07-16-2011, 03:01 AM
MGT201 Current Final Term Paper - 15 July 2011
1-How "Shareholder wealth" is represented in a 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
2-Which of the following is equal to the average tax rate?
Total tax liability divided by taxable income
3-In finance, we refer to the market where new securities are bought and sold for the first time as the __________ market.
Primary market
4-In proper capital budgeting analysis we evaluate incremental __________ cash flows.
Operating
5-Which of the following is a legal agreement between the corporation issuing bonds and the bondholders that establish the terms of the bond issue?
Indenture
6-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?
Common stock
7-An investment opportunity set formed with two securities that are perfectly negatively correlated. What will be standard deviation in the global minimum variance portfolio?
Equal to zero
8-Diversification can reduce risk by spreading your money across many different ______________.
All of the given options
9-The square of the standard deviation is known as the ________.
Variance
10-What is the expected return of a zero-beta security?
The risk-free rate
11-How can you limit market risk?
Invest in a variety of stocks
12-The required rate of return in the efficient market depends only upon the ________.
Total risk
13-If 2 stocks move in exactly opposite direction together then what will be the correlation coefficient?
1.0
14-A firm has a DFL of 3.5 at X dollars. What does this tell us about the firm?
If sales rise by 1% at the firm, then EBIT will rise by 3.5%
15-Which of the following represents financial leverage?
Use of more debt capital to increase profit
16-Which of the following is NOT a type of financial lease arrangement
Indirect leasing
17-What is the economic order quantity for an automobile dealer selling 2,000 cars per year, at a cost of Rs.750 per order, and a carrying cost of Rs.300 per automobile?
100 cars
18-Why are dividend changes and not the absolute level of dividends perceived to be more important to shareholders?
MM state that the absolute level of dividends is irrelevant
19-The presence of which of the following costs is NOT used as a major argument against the M&M arbitrage process?
Bankruptcy costs
20-Assume that the economy has unexpectedly and immediately gone into a recession. Which of the following firms that are in the same industry and face the same business risks would most likely see the largest increase in the present value of bankruptcy costs?
A firm with the highest proportion of common equity financing
21-If Share C’s Beta = +0.5 in Lahore stock exchange, then what does it represent?
Share C is half as volatile as the LSE Market
22-While calculating the stock beta graphically, the formula to calculate the beta coefficient for stock B is:
(rB* - rRF) / (rM* - rRF)
23--In Perfect Markets, the rational investors have diversified away which of the following?
Market risk
24-If an asset B has steeper SML (security market line) than another asset A, which of the following statements is TRUE?
Asset B is more risky than asset A
25-On which of the following ground, the Arbitrage Pricing Model is different from the Capital Asset Pricing Model?
It recognizes multiple unsystematic risk factors
26-Which of the following is true about the security market line (SML) derived from the Arbitrage pricing model?
The Security market line for the Arbitrage pricing model has an intercept equal to the expected return on the market portfolio
27-Which of the following represents the expression rP in WACC equation (rDxD + rExE + rPxP)?
Average Rational Investors’ Required ROR for investing in the common stock
28-Which of the following theories suggests that shareholder wealth is maximized by a high Dividend Payout?
Bird in the Hand Theory
29-According to tax preference theory, all of the following are the reasons for believing that investors might prefer a low dividend payout to a high payout EXCEPT:
If a stock is held by someone until he or she dies, no capital gains tax is due at all
30-Mr. A purchased the share from Mr. B after ex-dividend date, who will be entitled to receive the dividend on this share?
Mr. B
31--On declaration date of dividend, if ABC Company announces dividend higher than the previous years, which of the following phenomenon is likely to be observe?
Stock price rises
32-The date on which the names of stockholders in the Stock Transfer Register of firm are documented is referred as:
Ex-Dividend Date
33-The date on which the right to the current dividend no longer accompanies a stock is termed as:
Declaration Date
34-Risk of all assets and operations is called:
Business risk
35-Financial leverage is considered good in which of the following?
Earning after interest & tax / Total asset > Interest cost
36--MN Corporation is a multinational firm which needs a loan amounting $ 200 million. The loan has been provided by a group of lenders who are working together for providing such a huge loan to MN Corporation. This statement refers to:
Syndicated Loan
37--Which of the followings are the explicit costs associated with corporate default, such as fees paid to the lawyers and accountants?
Indirect bankruptcy costs
38--From which of the following, negative net worth of the company is expressed?
Experiencing accounting insolvency
39--Which of the following is true regarding financial leverage?
Investors can undo the effects of the firm's capital structure by using home-made leverage
40-All of the following are the benefits that current liabilities can provide EXCEPT:
There cost of debt is certain and fixed in long run
41-Which of the following is NOT a source of spontaneous financing?
Short term loans
42-Which of the following refers to converting private debt contract into publicly traded financial instrument?
Project financing
43-Which of the following statements is true about bankruptcy?
All of the given options are true
44-Which of the following mathematical expressions refers to synergy?
2+2=5
45-With the increased rate of total risk of the firm, which of the following will be greatly affected?
Multiple rate of return
46--Which of the following is a form of divestiture in which a subsidiary or division becomes an independent company?
Spin-off
47-In 1997, Pepsico, Inc. planned to make KFC, Taco Bell and Pizza Hut a separate company which were previously the part of Pepsico Inc.'s restaurant group. The strategy adopted by Pepsico, Inc. is referred as:
Merger
48--Calculate the Forward Rate for Rupee if the interest on 1 Year Maturity in Pakistan is 10% and in Australia is 6% and the current spot rate is Rs.76/ AUD.
Rs. 79 per AUD
49--Which of the following could not be the reason for the organizations to go global?
Removal of trade barriers
50--Through which of the following formula desired growth rate can be calculated?
Return on equity / (1- payout ratio)
51--The formula which is used for the calculation of equivalent annual annuity is:
(1+i) n/ (1+i) n -1
52--Risk can be measured with which of the following statistical tool?
Standard deviation
53--The probability of any one outcome for an event is always stated as a percentage of which of the following?
Past outcomes for the event
54--About 100% of diversified risk and 50% of total risk can be removed by diversification across how many stocks?
50
55--Finance consists of which of the following area(s)?
All of the given options
56--Which of the following is taken as EBIT?
Operating profit
57--Why a company would raise money through debt rather than equity?(3)
What does the term stable dividend policy means, explain with the help of an example?(3)
One way of obtaining the use of asset is to lease them. Financial lease is one of the kinds of lease; explain its advantages from the point of view of Lessee. (5)
Declaration Date and Ex-Dividend Date are the two important terms involved in dividend payment procedure. Differentiate these terms.(3)
1-How "Shareholder wealth" is represented in a 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
2-Which of the following is equal to the average tax rate?
Total tax liability divided by taxable income
3-In finance, we refer to the market where new securities are bought and sold for the first time as the __________ market.
Primary market
4-In proper capital budgeting analysis we evaluate incremental __________ cash flows.
Operating
5-Which of the following is a legal agreement between the corporation issuing bonds and the bondholders that establish the terms of the bond issue?
Indenture
6-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?
Common stock
7-An investment opportunity set formed with two securities that are perfectly negatively correlated. What will be standard deviation in the global minimum variance portfolio?
Equal to zero
8-Diversification can reduce risk by spreading your money across many different ______________.
All of the given options
9-The square of the standard deviation is known as the ________.
Variance
10-What is the expected return of a zero-beta security?
The risk-free rate
11-How can you limit market risk?
Invest in a variety of stocks
12-The required rate of return in the efficient market depends only upon the ________.
Total risk
13-If 2 stocks move in exactly opposite direction together then what will be the correlation coefficient?
1.0
14-A firm has a DFL of 3.5 at X dollars. What does this tell us about the firm?
If sales rise by 1% at the firm, then EBIT will rise by 3.5%
15-Which of the following represents financial leverage?
Use of more debt capital to increase profit
16-Which of the following is NOT a type of financial lease arrangement
Indirect leasing
17-What is the economic order quantity for an automobile dealer selling 2,000 cars per year, at a cost of Rs.750 per order, and a carrying cost of Rs.300 per automobile?
100 cars
18-Why are dividend changes and not the absolute level of dividends perceived to be more important to shareholders?
MM state that the absolute level of dividends is irrelevant
19-The presence of which of the following costs is NOT used as a major argument against the M&M arbitrage process?
Bankruptcy costs
20-Assume that the economy has unexpectedly and immediately gone into a recession. Which of the following firms that are in the same industry and face the same business risks would most likely see the largest increase in the present value of bankruptcy costs?
A firm with the highest proportion of common equity financing
21-If Share C’s Beta = +0.5 in Lahore stock exchange, then what does it represent?
Share C is half as volatile as the LSE Market
22-While calculating the stock beta graphically, the formula to calculate the beta coefficient for stock B is:
(rB* - rRF) / (rM* - rRF)
23--In Perfect Markets, the rational investors have diversified away which of the following?
Market risk
24-If an asset B has steeper SML (security market line) than another asset A, which of the following statements is TRUE?
Asset B is more risky than asset A
25-On which of the following ground, the Arbitrage Pricing Model is different from the Capital Asset Pricing Model?
It recognizes multiple unsystematic risk factors
26-Which of the following is true about the security market line (SML) derived from the Arbitrage pricing model?
The Security market line for the Arbitrage pricing model has an intercept equal to the expected return on the market portfolio
27-Which of the following represents the expression rP in WACC equation (rDxD + rExE + rPxP)?
Average Rational Investors’ Required ROR for investing in the common stock
28-Which of the following theories suggests that shareholder wealth is maximized by a high Dividend Payout?
Bird in the Hand Theory
29-According to tax preference theory, all of the following are the reasons for believing that investors might prefer a low dividend payout to a high payout EXCEPT:
If a stock is held by someone until he or she dies, no capital gains tax is due at all
30-Mr. A purchased the share from Mr. B after ex-dividend date, who will be entitled to receive the dividend on this share?
Mr. B
31--On declaration date of dividend, if ABC Company announces dividend higher than the previous years, which of the following phenomenon is likely to be observe?
Stock price rises
32-The date on which the names of stockholders in the Stock Transfer Register of firm are documented is referred as:
Ex-Dividend Date
33-The date on which the right to the current dividend no longer accompanies a stock is termed as:
Declaration Date
34-Risk of all assets and operations is called:
Business risk
35-Financial leverage is considered good in which of the following?
Earning after interest & tax / Total asset > Interest cost
36--MN Corporation is a multinational firm which needs a loan amounting $ 200 million. The loan has been provided by a group of lenders who are working together for providing such a huge loan to MN Corporation. This statement refers to:
Syndicated Loan
37--Which of the followings are the explicit costs associated with corporate default, such as fees paid to the lawyers and accountants?
Indirect bankruptcy costs
38--From which of the following, negative net worth of the company is expressed?
Experiencing accounting insolvency
39--Which of the following is true regarding financial leverage?
Investors can undo the effects of the firm's capital structure by using home-made leverage
40-All of the following are the benefits that current liabilities can provide EXCEPT:
There cost of debt is certain and fixed in long run
41-Which of the following is NOT a source of spontaneous financing?
Short term loans
42-Which of the following refers to converting private debt contract into publicly traded financial instrument?
Project financing
43-Which of the following statements is true about bankruptcy?
All of the given options are true
44-Which of the following mathematical expressions refers to synergy?
2+2=5
45-With the increased rate of total risk of the firm, which of the following will be greatly affected?
Multiple rate of return
46--Which of the following is a form of divestiture in which a subsidiary or division becomes an independent company?
Spin-off
47-In 1997, Pepsico, Inc. planned to make KFC, Taco Bell and Pizza Hut a separate company which were previously the part of Pepsico Inc.'s restaurant group. The strategy adopted by Pepsico, Inc. is referred as:
Merger
48--Calculate the Forward Rate for Rupee if the interest on 1 Year Maturity in Pakistan is 10% and in Australia is 6% and the current spot rate is Rs.76/ AUD.
Rs. 79 per AUD
49--Which of the following could not be the reason for the organizations to go global?
Removal of trade barriers
50--Through which of the following formula desired growth rate can be calculated?
Return on equity / (1- payout ratio)
51--The formula which is used for the calculation of equivalent annual annuity is:
(1+i) n/ (1+i) n -1
52--Risk can be measured with which of the following statistical tool?
Standard deviation
53--The probability of any one outcome for an event is always stated as a percentage of which of the following?
Past outcomes for the event
54--About 100% of diversified risk and 50% of total risk can be removed by diversification across how many stocks?
50
55--Finance consists of which of the following area(s)?
All of the given options
56--Which of the following is taken as EBIT?
Operating profit
57--Why a company would raise money through debt rather than equity?(3)
What does the term stable dividend policy means, explain with the help of an example?(3)
One way of obtaining the use of asset is to lease them. Financial lease is one of the kinds of lease; explain its advantages from the point of view of Lessee. (5)
Declaration Date and Ex-Dividend Date are the two important terms involved in dividend payment procedure. Differentiate these terms.(3)
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