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MGT201 QUIZ 2 BY NAVEED 22-11-2010
Question # 1 of 15 ( Start time: 06:36:00 AM ) Total Marks: 1

Which of the following value of the shares changes with investors perception about the
companys future and supply and demand situation?
Select correct option:
Par value
Market value
Intrinsic value
Face value
Which one of the following selects the combination of investment proposals that will
provide the greatest increase in the value of the firm within the budget ceiling constraint?
Cash budgeting
Capital budgeting
Capital rationing
Capital expenditure
Mutually Exclusive projects refer to what?
One can invest in one of the projects and not in both
One can invest in both projects
Cash flows of the two projects are not linked to each other
Cash flows of the two projects are linked to each other
Which of the following is not the present value of the bond?
Intrinsic value
Market price
Fair price
Theoretical price
When the zero coupon bond approaches to its maturity, the market value of the bond
approaches to which of the following?
Intrinsic value
Book value
Par value
Historic cost
Who or what is a person or institution designated by a bond issuer as the official
representative of the bondholders?
Indenture
Debenture
Bond
Bond trustee
Which of the following is the percentage of interest charged at each compounding time?
Nominal interest Rate
Effective interest Rate
Annual percentage rate
Periodic interest rate
Which of the following is/are the component(s) of working capital management?
Current assets
Fixed assets
Fixed assets and long-term liabilities
Current assets and current liabilities
Which of the following refers to bringing the future cash flow to the present time?
Net present value
Discounting
Opportunity cost
Internal rate of return
Which of the following is TRUE about IRR (Internal Rate of Return)?
It changes for each and every year over the life of the project
It remains same for each and every year over the life of the project
It increases over the life of the project
It decreases over the life of the project
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. 350,000
Effective interest rate is different from nominal rate of interest because:
Nominal interest rate ignores compounding
Nominal interest rate includes frequency of compounding
Periodic interest rate ignores the effect of inflation
All of the given options
Which of the following refers to time value of money concept?
A rupee in ones hand at present is worth less than the rupee that one is going to receive
tomorrow
A rupee in ones hand at present is worth more than the rupee that one is going to
receive tomorrow
A rupee in ones hand at present is worth same as the rupee that one is going to receive
tomorrow
Which of the following are known as Discretionary Financing?
Current liabilities
Current assets
Fixed assets
Long-term liabilities
If Net Present Value technique is used, what is the ranking criterion for projects?

Choose the highest NPV
Choose the lowest NPV
Choose the project with longest term
Choose the project with shortest term

Which of the following equations is the correct one?
Net incremental after tax cash flows = net operating income + depreciation +Tax
savings from depreciation + net working capital + other cash flow
Net incremental after tax cash flows = net operating income - depreciation +Tax savings
from depreciation + net working capital + other cash flow
Net incremental after tax cash flows = net operating income + depreciation -Tax savings
from depreciation - net working capital + other cash flow
Net incremental after tax cash flows = net operating income + depreciation +Tax savings
from depreciation + net working capital - other cash flow
Which of the following would be considered a cash-flow item from an "investing"
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
The objective of financial management is to maximize _________ wealth.
Stakeholders
Shareholders
Bondholders
Directors
Which if the following refers to capital budgeting?
Investment in long-term liabilities
Investment in fixed assets
Investment in current assets
Investment in short-term liabilities
How "Shareholder wealth" is represented in a firm?
The number of people employed in the firm
The book value of the firm's assets less the book value of its liabilities
The market price per share of the firm's common stock
The amount of salary paid to its employees
What is 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
A company whose stock is selling at a P/E ratio greater than the P/E ratio of a market
index most likely has _________.
An anticipated earnings growth rate which is less than that of the average firm
A dividend yield which is less than that of the average firm
Less predictable earnings growth than that of the average firm
Greater cyclicality of earnings growth than that of the average firm
Which group of ratios shows the extent to which the firm is financed with debt?
Liquidity ratios
Debt ratios
Coverage ratios
Profitability ratios
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
Which of the following is the Double Entry Principle?
Assets + Liabilities = Shareholders Equity
Assets = Liabilities + Shareholders Equity
Liabilities = Assets + Shareholders Equity
None of the given options
The statement of cash flows reports a firm's cash flows segregated into which of the
following categorical order?
Operating, investing, and financing
Investing, operating, and financing
Financing, operating and investing
Financing, investing, and operating

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
Which of the following should be included while calculating the cash flows associated
with a project?
Cash flows at the time of investment
Cash flows during the life of project
Cash flows at the termination date

Which of the following is NOT the step of Percentage of sales to be used in Financial
Forecasting?
Estimate year-by-year Sales Revenue and Expenses
Estimate Levels of Investment Needs required to Meet Estimated Sales
Estimate the Financing Needs
Estimate the retained earnings
A technique that tells us the number of years required to recover our initial cash
investment based on the projects expected cash flows is:
Pay back period
Net present value
Profitability index
Which of the following allows to graphically depicting the timing of the cash flows as
well as their nature as either inflows or outflows?

Cash flow diagram
Cash budget
Cash flow statement
Which of the following would generally have unlimited liability?
A limited partner in a partnership
A shareholder in a corporation
The owner of a sole proprietorship
A member in a limited liability company (LLC)
Which of the following is NOT true regarding the capital market?
Where long-term funds can be raised
Money is invested for periods longer than a year
Where TFCs and NIT are exchanged and traded
Where overnight lending & borrowing takes place
Who determine the market price of a share of common stock?
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
Which of the following techniques would be used for a project that has nonnormal cash
flows?
Multiple internal rate of return

Modified internal rate of return
Net present value
If we were to increase ABC company cost of equity assumption, what would we expect
to happen to the present value of all future cash flows?
An increase
A decrease
No change
Incomplete information
The current yield on a bond is equal to ______.
Annual interest divided by the current market price
The yield to maturity
Annual interest divided by the par value
The internal rate of return
Choose the correct statement regarding the calculations of NPV (Net Present Value).
Exclude sunk costs and include opportunity costs and externalities
Exclude sunk costs and externalities and include opportunity costs
Include sunk costs, opportunity costs, and externalities
Exclude sunk costs and opportunity costs and include externalities
To increase a given future value, the discount rate should be adjusted ________.
Upward
Downward
First upward and then downward
Which of the following is the main objective of Financial Accounting?
Profit maximization
Maximization of shareholders wealth
To collect accurate, systematic, and timely financial data
Which of the following value of the shares changes with investors perception about the
companys future and supply and demand situation?
Par value
Market value
Intrinsic value
Face value
MIRR (discount rate) equates which of the following?
Future value of cash inflows to the present value of cash outflows
Future value of cash flows to the present value of cash flows
Future value of all cash flows to zero
Present value of all cash flows to zero

Wisconsin S&L, a savings and loan association
Strong Capital Appreciation, a mutual fund
Microsoft Corporation, a software firm
College Credit, a credit union
A technique that tells us the number of years required to recover our initial cash
investment based on the projects expected cash flows is:
Pay back period
Net present value

Profitability index
Which of the following are the approaches used to make two projects with different life
spans comparable?
Modified internal rate of return and equivalent annual annuity
Common life and equivalent annual annuity
Common life and modified internal rate of return
When the bond approaches its maturity, the market value of the bond approaches to
which of the following?
Intrinsic value
Book value
Par value
Historic cost
Study the time line and accompanying 5-period cash-flow pattern below. 0 1 2 3 4 5 6
Time line |--------|--------|--------|--------|--------|--------| Rs.10 Rs.10 Rs.10 Rs.10 Rs.10
Cash flows A B The present value of the 5-period annuity shown above as of Point A is
the present value of a 5-period ______________ , whereas the future value of the same
annuity as of Point B is the future value of a 5-period ______________ .
Ordinary annuity; ordinary annuity
Ordinary annuity; annuity due
Annuity due; annuity due
Annuity due; ordinary annuity
As interest rates go up, the present value of a stream of fixed cash flows ___.
Goes down
Goes up
Stays the same
Can not be found from the given information

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
Which of the following is the main objective of Economics?
Profit maximization
Collection of accurate, systematic, and timely financial data
If we were to increase ABC company cost of equity assumption, what would we expect
to happen to the present value of all future cash flows?
An increase
A decrease
No change
When the zero coupon bond approaches to its maturity, the market value of the bond
Intrinsic value
Book value
Par value
Historic cost

Which type of responsibilities are primarily assigned to Controller and Treasurer
respectively?
Operational; financial management
Financial management; accounting
Accounting; financial management
Financial management; operations
To increase a given future value, the discount rate should be adjusted __________.
Upward
Downward
First upward and then downward
________ is paid by companies with lower grade bonds like CC or C ratings.
Default risk premium
Sovereign Risk Premium
Market risk premium
Maturity risk premium


Which of the following statements is TRUE regarding Permanent Accounts?
Accounts that are found on Income Statement
Accounts that are found on Statement of Retained Earnings
Accounts that are found on Balance Sheet
Nominal interest Rate
Why companies invest in projects with negative NPV?
Because there is hidden value in each project
Because there may be chance of rapid growth
Because they have invested a lot
What is difference between shares and bonds?
A 5-year ordinary annuity has a present value of Rs.1,000. If the interest rate is 8 percent,
the amount of each annuity payment is closest to which of the following?
Rs. 250.44
Rs. 231.91
Rs.181.62
Rs.184.08
All of the following are the reasons for Uncertain NPV calculations EXCEPT:
Estimated discount rate does not change with the markets
Estimated Life of project is doubtful
Annual after-tax cash flows are difficult to estimate
Timing of cash flows is not exactly predictable
If Net Present Value technique is used, what is the minimum acceptance criterion for a
project?
NPV<0
NPV=0
NPV>0
NPV<=0
As interest rates go up, the present value of a stream of fixed cash flows _____.
Goes down
Goes up
Stays the same
Can not be found from the given information
Liquidity ratios
Debt ratios
Coverage ratios

_________ is equal to (common shareholders' equity/common shares outstanding).
Book value per share
Liquidation value per share
Market value per share
None of the above
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
Choose among the followings, the correct statement regarding every journal entry.
Sum of Debits = Sum of Credits
Sum of Debits >Sum of Credits
Sum of Debits < Sum of Credits
When bonds are issued, under which of the following category the value of the bond
appears?
Equity
Fixed assets
Short term loan
Long term loan
Which if the following refers to capital budgeting?
Investment in long-term liabilities
Investment in fixed assets
Investment in current assets
Investment in short-term liabilities

Intrinsic value
Market price
Fair price
Theoretical price
Which of the following is similar between Return on investment and Payback period
techniques of Capital budgeting?
Involvement of interest rate while making calculations
Do not account for time value of money
Tricky and complicated methods
Which of the following equation is NOT correct?
Gross Revenue Admin & Operating Expenses = Operating Revenue
Other Expenses + Other Revenue = EBIT
EBIT Financial Charges & Interest = EBT
Net Income Dividends = Retained Earning
Which of the following is NOT a cash outflow for the firm?

Depreciation
Dividends
Interest
Taxes
Who or what is a person or institution designated by a bond issuer as the official
representative of the bondholders?
Indenture
Debenture
Bond
Bond trustee
MIRR (discount rate) equates which of the following?
At the termination of project, which of the following needs to be considered relating to
project assets?
Salvage value
Book value
Intrinsic value
Fair value

For Company A, plow back ratio is 30%. What will be its Pay-out ratio?
3.33%
30%
31%
70%
Which of the following needs to be excluded while we calculate the incremental cash
flows?
Depreciation
Sunk cost
Opportunity cost
Non-cash item
What is potentially the biggest advantage of a small partnership over a sole
proprietorship?
Unlimited liability
Single tax filing
Difficult ownership resale
Raising capital
Accounts that are found on Income Statement
Accounts that are found on Statement of Retained Earnings
Accounts that are found on Balance Sheet
What is the present value of Rs.8,000 to be paid at the end of three years if interest rate is
11%?
Rs.6,015
Rs.4,872
Rs.6,725
Rs.1,842
What is the most important criteria in capital budgeting?
Return on investment
Profitability index
Net present value
Pay back period
Where there is single period capital rationing, what is the most sensible way of making
investment decisions?
Choose all projects with a positive NPV
Group projects together to allocate the funds available and select the group of
projects with the highest NPV
Choose the project with the highest NPV
Calculate IRR and select the projects with the highest IRRs

[left:3utnderv]My Quiz # 2[/left:3utnderv][left:3utnderv][/left:3utnderv][left:3utnderv]
[/left:3utnderv][left:3utnderv][/left:3utnderv][left:3utnderv]1.[/left:3utnderv]
[left:3utnderv][justify:3utnderv]Choose among the followings, the correct statement
regarding every journal entry.[/justify:3utnderv]
Sum of Debits = Sum of Credits
Sum of Debits >Sum of Credits
Sum of Debits < Sum of Credits
None of the given options[/left:3utnderv] [left:3utnderv][/left:3utnderv]

[left:3utnderv]2.[/left:3utnderv] [center:3utnderv][justify:3utnderv]What are the Direct
claim securities?[/justify:3utnderv]
The securities whose value depends on the cash flows generated by the
underlying assets
The securities whose value depends on the value of the underlying assets
The securities that do not directly generate any returns for its investors
All of the given options[/center:3utnderv] [right:3utnderv]

[/right:3utnderv]
[left:3utnderv][/left:3utnderv][left:3utnderv][/left:3utnderv][left:3utnderv]3.
[/left:3utnderv] [center:3utnderv][justify:3utnderv]How dividend yield on a stock is
similar to the current yield on a bond?[/justify:3utnderv]
Both represent how much each securitys price will increase in a year
Both represent the securitys annual income divided by its price
Both are an accurate representation of the total annual return an investor can
expect to earn by owning the security
Both are quarterly yields that must be annualized[/center:3utnderv] [right:3utnderv]

[/right:3utnderv] [left:3utnderv][/left:3utnderv] [left:3utnderv]4.[/left:3utnderv]
[left:3utnderv][justify:3utnderv]According to timing difference problem a good
project might suffer from _____ IRR even though its NPV is ________.
[/justify:3utnderv]
Higher; lower
Lower; Lower
Lower; higher
Higher; higher[/left:3utnderv] [left:3utnderv][/left:3utnderv] [left:3utnderv]5.

[/left:3utnderv] [center:3utnderv][justify:3utnderv]Which of the following includes the
planning, directing, monitoring, organizing, and controlling of the monetary
resources of an organization?[/justify:3utnderv]
Financial accounting
Financial management
Financial engineering
Financial budgeting[/center:3utnderv] [right:3utnderv]

[/right:3utnderv]
[left:3utnderv][/left:3utnderv] [left:3utnderv]6.[/left:3utnderv] [center:3utnderv]
[justify:3utnderv]The value of direct claim security is derived from which of the
following?[/justify:3utnderv]
Fundamental analysis
Underlying real asset
Supply and demand of securities in the market

[/right:3utnderv]
[left:3utnderv][/left:3utnderv] [left:3utnderv]7.[/left:3utnderv] [center:3utnderv]
[justify:3utnderv]Which of the following is the main objective of Economics?
[/justify:3utnderv]
Profit maximization
Collection of accurate, systematic, and timely financial data

[/right:3utnderv]
[left:3utnderv][/left:3utnderv] [left:3utnderv]8.[/left:3utnderv] [left:3utnderv]
[justify:3utnderv]Study the time line and accompanying 5-period cash-flow pattern
below. 0 1 2 3 4 5 6 Time line |--------|--------|--------|--------|--------|--------| Rs.10
Rs.10 Rs.10 Rs.10 Rs.10 Cash flows A B The present value of the 5-period
annuity shown above as of Point A is the present value of a 5-period
______________ , whereas the future value of the same annuity as of Point B is
the future value of a 5-period ______________ .[/justify:3utnderv]
Ordinary annuity; ordinary annuity
Ordinary annuity; annuity due
Annuity due; annuity due
Annuity due; ordinary annuity[/left:3utnderv] [left:3utnderv][/left:3utnderv]

[left:3utnderv]9.[/left:3utnderv] [left:3utnderv][justify:3utnderv]Effective interest rate
is different from nominal rate of interest because:[/justify:3utnderv]
All of the given options[/left:3utnderv] [left:3utnderv][/left:3utnderv] [left:3utnderv]10.

[/left:3utnderv] [left:3utnderv][justify:3utnderv]Which of the following is a major
disadvantage of the corporate form of organization?[/justify:3utnderv]
Double taxation of dividends
Inability of the firm to raise large sums of additional capital
Limited liability of shareholders
Limited life of the corporate form[/left:3utnderv] [left:3utnderv][/left:3utnderv]

[left:3utnderv]11.[/left:3utnderv] [center:3utnderv][justify:3utnderv]What is yield to
maturity on a bond?[/justify:3utnderv]
Below the coupon rate when the bond sells at a discount, and equal to the
coupon rate when the bond sells at a premium
The discount rate that will set the present value of the payments equal to the
bond price
Based on the assumption that any payments received are reinvested at the
coupon rate
None of the above[/center:3utnderv] [right:3utnderv]

[/right:3utnderv]
[left:3utnderv][/left:3utnderv] [left:3utnderv]12.[/left:3utnderv] [left:3utnderv]
[justify:3utnderv]Which of the following statements (in general) is correct?
[/justify:3utnderv]
A low receivables turnover is desirable
The lower the total debt-to-equity ratio, the lower the financial risk for a firm
An increase in net profit margin with no change in sales or assets means a

weaker ROI
The higher the tax rate for a firm, the lower the interest coverage
ratio[/left:3utnderv] [left:3utnderv][/left:3utnderv] [left:3utnderv]13.[/left:3utnderv]
[left:3utnderv][justify:3utnderv]_________ is equal to (common shareholders'
equity/common shares outstanding).[/justify:3utnderv]
Book value per share
Liquidation value per share
Market value per share
None of the above[/left:3utnderv] [left:3utnderv][/left:3utnderv] [left:3utnderv]14.

[/left:3utnderv] [left:3utnderv][justify:3utnderv]Which if the following is (are) true? I.
The dividend growth model holds if, at some point in time, the dividend growth
rate exceeds the stocks required return. II. A decrease in the dividend growth
rate will increase a stocks market value, all else the same. III. An increase in the
required return on a stock will decrease its market value, all else the same.
[/justify:3utnderv]
I, II, and III
I only
III only
II and III only[/left:3utnderv] [left:3utnderv][/left:3utnderv] [left:3utnderv]15.

[/left:3utnderv] [center:3utnderv][justify:3utnderv]Which of the following is similar
between Return on investment and Payback period techniques of Capital
budgeting?[/justify:3utnderv]
Involvement of interest rate while making calculations
Do not account for time value of money
Tricky and complicated methods

[left:3utnderv][/left:3utnderv]
All of the given options[/center:3utnderv]
Time Left
24
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Quiz Start Time: 04:48 PM

Question # 1 of 20 ( Start time: 04:48:11 PM )
Total Marks: 1
In 2 years you are to receive Rs.10,000. If the interest rate were to suddenly decrease, the
present value of that future amount to you would __________.
fall
rise
remain unchanged
Time Left
33
sec(s)

An annuity due is always worth _____ a comparable annuity.
Total Marks: 1
more than
Time Left
86
sec(s)

Total Marks: 1
What is the present value of Rs.8,000 to be paid at the end of three years if interest rate is
11%?
6,015
Time Left
60
sec(s)

Total Marks: 1
In percentage of sales method, which of the following current assets do not generally
grow in proportion to Sales?
marketable securities and prepaid expenses
not sure
Time Left
73
sec(s)

Total Marks: 1
Which of the following is the general assumption of Percent of Sales Forecasting?
current assests usually grow in proportion to sales
Time Left
80
sec(s)

What are the 'Indirect Securities'?
Total Marks: 1
the securities whose value work on the cash flows
Time Left
76
sec(s)

Total Marks: 1
default risk premium
Time Left
68
sec(s)

Total Marks: 1
Which of the following would be considered a cash-flow item from an "operating"
activity?
cash outflow to the government for taxes
Time Left
83
sec(s)

Total Marks: 1
To increase a given future value, the discount rate should be adjusted __________.
upward
Time Left
62
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Which of the following are known as Discretionary Financing?
Total Marks: 1
long term liabilities
Time Left
76
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All are the advantages of sole proprietorship, except:
limited liability ownership
Total Marks: 1
Time Left
43
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Which of the following is NOT the type of Hybrid organizations?
Total Marks: 1
sole propertiship
Time Left
16
sec(s)

Total Marks: 1
accounts that are found on balance sheet
Time Left
80
sec(s)

Total Marks: 1
What is the additional amount a borrower must pay to lender to compensate for
assuming the risk associated with non-payment?
default risk premium
Time Left
88
sec(s)

Total Marks: 1
Which group of ratios measures a firm's ability to meet short-term obligations?
liquidity ratios
Time Left
75
sec(s)

Which of the following is the Double Entry Principle?
assets=liabilities + shareholders equity
correct
Total Marks: 1
Time Left
69
sec(s)

Total Marks: 1
effective interest rate
correct
Time Left
72
sec(s)

Identify the statement that (in general) is correct.
Total Marks: 1
the lower the debt ratio ,the lower the
correct
Time Left
69
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________ are also known as Spontaneous Financing.
Total Marks: 1
current liabilities
correct
Time Left
17
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Which of the following is type a Temporary Account?
Total Marks: 1
revenue
correct
Time Left
71
sec(s)

Total Marks: 1
Which of the following includes the planning, directing, monitoring, organizing, and
controlling of the monetary resources of an organization?
financial managment
correct
Time Left
63
sec(s)

Total Marks: 1
____________ is a financial statement that shows the profitability of a company over a
specific accounting period.
income statement
correct
Time Left
75
sec(s)

Total Marks: 1
Which of the following market in finance is referred to the market for short-term
government and corporate debt securities?
money market
correct
Time Left
83
sec(s)

Total Marks: 1
Identify the option that best describes the simple rule of a double entry system.
sun of debit = sum of credit
Time Left
72
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Identify the component(s) of working capital management.
Total Marks: 1
current assets and current liabilities
correct
Time Left
28
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Balance Sheet of a company reflects:
Total Marks: 1
organizational financial health at a specific
correct
Time Left
73
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Determine the main focus of financial management in a firm.
Total Marks: 1
creating value for the shareholders
correct
Time Left
73
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How can a company improve (lower) its debt-to-total asset ratio?
Total Marks: 1
by selling common stock
correct
Time Left
66
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Nominal Interest Rate is also known as:
Total Marks: 1
annual percent rate
correct
Time Left
79
sec(s)

Total Marks: 1
Which of the following is an asset in which the possibility of an economic benefit
depends solely upon future events that can't be controlled by the company?
current assets
correct
Time Left
61
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Total Marks: 1
The formula to calculate future value of an amount using continuous compounding is:
FV = PV (e) i * n
correct
Time Left
74
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Total Marks: 1
discounting
correct
Time Left
78
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Which of the following is not a Profitability ratio?
Total Marks: 1
inventory turnover
correct
Time Left
77
sec(s)

Total Marks: 1
Microsoft corporation : the firm
I think
Time Left
80
sec(s)

Total Marks: 1
All of the following are the financial statements used for the purpose of reporting and
analysis EXCEPT:
Time Left
74
sec(s)

Total Marks: 1
Which of the following is a major disadvantage of the corporate form of organization?
double taxation on the profit
I think
Time Left
79
sec(s)

Total Marks: 1
Which of the following would be considered a cash-flow item from an "investing"
activity?
cash flow to purchase bonds issued by another
correct
Time Left
80
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Total Marks: 1
In financial accounting, assets are recorded on the basis of __________ in the balance
sheet.
historical value
correct
My Today quiz
Mgt 201
Intrinsic value
Market price
Fair price
Theoretical price
Which of the following needs to be excluded while we calculate the incremental
cash flows?
Depreciation
Sunk cost
Opportunity cost
Non-cash item
Which of the following refers to the cost of taking up one option while sacrificing the
other?
Opportunity cost
Operating cost
Sunk cost
Floatation cost
What is the long-run objective of financial management?
Maximize earnings per share
Maximize the value of the firm's common stock
Maximize return on investment
Maximize market share
Net present value
Discounting
Opportunity cost
Which of the following is NOT an example of hybrid equity
Convertible Bonds
Convertible Debenture
Common shares
Preferred shares
Which of the following is likely to be correct for a company which invests in projects
with Positive NPV?
Companys EVA (Economic Value Added) rises by the same value
Companys MVA (Market Value Added) or market value rises
Company Shareholders Wealth rises
All of the following are the reasons for Uncertain NPV calculations EXCEPT:
Estimated discount rate does not change with the markets
Estimated Life of project is doubtful
Annual after-tax cash flows are difficult to estimate
Timing of cash flows is not exactly predictable
Given no change in required returns, the price of a stock whose dividend is
constant will________.
Decrease over time at a rate of r%
Remain unchanged
Increase over time at a rate of r%
Decrease over time at a rate equal to the dividend growth rate
A company whose stock is selling at a P/E ratio greater than the P/E ratio of a
market index most likely has _______.
An anticipated earnings growth rate which is less than that of the average firm
A dividend yield which is less than that of the average firm
Less predictable earnings growth than that of the average firm
Greater cyclicality of earnings growth than that of the average firm
Which of the following would generally have unlimited liability?
A limited partner in a partnership
A shareholder in a corporation
The owner of a sole proprietorship
A member in a limited liability company (LLC)
Liquidity ratios
Debt ratios
Coverage ratios
A 5-year annuity due has periodic cash flows of Rs.100 each year. If the interest
rate is 8 percent, the future value of this annuity is closest to which of the following
equations?
(Rs.100)(FVIFA at 8% for 5 periods)
(Rs.100)(FVIFA at 8% for 4 periods)(1.08)
(Rs.100) (FVIFA at 8% for 5 periods)(1.08)
(Rs.100)(FVIFA at 8% for 4 periods) + Rs.100
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
All of the following are the financial statements used for the purpose of reporting
and analysis EXCEPT:
Balance Sheet
Income Statement
Cash budget
Statement of Retained Earnings
Question # 1 of 15 ( Start time: 01:35:10 AM )
Total Marks: 1
When two products are manufactured during a common process, the factor that determine whether the products are joint product
or one main product and one is by product is the:
Potential marketability for each product
Amount of work expended in the production of each
Relative total sales value of each product
CORRECT
Management policy

A high inventory turnover may indicate:
Total Marks: 1

An efficient use of the investment in inventory
A high risk of stock-outs
CORRECT
Stock position of store room

Total Marks: 1
Consider the following data for the month of May: Sales 150 units, Opening units 120 units,Closing 80 units Based on the data,
production in May will have to be?
150 units
50 units
190 units
110 units
CORRECT
Total Marks: 1
Company A's fixed costs were Rs.45,000, its variable costs were Rs. 24,000, and its sales were Rs.80,000. What is the
company's break-even point in sales Rs?
Rs. 33,000
Rs. 57,000
Rs. 79,000
CORRECT
Opportunity cost is the best example of:
Total Marks: 1

Sunk Cost
Standard Cost
Relevant Cost
CORRECT
Irrelevant Cost

A method by which the good used are priced out at average cost is known as:
BCVO
Total Marks: 1
AVCO
CORRECT
c.FIFO
LIFO

The Process of cost apportionment is carried out so that:
Total Marks: 1

Cost may be controlled
Cost unit gather overheads as they pass through co
Whole items of cost can be charged to cost centers
Common costs are shared among cost centers
CORRECT
Which of the following items of expense are to be add in FOH cost
Rent of factory + Head office rent + salaries to fact
Rent of factory + factory lighting bill + Directors sala
Total Marks: 1
Rent of factory + factory lighting bill + Factory empl
CORRECT
Head office rent + Factory property tax + Factory s

If, COGS = Rs. 50,000 GP Margin = 25% of sales What will be the value of Sales?
Total Marks: 1

Rs. 200,000
Rs. 66,667
CORRECT
Rs. 62,500

Which of the following best describes the manufacturing costs?
Total Marks: 1

Direct materials, direct labor and factory overhead
CORRECT
Direct materials and direct labor
Direct materials, direct labor, fact ory overhead, and administ rat ive overhead
Direct labor and factory overhead

A cost centre is
Total Marks: 1

A unit of product or service in relation to which costs are ascertained
CORRECT
An amount of expenidure attributable to an activity
A production or service location,function,activity or i
A centre for which an indvidual budget is drawn up
# 12 of 15 ( Start time: 01:47:22 AM )

Total Marks: 1
Information concerning Label Corporations Product A is as follows: Sales price Rs. 300,000,Variable cost Rs. 240, 000, Fixed
Cost is Rs. 40,000.If Label increased sales of Product A by 20%, the profit of the product A would be which of the following?
Rs. 20,000
Rs. 24,000
Rs. 32,000
CORRECT
Rs. 80,000
Total Marks: 1
Profit under absorption costing will be higher than under marginal costing if:
Produced units > Units sold
CORRECT
Produced units < Units sold
Produced units = Units sold
Profit cannot be determined with given statement

What will be the impact of normal loss on the overall per unit cost?
Total Marks: 1

Per unit cost will increase
CORRECT
Per unit cost will decrease
Per unit cost remain unchanged
Normal loss has no relation to unit cost

If, Gross profit = Rs. 40,000 GP Margin = 20% of sales What will be the value of cost of goods sold?
Rs. 160,000
Total Marks: 1
Rs. 120,000
CORRECT
Rs. 40,000
Rs. 90,000
MGT201 Quiz 2 Solved (Dated:24-11-2010)
Published on Friday, 26 November 2010 23:04

Written by Fuad Hasan
Question # 1 of 15 ( Start time: 09:47:52 PM ) Total M - 1
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
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
Which of the following is the general assumption of Percent of Sales
Forecasting?
Current Assets usually grow in proportion to Revenues
Current Assets usually grow in proportion to Expenses

Current Assets usually grow in proportion to Liabilities
Current Assets usually grow in proportion to Sales
Which of the following is correct, if a firm has a required rate of return equal to
the ROE?
The firm can increase market price and P/E by retaining more earnings.
The firm can increase market price and P/E by increasing the growth rate.
The amount of earnings retained by the firm does not affect market
price or the P/E.
Which of the following is NOT true regarding an ordinary annuity?
It is a series of equal cash flows
Cash flows occur for a specific time period
Payments are made at the start of each period
It is also known as deferred annuity
Market risk premium
Which of the following are the approaches used to make two projects with
different life spans comparable?
Modified internal rate of return and equivalent annual annuity
Common life and equivalent annual annuity
Common life and modified internal rate of return
Which of the following will NOT equate the future value of cash inflows to the
present value of cash outflows?
Discount rate
Profitability index

Multiple Internal rate of return
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
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
________ are also known as Spontaneous Financing.
Current liabilities
Current assets
Fixed assets
Which type of responsibilities are primarily assigned to Controller and Treasurer
respectively?
Operational; financial management
Financial management; accounting
Accounting; financial management
Financial management; operations
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
Which of the following is type a Temporary Account?
Asset
Liability
Reserves
Revenue

The risk that covers events like unexpected changes in the economy refers to:
Systematic risk
Unsystematic risk
Total risk
All of the above
Mgt201 mcqzz
Q#1: Which of the following is the Double Entry Principle?
Assets + Liabilities = Shareholders Equity
Assets = Liabilities + Shareholders Equity
Liabilities = Assets + Shareholders Equity
Q#2 Given no change in required returns, the price of a stock whose dividend is constant
will________.
Decrease over time at a rate of r%

Remain unchanged
Increase over time at a rate of r%
Decrease over time at a rate equal to the dividend growth rate
Q#3: Nominal Interest Rate is also known as:

Required interest rate
Q#4: Which one of the following selects the combination of investment proposals that will provide
the greatest increase in the value of the firm within the budget ceiling constraint?
Cash budgeting
Capital budgeting
Capital rationing
Capital expenditure
Q#5: MIRR (discount rate) equates which of the following?

Q#6: With continuous compounding at 8 percent for 20 years, what is the approximate future
value of a Rs. 20,000 initial investment?
Rs.52,000
Rs.93,219
Rs.99,061
Rs.915,240
Q#7:Which of the following is a capital budgeting technique that is NOT considered as
discounted cash flow method?
Payback period
Net present value
Profitability index
Q#8 A 5-year annuity due has periodic cash flows of Rs.100 each year. If the interest rate is 8
percent, the future value of this annuity is closest to which of the following equations?
(Rs.100)(FVIFA at 8% for 5 periods)
(Rs.100)(FVIFA at 8% for 4 periods)(1.08)
(Rs.100) (FVIFA at 8% for 5 periods)(1.08)
(Rs.100)(FVIFA at 8% for 4 periods) + Rs.100
Q#9 What is difference between shares and bonds?

Q#10 All of the following are the financial statements used for the purpose of reporting and
analysis EXCEPT:
Balance Sheet
Income Statement
Cash budget
Statement of Retained Earnings
Q#11he statement of cash flows reports a firm's cash flows segregated into which of the following
categorical order?
Operating, investing, and financing
Investing, operating, and financing
Financing, operating and investing
Financing, investing, and operating
Q#12 When the zero coupon bond approaches to its maturity, the market value of the bond
Intrinsic value
Book value
Par value
Historic cost
Q#13 What is potentially the biggest advantage of a small partnership over a sole proprietorship?
Unlimited liability
Single tax filing
Difficult ownership resale
Raising capital
Q#14 Why we need Capital rationing? (

Because, there are not enough positive NPV projects
Because, companies do not always have access to all of the funds they could make use of
Because, managers find it difficult to decide how to fund projects
Because, banks require very high returns on projects
Q#15 ______ are also known as Spontaneous Financing.

Current liabilities
Current assets
Fixed assets
Q#16 Which of the following would be considered a cash-flow item from an "operating" activity?
Cash outflow to the government for taxes
Cash outflow to shareholders as dividends
Cash inflow to the firm from selling new common equity shares
Cash outflow to purchase bonds issued by another company
Q#17 ______ is paid by companies with lower grade bonds like CC or C ratings.
Market risk premium
Q#18 A capital budgeting technique through which discount rate equates the present value of the
future net cash flows from an investment project with the projects initial cash outflow is known
as:
Payback period

Net present value
Profitability index
Q#19 If we were to increase ABC company cost of equity assumption, what would we expect to
happen to the present value of all future cash flows?
An increase
A decrease
No change
Q#20 Which of the following includes the planning, directing, monitoring, organizing, and
controlling of the monetary resources of an organization?
Financial accounting
Financial management
Financial engineering
Financial budgeting
Q#21 What is the long-run objective of financial management?

Maximize earnings per share
Maximize the value of the firm's common stock
Maximize return on investment
Maximize market share
Q#22 Why companies invest in projects with negative NPV?

Q#23 Which of the following is NOT the step of Percentage of sales to be used in Financial
Forecasting?
Estimate year-by-year Sales Revenue and Expenses
Estimate Levels of Investment Needs required to Meet Estimated Sales
Estimate the Financing Needs
Estimate the retained earnings
Q#24 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.
IRR
MIRR
PV
NPV
Q#25 Which of the following is NOT the type of Hybrid organizations?

S-Type Corporation
Limited Liability Partnership
Sole Proprietorship
Professional Corporation
Q#26 Which of the following techniques would be used for a project that has nonnormal cash
flows?
Multiple internal rate of return
Modified internal rate of return
Net present value
Q#27 Which if the following is (are) true? I. The dividend growth model holds if, at some point in
time, the dividend growth rate exceeds the stocks required return. II. A decrease in the dividend
growth rate will increase a stocks market value, all else the same. III. An increase in the required
return on a stock will decrease its market value, all else the same.
I, II, and III
I only
III only
II and III only
Q#28 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
Q#29 Why companies invest in projects with negative NPV?

Q@30 At the termination of project, which of the following needs to be considered relating to
project assets?
Salvage value
Book value
Intrinsic value
Fair value

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MGT201 QUIZ 2 BY NAVEED 22-11-2010

Question # 1 of 15 ( Start time: 06:36:00 AM ) Total Marks: 1

Select correct option:

MGT201 QUIZ 2 BY NAVEED 22-11-2010

Financing, investing, and operating

MGT201 QUIZ 2 BY NAVEED 22-11-2010

well as their nature as either inflows or outflows?

Multiple internal rate of return

MGT201 QUIZ 2 BY NAVEED 22-11-2010

Net present value

Can not be found from the given information

savings from depreciation + net working capital + other cash flow

Nominal interest rate includes frequency of compounding

MGT201 QUIZ 2 BY NAVEED 22-11-2010

Question # 10 of 15 ( Start time: 07:24:35 AM ) Total Marks: 1

MGT201 QUIZ 2 BY NAVEED 22-11-2010

Select correct option:

Question # 9 of 15 ( Start time: 05:14:55 AM ) Total Marks: 1

MGT201 QUIZ 2 BY NAVEED 22-11-2010

Sum of Debits = Sum of Credits

Sum of Debits >Sum of Credits

Sum of Debits < Sum of Credits

None of the given options[/left:3utnderv] [left:3utnderv][/left:3utnderv]

All of the given options[/center:3utnderv] [right:3utnderv]

Both represent the securitys annual income divided by its price

Both are quarterly yields that must be annualized[/center:3utnderv] [right:3utnderv]

Higher; higher[/left:3utnderv] [left:3utnderv][/left:3utnderv] [left:3utnderv]5.

Financial budgeting[/center:3utnderv] [right:3utnderv]

Underlying real asset

Supply and demand of securities in the market

All of the given options[/center:3utnderv] [right:3utnderv]

Maximization of shareholders wealth

Collection of accurate, systematic, and timely financial data

All of the given options[/center:3utnderv] [right:3utnderv]

Ordinary annuity; ordinary annuity

Ordinary annuity; annuity due

Annuity due; annuity due

Annuity due; ordinary annuity[/left:3utnderv] [left:3utnderv][/left:3utnderv]

Nominal interest rate ignores compounding

Nominal interest rate includes frequency of compounding

Periodic interest rate ignores the effect of inflation

All of the given options[/left:3utnderv] [left:3utnderv][/left:3utnderv] [left:3utnderv]10.

Double taxation of dividends

Inability of the firm to raise large sums of additional capital

Limited liability of shareholders

Limited life of the corporate form[/left:3utnderv] [left:3utnderv][/left:3utnderv]

None of the above[/center:3utnderv] [right:3utnderv]

A low receivables turnover is desirable

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

Book value per share

Liquidation value per share

Market value per share

None of the above[/left:3utnderv] [left:3utnderv][/left:3utnderv] [left:3utnderv]14.

I, II, and III

II and III only[/left:3utnderv] [left:3utnderv][/left:3utnderv] [left:3utnderv]15.

Involvement of interest rate while making calculations

Do not account for time value of money

Tricky and complicated methods

Quiz Start Time: 04:48 PM

Quiz Start Time: 04:48 PM

Question # 2 of 20 ( Start time: 04:49:39 PM )

Quiz Start Time: 04:48 PM