mgt201 quiz 3 spring 2021
mgt201 quiz 3 spring 2021 Lecture 29 to 39
What are the earnings per share (EPS) for a company that earned Rs.100, 000 last year in after-tax profits, has 200,000 common shares outstanding and Rs.1.2 million in retained earning at the year end?
► Rs.1.00
► Rs. 6.00
► Rs. 0.50
► Rs. 6.50
Which of the following is the variability of return on stocks or portfolios not explained by general market movements. It is avoidable through diversification?
► Systematic risk
► Standard deviation
► Unsystematic risk
► Financial risk
In which of the following approach you need to bring all the projects to the same length in time?
► MIRR approach
► Going concern approach
► Common life approach
► Equivalent annual approach
Beta is the slope of
the security market line.
the capital market line.
a characteristic line.
the CAPM
The weighted average of possible returns, with the weights being the probabilities of occurrence is referred to as __________.
► A probability distribution
► The expected return
► The standard deviation
► Coefficient of variation
A measure of "risk per unit of expected return."
standard deviation
coefficient of variation
correlation coefficient
beta
What is a legal agreement, also called the deed of trust, between the corporation issuing bonds and the bondholders that establish the terms of the bond issue?
Indenture.
Debenture.
Bond.
Bond trustee.
To increase a given present value, the discount rate should be adjusted
upward.
downward.
True.
Fred.
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
The sinking fund retirement of a bond issue takes __________.
only one form -- the corporation purchases bonds in the open market and delivers a given number of bonds to the trustee
only one form -- the corporation pays cash to the trustee, who in turn calls the bonds for redemption.
only one form -- bonds mature periodically and the corporation retires them in the order that they mature.
two forms -- (1) the corporation purchases bonds in the open market and delivers a given number of bonds to the trustee; or (2) the corporation pays cash to the trustee, who in turn calls the bonds for redemption.
What type of long-term financing most likely has the following features: 1) it has an infinite life, 2) it pays dividends, and 3) its cash flows are expected to be a constant annuity stream?
Long-term debt.
Preferred stock.
Common stock.
Both the second and third answers are
What type of long-term financing most likely has the following features: 1) it has a finite life, 2) failure to pay the cash flows could lead to bankruptcy, and 3) its cash flows are expected to be a constant annuity stream?
Long-term debt.
Preferred stock.
Common stock.
Both the second and third answers are
A proxy is __________.
a unique voting system that allows minority shareholders to elect at least one director.
a protective agreement that allows shareholder the ability to purchase new shares in the same percentage as their current ownership proportion.
a legal document giving one entity or person the authority to vote for another.
All of the above answers are in
Bond is a type of Direct Claim Security whose value is NOT secured by __________.
► Tangible assets
► Intangible assets
► Fixed assets
► Real assets
Why companies invest in projects with negative NPV?
► Because there is hidden value in each project
► Because they have chance of rapid growth
► Because they have invested a lot
► All of the given options
Mutually exclusive means that you can invest in _________ project(s) and having chosen ______ you cannot choose another.
► One; one
► Two; two
► Two; one
► Three; one
A set of possible values that a random variable can assume and their associated probabilities of occurrence are referred to as __________.
► Probability distribution
► The expected return
► The standard deviation
► Coefficient of variation
Which of the following would tend to reduce a firm's P/E ratio?
►The firm significantly decreases financial leverage
►The firm increases return on equity for the long term
►The level of inflation is expected to increase to double-digit levels
►The rate of return on Treasury bills decreases
What mechanism ensures that large firms who benefit from tax laws pay some minimum amount of tax?
Annual minimum tax.
Alternative minimum tax.
Minimum tax law.
Corpulent minimum tax.
What is potentially the biggest advantage of a small partnership over a sole proprietorship?
Unlimited liability.
Single tax filing.
Difficult ownership resale
Raising capital.
Among the pairs given below select a(n) example of a principal and a(n) example of an agent respectively.
► Shareholder; manager
► Manager; owner
► Accountant; bondholder
► Shareholder; bondholder
Which group of ratios measures a firm's ability to meet short-term obligations?
► Liquidity ratios
► Debt ratios
► Coverage ratios
► Profitability ratios
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
_________ is equal to (common shareholders' equity/common shares outstanding).
A) Book value per share
B) Liquidation value per share
C) Market value per share
D) Tobin's Q
________ are analysts who use information concerning current and prospective profitability of a firms to assess the firm's fair market value.
A) Credit analysts
B) Fundamental analysts
C) Systems analysts
D) Technical analysts
The _______ is defined as the present value of all cash proceeds to the investor in the stock.
A) dividend payout ratio
B) intrinsic value
C) market capitalization rate
D) plowback ratio
A statistical measure of the variability of a distribution around its mean is referred to as __________.
A probability distribution
► The expected return
► The standard deviation
► Coefficient of variation
Total portfolio risk is __________.
equal to systematic risk plus nondiversifiable risk
equal to avoidable risk plus diversifiable risk
equal to systematic risk plus unavoidable risk
equal to systematic risk plus diversifiable risk
__________ is the variability of return on stocks or portfolios associated with changes in return on the market as a whole.
Systematic risk
► Standard deviation
► Unsystematic risk
► Financial risk
For most firms, P/E ratios and risk
A) will be directly related.
B) will have an inverse relationship.
C) will be unrelated.
D)will both increase as inflation increases
Dividend discount models and P/E ratios are used by __________ to try to find mispriced securities.
A) technical analysts
B) statistical analysts
C) fundamental analysts
D) dividend analysts
Discounted cash flow methods provide a more objective basis for evaluating and selecting an investment project. These methods take into account
Magnitude of expected cash flows
Timing of expected cash flows
Both timing and magnitude of cash flows
None of the given options
Which of the following would be considered a cash-flow item from an "operating"activity?
Select correct option:
Cash outflow to the government for taxes
Cash outflow to shareholders as dividends
Cash inflow to the firm from selling new common equity shares
Cash outflow to purchase bonds issued by another compan
According to timing difference problem a good project might suffer from _____ IRR even though its NPV is ________.
Select correct option:
Higher; lower
Lower; Lower
Lower; higher
Higher; higher
The value of direct claim security is derived from which of the following?
Select correct option:
Fundamental analysis
Underlying real asset
Supply and demand of securities in the market
All of the given options
When the market's required rate of return for a particular bond is much less than its coupon rate, the bond is selling at:
a premium.
a discount.
cannot be determined without more information.
face value
If a bond sells at a high premium, then which of the following relationships hold true? (P0 represents the price of a bond and YTM is the bond's yield to maturity.)
P0 < par and YTM > the coupon rate. Not sure
P0> par and YTM > the coupon rate.
P0> par and YTM < the coupon rate.
P0< par and YTM < the coupon rate
What is the present value of Rs.8,000 to be paid at the end of three years if the correct risk adjusted interest rate is 11%?
Select correct option:
Rs.5,850
Rs.4,872
Rs.6,725
Rs.1,842
Which of the following items describes an index measure of systematic risk?
Beta.
The expected return
The standard deviation
Variance.
What is the most important criteria in capital budgeting?
Return on investment
Profitability index
Net present value
Pay back period
Companies and individuals running different types of businesses have to make the choices of the asset according to which of the following?
Select correct option:
Life span of the project
Validity of the project
Cost of the capital
Return on asset
The benefit we expect from a project is expressed in terms of:
Select correct option:
Cash in flows
Cash out flows
Cash flows
None of the given option
What is the present value of Rs. 3,500,000 to be paid at the end of 50 years if the correct risk adjusted interest rate is 18%?
Rs.105,000
Rs.1,500,000
Rs.3975,000
Rs.1,050
What is the value of a perpetuity of $400 a year is the required return is 10%
$3,500
$4000
$14,500
$3,200
Cash budgets are prepared from past:
Select correct option:
Balance sheets
Income statements
Income tax and depreciation data
None of the given options
In the dividend discount model, _______ which of the following are not incorporated into the discount rate?
Select correct option:
Real risk-free rate
Risk premium for stocks
Return on assets
Expected inflation rate
A project has the following cash inflows $34,444; $39,877; $25,000; and $52,800 for years 1 through 4, respectively. The initial cash outflow is $104,000. Which of the following four statements is correct concerning the project internal rate of return (IRR)?
The IRR is less than 10%.
The IRR is greater than or equal to 10%, but less than 14%.
The IRR is greater than or equal to 14%, but less than 18%.
The IRR is greater than or equal to 18%.
When a bond will sell at a discount?
► The coupon rate is greater than the current yield and the current yield is greater than yield to maturity
► The coupon rate is greater than yield to maturity
► The coupon rate is less than the current yield and the current yield is greater than the yield to maturity
► The coupon rate is less than the current yield and the current yield is less than yield to maturity
Which of the following is a characteristic of a coupon bond?
► Pays interest on a regular basis (typically every six months)
► Does not pay interest on a regular basis but pays a lump sum at maturity
► Can always be converted into a specific number of shares of common stock in the issuing company
► Always sells at par
__________ is a long-term, unsecured debt instrument with a lower claim on assets and income than other classes of debt.
► A subordinated debenture
► A debenture
► A junk bond
► An income bond
__________ is concerned with the maximization of a firm's earnings after taxes
Shareholder wealth maximization
Profit maximization
Stakeholder maximization
EPS maximization
Which group of ratios relate the financial charges of a firm to its ability to service them?
Liquidity ratios
Debt ratios
Coverage ratios
Profitability ratios
Which group of ratios measure how effectively the firm is using its assets?
Liquidity ratios
Debt ratios
Coverage ratios
Activity ratios.
Interest paid on the original principal borrowed is often referred to as __________.
► Compound interest
► Present value
► Simple interest
► Future value
An investment opportunity set formed with two securities that are perfectly negatively correlated. What will be standard deviation in the global minimum variance portfolio?
► Equal to zero
► Greater than zero
► Equal to the sum of the securities' standard deviations
► Equal to -1
When Return is being estimated in % terms, the units of Standard Deviation will be mention in __________.
► %
► Times
► Number of days
► All of the given options
What are two major areas of capital budgeting?
Net present value, profitability index
Net present value; internal rate of return
Net present value; payback period
Pay back period; profitability index
When Investors want high plowback ratios?
Whenever ROE > k
Whenever k > ROE
Only when they are in low tax brackets
Whenever bank interest rates are high
Why companies invest in projects with negative NPV?
► Because there is hidden value in each project
► Because they have chance of rapid growth
► Because they have invested a lot
► All of the given options
The logic behind _________ is that instead of looking at net cash flows you look at cash inflows and outflows separately for each point in time.
Select correct option
IRR
MIRR
PV
NPV
To increase a given future value, the discount rate should be adjusted __________.
Select correct option:
Upward
Downward
First upward and then downward
None of the given options
Which of the following is NOT a cash outflow for the firm?
Select correct option:
Depreciation
Dividends
Interest
Taxes
Which of the following market in finance is referred to the market for short-term government and corporate debt securities?
Select correct option:
Money market
Capital market
Primary market
Secondary market
In finance we refer to the market where new securities are bought and sold for the first time as the __________ market
Money market
Capital market
Primary market
Secondary market
In finance we refer to the market for relatively long-term financial instruments as the __________ market.
Money market
Capital market
Primary market
Secondary market
How "Shareholder wealth" is represented in a firm?
Select correct option:
The number of people employed in the firm
The book value of the firm's assets less the book value of its liabilities
The market price per share of the firm's common stock
The amount of salary paid to its employees
Which of the following examples would be deductible as an expense on the corporation's income statement?
Interest paid on outstanding bonds
Cash dividends paid on outstanding common stock
Cash dividends paid on outstanding preferred stock
All of the above.
The firm has 20,000 common shares authorized, 15,000 shares outstanding, and 3,000 shares of treasury stock. How many common equity shares are issued?
2,000
5,000
17,000
18,000
Which of the following statements is the least likely to be correct?
► A firm that has a high degree of business risk is less likely to want to incur financial risk
► There exists little or no negotiation with suppliers of capital regarding the financing needs of the firm
► Financial ratios are relevant for making internal comparisons
► It is important to make external comparisons or financial ratios
An annuity due is always worth _____ a comparable annuity.
► Less than
► More than
► Equal to
► Can not be found
Which of the following would be considered a cash-flow item from a "financing" activity?
► A cash outflow to the government for taxes
► A cash outflow to repurchase the firm's own common stock
► A cash outflow to lenders as interest
► A cash outflow to purchase bonds issued by another company
The market price of a share of common stock is determined by:
the board of directors of the firm.
the stock exchange on which the stock is listed.
the president of the company.
individuals buying and selling the stock
The focal point of financial management in a firm is:
the number and types of products or services provided by the firm.
the minimization of the amount of taxes paid by the firm.
the creation of value for shareholders.
the dollars profits earned by the firm.
The controller's responsibilities are primarily in nature, while the treasurer's responsibilities are primarily related to .
operational; financial management
financial management; accounting
accounting; financial management
financial management; operations
A company's is (are) potentially the most effective instrument of good corporate governance.
common stock shareholders
board of directors
top executive officers
___________ refers to meeting the needs of the present without compromising the ability of future generations to meet their own needs.
Corporate Social Responsibility (CSR)
Sustainability
Convergence
Green Economics
What is difference between shares and bonds?
Bonds are representing ownership whereas shares are not
Shares are representing ownership whereas bonds are not
Shares and bonds both represent equity
Shares and bond both represent liabilities
Which group of ratios shows the extent to which the firm is financed with debt?
Liquidity ratios
Debt ratios
Coverage ratios
Activity ratios.
Which of the following portfolio statistics statements is correct?
A portfolio's expected return is a simple weighted average of expected returns of the individual securities comprising the portfolio.
A portfolio's standard deviation of return is a simple weighted average of individual security return standard deviations.
The square root of a portfolio's standard deviation of return equals its variance.
The square root of a portfolio's standard deviation of return equals its coefficient of variation.
The objective of financial management is to maximize _________ wealth.
Stakeholders
Shareholders
Bondholders
Directors
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