.
FINALTERM
EXAMINATION
SPRING 2007
ACC501 - BUSINESS FINANCE
(Session - 3 )
Marks: 60
Time: 150min
StudentID/LoginID:
______________________________
Student Name:
______________________________
Center Name/Code:
______________________________
Exam Date: Wednesday, July
11, 2007
Please read the following instructions carefully before
attempting any question:
All questions are compulsory.
This exam consists of 10 Multiple Choice
Questions (MCQ’s), 5 True/False Questions, 3 Short
Questions
and 3 Numerical Questions.
Question No. 1-10 are
MCQs carrying 1 Mark each, Question No. 11-15 are True/False
Questions
carrying 1 Mark each, Question No.16-18 are short questions
carrying 5 Marks each
and
Question No. 19-21 are numerical questions carrying 10 Marks
each.
For each MCQ, read the choices available carefully and
select the choice which you consider is the
correct
one.
You are required to show all the working of short
questions as well as Numerical questions.
The use of calculator and financial tables is allowed.
The use of mobile phones in exam center is strictly
prohibited.
A clock has been given in the exam software. Software will
automatically be closed after 150
minutes.
Remember do not spend too much time on any one MCQ.
Since all MCQ’s carry equal marks, it is
important
to manage your time and responses to test questions effectively.
This Examination is closed book, closed notes and closed
neighbours.
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
Marks
Question No: 1 ( Marks: 1
) - Please choose one
.
The process of planning and managing a firm’s long-term
investments is called :
►
Planning Process
►
Capital Structure
►
Capital Budgeting
►
Managing Process
Question No: 2 ( Marks: 1
) - Please choose one
Return on Equity (ROE) = _________ x Total Assets Turnover x
Equity Multiplier
►
Profit Margin
►
Total Sales
►
Net Income
►
Total Equity
Question No: 3 ( Marks: 1
) - Please choose one
If a bank loans out Rs. 10,000 for 90 days at 8% simple interest,
the Present Value (PV) will
be :
►
Rs. 9,105
►
Rs. 9,807
►
Rs. 10,325
►
Rs. 10,765
Question No: 4 ( Marks: 1
) - Please choose one
The ____________ is the rate where NPV (Net Present Value) equals
to zero.
►
WACC (Weighted Average Cost of Capital)
►
IRR (Internal Rate of Return)
►
MIRR (Modified Internal Rate of Return)
►
AAR (Average Accounting Return)
Question No: 5 ( Marks: 1
) - Please choose one
.
______________ is adopted to permit minority participation.
►
Cumulative Voting
►
Straight Voting
►
Proxy Voting
►
Staggering
Question No: 6 ( Marks: 1
) - Please choose one
Which one of the following statements projects future years’
operations in a summarized
format ?
►
Income Statement
►
Cash Flow Statement
►
Pro Forma Financial Statement
►
None of the given options
Question No: 7 ( Marks: 1
) - Please choose one
The direct and indirect costs associated with going bankrupt or
experiencing financial
distress, are known as :
►
Direct Bankruptcy Costs
►
Indirect Bankruptcy Costs
►
Financial Distress Costs
►
All of the given options
Question No: 8 ( Marks: 1
) - Please choose one
Suppose you bought 1,500 shares of a corporation at Rs. 25 each.
After a year, you
received Rs. 3,000 (Rs. 2 per share) in dividends. The dividend
yield will be :
►
5.00 %
►
8.00%
►
10.00%
►
12.00%
Question No: 9 ( Marks: 1
) - Please choose one
.
You earn a 7% real return. If the inflation rate is 5 percent,
what is your nominal return ?
►
8.96 %
►
9.05 %
►
11.65 %
►
12.35%
Question No: 10 ( Marks: 1
) - Please choose one
The
projected cash flows from a project are :
Years Cash flows
1 Rs.
100
2 Rs.
300
3 Rs.
600
4 Rs.
800
The project costs Rs. 1,000. What would be the payback period for
the project ?
►
2.00 Years
►
2.67 Years
►
3.00 Years
►
3.67 Years
Question No: 11 ( Marks: 1
) - Please choose one
Sole Proprietorship is a business created as a distinct legal
entity owned by one or more
individuals or entities.
►
True
►
False
Question No: 12 ( Marks: 1
) - Please choose one
The term discounting is associated with Future Value concept
whereas the term
compounding is associated with Present Value concept.
►
True
.
►
False
Question No: 13 ( Marks: 1
) - Please choose one
Constant Growth Stock is a share of common stock in a company with
a constant rate of
dividend.
►
True
►
False
Question No: 14 ( Marks: 1
) - Please choose one
Portfolio is the group of assets (stocks and bonds) held by an
investor.
►
True
►
False
Question No: 15 ( Marks: 1
) - Please choose one
The difference between bank cash and book cash, representing the
net effect of cheques in
the process of clearing is called float.
►
True
►
False
Question No: 16 ( Marks: 5
)
Following are given cash inflows of a project. Assume that all
cash flows are received at
the end of the period.
Period Cash Flows
1 Rs.10,000
2 Rs.15,000
3 Rs.20,000
4 Rs.30,000
5 Rs.35,000
Calculate the future value of cash flows stream at the end of year
5 with a compound
annual interest rate of 10%.
Question No: 17 ( Marks: 5
)
.
Write down the statements for the followings:
a. NPV (Net Present Value) Rule
b. IRR (Internal Rate of Return) Rule
c. Payback Rule
d. PI (Profitability Index) Rule
e. AAR (Average Accounting Return) Rule
Question No: 18 ( Marks: 5
)
What do M&M Proposition I and Proposition II state ?
Question No: 19 ( Marks:
10 )
Mr. Jamil has Rs. 70,000 that he can deposit in savings accounts
of any of three banks A, B
or C for a three years period. Bank A compounds interest on annual
basis; Bank B
compounds interest semi-annually (twice each year); and Bank C
compounds interest
quarterly (four times each year). All three banks have a stated
annual interest rate of 12%.
1. How much Mr. Jamil will have in his account after three years
if he deposits
his money in Bank A ?
2. How much He will have in his account after three years if he
deposits his
money in Bank B ?
3. How much He will have in his account after three years if he
deposits his
money in Bank C ?
4. On the basis of your findings in above parts, describe which
bank should
Mr. Jamil deal with and why ?
Question No: 20 ( Marks:
10 )
SNT Company presently paid a dividend of Rs.1.5 per share and has
a share price of
Rs.25. The dividends are expected to grow @ 15% forever. SNT
Company has Rs.100
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 12%. Calculate the Weighted Average
Cost of Capital
(WACC) for SNT Company?
Question No: 21 ( Marks:
10 )
Magi Inc. specializes in toys and receives all income from sales.
Quarters * 1 2 3 4 1 (next year)
Sales (Rs.) 500,000 600,000 650,000 800,000 550,000
* Each quarter consists of 3 months (90 days)
Accounts Receivable:
o Beginning receivables = Rs. 250,000
o Average Collection Period = 30 days
Accounts Payable:
o Purchases = 50 % of next quarter’s sales
o Beginning payables = Rs. 125,000
o Accounts Payable Period is 45 days
Other expenses:
.
o Wages, taxes and other expenses are 25% of sales
o Interest and dividend payments are Rs. 50,000
o A major capital expenditure of Rs. 200,000 is expected in the
second quarter
You are just required to calculate the Cash Collections (Receipts)
and Cash Disbursements
(Payments)
for four Quarters.
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