs. 3 million
c. Rs. 3.5 million
d. Rs.4.5 million
6) Suppose, Neumann Corporation has a debt to equity ratio of 0.45 times. Its
return on equity is 18%.The return on assets would be _______________.
a. 9.414 %
b. 10.414 %
c. 11.412 %
d. 12.414 %
7) Suppose, Ilyas Corporation is one of the dominant firms in electronics
equipment industry. Its policy is very clear about dealing with stackholders.
It pays out 30% of its income in the form of dividend. If it pays a total sum of
Rs.150 millions as a dividend, then what would be the amount transferred to
the retained earning balance from current year profit?
a. Rs.150 millions
b. Rs.250 millions
c. Rs.350 millions
d. Rs.500 millions
8) Sian Corporation is one of the largest firms in the electronics industry
covering 70% of the market share. During the current year its performance is
analysed by judging the various indicators. It has return on assets of 12.5%
and retention ratio is 3/5. What would be the internal growth rate of the Sian
Corporation?
a. 12.29%
b. 14.29%
c. 16.29%
d. 18.92%
Fall Semester 2006
9) What would be the sustainable growth rate if the Corporation has a Return
on equity (ROE) of 20% and a retention ratio of 4/6?
a. 25 %
b. 35 %
c. 29%
d. 45%
10) Rehan Corporation is dealing in agriculture products. Its annual gross sales
are Rs.1975 millions. Out of which 34% are on cash basis. Their past collection
experiences show that it has an average collection period of 76 days. What
would be the balance of accounts receivable at the end of the year?
a. Rs.251.415 millions
b. Rs.261.415 millions
c. Rs.271.415 millions
d. Rs.281.415 millions
1. Which one of the given options involves the sale of new securities from the
issuing company to general public?
A. Secondary market
B. Primary market
C. Capital market
D. Money market
2. In financial statement analysis, shareholders focus will be on the:
A. Liquidity of the firm
B. Long term cash flow of the firm
C. Profitability and long term health of the firm
D. Return on investment
3. The statement of cash flows helps users to assess and identify all of the
following except:
A. The impact of buying and selling fixed assets.
B. The company's ability to pay debts, interest and dividends.
C. A company's need for external financing.
D. The company's reliance on capital leases.
4. Suppose Younas Corporation has balance of merchandise of 5000 units. It
wants to sell 2000 units at 90% of its cost on cash. What would be the affect of
this transaction on the current ratio?
A. Fall
B. Rise
C. Remain unchanged
D. None of the given option

5. If the interest rate is 18% compounded quarterly, what would be the 8-year
discount factor?
A. 1.42215
B. 2.75886
C. 3.75886
D. 4.08998
6. You have a cash of Rs.150, 000. If a bank offers four different compounding
methods for interest, which method would you choose to maximize the value
of your Rs.150, 000?
A. Compounded daily
B. Compounded quarterly
C. Compounded semiannually
D. Compounded annually
7. Ali Corporation has a cash coverage ratio of 6.5 times. Whereas its earning
before interest and tax is Rs.750 million and interest on long term loan is
Rs.160 million. What would be the annual depreciation for the current year?
A. a.Rs. 200 million
B. b.Rs.240 million
C. c.Rs.275 million
D. d.Rs.290 million
8. Suppose RZ Corporation sales for the year are Rs.150 million. Out of this 20%
of the sales are on cash basis while remaining sales are on credit basis. The
past experience revealed that the average collection period is 45 days. What
would be the receivable turnover ratio?
A. 6.12 times
B. 7.11 times
C. 8.11 times
D. 9.11 times
9. A bank offers 20% compounded monthly. What would be the effective annual
rates of return?
A. 20.00%
B. 20.50%
C. 21.00%
D. 21.99%
10. Nz Corporation reported earning before interest and taxes of Rs.500, 000 for
the current year. It has taken a long term loan of Rs.2 million from a local
bank @ 10% interest. The tax is charged at the rate of 32%.What will be the
saving in taxes due to presence of debt financing in the capital structure of the
firm?
A. Rs.60, 000
B. Rs.64, 000
C. Rs.72, 000
D. Rs.74, 000
1. The difference between the return on a risky investment and that on a risk-free
investment.
A. Risk Return
B. Risk Premium

Fall Semester 2006
6
C. Risk Factor
D. None of the above
2. A group of assets such as stocks and bonds held by an investor.
A. Portfolio
B. Capital Structure
C. Budget
3. If the variance or standard deviation is larger then the spread in returns will be:
A. Less
B. More
C. Same
D. None of the Above
4. The following risk is entirely wiped out by Diversification.
A. Systematic Risk
B. Unsystematic Risk
C. Portfolio Risk
D. Total Risk
5. The objective for using the concept of Diversification is to :
A. Minimize the Risk
B. Maximize the return
C. A & B
D. None of the Above
6. While studying the relationship in risk and return, It is commonly known that:
A. Higher the risk, lower the return
B. Lower the risk, higher the return
C. Higher the risk, higher the return
7. This type of risk affects almost all types of assets.
A. Systematic Risk
B. Unsystematic Risk
Fall Semester 2006
7
C. Total Risk
D. Portfolio Risk
MCQ # 08 – 10 are based on the following data:
Suppose you bought 1,500 shares of a corporation at Rs. 25 each. After a year, you
received Rs. 3000 (Rs. 2 per share) in dividends. At the end of year the stock sells for
Rs. 30 each. If you sell the stock at the end of the year, your total cash inflow will be
Rs. 48,000 (1500 shares @ 30 each = Rs. 45000 & Dividend = 3000).
8. According to the given data, the Capital Gain will be:
A. 10,500
B. 7,500
C. 10,000
D. 7,000
9. According to the given data, the Dividend yield will be:
A. 8.50 %
B. 6.25%
C. 8.00%
D. 6.67%
10. According to the given data, Total Percentage Returns will be:
A. 20%
B. 28%
C. 32%
D. 35%
Total marks: 10
Choose and highlight the right option:
1. ROE in DuPont identity is affected by:
a. Operating efficiency
b. Asset usage efficiency
c. Financial leverage
2. A decrease in the percentage of net income paid out as a dividend, will increase
the:
a. Return on assets ratio
Fall Semester 2006
8
b. Retention ratio
c. Leverage ratio
d. Profit margin
3. Which of the following does not change Current ratio of a business:
a. Efficient usage of current assets
b. Change in the nature of the firm
c. Change in Accounting method of the firm
d. Change in the management of the firm
4. Present value factor is:
a. (1+r) t
b. (1-r) t
c. 1/ (1+r) t
d. 1/ (1+r) 1/t
5. Depreciation expense is:
a. Operating expense
b. Investing expense
c. Financing expense
6. Internal growth rate tell how rapidly:
a. The firm grows
b. Sales of the firm grows
c. Profit of the firm grows
7. You can determine the number of periods (n) in a present value calculation, if
you know:
a. Future amount
b. Present value
c. Interest rate
8. Which one of the present value factor is larger?
a. PV of 1 factor for 10%
b. PV of 1 factor for 12%
c. Both have the same effect
d. It cannot be determined
9. If we deposit Rs. 5,000 toady in an account paying 10%, how long does it take to grow to
Rs. 10,000?
a. 5.27 years
b. 6.27 years
c. 7.2 7 years
d. 7.57 years
Fall Semester 2006
9
10. The future value of first Rs. 100 in 2 years at 8% discount is:
a. Rs. 116.64
b. Rs. 111.64
c. Rs. 164.64
d. Rs. 164.61
1. Ntp Corporation has decided to pay Rs.16 per share dividend every year. If this policy
is to continue indefinitely, then the value of a share of stock would be --------------, if the
required rate of return is 25%?
a. Rs.60
b. Rs.64
c. Rs.68
d. Rs.74
2. MT Corporation has a previous year dividend of Rs.14 per share where as investors
require a 17% return on the similar stocks .The Company’s dividend grows by 7%. The price
per share in this case would be__________.
a. Rs.149.8
b. Rs.184.9
c. Rs.198.4
d. Rs.229.9
3. RTU Corporation stock is selling for Rs.150 per share. The next dividend is Rs.35 per
share and it is expected to grow 14% more or less indefinitely. What would be the return
does this stock offer you if this is correct?
a. 17%
b. 27%
c. 37%
d. 47%
4. Suppose a Corporation has 3 shareholders; Mr.Salman with 25 shares, Mr. Kareem
with 35 shares, and Mr.Amjad with 40 shares. Each wants to be elected as one of the six
directors. According to cumulative voting rule Mr.Kareem would cast
a. 150 votes
1. Investing activities include:
o Purchase of property, plant and equipment
o Cash received from the issuance of stock or equity in the business.
o Purchases of stock or other securities (other than cash equivalents)
o Both a & c
2. Changes in cash from financing are "cash in" when:
o Capital is raised
o Assets increased
o Liabilities decreased
o Cash withdrawn
3. Generally, changes made in cash, accounts receivable, depreciation, inventory and
accounts payable are reflected in:
a. Cash from operations activities
b. Cash from financing activities
c. Cash from investing activities
4. _________are short-term, temporary investments that can be readily converted

into cash.
a. marketable securities
b. Cash equivalents
c. Treasury bills
5. The Cash flow statement records your_________ and expenditure at the end of
the 'forecast' period.
a. Actual cash income
b. Un earned income
c. Coming year income
d. Last year’s income
6. Ratios look at the relationships between individual values and relate them to how a
company:
a. Has performed in the past
b. Might perform in the future
c. Both a & b
7. The current ratio is also known as:

a. Working capital ratio
b. Leverage ratio
c. Turnover ratio
8. __________is concerned with the relationship between the long terms liabilities that a
business has and its capital employed.
a. Gearing
b. Acid test ratio
c. Working capital management
. ____________give a picture of a company's ability to generate cash flow and
pay it financial obligations:
a. Management ratios
b. Working capital ratios
c. Net profit margin ratios
d. Solvency Ratios
10. Balance sheet items expressed as percentage of:
a. Net sales
b. Total revenue
c. Total assets
d. Total liabilities
SOLUTION
Most Appropriate Answer among the given choices has been chosen.
1. ________________ is considered as bottom line in Income Statement?
E. Total Assets
G. Net Profit
H. Gross Profit
2. ____________ can be considered as a snapshot of a company's financial
position?
E. Income Statement
F. Balance Sheet
G. Cash Flow Statement
Total
Marks
10
Fall Semester 2006
15
H. Owner's Equity Statement
3. ______________ involves the sale of used securities from one investor to
another?
E. Primary Market
F. Secondary Market
G. Tertiary Market
4. _______________ Ratios shows a firm's ability to pay its bills in short term?
E. Liquidity
F. Financial Leverage
G. Profitability
H. Market Value
5. The process of planning and managing a firm's long-term investments is called:
E. Planning Process
F. Capital Structure
G. Capital Budgeting
H. Managing Process
6. Income statement for Sumi Inc. shows the net income of Rs. 363,000 whereas
the total sales are Rs. 2,311,000. The profit margin for the Sumi Inc. will be:
E. 6.37 %
F. 8.37 %
G. 15.7 %
H. 12.5 %
7. S&T Company have 35 thousands shares outstanding and the stock sold for Rs.
99 per share at the end of year. Income Statement reported a net income of Rs.
385,000. The Price Earning Ratio for S&T Company will be:
E. 8 times
F. 9 times
G. 10 times
H. 11 times
8. While making Common-Size statement, Balance Sheet items are shown as a
percentage of :
E. Total Assets
G. Total Capital
H. Net Profit
9. A business, created as a distinct legal entity owned by one or more individuals
or entities, is known as:
E. Sole Proprietorship
F. Partnership
G. Corporation
10. Which one of these is considered as a non-cash item?
E. Inventory
F. Accounts Payable
G. Accounts Receivable
H. Depreciation
..
1. _________ is a special case of annuity, where the stream of cash flows continues forever.
Total
Marks
10
I. Ordinary Annuity
J. Perpetuity
K. Dividend
L. Interest
2. If a bank offers 15% annual rate of return compounded quarterly, what would be the
Effective Annual Rate (EAR)?
I. 15.00 %
J. 15.34 %
K. 15.87 %
L. 16.42 %
3. A bond represents a _______________ made by an investor to the ________________.
I. loan; receiver
J. dividend; issuer
K. dividend, receiver
L. loan; issuer
4. When the interest rates fall, the bond is worth ______________.
I. More
J. Less
K. Same
5. If SNT Corporation pays out 30% of net income to its shareholders as dividends. What
would be the Retention Ratio for SNT Corporation?
I. 30 %
J. 50 %
K. 70 %
L. 90 %
6. If sales are to grow at a rate higher than the sustainable growth rate, the firm must:
I. Increase Profit Margin
J. Increase Total Assets Turnover
K. Sell new shares
7. ____________ is the current value of the future cash flow discounted at an appropriate discount rate.
I. Present Value
J. Future Value
K. Capital Gain
L. Net Profit
8. SUMI Inc. has outstanding bonds having a face value of Rs. 500. The promised annual coupon is Rs. 50. The
bonds mature in 30 years and the market’s required rate on similar bonds is 12% p. a. What would be the
present value of each bond?
I. Rs. 319.45
J. Rs. 390.75
K. Rs. 419.45
L. Rs. 463.75
9. The sensitivity of Interest Rate Risk of a bond directly depends upon:
I. Time to maturity
J. Coupon rate
K. A and B
L. None of the given options
10. An insurance company offers to pay you Rs. 1000 per year if you pay Rs. 6,710 up
front. What would be the rate applicable in this 10-year annuity?
I. 8 %
J. 10 %
K. 12 %
L. 14 %
1. _______________ refers to the most valuable alternative that is given up if a particular investment is
undertaken.
M. Sunk cost
N. Opportunity cost
O. Financing cost
2. SNT company paid a dividend of Rs. 5 per share last year. The stock’s current price is Rs. 50 per share.
Assuming that the dividends are estimated to grow steadily at 8% per year, the cost of the capital for SNT
company will be?
M. 13.07 %
N. 15.67 %
O. 16.00 %
P. 18.80 %
3. ________________ is the group of assets such as stocks and bonds held by an investor.
M. Portfolio
N. Diversification
O. Stock Bundle
4. Which of the following measures the present value of an investment per dollar invested?
M. Net Present Value (NPV)
N. Profitability Index (PI)
O. Average Accounting Return (AAR)
P. Internal Rate of Return (IRR)
5. If we have Rs. 150 in asset A and Rs. 250 in asset B, then the percentage of asset B in the portfolio will be:
M. 37.5 %
N. 47.5 %
O. 62.5 %
P. 72.5 %
6. A risk that influences a large number of assets is known as:
M. Systematic Risk
Fall Semester 2006
20
N. Market Risk
O. Non-diversifiable Risk
7. Which of the following risk can be eliminated by diversification?
M. Systematic Risk
N. Unsystematic Risk
O. A & B

8. Suppose the initial investment for a project is Rs. 160,000 and the cash flows are Rs.
40,000 in the first year and Rs. 90,000 in the second and Rs. 50,000 in the third. The
project will have a payback period of:
M. 2.6 Years
N. 3.1 Years
O. 3.6 Years
P. 4.1 Years
9. A model which makes an assumption about the future growth of dividends is known as:
M. Dividend Price Model
Q. Dividend Growth Model
N. Dividend Policy Model
O. All of the given options
10. Which of the following is not a quality of IRR ?
M. Most widely used
R. Ideal to rank the mutually exclusive investments
N. Easily communicated and understood
O. Can be estimated even without knowing the discount rate
5. The Cash flow statement records your_________ and expenditure at the end of the 'forecast' period.
a. Actual cash income

b. Un earned income
c. Coming year income
d. Last year’s income
6. Ratios look at the relationships between individual values and relate them to how a company:
a. Has performed in the past

b. Might perform in the future
c. Both a & b
7. The current ratio is also known as:

a. Working capital ratio
b. Leverage ratio
c. Turnover ratio
8. __________is concerned with the relationship between the long terms liabilities that a business has and its capital
employed.
a. Gearing
b. Acid test ratio
c. Working capital management
9. ____________give a picture of a company's ability to generate cash flow and pay it financial obligations:
a. Management ratios
b. Working capital ratios
c. Net profit margin ratios
d. Solvency Ratios
10. Balance sheet items expressed as percentage of:
a. Net sales
b. Total revenue
c. Total assets
d. Total liabilities
1. Ann is interested in purchasing Ted's factory. Since Ann is a poor negotiator, she hires Mary
to negotiate a purchase price. Identify the parties to this transaction from the given options,
keeping in view the agency theory:
a. Ann is the principal and Mary is the agent.

b. Mary is the principal and Ann is the agent.
c. Ted is the agent and Ann is the principal.
d. Mary is the principal and Ted is the agent.
2. Which of the given options apply to auction markets?
a. Trading in a given auction exchange takes place at a single site on the floor of the exchange.
b. Transaction prices of shares are communicated almost immediately to the public.
c. Listing.
d. All of the given options (a, b and c).
e. 3. Suppose a Corporation has a taxable income of $200,000 and the tax amount is as
given in the calculations:
$ 50,000 x 15% = $ 7,500
($ 75,000 – 50,000) x 25% = 6,250
($ 100,000 – 75,000) x 34% = 8,500

($ 200,000 – 100,000) x 39% = 39,000
Total tax is $61,250
Average tax rate is $61,250 / 200,000 = 30.625%. Marginal tax rate will be:
a. 39%
b. 34%
c. 15%
d. 25%
4. A document that includes corporation’s name, intended life, business purpose and number of
shares and is necessary to form a corporation is known as:
a. Charter
b. Set of bylaws
c. Regulations paper
5. According to the accounting profession, which of the given options would be considered a
cash-flow item from an "investing" activity in a cash flow statement?
a. Cash outflow to the government for taxes.

b. Cash outflow to shareholders as dividends.
c. Cash outflow to lenders as interest.
d. Cash outflow to purchase bonds issued by another company
6. Which one of the given options is generally considered the most liquid asset?
a. accounts receivable
b. inventory
c.net fixed assets
d. intangible assets
7. Which of the given options is an advantage of a corporation that is not an advantage as a

limited partner in a partnership?
a. Limited liability.
b. Easy transfer of ownership position.
c. Double taxation.
d. All of the options are advantages that the corporation has over the limited partner.
8. In finance we refer to the market for relatively long-term financial instruments as the
__________ market.
a. money
b. capital
c. primary
d. secondary
9. __________ is concerned with the branch of economics relating the behavior of principals and
their agents.
a. Financial management
b. Profit maximization
c. Agency theory
d. Social responsibility
10. Which of the expenses in given options is not a cash outflow for the firm?
a. Depreciation
b. Dividends
c. Interest payments
d. Taxes
1. A standardized financial statement presenting all items of the statement as a percentage of

total is: http://www.vustudents.net
a. a common-size statement
b. an income statement
c. a cash flow statement
d. a balance sheet
2. Ammar is running a company ‘Ammar & Co’. He has asked you to comment on company’s
ability to pay its bills over the short run without undue stress. For this purpose you will study
which category of ratios of the company?
a. Profitability Ratios
b. Liquidity ratios
c. Debt ratios
d. Turnover ratios
3. Which one of the given options describes desirable current ratio for a business?
e. 0.2
f. 0.1
g. At least one
4. Interest Coverage Ratios are also known as:

a. Times Interest Earned (TIE) Ratios
b. Liquidity Ratios
c. Debt Ratios
d. Asset Management Ratios
5. The Du Pont Identity tells us that Return on Equity is affected by:

a. operating efficiency (as measured by profit margin)
b. asset use efficiency (as measured by total assets turnover)
c. financial Leverage (as measured by equity multiplier)
d. all of the given options (a, b and c)
6. Benchmarking is used to establish a standard to follow for:
 comparison
 identification
 calculation
 liability
 7. A series of constant cash flows that occur at the end of each period for some fixed number of periods is
.
 an ordinary annuity
 annuity due
 multiple cash flows
 perpetuity
 8. Suppose the total cost of a college education will be $50,000 in 12 years for a child. The Parents have $5,000 to
invest today. What rate of interest must they earn on investment to cover the cost of child’s education?
 21.15%
 12%
 18%
 30%
 9. If the bank loans out $10,000 for 90 days at 8% simple interest, the PV is:
 $9,806.56
 $9000
 $10000
 $9500
 Suppose, you deposited an amount of Rs.1000 in Habib Bank at the start of year 2006. How
much interest amount will you have at the end of the year if the bank pays simple interest
@10% p.a.?
 Rs.100
 Rs.10
 Rs.90
 Rs.1000
 1. ________________ is considered as bottom line in Income Statement?

 Total Assets
 Total Liabilities
 Net Profit
 Gross Profit
 2. ____________ can be considered as a snapshot of a company's financial position?
 Income Statement
 Balance Sheet
 Cash Flow Statement
 Owner's Equity Statement
 3. ______________ involves the sale of used securities from one investor to another?
 Primary Market
 Secondary Market
 Tertiary Market
 None of the given options
 4. _______________ Ratios shows a firm's ability to pay its bills in short term?
 Liquidity
 Financial Leverage
 Profitability
 Market Value
 5. The process of planning and managing a firm's long-term investments is called:
 Planning Process
 Capital Structure
 Capital Budgeting
 Managing Process
 6. Income statement for Sumi Inc. shows the net income of Rs. 363,000 whereas the total sales are Rs.
2,311,000. The profit margin for the Sumi Inc. will be:
 6.37 %
 8.37 %
 15.7 %
 12.5 %
 7. S&T Company have 35 thousands shares outstanding and the stock sold for Rs. 99 per share at the end of
year. Income Statement reported a net income of Rs. 385,000. The Price Earning Ratio for S&T Company will
be:
 8 times
 9 times
 10 times
 11 times
 8. While making Common-Size statement, Balance Sheet items are shown as a percentage of :
 Total Assets
 Total Liabilities
 Total Capital
 Net Profit
 9. A business, created as a distinct legal entity owned by one or more individuals or entities, is known as:
 Sole Proprietorship
 Partnership
 Corporation
 None of the given options
 10. Which one of these is considered as a non-cash item?
 Inventory
 Accounts Payable
 Accounts Receivable
 Depreciation
The project costs $500. What is the payback period for this investment?
a. 2.4 years
b. 5 years
c. 3 years
d. 2 years
1. Which of the following is the process of planning and managing a firm’s long-term investments?
Capital Structuring
Capital Rationing
Capital Budgeting
2. Which of the following refers to the cash flows that result from the firm’s day-to-day activities of producing and
selling?

3. The coupon rate of a floating-rate bond is capped and upper and lower rates are called:
Float
Collar
Limit
Surplus


5. Which of the following strategy belongs to restrictive policy regarding size of investments in current assets?
To maintain a high ratio of current assets to sales

To maintain a low ratio of current assets to sales
To less short-term debt and more long-term debt
To more short-term debt and less long-term debt

Current Ratio
Acid-test Ratio
Cash Ratio
7. Mr. Y and Mr. Z are planning to share their capital to run a business. They are going to employ which of the
following type of business?
Sole-proprietorship
Partnership
Corporation
8. If you have Rs. 30 in asset A and Rs. 120 in another asset B, the weights for assets A and B will
be __ and __ respectively.
20%; 80%
37%; 63%
63%; 37%
80%; 20%
9. Which of the following terms refers to the costs to store and finance the assets?
Carrying costs
Shortage costs
Storing costs
financing costs
10. Which one of the following statement is INCORRECT regarding MACRS depreciation?
Every asset is assigned to a particular class which establishes asset’s life for tax purposes.
11. Depreciation is computed for each year by multiplying the cost of the asset by
a fixed percentage.
b. Annual depreciation remains constant every year even by using different rates.
c. The expected salvage value and the actual expected economic life are not explicitly considered in calculation
of depreciation.
12. Which of the following statement is CORRECT regarding compound interest?

It is the most basic form of calculating interest.
It earns profit not only on principal but also on interest.
It is calculated by multiplying principal by rate multiplied by time.
It does not take into account the accumulated interest for calculation.
13. Mr. A has just recently started a business by investing a capital of Rs. 500,000. He will be the only owner of the
business and also enjoy all the profits of the business. Which type of business is being employed by Mr. A?
Sole-proprietorship
Partnership
Corporation
14. Time value of money is an important finance concept because:

It takes risk into account

It takes time into account
It takes compound interest into account
15. The preferred stock of a company currently sells for Rs. 25 per share. The annual dividend of Rs. 2.50 is fixed.
Assuming a constant dividend forever, what is the rate of return on this stock?
5.00 percent
7.00 percent
8.45 percent
10.0 percent
16. Which of the following ratios are particularly interesting to short-term creditors?
Liquidity Ratios
Market Value Ratios
CF from Assets = CF to Creditors – CF to Stockholder
CF from Assets = CF to Stockholders – CF to Creditors
18. One would be indifferent between taking and not taking the investment when:

Revenue
Expenses
Depreciation


21. You just won a prize, you can either receive Rs. 1000 today or Rs. 1,050 in one year. Which option do you prefer
and why if you can earn 5 percent on your money?

7.00 percent
7.12 percent
7.19 percent
7.23 percent
23. Which of the following forms of business organizations is created as a distinct legal entity owned by one or more
individuals or entities?
Sole-proprietorship
General Partnership
Limited Partnership
Corporation
24. Business risk depends on which of the following risk of the firm’s assets ?
Systematic Risk
Diversifiable Risk
Unsystematic Risk
25. Which of the following type of risk can be eliminated by diversification?

Systematic Risk
Market Risk
Unsystematic Risk
26. Which of the following measure reveals how much profit a company generates with the money shareholders have
invested?
Profit Margin
Return on Assets
Return on Equity
Debt-Equity Ratio

Investments
28. Which of the following is the return that firm’s creditors demand on new borrowings ?
Cost of debt
29. Systematic Risk is also known as:

Diversifiable Risk
Market Risk
Residual Risk
Asset-specific Risk
30. ABC Corporation has two shareholders; Mr. Aamir with 50 shares and Mr. Imran with 70 shares. Both want to be
elected as one of the four directors but Mr. Imran doesn’t want Mr. Aamir to be director. How much votes would
Mr. Aamir be able to cast as per cumulative voting procedure?
70
120
200
280
1. Which of the following issue is NOT covered by “Investment” area of finance?
Selling expense
Raw material
Direct labor
Selling expenses
General expenses
Profit Margin
Debt-equity ratio
Operating cash flow
Capital spending
6. Which of the following refers to the cash flows that result from the firm’s day-to-day
activities of producing and selling?
Marketing Research
Product Pricing
8. Which of the following costs are reported on the income statement as the cost of goods
sold?
Product cost
Period cost
9. Standard Company had net sales of Rs. 750,000 over the past year. During that time,
average receivables were Rs. 150,000. Assuming a 365-day year, what was the average
collection period?
5 days
36 days
48 days
73 days
750000/150000=5
365/5=73days
Operating Leverage
Financial Leverage
Primary market
Secondary market
Tertiary market
12. Which of the following ratios are particularly interesting to short-term creditors?
Liquidity Ratios
Market Value Ratios

13. shows the sources from which cash has been generated and how it has been spent
during a period of time?
Income Statement
Balance Sheet
Cash Flow Statement
14. Standard Corporation sold fully depreciated equipment for Rs. 5,000. This transaction
will be reported on the cash flow statement as a(n):
Operating activity
Investing activity
Financing activity
Current Ratio
Acid-test Ratio
Cash Ratio
16. of the following statement measures performance over a specific period of time?
Income Statement
Balance Sheet
Cash Flow Statement
17. A portion of profits, which a company retains itself for further expansion, is known as:
Dividends
Retained Earnings
Capital Gain

18. Net Income after taxation differs from Net Cash Flow from operations because:
Depreciation expense is shown in the Cash Flow Statement and not in the Income Statement
Non-cash items are included in the Income Statement, but not in the Cash Flow Statement
Cash sales are shown in the Cash Flow Statement but not in the Income Statement
Cash expenses are shown in the Cash Flow Statement but not in the Income Statement
19. Which of the following statement shows assets, liabilities, and net worth as of a specific
date?
Income Statement
Balance Sheet
Cash Flow Statement
20. A portion of profits, which a company retains itself for further expansion, is known as:
Dividends
Retained Earnings
Capital Gain
Current Ratio
Quick Ratio
Cash Coverage Ratio
Cash Ratio
22. Which of the following ratio gives an idea as to how efficient management is at using its assets to
generate earnings?

Profit Margin
Return on Assets
Return on Equity
Financial policy
Dividend policy
Accountants
Financial Analysts
Auditors
Marketers
26. Which of the following set of ratios is used to assess a business's ability to generate
earnings as compared to its expenses and other relevant costs incurred during a specific
period of time?
Liquidity Ratios
Leverage Ratios
Market Value Ratios
27. A company having a current ratio of 1 will have __________ net working capital.
Positive
Negative
zero
sole proprietorship
partnership
joint stock company
cooperative Society
29. Which of the following ratios are intended to address the firm’s financial leverage?
Liquidity Ratios
Income = Current Assets – Current Liabilities
Income = Fixed Assets – Current Assets
Income = Revenues – Current Liabilities
Income = Revenues – Expenses
31. Which of the following item(s) is(are) not included while calculating Operating Cash
Flows?
Depreciation
Interest
32. Suppose market value exceeds book value by Rs. 250,000. What will be the after-tax
proceeds if there is a tax rate of 34 percent ?
Rs. 105,600
Rs. 148,500
Rs. 165,000
Rs. 225,000
Solution=250000*34%=85000
250,000-85000=165000
33. When a corporation wishes to borrow from public on a long-term basis, it does so by
issuing or selling:
Common Stocks
Preferred Stock
34. Which of the following set of ratios is used to assess a business's ability to generate
earnings as compared to its expenses and other relevant costs incurred during a specific
period of time?
Liquidity Ratios
Leverage Ratios
Market Value Ratios
Primary market
Secondary market
Tertiary market

Accountants
Auditors
Marketers
Revenue
Expenses
Depreciation
38. What will be the coupon value of a Rs. 1,000 face-value bond with a 10% coupon rate?
Rs. 100
Rs. 510
Rs. 1,000
Rs. 1,100
Solution:
=1000/10
=100
39. Which of the following comes under the head of discounted cash flow criteria for capital
budgeting decisions?
Net Present Value
Selling expense
Raw material
Direct labor
Financial Leverage
43. Which of the following issue is NOT covered by “Investment” area of finance?
44. Standard Corporation sold fully depreciated equipment for Rs. 5,000. This transaction
will be reported on the cash flow statement as a(n):
Operating activity
Investing activity
Financing activity
45. Balance sheet for a company reports current assets of Rs. 700,000 and current liabilities
of Rs. 460,000.What would be the Current Ratio for the company if there is an
inventory level of Rs. 120,000?
1.01
1.26
1.39
1.52
Solution= 700000/460000=1.52
46. In which type of business, all owners share in gains and losses and all have unlimited
liability for all business debts?
Sole-proprietorship
Limited Partnerhsip
Corporation
Increase
Decrease
Remain unaffected
Become zero
48. Which of the following is a special case of annuity, where the stream of cash flows
continues forever?
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity
Limiting the amount of dividend according to some formula
Restricting pledging assets to other lenders
50. Which of the following refers to the difference between the sale price and cost of
inventory?
Net loss
Net worth
Markup
Markdown
51. Which of the following allows a company to repurchase part or all of the bond issue at a
stated price?
Repayment
Seniority
Call provision
52. ____________ shows the sources from which cash has been generated and how it has
been spent during a period of time?
Income Statement
Balance Sheet
Cash Flow Statement
54. Which of the following form of business organization is least regulated?
Sole-proprietorship
General Partnership
Limited Partnership
Corporation
Par value
Coupon value
56. Which of the following relationships holds TRUE if a bond sells at a discount?
57. When a corporation wishes to borrow from public on a long-term basis, it does so by
issuing or selling:
Common Stocks
Preferred Stock
58. Which of the following item provides the important function of shielding part of income
from taxes?
Inventory
Supplies
Machinery
Depreciation
59. A firm reports total liabilities of Rs. 300,000 and owner’s equity of Rs. 500,000.What
would be the total worth of the firm’s assets?
Rs. 300,000
Rs. 500,000
Rs. 800,000
Rs. 1100,000
sol
60. Which of the following forms of business organizations is created as a distinct legal
entity owned by one or more individuals or entities?
Sole-proprietorship
General Partnership
Limited Partnership
Corporation
sole proprietorship
partnership
joint stock company
none of the above
CF from Assets = CF to Creditors – CF to Stockholder
CF from Assets = CF to Stockholders – CF to Creditors
63. The difference between current assets and current liabilities is known as:
Surplus Asset
Short-term Ratio
Working Capital
Current Ratio
64. A borrower is able to pay Rs. 40,000 in 5 years. Given a discount rate of 12 percent,
what amount of money the lender should lend?
Rs. 14,186
Rs. 18,256
Rs. 22,697
Rs. 28,253
solution
40000*1/(1+0.12)^5=22697.07
65. Which of the following statement is considered as the accountant’s snapshot of firm’s
accounting value as of a particular date?
Income Statement
Balance Sheet
Cash Flow Statement
Par value
Coupon value
Bond ratings are based solely on information acquired from sources other than the bond
issuer.

69. Which of the following is NOT an internal use of financial statements information?
70. A firm has paid out Rs. 150,000 as dividends from its net income of Rs. 250,000. What is
the retention ratio for the firm?
12 %
25 %
40 %
60 %
Solution
250000-150000/250000*100=40%
A company having a current ratio of 1 will have __________ net working capital.
Positive
Negative
zero
71. A portion of profits, which a company distributes among its shareholders, is known as:
Dividends
Retained Earnings
Capital Gain

Investments
73. Which of the following ratios is NOT from the set of Asset Management Ratios?
Receivable Turnover
Return on Assets
74. You just won a prize, you can either receive Rs. 1000 today or Rs. 1,050 in one year.
Which option do you prefer and why if you can earn 5 percent on your money?
Operating Leverage
Financial Leverage
76. You need Rs. 10,000 to buy a new television. If you have Rs. 6,000 to invest at 5 percent
compounded annually, how long will you have to wait to buy the television?
8.42 years
10.51 years
15.75 years
18.78 years
6000(1+5%)^10.51=around 10,000
Maintaining firm’s working capital at or above some specified minimum level
Furnishing audited financial statements periodically to the lender
Financial policy
Dividend policy
79. Which of the following statement shows assets, liabilities, and net worth as of a specific
date?
Income Statement
Balance Sheet
Cash Flow Statement
Armaan: b
Selling expenses
General expenses
81. An account was opened with an investment of Rs. 3,000 ten years ago. The ending
balance in the account is Rs. 4,100. If interest was compounded, how much
compounded interest was earned?
Rs. 500
Rs. 752
Rs. 1,052
Rs. 1,100
4100-3000=1100
7.00 percent
7.12 percent
7.19 percent
7.23 percent
83. Which of the following cash flow activities are reported in the Cash Flow Statement and
Income Statement?
84. Which of the following term refers to establish of a standard to follow for comparison?
Benchmarking 48
Standardizing
Comparison
Evaluation
Financial policy
Dividend policy
86. Rule of 72 for finding the number of periods is fairly applicable to which of the
following range of discount rates?
2% to 8%
4% to 25%
5% to 20%
10% to 50%
87. Which of the following refers to a conflict of interest between principal and agent?
Management Conflict
Interest Conflict
Agency Problem
88. Which of the following is a series of constant cash flows that occur at the end of each
period for some fixed number of periods?
Ordinary annuity 63
Annuity due
Perpetuity
Investments
90. 7:03 AM Which of the following is NOT an external use of financial statements
information?

Investments
92. If a firm has a ROA of 8 percent, sales of Rs. 100,000, and total assets of Rs. 75,000.
What is the profit margin?
4.30%
6.00%
10.70%
16.73%
solution
Net income=8%*75000=6000
Profit margin=6000/100000*100= 6%
93. Which of the following is the process of planning and managing a firm’s long-term
investments?
Capital Structuring
Capital Rationing
Capital Budgeting
94. Which of the following refers to the cash flows that result from the firm’s day-to-day
activities of producing and selling?

Current Ratio
Acid-test Ratio
Cash Ratio
96. Mr. Y and Mr. Z are planning to share their capital to run a business. They are going to
employ which of the following type of business?
Sole-proprietorship
Partnership
Corporation
97. If you have Rs. 30 in asset A and Rs. 120 in another asset B, the weights for assets A and
B will be __ and __ respectively.
20%; 80%
37%; 63%
63%; 37%
80%; 20%
98. When corporations borrow, they generally promise to: I. Make regular scheduled
interest payments II. Give the right of voting to bondholders III. Repay the original
amount borrowed (principal) IV. Give an ownership interest in the firm
I and II
I and III
II and IV
I, III, and IV
100. What would be the present value of Rs. 10,000 to be received after 6 years at a
discount rate of 8 percent?
Rs. 6,302
Rs. 9,981
Rs. 14,800
Rs. 15,869
102. The preferred stock of a company currently sells for Rs. 25 per share. The annual
dividend of Rs. 2.50 is fixed. Assuming a constant dividend forever, what is the rate of
return on this stock?
5.00 percent
7.00 percent
8.45 percent
10.0 percent
103. Which of the following is a special case of annuity, where the stream of cash flows
continues forever?
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity
The _______ debt a firm has (as a percentage of assets); the _______ is the
degree of financial leverage.
More; greater
 Which of following is(are) the non-cash item(s)?

o Depreciation
 Which of the following is the extra rate you would pay if you earn one more
dollar
marginal tax rate
Which of the following is NOT an investing cash flow?
Proceeds from the sale of a retired asset
Which of the following is a special case of annuity, where the stream of cash flows
Perpetuity
Which of the following represent(s) a loan made by the investors to the issuer?
Bond
Which one of the following statements is INCORRECT regarding a bond?
A bondholder has a part of ownership in the firm
A bond’s value will rise above its par value during its life if interest rate:
Goes up
When the market's required rate o f return for a particular bond is much higher
Premium
Given two bonds identical but for maturity, the price of the longer-term bond will
change _ _ _ _ _ _ _ _ that of the shorter -term b on d , for a given change in market
interest rates.
More than
Between t he two identical bonds having different coupon , the price of the
________ bond will change more than that of ________ bond.
Higher- coupon; lower-coupon
Which of the following term refer s to a contract between t h e b o n d issuer and
bondholders?
Bond indenture
Which of the following allows a company to repurchase part or all of the bond?
Call provision
Which of the following long-term rating by PACRA denotes a high default risk?
CCC
Which one of the following statement s is IN CORRECT regarding floating-rate bond?
Holder of this type of bond has the right to redeem the note at par on the
coupon payment date after some specified period of time.
Which of the following is NOT dealt by a controller under the head of a CFO?
Data Processing
Which one of the following ratios indicates the return firm shareholders are earning?
Return on equity
Which one of the following is a CORRECT statement about the Price- Earning
Ratio?
A firm with high earning per share will also have a very high PE ratio.

1. In the formula ke >= (D1/P0) + g, what does (D1/P0) represent?
A. The expected capital gains yield from a common stock
B. The expected dividend yield from a common stock
C. The dividend yield from a preferred stock
D. The interest payment from a bond
2. If you owned 100 shares of a company and there are three directors to be elected.
How much votes you would have as per cumulative voting procedure?
A. 100 Votes
B. 200 Votes
C. 300 Votes
D. 400 Votes
3. SNT Corporation has policy of paying a Rs. 6 dividend per share every year. If
this policy is to continue indefinitely, what will be the value of a share of stock at a
A. Rs. 30
B. Rs. 40
C. Rs. 50
D. Rs. 60
4. Which of the following is NOT a characteristic of preferred stock?
A. Dividends on these stocks cannot be cumulative
B. These stocks have dividend priority over common stocks
C. These stocks have stated liquidating value
D. These bonds hold credit ratings much like bonds
5. A project has an initial investment of Rs. 400,000. What would be the NPV for the
project if it has a profitability index of 1.15?
A. Rs. 30000
B. Rs. 40,500
C. Rs. 50,000
D. Rs. 60,000
6. What will be the proper order of completion regarding the capital budgeting
process?
( I ) Perform a post-audit for completed projects;
( II ) Generate project proposals; ( III ) Estimate appropriate cash flows;
( IV ) Select value-maximizing projects; ( V ) Evaluate projects.
A. II, V, III, IV, and I
B. III, II, V, IV, and I
C. II, III, V, IV, and I
D. II, III, IV, V, and I
7. Following are the two cases:
Case I: Mr. A, as a financial consultant, has prepared a feasibility report for a
project for ABC Company that the company is planning to undertake. He has
suggested that the project is feasible.
Case II: Mr. A, as a financial consultant, has prepared a feasibility report of a
project for XYZ Company that the company is planning to undertake. He has
suggested that the project is not feasible.
The consultancy fee paid to Mr. A will be considered as:
A. Sunk cost in Case I and opportunity cost in Case II
B. Opportunity cost in Case I and sunk cost in Case II
C. Sunk Cost in both Case I and Case II
D. Opportunity cost in both Case I and Case II
8. Suppose you buy some stock for Rs. 35 per share. At the end of the year, the price
is Rs. 43 per share. During the year, you get a Rs. 4 dividend per share. What will
be the total percentage return?
A. 22.85 %
B. 25.16 %
C. 30.52 %
D. 34.29 %
9. If you have a portfolio with Rs. 10,000 in asset A and Rs. 15,000 in another asset B
then what will be the weight of Asset B in your portfolio?
A. 0.30
B. 0.40
C. 0.60
D. 0.75
10. Which of the following set of cash flows represents the change in the firm’s total
cash flow that occurs as direct result of accepting the project?
A. Relevant Cash Flows
B. Incremental Cash Flows
C. Negative Cash Flows
D. All of the given option
Select the correct answer from the given choices:
1. Dividend growth model assumes that basis of valuation of stock is on:
a. The current dividend
b. Growth of the dividend
c. Required rate of return
2. Dividend growth models tells us that if the growth rate g, is bigger than discount rate R, then
the present value of the dividends keeps on getting:
a. Smaller and smaller
b. Bigger and bigger
c. Constant
d. Non constant growth
3. When directors are elected through cumulative voting, this procedure is:
a. Adopted to permit minority participation
b. Adopted to select directors one at a time
c. Used by individual shareholders to distribute votes however they wish
d. Both a & c
4. There is more than one class of common stocks with equal and unequal voting rights; the
primary reason behind such stocks is concerned:
a. Behaviors of the investors
b. Availability of the shares
c. Control of the firm
d. Principle of classification of shares
5. Dividends received by individuals are considered ordinary income by tax authorities and are:
a. Fully taxable
b. Tax deductible
c. Fully exempt
Quiz 02 (ACC 501) Fall Semester 2007
6. An agent who buys or sells securities from a maintained inventory is a:
a. Jobber
b. Dealer
c. Broker
d. Customer
7. The investment is economically a break-even proposition when the NPV equal to:
a. Positive
b. Negative
c. Zero
8. ___________ is often proposed as a measure of performance of government or other non
profit investments.
a. NPV
b. IRR
c. Profitability index
d. Pay back period
9. When capital is scarce, it is sensible approach to allocate it to those projects with
highest_______.
a. Payback period
b. Internal rate of return
c. Net present value
d. Profitability index
10. ________ is a cost that has already been incurred and cannot be recouped and therefore
should not be considered in an investment decision.
a. Opportunity cost
b. Financing cost
c. Sunk cost
d. Variable cost
110. The difference between current assets and current liabilities is known as:
Surplus Asset
Short-term Ratio
Working Capital
Current Ratio
111. A borrower is able to pay Rs. 40,000 in 5 years. Given a discount rate of 12 percent,
what amount of money the lender should lend?
Rs. 14,186
Rs. 18,256
Rs. 22,697
Rs. 28,253
solution
40000*1/(1+0.12)^5=22697.07
112. Which of the following statement is considered as the accountant’s snapshot of
firm’s accounting value as of a particular date?
Income Statement
Balance Sheet
Cash Flow Statement
Par value
Coupon value
Bond ratings are based solely on information acquired from sources other than the bond issuer. Bond ratings represent
an independent assessment of the credit-worthiness of bonds. None of the given options
116. Which of the following is NOT an internal use of financial statements information?
117. A firm has paid out Rs. 150,000 as dividends from its net income of Rs. 250,000.
What is the retention ratio for the firm?
12 %
25 %
40 %
60 %
Solution
250000-150000/250000*100=40%
Positive
Negative
zero
118. A portion of profits, which a company distributes among its shareholders, is known
as:
Dividends
Retained Earnings
Capital Gain

Investments
120. Which of the following ratios is NOT from the set of Asset Management Ratios?

Receivable Turnover
Return on Assets
121. You just won a prize, you can either receive Rs. 1000 today or Rs. 1,050 in one year.
Which option do you prefer and why if you can earn 5 percent on your money?

Operating Leverage
Financial Leverage
b
123. You need Rs. 10,000 to buy a new television. If you have Rs. 6,000 to invest at 5
percent compounded annually, how long will you have to wait to buy the television?
8.42 years
10.51 years
15.75 years
18.78 years
6000(1+5%)^10.51=around 10,000

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ACC501 Current 11 Solved Finalterm Papers and

The accounting definition of income is:

o Proceeds from sale of equipment Rs. 25,000

Question No: 4 ( Marks: 1 ) - Please choose one

Question No: 5 ( Marks: 1 ) - Please choose one

►Borrow short-term to finance additional fixed assets

►Issue long-term debt to buy inventory

Question No: 6 ( Marks: 1 ) - Please choose one

►I, II, III, a n d IV

Question No: 7 ( Marks: 1 ) - Please choose one

►Directly related to each other

►Proportionately related to each other

Question No: 8 ( Marks: 1 ) - Please choose one

Question No: 9 ( Marks: 1 ) - Please choose one

►Interest rate risk premium

Question No: 13 ( Marks: 1 ) - Please choose one

►Secondary Market pg 100

►None of the given options

►II, III, IV, V, and I

IRR and NPV rules always lead to identical decisions as long as :

►Cash flows are conventional

►Cash flows are independent

►Cash flows are both conventional and independent

Question No: 17 ( Marks: 1 ) - Please choose one

►A mutually exclusive project

Question No: 18 ( Marks: 1 ) - Please choose one

►Discounted Cash Flow Criteria pg 118

►None of the given options

Question No: 19 ( Marks: 1 ) - Please choose one

the decision under consideration.

►WACC (Weighted Average Cost of Capital)

Question No: 22 ( Marks: 1 ) - Please choose one

required rate of return on SNT stock?

Question No: 23 ( Marks: 1 ) - Please choose one

►The right to vote for directors

►The right to share proportionately in dividend paid

Question No: 24 ( Marks: 1 ) - Please choose one

►Tax deductible dividends

Question No: 25 ( Marks: 1 ) - Please choose one

Question No: 26 ( Marks: 1 ) - Please choose one

►To maintain a high ratio of current assets to sales

►To maintain a low ratio of current assets to sales

Size of investments in current assets

►To maintain more short-term debt and less long-term debt

Question No: 28 ( Marks: 1 ) - Please choose one

Question No: 30 ( Marks: 1 ) - Please choose one

►None of the given options

Question No: 31 ( Marks: 1 ) - Please choose one

►The expected return

►The standard deviation

Question No: 32 ( Marks: 1 ) - Please choose one

Question No: 33 ( Marks: 1 ) - Please choose one

Question No: 34 ( Marks: 1 ) - Please choose one

Question No: 37 ( Marks: 1 ) - Please choose one

►Safety reserve costs

Question No: 39 ( Marks: 1 ) - Please choose one

The cost of common equity for a firm is:

►The market risk premium

Question No: 40 ( Marks: 1 ) - Please choose one