.
ACC501
Business Finance
Mid
Term Examination – Spring 2006
Time
Allowed: 90 Minutes
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 Fill in the Blanks, 5Short
Questions and 1 Descriptive
Question.
• You should try to
complete MCQ’s in 10 - 15 minutes in order to avail 75 - 80 minutes for
the descriptive questions.
• For each MCQ, read
the choices available carefully and select the choice which you
consider is the most suitable, by
clicking on the appropriate circle.
• Save your answer
before proceeding to the next question.
• Do not click the “Finish button” while solving your
paper. Once you clicked the “Finish”
button, you will not be able to access
your paper again. Click it only at the end after
attempting the
whole paper, which will be an indication that you have submitted your
complete paper.
• You are required to
show all the working of short questions as well as descriptive question
in your answers.
• The use of
calculator and financial tables is allowed.
• A clock has been given
in the exam software. Software will automatically be closed after
90 minutes.
• It is your
responsibility to manage time and responses to test questions effectively.
.
• 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.
Question
No. 1 Marks : 1
The
_____________________ ratio is the same as the _______________________ ratio
except
inventories and "other current assets" are dropped from the
numerator.
Question
No. 2 Marks : 1
The
growth that can be financed without resorting to any external equity financing
is
called
the _______________
Question
No. 3 Marks : 1
Financial
institutions facilitate individuals and firms in:
Borrowing
Lending
pooling of risks
all of the given
options
Question
No. 4 Marks : 1
are
issued by state and local governments.
Treasury bonds
Municipal bonds
Corporate bonds
Personal bonds
Question
No. 5 Marks : 1
You
are expecting to receive Rs.5000 in 3 years. If the interest rate increases,
the
present
value of that future amount to you would:
Fall
Rise
remain unchanged
cannot be determined
without more information
.
Question
No. 6 Marks : 1
is not
the function of the treasurer:
Preparation of
financial statements
Investor
relationships
Cash management
Obtaining finances
Question
No. 7 Marks : 1
Sara
is interested in purchasing Tom's factory. Since Sara is a poor negotiator, she
hires
Maria to negotiate a purchase price. Identify the parties to this transaction
from
the
given options, according to agency theory:
Sara is the agent.
Maria is the
principal.
Tom is the agent and
Maria is the principal
Sara is the principal
and Maria is the agent.
Question
No. 8 Marks : 1
Purchasing
new machinery for expanding production capacity by a corporation is
____________________
Question
No. 9 Marks : 3
CVP
Corporation has a policy of paying a $10 per share dividend every year. This
policy
is to continue indefinitely. What is the value of a share of stock if the
required
rate
of return is 20%?
Question
No. 10 Marks : 1
A
constant stream of cash flows for a limited number of years coming at regular
intervals
is called a (an) .
Question
No. 11 Marks : 1
is not
an advantage of separation of ownership and
management
of corporations.
.
Corporations can
exist forever.
Facilitate transfer
of ownership without affecting the operations of the firm
Hire professional
managers
Incur agency costs
Question
No. 12 Marks : 10
Mr.
Martin has $20,000 that he can deposit in savings accounts of any of three
banks
for
a three year period. Bank A compounds on an annual basis; Bank B compounds
interest
twice each year; Bank C compounds interest each quarter. All three banks
have
a stated annual interest rate of 4%.
Required:
a. What
amount would Mr. Martin have at the end of 3rd year in each bank?
(Marks:
08)
b. On
the basis of your findings in part a, describe which bank should Mr. Martin
deal
with and why? (Marks: 02)
Question
No. 13 Marks : 1
A
firm is having difficulty in controlling its operating expenses. Which ratio
category
in
given options will most directly reflect this problem?
Liquidity
Profitability
Market value
Turnover
Question
No. 14 Marks : 1
A
firm's investment decision is also called the:
financing decision
capital budgeting
decision
liquidity decision
debt financing
Question
No. 15 Marks : 3
Why
would you prefer corporate form of organization over other forms of business
organizations?
Discuss giving at least three arguments.
Question
No. 16 Marks : 3
.
What
is an agency relationship? Describe the reason that results in agency problem.
Question
No. 17 Marks : 1
Suppose
a Corporation has a taxable income of Rs.50000 and the tax amount
calculated
is as given below:
Rs.30000
x 5% = Rs.1500
(Rs.40000
– 30000) x 10% = 1000
(Rs.50000
– 40000) x 15% = 1500
Rs.4000
Total
tax amount is Rs.4000. Average tax rate is Rs.4000 / 50000 = 8.0%. Marginal tax
rate
will be:
39%
34%
15%
25%
Question
No. 18 Marks : 3
What
do you understand by seniority in a bond indenture?
Question
No. 19 Marks : 3
What
are the three factors that affect Return on Equity, according to Du Pont
Identity?
Question
No. 20 Marks : 1
In
context of inflation and returns, the relationship between real and nominal
returns
is
described by:
Fisher Effect
Ricardo Effect
Robbins Effect
Fredrick Effect
Question
No. 21 Marks : 1
Debt securities issued by
corporations are called .
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