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.
FINALTERM
EXAMINATION
FALL 2006
ACC501 - BUSINESS FINANCE
(Session - 1 )
Marks: 60
Time: 120min
StudentID/LoginID:
______________________________
Student Name:
______________________________
Center Name/Code:
______________________________
Exam Date: Saturday,
February 03, 2007
Please read the following instructions carefully before
attempting any question:
All questions are compulsory.
This exam consists of 15 Multiple Choice
Questions (MCQ’s), 5 True/False Questions, 5 Fill in the
Blanks,5
Short Questions and 2 Numerical Questions.
Question No.1-15 are MCQs carrying 1 Mark each,
Question No.16-20 are True/False Questions
carrying
1 Mark each, Question No.21-25 are fill in the blanks carrying 1 Mark
each, Question
No.26-30
are short questions carrying 3 Marks each and Question No.31-32 are
numerical
questions
carrying 10 Marks each.
For each MCQ, read the choices available carefully and
select the choice which you consider is the
most
suitable, by clicking on the appropriate check box.
You are required to show all the working of short
questions as well as Numerical questions.
This examination is closed book, closed notes and closed
neighbour.
Do not ask questions about the contents of this
examination from anyone.
The use of calculator and financial tables is allowed.
You may wish to pace yourself with your own watch, but
the Supervisor will be the official timekeeper
of
the test.
Failure to comply with the supervisor’s directions will
result in your test being cancelled. Please
comply
with supervisor’s directions to avoid any unpleasant event.
For Teacher's use only
Question 1 2 3 4 5 6 7 8 9
10 Total
Marks
.
.
Question 11 12 13 14 15 16
17 18 19 20
Marks
Question 21 22 23 24 25 26
27 28 29 30
Marks
Question 31 32
Marks
Question No: 1 ( Marks: 1
) - Please choose one
A series of constant,
or level, cash flows that occur at the end of each period for some fixed
number of periods is
called a/an:
►
Present Value
►
Future Value
►
Ordinary Annuity
►
Ordinary Share
Question No: 2 ( Marks: 1
) - Please choose one
The Ratios showing
the ability of a firm to pay its bills in short-run are called:
►
Leverage Ratios
►
Liquidity Ratios
►
Profitability Ratios
►
Market Value Ratios
Question No: 3 ( Marks: 1
) - Please choose one
GAAP stands for:
►
Generally Accepted
Accounting Principles
►
Generally All-rounder
Accounting Principles
►
General Accepting
Accounts Principles
►
None of the given
options
Question No: 4 ( Marks: 1
) - Please choose one
A contract between
the bond issuer and bond holder is called:
.
.
►
Bond Indenture
►
Bond Debenture
►
Bond Value
►
None of the given
options
Question No: 5 ( Marks: 1
) - Please choose one
Suppose you have a
portfolio comprised of two securities X and Y. In the portfolio, 60 shares are
of stock X valued at
Rs.10 per share and 40 shares are of stock Y valued at Rs.3 per share. What is
the approximate
weight of stock X in the portfolio?
►
23 %
►
40 %
►
60 %
►
83 %
Question No: 6 ( Marks: 1
) - Please choose one
In which market,
previously issued securities are traded among investors?
►
Primary Market
►
Secondary Market
►
Tertiary Market
►
None of the given
options
Question No: 7 ( Marks: 1
) - Please choose one
Which of the
following is the present value of a series of future net cash flows that will
result from
an investment, minus
the amount of the original investment?
►
Present Value
►
Future Value
►
Net Present Value
►
Terminal Value
.
.
Question No: 8 ( Marks: 1
) - Please choose one
You earn a 5 percent
real return. If the inflation rate is 4 percent, what is your nominal return?
►
8.96 %
►
9.05 %
►
9.20 %
►
9.92 %
Question No: 9 ( Marks: 1
) - Please choose one
Fee paid to the
consultant for evaluating the option of launching a new product will be
considered
as:
►
Sunk Cost
►
Opportunity Cost
►
Financing Cost
►
Operating Cost
Question No: 10 ( Marks: 1
) - Please choose one
A risk that affects a
single or at most a small number of assets is called:
►
Unsystematic Risk
►
Unique Risk
►
Diversifiable Risk
►
All of the given
options
Question No: 11 ( Marks: 1
) - Please choose one
What will be the
payback period of a Rs.70,000 investment with the following cash inflows?
Years Cash flows
1 Rs. 15,000
2 Rs. 20,000
3 Rs. 25,000
4 Rs. 15,000
5 Rs. 5,000
.
.
►
3.57 years
►
3.67 years
►
4.57 years
►
4.67 years
Question No: 12 ( Marks: 1
) - Please choose one
Which of the
following is the required return on a firm's debt by its creditors?
►
Cost of Equity
►
Cost of Debt
►
Cost of Preferred
Stock
►
Cost of Capital
Question No: 13 ( Marks: 1
) - Please choose one
Which one of the
followings is the overall required return the firm must earn on its existing
assets
to maintain the value
of the stock?
►
AAR (Average
Accounting Return)
►
IRR (Internal Rate of
Return)
►
MIRR (Modified
Internal Rate of Return)
►
WACC (Weighted
Average Cost of Capital)
Question No: 14 ( Marks: 1
) - Please choose one
The costs to store
and finance the assets are known as:
►
Carrying Costs
►
Shortage Costs
►
Manufacturing Costs
►
None of the given
options
Question No: 15 ( Marks: 1
) - Please choose one
.
.
The minimum level of
inventory that a firm keeps on hand is called:
►
Common stock
►
Safety Stock
►
Preferred Stock
►
Dangerous Stock
Question No: 16 ( Marks: 1
) - Please choose one
Realization Principle
is one of the basic principles of GAAP.
►
True
►
False
Question No: 17 ( Marks: 1
) - Please choose one
Whenever the word
Dividend is used, it always refers to a long-term loan.
►
True
►
False
Question No: 18 ( Marks: 1
) - Please choose one
A preferred dividend
is exactly like interest on bond.
►
True
►
False
Question No: 19 ( Marks: 1
) - Please choose one
By IRR rule, take a
project when its IRR exceeds the required return.
►
True
►
False
Question No: 20 ( Marks: 1
) - Please choose one
Diversification is
the group of assets such as stocks and bonds held by investor.
► True
.
.
►
False
Question No: 21 ( Marks: 1
)
___________________
is a special case of Annuity, where the stream of cash flows
continues
forever.
Question No: 22 ( Marks: 1
)
________________
is the value of a present amount at a certain date in the future
based on a
determined rate of
return.
Question No: 23 ( Marks: 1
)
The amount of time
required for an investment to generate cash flows sufficient to recover its
initial cost is
called its ____________________.
Question No: 24 ( Marks: 1
)
__________________
refers to the extent to which a firm relies on its debt.
Question No: 25 ( Marks: 1
)
The difference
between the return on a risky investment and that on a risk free investment is
called
____________________.
Question No: 26 ( Marks: 3
)
What is the
difference between Flexible Policy and Restrictive Policy regarding size of
investment
in current assets
while making short-term financial policy?
Question No: 27 ( Marks: 3
)
Differentiate between
Systematic Risk and Unsystematic Risk. Which of them can be eliminated
by diversification?
Question No: 28 ( Marks: 3
)
Suppose common stocks
of a company are currently selling for Rs.30 per share. Stock market
analysts estimated a
dividend of Rs.2 per share for the next year and it is expected that the
dividend
will grow by 10% more
or less indefinitely. What return does this stock offer?
Question No: 29 ( Marks: 3
)
A bank is offering
12% interest rate compounded quarterly on its saving account. What would be
the Effective Annual
Rate (EAR) ?
Question No: 30 ( Marks: 3
)
.
.
“An investment is
acceptable if the IRR exceeds the required return. It should be rejected
otherwise.” Explain.
Question No: 31 ( Marks:
10 )
Sumi Inc. has
outstanding Rs.1, 000- face –value bond with a 16 percent coupon rate and 6
years
remaining until final
maturity. Interest payments are made quarterly. What would be the value of
this bond if your
nominal annual required rate of return is : (i) 13 %, (ii) 19 %.
Question No: 32 ( Marks:
10 )
S&T Company just
paid a dividend of Rs.2 per share and has a share price of Rs.30. The dividends
are expected to grow
@ 10% forever. S&T Company has Rs.75 million in equity and Rs.75 million
in debt in its total
capital. The tax rate for the firm is 35% and the Cost of debt is 8%. What will
be
the Weighted Average Cost of Capital
(WACC) for S&T Company ?
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