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Wednesday, December 1, 2010

Mgt201 Mid Term Current Paper (Dec 2010)

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

 Which of the following statements is correct for a sole proprietorship?

        The sole proprietor has limited liability

        The sole proprietor can easily dispose of their ownership position relative to a shareholder in a corporation

       ► The sole proprietorship can be created more quickly than a corporation

        The owner of a sole proprietorship faces double taxation unlike the partners in a partnership

   

Question No: 2    ( Marks: 1 )    - Please choose one

 Which of the following market refers to the market for relatively long-term financial instruments?

        Secondary market

        Primary market

        Money market

       ► Capital market

   

Question No: 3    ( Marks: 1 )    - Please choose one

 Felton Farm Supplies, Inc., has an 8 percent return on total assets of Rs.300,000 and a net profit margin of 5 percent. What are its sales? 

        750,0Rs.3, 750,000

        Rs.48Rs.480, 000

       ► Rs.30Rs.300, 000

        Rs.1, Rs.1, 500,000

   

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

 An investment proposal should be judged in whether or not it provides:

        A return equal to the return require by the investor

        A return more than required by investor

        A return less than required by investor

       ► A return equal to or more than required by investor

   

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

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

        Payback period

       ► Internal rate of return

        Net present value

        Profitability index

  

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

 A capital budgeting technique that is NOT considered as discounted cash flow method is:

 

       ► Payback period

        Internal rate of return

        Net present value

        Profitability index

   

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

 Why net present value is the most important criteria for selecting the project in capital budgeting?

        Because it has a direct link with the shareholders dividends maximization

       ► Because it has direct link with shareholders wealth maximization

        Because it helps in quick judgment regarding the investment in real assets

        Because we have a simple formula to calculate the cash flows

 

   

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

 You are selecting a project from a mix of projects, what would be your first selection in descending order to give yourself the best chance to add most to the firm value, when operating under a single-period capital-rationing constraint?

        Profitability index (PI)

       ► Net present value (NPV)

        Internal rate of return (IRR)

        Payback period (PBP)

   

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

 Bond is a type of Direct Claim Security whose value is NOT secured by __________.

 

        Tangible assets

       ► Intangible assets

        Fixed assets

        Real assets

   

Question No: 10    ( Marks: 1 )    - Please choose one

 If a 7% coupon bond is trading for Rs. 975 it has a current yield of _________ percent.

 

        7.00

        6.53

        8.53

       ► 7.18

   

Question No: 11    ( Marks: 1 )    - Please choose one

 Which of the following is designated by the individual investor's optimal portfolio?

        The point of tangency with the opportunity set and the capital allocation line

       ► The point of highest reward to variability ratio in the opportunity set

        The point of tangency with the indifference curve and the capital allocation line

        The point of the highest reward to variability ratio in the indifference curve

   

Question No: 12    ( Marks: 1 )    - Please choose one

 Assume that the expected returns of the portfolios are the same but their standard deviations are given in the options given below, which of the option represent the most risky portfolio according to standard deviation?

 

        1.5%

        2.0%

        3.0%

       ► 4.0%

   

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

 Which of the following is a drawback of percentage of sales method?

 

        It is a rough approximation

        There is change in fixed asset during the forecasted period

        Lumpy assets are not taken into account

       ► All of the given options

  

Question No: 14    ( Marks: 1 )    - Please choose one

 Which of the following need to be excluded while we calculate the incremental cash flows?

 

 

        Depreciation

       ► Sunk cost

        Opportunity cost

        Non-cash item

   

Question No: 15    ( Marks: 1 )    - Please choose one

 Which of the following is NOT an example of a financial intermediary?

        Wisconsin S&L, a savings and loan association

        Strong Capital Appreciation, a mutual fund

       ► Microsoft Corporation, a software firm

        College Credit, a credit union

   

Question No: 16    ( Marks: 1 )    - Please choose one

 An 8% coupon Treasury note pays interest on May 30 and November 30 and is traded for settlement on August 15.  What is the accrued interest on Rs. 100,000 face value of this note?

 

        Rs. 491.80

        Rs. 800.00

       ► Rs. 983.61

        Rs. 1,661.20

   

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

 A preferred stock will pay a dividend of Rs. 3.50 in the upcoming year, and every year thereafter, i.e., dividends are not expected to grow.  You require a return of 11% on this stock.  Use the constant growth model to calculate the intrinsic value of this preferred stock.

 

        Rs. 0.39

        Rs. 0.56

       ► Rs. 31.82

        Rs. 56.25

   

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

 Information that goes into __________ can be used to prepare __________.

        A forecast balance sheet; a forecast income statement

        Forecast financial statements; a cash budget

       ► Cash budget; forecast financial statements

        A forecast income statement; a cash budget

   

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

 What is the present value of Rs.8,000 to be paid at the end of three years if the interest rate is 11% compounded annually?

       ►  Rs.5,850 

         Rs.4,872

         Rs.6,725

         Rs.1,842

   

Question No: 20    ( Marks: 1 )    - Please choose one

 "Do not compare apples with oranges" is the concept in:

       ► Discounting and Net present value

        Risk & return

        Insurance management

        Time value of money

   

Question No: 21    ( Marks: 1 )    - Please choose one

 Which of the following is NOT the interest rate used for discounting calculation?

       ► Benchmark interest rate

        Effective interest rate

        Periodic interest rate

        Nominal interest rate

   

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

 Which of the following is the formula to calculate the future value of perpetuity?

        Constant cash flows × interest rate

       ► Constant cash flows / interest rate

        Constant cash flows + Constant cash flows × interest rate

        Constant cash flows - Constant cash flows/ interest rate

   

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

 Which of the following interest rate keeps on moving and changing on daily basis?

        Book value

       ► Market value

        Salvage value

        Face value

   

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

 From which of the following formula we can calculate coupon rate?

        Coupon receipt / market value

        Coupon receipt / present value

        Coupon receipt / salvage value

       ► Coupon receipt / book value

   

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

 Value of "g" in the formula of constant growth rate can be calculated from which of the following formula?

       ► g = plowback ratio × ROE

        g = plowback ratio × ROA

        g = payout ratio + ROE

        g = payout ratio + ROA

   

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

 In Gordon's formula (rCE = DIV1 / P+ g), rCE is considered as __________ and "g" is considered as __________.

        Dividend yield, operating expenses

        Dividend yield, operating income

        Dividend yield, capital loss

       ► Dividend yield, capital gain

  

Question No: 27    ( Marks: 1 )    - Please choose one

 To calculate the annual rate of return for an investment, we require which of the following(s)?

        The income created

        The gain or loss in value

        The original value at the beginning of the year

       ► All of the given options

   

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

 This is an example of which of the following?

Real estate prices fell across the board because the market was glutted with surplus pre-owned homes for sale.

        Economic risk

        Industry risk

        Company risk

       ► Market risk

   

Question No: 29    ( Marks: 3 )

 Briefly explain what call provision is and in which case companies use this option.

   

 

Question No: 30    ( Marks: 3 )

 There are two stocks in the portfolio of Mr. N, Stock A and Stock B. the information of this portfolio is as follows:

 

Common stock

Expected rate of return

Standard deviation

Stock A

15%

10%

Stock B

20%

15%

 

Calculate the expected rate of return on this portfolio assuming that Stock A consists of 75% of the total funds invested in the stocks and the remainder in Stock B.

   

Question No: 31    ( Marks: 5 )

 

(a) What is correlation of coefficient?

(b) What are efficient portfolios?   


    

Question No: 32    ( Marks: 5 )

 Suppose you approach a bank for getting loan.  And the bank offers to lend you Rs.1, 000,000 and you sign a bond paper. The bank asks you to issue a bond in their favor on the following terms required by the bank: Par Value = Rs 1, 000,000, Maturity = 3 years

Coupon Rate = 15% p.a, Security = Machinery

You are required to calculate the cash flow of the bank which you will pay every month as well as the present value of this option. 

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