Financial Management Online Test

The method provides correct rankings of mutually exclusive projects, when the firm is not subject to capital rationing.
Net present value
Internal rate of return
Payback period
Profitability index
If capital is to be rationed for only the current period, a firm should probably first consider selecting projects by descending order of
Net present value
Payback period
Internal rate of return
Profitability index
Two mutually exclusive investment proposals have “scale differences” (i.e., the cost of the projects differs). Ranking these projects on the basis of IRR, NPV, and PI methods give contradictory results.
Will never
Will always
May
Will greatly
The discount rate at which two projects have identical is referred to as Fisher’s rate of intersection.
Present values
Net present values
IRRs
Profitability indexes
A project’s profitability index is equal to the ratio of the of a project’s future cash flows to the project’s
Present value; initial cash outlay
Net present value; initial cash outlay
Present value; depreciable basis
Net present value; depreciable basis
Which of the following statements is correct?
If the NPV of a project is greater than 0, it’s PI will equal 0.
If the IRR of a project is less than 1, its NPV, using a discount rate, k, greater than 0, will be 0.
If the PI of a project is less than 1, its NPV should be less than 0.
If the PI of a project is greater than the discount rate, k, its PI will be less than 1 and its NPV will be greater than 0.
A profitability index of .85 for a project means that:
The present value of benefits is 85% greater than the project’s costs.
The project’s NPV is greater than zero.
The project returns 85%in present value for each current dollar invested.
The payback period is less than one year.
In general, if a depreciable asset used in business is sold for more than its depreciated (tax) book value, any amount realized in excess of book value but less than the asset’s depreciable basis is considered a
“Capital gain” and is taxed at the corporate capital gain tax.
“Recapture of depreciation” and is taxed at the corporate capital gain rate.
“Capital gain” and is taxed at a rate equal to the firm’s ordinary tax rate, or a maximum of 35 percent
“Recapture of depreciation” and is taxed at the firm’s ordinary income tax rate.
Taxing authorities allow the fully installed cost of an asset to be written off for tax purposes. This amount is called asset’s
Cost of capital
Initial cash outlay
Depreciable basis
Sunk cost
A capital investment is one that
Has the prospect of long-term benefits.
Has the prospect of short-term benefits.
Is only undertaken by large corporations.
Applies only to investment in fixed assets.
In estimating “after-tax incremental operating cash flows” for a project, you should include all of the following EXCEPT:
Sunk costs.
Opportunity costs.
Changes in working capital resulting from the project, net of spontaneous change in current liabilities.
Effects of inflation.
The estimated benefits from a project are expressed as cash flows instead of income flows because:
It is simpler to calculate cash flows than income flows.
It is cash, not accounting income that is central to the firm’s capital budgeting decision.
This is required by the internal Revenue service.
This is required by the company law board.
In proper capital budgeting analysis we evaluate incremental
Accounting income
Cash flow
Earnings
Operating profit
All of the following influence capital budgeting cash flows EXCEPT
Accelerated depreciation
Salvage value
Tax rate changes
Method of project financing used
The most basic requirement for a firm’s marketable securities.
Safety
Yield
Marketability
New York
Concentration banking
Increases idle balances
Moves excess funds from a concentration bank to regional banks
Is less important during periods of rising interest rates
Improves control over corporate cash
Commercial paper is essentially
Another term for junk bond
A short-term unsecured corporate IOU
An intermediate-term corporate bond
A certificate that may be exchanged for a share of common stock at a specified future date
Time consumed in clearing a check through the banking system.
Processing float
Deposit float
Collection float
Availability float
Marketable securities are primarily
Short-term debt instruments.
Short-term equity securities.
Long-term debt instruments.
Long-term equity securities.
The expected rate of return on a bond if bought at its current market price and held to maturity.
Yield to maturity
Current yield
Coupon yield
Capital gains yield
In the United States most bonds pay interest a year, while may European bonds pay interest a year.
Once; twice
Twice; once
Once; once
Twice; twice
In the formula Ke = (D1/P0) + g, what does g represent?
The expected price appreciation yield from a common stock.
The expected dividend yield from a common stock.
The dividend yield from a preferred stock.
The interest payment from a bond.
Interest rates and bond prices
Move in the same direction
Move in the opposite direction
Sometimes move in the same direction, sometimes in opposite directions
Have no relationship with each other (i.e., they are independent)
Virgo Airlines will pay a $4 dividend next year on its common stock, which is currently selling at $100 per share. What is the market’s required return on this investment if the dividend is expected to grow at 5% forever?
4 percent
5 percent
7 percent
9 percent
If an investor may have to sell a bond prior to maturity and interest rates have risen since the bond was purchased, the investor is exposed to
The coupon effect
Interest rate risk
A perpetuity
An indefinite maturity
When the market’s required rate of return for a particular bond is much less than its coupon rate, the bond is selling at:
A premium
A discount
Cannot be determined without more information.
Face value
If the intrinsic value of a stock is greater than its market value, which of the following is a reasonable conclusion?
The stock has a low level of risk.
The stock offers a high dividend payout ratio.
The market is undervaluing the stock.
The market is overvaluing the stock.
What’s the value to you of a $1,000 face-value bond with an 8% coupon rate when your required rate of return is 15 percent?
More than its face value
Less than its face value
$1,000
True
Dual classes of are common in new ventures where promotional usually goes to the founders.
Bonds; bonds
Preferred stock; preferred stock
Common stock; common stock
Warrants; warrants
Preferred shareholders’ claims on assets and income of a firm come those of creditors those of common shareholders.
Before; and also before.
After; but before.
After; and also after.
Equal to; and equal to
A call provision, a sinking fund, and/or conversion are used to retire
Bonds and preferred stock.
Bonds and common stock.
Preferred stock and common stock.
Only common stock.
Treasury stock is:
Common stock issued by the U.S. government.
Preferred stock issued by the U.S. government.
Common stock that has been repurchased and is being held by the issuing company.
A corporation’s common stock outstanding.
The call-option value of a callable bond is likely to be high when
Interest rates are volatile.
Interest rates are low and expected to remain low.
Interest rates are high and expected to remain high.
Markets are inefficient.
A company refunds its bonds for any of the following reasons EXCEPT for:
To eliminate restrictive covenants.
To reduce interest costs.
To show higher reported profits.
To issue new bonds at higher rate of interest.
Which of the following bonds offer the investor the most protection?
First-mortgage bonds
Debentures
Subordinated debentures
Income bonds
Protective covenants are:
To protect employees.
To protect the interest of the company.
To protect shareholders.
To protect bondholders.
The agency cost theory of dividends suggests that
Dividend policy may be perceived by the firm’s owners as a tool to maximize agency costs.
Dividends do not affect the ability to monitor management’s investment activities.
Paying dividends directly results in a closer monitoring of management’s investment activities.
None of the above.
The moderate view of capital structure illustrates
The range of financial leverage that produces the lowest composite cost of capital.
That a firm’s cost of capital will decline and then rise as the firm takes on more debt.
The maximum portion of debt a firm can include in its capital structure.
All of the above are correct.
Use of more debt well increase
Risk
Return
Both 1&2
None of the above
What are the two types of ratios that must be computed when a financing decision faces the firm?
Debt ratio and equity ratio.
Asset utilization ratios and market value ratios.
Balance sheet leverage ratios and coverage ratios.
Liquidity ratios and market value ratios.
The EBIT-EPS indifference analysis identifies the point where
The EBIT level at which the EPS will be the same regardless of the financing plan chosen by the financial manager.
The value of the levered firm equals the present value of financial distress and agency costs.
The point where the more heavily levered firm will generate a lower EPS.
Total revenue equal variable costs plus fixed costs.
The primary weakness of EBIT-EPS analysis is that it
Includes the firm’s cost of common equity capital.
Ignores the implicit cost of debt financing.
Double counts the cost of debt financing.
Applies only to firms with large amounts of debt in their capital structure
Identify the balance sheet ratio out of the following ratios
Debtors turnover ratios
Creditors turnover ratios
Quick ratios
Profit ratios
A high quick ratio compared with a low current ratio indicates that
Unit is managing with lower stock in trade.
Unit is managing with high stock in trade.
Debt realization capacity of the units is good
The unit is paying to the creditors on time6
Break even point denotes
A system by which effective control is exercised on debtors
A stage when there is profit
A stage when the unit is closed
A stage when there is neither profit or nor loss
If the current ratio is 2:1 and the net working capital is 50 then the current assets will be
Rs. 50
Rs. 100
Rs. 150
Rs. 200
According to the residual dividend theory, what is dividend policy influenced by within the firm?
Investment opportunities, the capital structure mix, and the availability of internally generated capital.
Working capital policy, the financing mix, and the number of bonds outstanding.
A firm’s tax bracket and the number of shares outstanding.
Retained earnings and stock dividends.
The conclusion that one dividend policy theory, what is dividend policy influenced by within the firm?
Investors are different about whether their returns come from capital gains or from dividend income.
In the aggregate, investors are concerned only with total returns from investment decisions.
Investors recognize that the dividend decision, given the investment policy, is really a choice of financing strategy.
All of the above
Which of the following conclusions about the importance of dividend policy in practice is NOT true?
As a firm’s investment opportunities increase, the dividend payout ratio should decrease.
Dividend may influence stock price by the investor’s desire to maximize and/or defer taxes and from the role of dividends in minimizing agency costs.
The firm’s expected earning power and the riskiness of these earnings are more important to the investor than the dividend policy.
In order to avoid surprising investors, management should anticipate financing needs for the short-term, but not for the long-term.
A problem financial manager may have with the constant dividend payout ratio is that:
The dollar amount of the dividend fluctuates from year-to-year.
The dollar amount of the dividend is constant from year to year as profits vary.
The dividend-to-earnings ratio is unstable.
Investors may want a variable dividend from year to year.
Description:

Paper has 50 questions which have to be completed in an hours time approximately.

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Bijender

plz add the bookmark function

1560 days 9 hours 47 minutes ago

TRUPTI

pl send me Financial Mangt paper for CAIIB with solutions

4120 days 3 hours 11 minutes ago

Finastics Mumbai

Can you please send me the answer sheet of this question paper.

4503 days 4 hours 20 minutes ago

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