ACC501 Mega File Solved

Almost 300 Solved MCQs of ACC501
Choose the Most Appropriate Answer among the given choices.

1. The difference between the return on a risky investment and that on a risk-free investment.
A. Risk Return
B. Risk Premium
C. Risk Factor
D. None of the above
2. A group of assets such as stocks and bonds held by an investor.
A. Portfolio
B. Capital Structure
C. Budget
3. If the variance or standard deviation is larger then the spread in returns will be:
A. Less
B. More
C. Same
D. None of the Above
4. The following risk is entirely wiped out by Diversification.
A. Systematic Risk
B. Unsystematic Risk
C. Portfolio Risk
D. Total Risk
5. The objective for using the concept of Diversification is to :
A. Minimize the Risk
B. Maximize the return
C. A & B
6. While studying the relationship in risk and return, It is commonly known that:
A. Higher the risk, lower the return
B. Lower the risk, higher the return
C. Higher the risk, higher the return
7. This type of risk affects almost all types of assets.
A. Systematic Risk
C. Total Risk
D. Portfolio Risk
MCQ # 08 – 10 are based on the following data:
Suppose you bought 1,500 shares of a corporation at Rs. 25 each. After a year, you received
Rs. 3000 (Rs. 2 per share) in dividends. At the end of year the stock sells for Rs. 30 each. If
you sell the stock at the end of the year, your total cash inflow will be Rs. 48,000 (1500 shares
@ 30 each = Rs. 45000 & Dividend = 3000).
8. According to the given data, the Capital Gain will be:
A. 10,500
B. 7,500
C. 10,000
D. 7,000
9. According to the given data, the Dividend yield will be:
A. 8.50 %
B. 6.25%
C. 8.00%
D. 6.67%
10. According to the given data, Total Percentage Returns will be:
A. 20%
B. 28%
C. 32%
D. 35%
1. Which one of the given options involves the sale of new securities from the issuing company to
general public?
A. Secondary market
B. Primary market
C. Capital market
D. Money market
2. In financial statement analysis, shareholders focus will be on the:
A. Liquidity of the firm

B. Long term cash flow of the firm
C. Profitability and long term health of the firm
D. Return on investment
3. The statement of cash flows helps users to assess and identify all of the following except:
A. The impact of buying and selling fixed assets.

B. The company's ability to pay debts, interest and dividends.
C. A company's need for external financing.
D. The company's reliance on capital leases.
4. Suppose Younas Corporation has balance of merchandise of 5000 units. It wants to sell 2000 units
at 90% of its cost on cash. What would be the affect of this transaction on the current ratio?
A. Fall
B. Rise
C. Remain unchanged
D. None of the given option
5. If the interest rate is 18% compounded quarterly, what would be the 8-year discount factor?
A. 1.42215
B. 2.75886
C. 3.75886
D. 4.08998
6. You have a cash of Rs.150, 000. If a bank offers four different compounding methods for interest,
which method would you choose to maximize the value of your Rs.150, 000?
A. Compounded daily
B. Compounded quarterly
C. Compounded semiannually
D. Compounded annually
7. Ali Corporation has a cash coverage ratio of 6.5 times. Whereas its earning before interest and tax
is Rs.750 million and interest on long term loan is Rs.160 million. What would be the annual
depreciation for the current year?
A. a.Rs. 200 million
B. b.Rs.240 million
C. c.Rs.275 million
D. d.Rs.290 million
8. Suppose RZ Corporation sales for the year are Rs.150 million. Out of this 20% of the sales are on
cash basis while remaining sales are on credit basis. The past experience revealed that the average
collection period is 45 days. What would be the receivable turnover ratio?
A. 6.12 times
B. 7.11 times
C. 8.11 times
D. 9.11 times
9. A bank offers 20% compounded monthly. What would be the effective annual rates of return?
A. 20.00%
B. 20.50%
C. 21.00%
D. 21.99%
10. Nz Corporation reported earning before interest and taxes of Rs.500, 000 for the current year. It
has taken a long term loan of Rs.2 million from a local bank @ 10% interest. The tax is charged at
the rate of 32%.What will be the saving in taxes due to presence of debt financing in the capital
structure of the firm?
A. Rs.60, 000
B. Rs.64, 000
C. Rs.72, 000
D. Rs.74, 000
1. Ntp Corporation has decided to pay Rs.16 per share dividend every year. If this policy is to continue
indefinitely, then the value of a share of stock would be --------------, if the required rate of return is 25%?
a. Rs.60
b. Rs.64
c. Rs.68
d. Rs.74
2. MT Corporation has a previous year dividend of Rs.14 per share where as investors require a 17% return on
the similar stocks .The Company’s dividend grows by 7%.The price per share in this case would
be______________.
a. Rs.149.8
b. Rs.184.9
c. Rs.198.4
d. Rs.229.9
3. RTU Corporation stock is selling for Rs.150 per share. The next dividend is Rs.35 per share and it is expected
to grow 14% more or less indefinitely. What would be the return does this stock offer you if this is correct?
a. 17%
b. 27%
c. 37%
d. 47%
4. Suppose a Corporation has 3 shareholders; Mr.Salman with 25 shares, Mr. Kareem with 35 shares, and
Mr.Amjad with 40 shares. Each wants to be elected as one of the six directors. According to cumulative voting
rule Mr.Kareem would cast
a. 150 votes
b. 210 votes
c. 240 votes
d. 300 votes
5. ________ is the market in which already issued securities are traded among investors.
a. Primary market
b. Secondary market
c. Financial market
d. Capital market
6. Suppose Mehran Corporation is dealing in the Automobile industry. Based on projected costs and sales, it
expects that the cash flows over the 3-year life of the project will be Rs.5, 000,000 in first year, Rs.7, 000,000 in
the next year and Rs.8, 000,000 in the last year. This project would cost about Rs. 10,000,000.The net present
value of the project would be ________, if discount rate is assumed to be 25%.
a. Rs.2, 576, 000

b. Rs.3, 576, 000
c. Rs.1, 576, 000
d. Rs.4, 576, 000
7. The Projected cash flows from a proposed investment are

Year Cash Flows
01 Rs.500,000
02 Rs.800,000
03 Rs.600,000
The projects costs are Rs.1, 500,000. The payback period for this investment would be ______________.
a. 1.50 years
b. 2.00 years
c. 2.33 years
d. 3.00 years
8. Suppose Z Corporation, has the present value of its future cash flows is Rs.450, 000 and the project has a cost
of Rs.300, 000, then the profitability index would be ________________.
a. 0.667
b. 1
c. 1.25
d. 1.50
9. Fee paid to the consultant for evaluating the project is an example of ______________.
a. Opportunity cost
b. Sunk cost
c. Decremental cost
d. None of the given option
10. If the sales of the AB corporation is Rs.20, 000,000 where as its cost is
Rs.12, 000,000 during the same period. Assume the annual tax rate is 37%.Its annual depreciation is Rs.5, 000,
000.The operating cash flow of the organization would be _______________.
a. Rs. 3,810,000
b. Rs. 4,810,000
c. Rs. 5,190,000
d. Rs. 6,890,000
Select the correct option form the following choices:
1. Treasury notes and bonds are:

a. Default free
b. Taxable
c. Highly liquid
d. All of the given options
2. The difference between an investment’s market value and its cost is called the __________ of the
investment.
a. Net present value
b. Economic value
c. Book value
d. Future value
3. When real rate is high, all the interest rates tend to be _______.
a. Higher
b. Lower
c. Constant
d. None of the given options
4. _______ is a grant of authority by a shareholder to someone else to vote the shareholder’s share.
a. Cumulative voting
b. Straight voting
c. Proxy voting
5. The payment of the dividend is at the discretion of the:

a. Chairman
b. Board of directors
c. Shareholders
d. Stakeholders
6. Based on ________ the investment is accepted if the _____ exceeds the required return. It should be
rejected otherwise.
a. Profitability index
b. Payback period
c. Internal rate of return
d. Net present value
7. If two investments are mutually exclusive, then taking one of them means that:
a. We cannot take the other one
b. The other is pending for the next period
c. The projects are independent
8. Profitability index (PI) rule is to take an investment, if the index exceeds______:

a. -1
b. 0
c. 1
9. Average Accounting Return is a measure of accounting profit relative to:

a. Book value
b. Intrinsic value
c. Cost
d. Market value
10. It is not unusual for a project to have side or spillover effects both good and bad. This phenomenon is
called:
a. Erosion
b. Piracy
c. Cannibalism
1. The average time between purchasing or acquiring inventory and receiving cash proceeds from its
sale is called --------------.
a) Operating Cycle
b) Cash Cycle
c) Receivable period
d) Inventory period
2. Which of the following does not affect cash cycle of a company?

a) Inventory period
b) Accounts receivable period
c) Accounts payable turnover
d) None of the given option
3. Mr.Munir purchased goods of Rs.100,000 on June01, 2006 from Zeeshan and brothers on credit
terms of 3/10, net 30. On June 09 Mr. Munir decided to make payment to Zeeshan and brothers.
How much he would pay to Zeeshan and brothers.
a) 100,000
b) 97,000
c) 103,000
d) 50,000
4. A firm has cash cycle of 100 days. It has an inventory turnover of 5 and receivable turnover of 2.
What would be its accounts payable turn over?
a) 3.347 approximately
b) 5.347 approximately
c) 2.347 approximately
d) 6.253 approximately
5. During the financial year 2005-2006 ended on June 30, the cash cycle of Climax company was 150
days, and its payable turnover was 5. What was the operating cycle of the company during 2005-
2006?
a) 234 days
b) 223 days
c) 245 days
d) 230 days
6. Which of the following is the cheapest source of financing available to a firm?

a) Bank loan
b) Commercial papers
c) Trade credit
d) None of the given options.
7. Which of the following illustrates the use of a hedging (or matching) approach to financing?
a) Short-term assets financed with long-term liabilities.
b) Permanent working capital financed with long-term liabilities.
c) Short-term assets financed with equity.
d) All assets financed with a 50 percent equity, 50 percent long-term debt mixture
8. --------------- is an incentive offered by a seller to encourage a buyer to pay within a stipulated time.
a) Cash discount
b) Quantity discount
c) Float discount
d) All of the given options
9. If a firm has a net float less than zero, then which of the following statements is true about the
firm.
a) The firm’s disbursement float is less than its collection float.
b) The firm’s collection float is equal to zero.
c) The firm’s collection float is less than its disbursement float.
10. Financing a long-lived asset with short-term financing would be

a) An example of "moderate risk -- moderate (potential) profitability" asset financing.
b) An example of "low risk -- low (potential) profitability" asset financing.
c) An example of "high risk -- high (potential) profitability" asset financing.
d) An example of the "hedging approach" to financing
Note: Correct options have been highlighted.

1. Suppose Flatiron Corporation has a debt-to- equity ratio of 2/3. You are analyzing the capital structure
of this Corporation. Base on debt-to- equity ratio of the corporation, how much portion of the capital
structure is financed through equity.
a) 66.67%
b) 33.34%
c) 0%
d) 60%
2. Suppose the common stocks of Bonanza Corporation have book value of $29 per share. The market
price of these common stocks is $69.50 per share. The corporation paid $5.396 per share in dividend last
year and analysts estimate that this dividend will grow at a rate of 6% through the next three years.
Using the dividend growth model, estimated cost of equity of Bonanza corporation would be
a) 11.15%
b) 16.13%
c) 15.80%
d) 13.14%
3. Which statement is true about the relationship between weighted average cost of capital and value of a
firm in the eyes of investors?
a) They have a direct relationship
b) They have an indirect relationship
c) They have spontaneous relationship
d) None of the given options
4. ---------------- refers to the extent to which fixed-income securities (debt and preferred stock) are used in
a firm's capital structure.
a) Financial risk
b) Portfolio risk
c) Operating risk
d) Market risk
5. Let’s imagine that Sony Corporation currently uses no-debt financing, it has decided to go for capital
restructuring. As result it would incorporate $ 1 billion of debt at 6.6% p.a in its capital structure. Sony
Corporation has 30 million Shares outstanding and the price per share is $ 125. If the restructuring is
expected to increase EPS, what would be the minimum level of EBIT that Sony management must be
expecting?
a) $202,200,000
b) $247,500,000
c) $283,500,000
d) $321,250,000
6. A corporation has WACC of 13.5 %( excluding taxes). The current borrowing rate in the market is
9.25%.If the corporation has a target capital structure of 65% equity (there is no preferred stock in the
capital structure of the corporation) and 35% debt, what would be the cost of equity of this corporation?
a) 13.5%
b) 17.75%
c) 15.79%
d) 17.13%
7. Suppose Dux Corporation has current assets of $44 Million. Cash is 25% of the total current assets.
After one year the cash item increase by 12%.This increase in cash item is a
a) Source of cash
b) Use of cash
c) Neither of the source of cash nor a use of cash
8. During 2005 a merchandize sales company had cash sales of $56.25 million, which were 15% of the
total sales. During this period accounts receivables of the company were13% of total sales. What was
the average collection period of the company during 2005?
a) 62 days
b) 18 days
c) 56 days
d) 19 days
9. Suppose that Pearson Corporation has a capital structure which consists of both equity and debt. It had
issued two million worth of bonds at 6.5 % p.a. The tax rate is 40%. Its EBIT is one million. The
present value of tax shield for Pearson corporation would be
a) Rs.1,000,000
b) Rs.1,200,000
c) Rs800,000
d) Rs.1,400,000
10. The use of Personal borrowing to alter the degree of financial leverage is called _________________.
a) Homemade leverage
b) Financial leverage
c) Operating leverage

1. _______________ refers to the most valuable alternative that is given up if a particular
investment is undertaken.
E. Sunk cost
F. Opportunity cost
G. Financing cost
H. All of the given options
2. SNT company paid a dividend of Rs. 5 per share last year. The stock’s current price is
Rs. 50 per share. Assuming that the dividends are estimated to grow steadily at 8% per
year, the cost of the capital for SNT company will be?
E. 13.07 %
F. 15.67 %
G. 16.00 %
H. 18.80 %
3. ________________ is the group of assets such as stocks and bonds held by an investor.
E. Portfolio
F. Diversification
G. Stock Bundle
H. None of the given options
4. Which of the following measures the present value of an investment per dollar invested?
E. Net Present Value (NPV)
F. Profitability Index (PI)
G. Average Accounting Return (AAR)
H. Internal Rate of Return (IRR)
5. If we have Rs. 150 in asset A and Rs. 250 in asset B, then the percentage of asset B in the
portfolio will be:
E. 37.5 %
F. 47.5 %
G. 62.5 %
H. 72.5 %
6. A risk that influences a large number of assets is known as:
E. Systematic Risk
F. Market Risk
G. Non-diversifiable Risk
7. Which of the following risk can be eliminated by diversification?
E. Systematic Risk
F. Unsystematic Risk
G. A & B
8. Suppose the initial investment for a project is Rs. 160,000 and the cash flows are Rs.
40,000 in the first year and Rs. 90,000 in the second and Rs. 50,000 in the third. The
project will have a payback period of:
E. 2.6 Years
F. 3.1 Years
G. 3.6 Years
H. 4.1 Years
9. A model which makes an assumption about the future growth of dividends is known as:
E. Dividend Price Model
I. Dividend Growth Model
F. Dividend Policy Model
G. All of the given options
10. Which of the following is not a quality of IRR ?
E. Most widely used
J. Ideal to rank the mutually exclusive investments
F. Easily communicated and understood
G. Can be estimated even without knowing the discount rate
Most Appropriate Answer among the given choices has been selected..
1. _________ is a special case of annuity, where the stream of cash flows continues forever.
I. Ordinary Annuity
J. Perpetuity
K. Dividend
L. Interest
2. If a bank offers 15% annual rate of return compounded quarterly, what would be the
Effective Annual Rate (EAR)?
I. 15.00 %
J. 15.34 %
K. 15.87 %
L. 16.42 %
3. A bond represents a _______________ made by an investor to the ________________.
I. loan; receiver
J. dividend; issuer
K. dividend, receiver
L. loan; issuer
4. When the interest rates fall, the bond is worth ______________.
I. More
J. Less
K. Same
L. All of the given options.
5. If SNT Corporation pays out 30% of net income to its shareholders as dividends. What
would be the Retention Ratio for SNT Corporation?
I. 30 %
J. 50 %
K. 70 %
L. 90 %
6. If sales are to grow at a rate higher than the sustainable growth rate, the firm must:
I. Increase Profit Margin
J. Increase Total Assets Turnover
K. Sell new shares
7. ____________ is the current value of the future cash flow discounted at an appropriate
discount rate.
I. Present Value
J. Future Value
K. Capital Gain
L. Net Profit
8. SUMI Inc. has outstanding bonds having a face value of Rs. 500. The promised annual
coupon is Rs. 50. The bonds mature in 30 years and the market’s required rate on
similar bonds is 12% p. a. What would be the present value of each bond?
K. Rs. 319.45
L. Rs. 390.75
M. Rs. 419.45
N. Rs. 463.75
9. The sensitivity of Interest Rate Risk of a bond directly depends upon:
H. Time to maturity
I. Coupon rate
J. A and B
K. None of the given options
10. An insurance company offers to pay you Rs. 1000 per year if you pay Rs. 6,710 up
front. What would be the rate applicable in this 10-year annuity?
H. 8 %
I. 10 %
J. 12 %
K. 14 %

1. In the formula ke >= (D1/P0) + g, what does (D1/P0) represent?
A. The expected capital gains yield from a common stock
B. The expected dividend yield from a common stock
C. The dividend yield from a preferred stock
D. The interest payment from a bond
2. If you owned 100 shares of a company and there are three directors to be elected.
How much votes you would have as per cumulative voting procedure?
A. 100 Votes
B. 200 Votes
C. 300 Votes
D. 400 Votes
3. SNT Corporation has policy of paying a Rs. 6 dividend per share every year. If
this policy is to continue indefinitely, what will be the value of a share of stock at a
15% required rate of return?
A. Rs. 30
B. Rs. 40
C. Rs. 50
D. Rs. 60
4. Which of the following is NOT a characteristic of preferred stock?
A. Dividends on these stocks cannot be cumulative
B. These stocks have dividend priority over common stocks
C. These stocks have stated liquidating value
D. These bonds hold credit ratings much like bonds
5. A project has an initial investment of Rs. 400,000. What would be the NPV for the
project if it has a profitability index of 1.15?
A. Rs. 30000
B. Rs. 40,500
C. Rs. 50,000
D. Rs. 60,000
6. What will be the proper order of completion regarding the capital budgeting
process?
( I ) Perform a post-audit for completed projects;
( II ) Generate project proposals; ( III ) Estimate appropriate cash flows;
( IV ) Select value-maximizing projects; ( V ) Evaluate projects.
A. II, V, III, IV, and I
B. III, II, V, IV, and I
C. II, III, V, IV, and I
D. II, III, IV, V, and I
7. Following are the two cases:
Case I: Mr. A, as a financial consultant, has prepared a feasibility report for a
project for ABC Company that the company is planning to undertake. He has
suggested that the project is feasible.
Case II: Mr. A, as a financial consultant, has prepared a feasibility report of a
project for XYZ Company that the company is planning to undertake. He has
suggested that the project is not feasible.
The consultancy fee paid to Mr. A will be considered as:
A. Sunk cost in Case I and opportunity cost in Case II
B. Opportunity cost in Case I and sunk cost in Case II
C. Sunk Cost in both Case I and Case II
D. Opportunity cost in both Case I and Case II
8. Suppose you buy some stock for Rs. 35 per share. At the end of the year, the price
is Rs. 43 per share. During the year, you get a Rs. 4 dividend per share. What will
be the total percentage return?
A. 22.85 %
B. 25.16 %
C. 30.52 %
D. 34.29 %
9. If you have a portfolio with Rs. 10,000 in asset A and Rs. 15,000 in another asset B
then what will be the weight of Asset B in your portfolio?
A. 0.30
B. 0.40
C. 0.60
D. 0.75
10. Which of the following set of cash flows represents the change in the firm’s total
cash flow that occurs as direct result of accepting the project?
A. Relevant Cash Flows
B. Incremental Cash Flows
C. Negative Cash Flows
D. All of the given option

1. 2. Time value of money is an important finance concept because:
A. It takes risk into account
B. It takes time into account
C. It takes compound interest into account
D. All of the given options
2. The present value of a sum of Rs. 100 to be received in the future will be:
A. More than Rs. 100
B. Equal to Rs. 100
C. Less than Rs. 100
D. None of the given options
3. You want to buy an ordinary annuity that will pay you Rs. 3,000 a year for the
next 20 years. You expect annual interest rates will be 8 percent over that time
period. The maximum price you would be willing to pay for the annuity will be
closest to:
A. Rs. 29,454
B. Rs. 34,325
C. Rs. 39,272
D. Rs. 49,023
4. You have Rs. 1,000 that you want to save. If four different banks offer four
different compounding methods for interest, which method should you choose to
maximize your Rs. 1,000?
A. Compounding quarterly
B. Compounding monthly
C. Compounding semi-annually
D. Compounding annually
5. If a bond sells at a high premium, then which of the following relationships hold
true?
A. Bond Price < Par Value and YTM > coupon rate
B. Bond Price > Par Value and YTM > coupon rate
C. Bond Price > Par Value and YTM < coupon rate
D. Bond Price < Par Value and YTM < coupon rate
6. What will be the value to you of a Rs. 2,000 face-value bond with an 8% coupon
rate when your required rate of return is 12% and time till maturity is 5 years?
A. Rs. 1,556
B. Rs. 1,712
C. Rs. 2,082
D. Rs. 2,420
7. Which of the following carry the provision that within a stipulated time period,
the bond may be converted into a certain number of shares of the issuing
corporation's common stock at a pre-stated price?
A. Convertible Bonds
B. Income Bonds
C. Put Bonds
8. Interest rates and bond prices :
A. Move in the same direction
B. Move in the opposite direction
C. Sometimes move in the same and sometimes in the opposite direction
D. Have no relation with each other
9. Long-term bonds have _________ risk of loss resulting from changes in interest
rates than do short-term bonds.
A. Less
B. Zero
C. More
10. What will be real rate if the nominal rate is 17%, and the inflation rate is 5% ?
A. 6.639%
B. 8.251%
C. 10.00%
D. 11.43%
Which of the following set of ratios is used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs
incurred during a specific period of time
Which one of the following costs refers to an outlay that has already occurred and hence is not affected by the decision under consideration ?
Select correct option:
Sunk
Opportunity
Highlight the correct option:
1) The alternative name used for Interest Coverage Ratio is _____________________.
a. Time interest earned

b. Cash coverage ratio
c. Profit margin ratio
2) If you want to evaluate the performance of an organization, which one of the following ratios will
be helpful to you in evaluating the performance of an organization?
a. Return on short as well as long term investments

b. Return on equity and return on debt
c. Return on equity and profit margin
3) Imran Corporation is a firm dealing in hardware industry. It sold 5000 units of its product to Mr.
Younas for a sum of Rs.150, 000 whose cost was Rs.160, 000.What would be the effect of this
transaction on current ratio of the company if the current ratio was 0.80 before this transaction?
a. Increase
b. Decrease
c. Remain unchanged
4) Mehran Corporation is dealing in furniture industry. It has an equity multiplier of 1.78 times. The
debt to equity ratio would be _________________?
a. 0.38 times
b. 0.58 times
c. 0.78 times
d. 0.98 times
5) What would be the level of EBIT if Imran Corporation uses both debt as well as equity financing
in its capital structure, it has a cash coverage ratio of 7.5 times, annual interest expense is Rs.1
million and annual depreciation is Rs.3 million?
a. Rs. 2.5 million

b. Rs. 3 million
c. Rs. 3.5 million
d. Rs.4.5 million
6) Suppose, Neumann Corporation has a debt to equity ratio of 0.45 times. Its return on equity is
18%.The return on assets would be _______________.
a. 9.414 %
b. 10.414 %
c. 11.412 %
d. 12.414 %
7) Suppose, Ilyas Corporation is one of the dominant firms in electronics equipment industry. Its
policy is very clear about dealing with stackholders. It pays out 30% of its income in the form of
dividend. If it pays a total sum of Rs.150 millions as a dividend, then what would be the amount
transferred to the retained earning balance from current year profit?
a. Rs.150 millions
b. Rs.250 millions
c. Rs.350 millions
d. Rs.500 millions
8) Sian Corporation is one of the largest firms in the electronics industry covering 70% of the market
share. During the current year its performance is analysed by judging the various indicators. It
has return on assets of 12.5% and retention ratio is 3/5. What would be the internal growth rate of
the Sian Corporation?
a. 12.29%
b. 14.29%
c. 16.29%
d. 18.92%
9) What would be the sustainable growth rate if the Corporation has a Return on equity (ROE) of
20% and a retention ratio of 4/6?
a. 25 %
b. 35 %
c. 29%
d. 45%
10) Rehan Corporation is dealing in agriculture products. Its annual gross sales are Rs.1975 millions.
Out of which 34% are on cash basis. Their past collection experiences show that it has an average
collection period of 76 days. What would be the balance of accounts receivable at the end of the
year?
a. Rs.251.415 millions
b. Rs.261.415 millions
c. Rs.271.415 millions
d. Rs.281.415 millions
Choose and highlight the right option:
1. ROE in DuPont identity is affected by:

a. Operating efficiency
b. Asset usage efficiency
c. Financial leverage
2. A decrease in the percentage of net income paid out as a dividend, will increase the:
a. Return on assets ratio
b. Retention ratio
c. Leverage ratio
d. Profit margin
3. Which of the following does not change Current ratio of a business:

a. Efficient usage of current assets
b. Change in the nature of the firm
c. Change in Accounting method of the firm
d. Change in the management of the firm
4. Present value factor is:

a. (1+r) t
b. (1-r) t
c. 1/ (1+r) t
d. 1/ (1+r) 1/t
5. Depreciation expense is:

a. Operating expense
b. Investing expense
c. Financing expense
6. Internal growth rate tell how rapidly:

a. The firm grows
b. Sales of the firm grows
c. Profit of the firm grows
7. You can determine the number of periods (n) in a present value calculation, if you know:
a. Future amount
b. Present value
c. Interest rate
8. Which one of the present value factor is larger?

a. PV of 1 factor for 10%
b. PV of 1 factor for 12%
c. Both have the same effect
d. It cannot be determined
9. If we deposit Rs. 5,000 toady in an account paying 10%, how long does it take to grow to Rs. 10,000?
a. 5.27 years
b. 6.27 years
c. 7.2 7 years
d. 7.57 years
10. The future value of first Rs. 100 in 2 years at 8% discount is:
a. Rs. 116.64
b. Rs. 111.64
c. Rs. 164.64
d. Rs. 164.61
Total marks: 10
1. Investing activities include:
a. Purchase of property, plant and equipment

b. Cash received from the issuance of stock or equity in the business.
c. Purchases of stock or other securities (other than cash equivalents)
d. Both a & c
2. Changes in cash from financing are "cash in" when:
a. Capital is raised
b. Assets increased
c. Liabilities decreased
d. Cash withdrawn
3. Generally, changes made in cash, accounts receivable, depreciation, inventory and accounts payable
are reflected in:
a. Cash from operations activities

b. Cash from financing activities
c. Cash from investing activities
4. _________are short-term, temporary investments that can be readily converted into cash.
a. marketable securities
b. Cash equivalents
c. Treasury bills
5. The Cash flow statement records your_________ and expenditure at the end of the 'forecast' period.
a. Actual cash income

b. Un earned income
c. Coming year income
d. Last year’s income
6. Ratios look at the relationships between individual values and relate them to how a company:
a. Has performed in the past

b. Might perform in the future
c. Both a & b
7. The current ratio is also known as:
a. Working capital ratio

b. Leverage ratio
c. Turnover ratio
8. __________is concerned with the relationship between the long terms liabilities that a business has
and its capital employed.
a. Gearing
b. Acid test ratio
c. Working capital management
9. ____________give a picture of a company's ability to generate cash flow and pay it financial
obligations:
a. Management ratios
b. Working capital ratios
c. Net profit margin ratios
d. Solvency Ratios
10. Balance sheet items expressed as percentage of:
a. Net sales
b. Total revenue
c. Total assets
d. Total liabilities
1. Ann is interested in purchasing Ted's factory. Since Ann is a poor negotiator, she hires Mary to
negotiate a purchase price. Identify the parties to this transaction from the given options,
keeping in view the agency theory:
a. Ann is the principal and Mary is the agent.
b. Mary is the principal and Ann is the agent.
c. Ted is the agent and Ann is the principal.
d. Mary is the principal and Ted is the agent.
2. Which of the given options apply to auction markets?

a. Trading in a given auction exchange takes place at a single site on the floor of the exchange.
b. Transaction prices of shares are communicated almost immediately to the public.
c. Listing.
d. All of the given options (a, b and c).
3. Suppose a Corporation has a taxable income of $200,000 and the tax amount is as given in the
calculations:
$ 50,000 x 15% = $ 7,500
($ 75,000 – 50,000) x 25% = 6,250
($ 100,000 – 75,000) x 34% = 8,500
($ 200,000 – 100,000) x 39% = 39,000
$ 61,250
Total tax is $61,250.
Average tax rate is $61,250 / 200,000 = 30.625%. Marginal tax rate will be:
a. 39%
b. 34%
c. 15%
d. 25%
4. A document that includes corporation’s name, intended life, business purpose and number of shares
and is necessary to form a corporation is known as:
a. Charter
b. Set of bylaws
c. Regulations paper
5. According to the accounting profession, which of the given options would be considered a cash-
flow item from an "investing" activity in a cash flow statement?
a. Cash outflow to the government for taxes.
b. Cash outflow to shareholders as dividends.
c. Cash outflow to lenders as interest.
d. Cash outflow to purchase bonds issued by another company
6. Which one of the given options is generally considered the most liquid asset?
a. accounts receivable
b. inventory
c. net fixed assets
d. intangible assets
7. Which of the given options is an advantage of a corporation that is not an advantage as a

limited partner in a partnership?
a. Limited liability.
b. Easy transfer of ownership position.
c. Double taxation.
d. All of the options are advantages that the corporation has over the limited partner.
8. In finance we refer to the market for relatively long-term financial instruments as the
__________ market.
a. money
b. capital
c. primary
d. secondary
9. __________ is concerned with the branch of economics relating the behavior of principals and
their agents.
a. Financial management
b. Profit maximization
c. Agency theory
d. Social responsibility
10. Which of the expenses in given options is not a cash outflow for the firm?
a. Depreciation
b. Dividends
c. Interest payments
d. Taxes
1. A standardized financial statement presenting all items of the statement as a percentage of total is:
a. a common-size statement
b. an income statement
c. a cash flow statement
d. a balance sheet
2. Ammar is running a company ‘Ammar & Co’. He has asked you to comment on company’s
ability to pay its bills over the short run without undue stress. For this purpose you will study
which category of ratios of the company?
a. Profitability Ratios
b. Liquidity ratios
c. Debt ratios
d. Turnover ratios
3. Which one of the given options describes desirable current ratio for a business?
e. 0
f. 0.2
g. 0.1
h. At least one
4. Interest Coverage Ratios are also known as:
a. Times Interest Earned (TIE) Ratios
b. Liquidity Ratios
c. Debt Ratios
d. Asset Management Ratios
5. The Du Pont Identity tells us that Return on Equity is affected by:
a. operating efficiency (as measured by profit margin)
b. asset use efficiency (as measured by total assets turnover)
c. financial Leverage (as measured by equity multiplier)
d. all of the given options (a, b and c)
6. Benchmarking is used to establish a standard to follow for:
a. comparison
b. identification
c. calculation
d. liability
7. A series of constant cash flows that occur at the end of each period for some fixed number of
periods is .
a. an ordinary annuity
b. annuity due
c. multiple cash flows
d. perpetuity
8. Suppose the total cost of a college education will be $50,000 in 12 years for a child. The Parents
have $5,000 to invest today. What rate of interest must they earn on investment to cover the cost of
child’s education?
a. 21.15%
b. 12%
c. 18%
d. 30%
9. If the bank loans out $10,000 for 90 days at 8% simple interest, the PV is:
a. $9,806.56
b. $9000
c. $10000
d. $9500
10. Suppose, you deposited an amount of Rs.1000 in Habib Bank at the start of year 2006. How
much interest amount will you have at the end of the year if the bank pays simple interest @10%
p.a.?
a. Rs.100
b. Rs.10
c. Rs.90
d. Rs.1000
1. ________________ is considered as bottom line in Income Statement?

M. Total Assets
N. Total Liabilities
O. Net Profit
P. Gross Profit
2. ____________ can be considered as a snapshot of a company's financial
position?
M. Income Statement
N. Balance Sheet
O. Cash Flow Statement
P. Owner's Equity Statement
3. ______________ involves the sale of used securities from one investor to
another?
M. Primary Market
N. Secondary Market
O. Tertiary Market
P. None of the given options
4. _______________ Ratios shows a firm's ability to pay its bills in short term?
M. Liquidity
N. Financial Leverage
O. Profitability
P. Market Value
5. The process of planning and managing a firm's long-term investments is called:
M. Planning Process
N. Capital Structure
O. Capital Budgeting
P. Managing Process
6. Income statement for Sumi Inc. shows the net income of Rs. 363,000 whereas
the total sales are Rs. 2,311,000. The profit margin for the Sumi Inc. will be:
M. 6.37 %
N. 8.37 %
O. 15.7 %
P. 12.5 %
7. S&T Company have 35 thousands shares outstanding and the stock sold for Rs.
99 per share at the end of year. Income Statement reported a net income of Rs.
385,000. The Price Earning Ratio for S&T Company will be:
M. 8 times
N. 9 times
O. 10 times
P. 11 times
8. While making Common-Size statement, Balance Sheet items are shown as a
percentage of :
O. Total Assets
P. Total Liabilities
Q. Total Capital
R. Net Profit
9. A business, created as a distinct legal entity owned by one or more individuals
or entities, is known as:
L. Sole Proprietorship
M. Partnership
N. Corporation
O. None of the given options
10. Which one of these is considered as a non-cash item?
L. Inventory
M. Accounts Payable
N. Accounts Receivable
O. Depreciation
1. Which of the following is the process of planning and managing a firm’s long-term
investments?
Capital Structuring
Capital Rationing
Capital Budgeting
Working Capital Management
2. Which of the following refers to the cash flows that result from the firm’s day-to-day
activities of producing and selling?
Operating Cash Flows

Investing Cash Flows
Financing Cash Flows
All of the given options
3. The coupon rate of a floating-rate bond is capped and upper and lower rates are called:
Float
Collar
Limit
Surplus
4. Which of the following is the acronym for GAAP?

Generally Applied Accountability Principles

General Accounting Assessment Principles
Generally Accepted Accounting Principles
General Accepted Assessment Principles
5. Which of the following strategy belongs to restrictive policy regarding size of

investments in current assets?
To maintain a high ratio of current assets to sales

To maintain a low ratio of current assets to sales
To less short-term debt and more long-term debt
To more short-term debt and less long-term debt
6. Quick Ratio is also known as:

Current Ratio
Acid-test Ratio
Cash Ratio
None of the given options
7. Mr. Y and Mr. Z are planning to share their capital to run a business. They are going to
employ which of the following type of business?
Sole-proprietorship
Partnership
Corporation
8. If you have Rs. 30 in asset A and Rs. 120 in another asset B, the weights for assets A and
B will be __ and __ respectively.
20%; 80%
37%; 63%
63%; 37%
80%; 20%
9. Which of the following terms refers to the costs to store and finance the assets?
Carrying costs
Shortage costs
Storing costs
financing costs
10. Which one of the following statement is INCORRECT regarding MACRS depreciation?
Every asset is assigned to a particular class which establishes asset’s life for tax
purposes.
11.
Depreciation is computed for each year by multiplying the cost of the asset by a fixed
percentage.
Annual depreciation remains constant every year even by using different rates.
The expected salvage value and the actual expected economic life are not explicitly
considered in calculation of depreciation.
12. Which of the following statement is CORRECT regarding compound interest?

It is the most basic form of calculating interest.

It earns profit not only on principal but also on interest.
It is calculated by multiplying principal by rate multiplied by time.
It does not take into account the accumulated interest for calculation.
13. Mr. A has just recently started a business by investing a capital of Rs. 500,000. He will be
the only owner of the business and also enjoy all the profits of the business. Which type
of business is being employed by Mr. A?
Sole-proprietorship
Partnership
Corporation
14. Time value of money is an important finance concept because:

It takes risk into account

It takes time into account
It takes compound interest into account
15. The preferred stock of a company currently sells for Rs. 25 per share. The annual
dividend of Rs. 2.50 is fixed. Assuming a constant dividend forever, what is the rate of
return on this stock?
5.00 percent
7.00 percent
8.45 percent
10.0 percent
16. Which of the following ratios are particularly interesting to short-term creditors?
Liquidity Ratios
Long-term Solvency Ratios
Profitability Ratios
Market Value Ratios
17. Which of the following equation is known as Cash Flow (CF) identity?
CF from Assets = CF to Creditors – CF to Stockholder
CF from Assets = CF to Stockholders – CF to Creditors
CF to Stockholders = CF to Creditors + CF from Assets
CF from Assets = CF to Creditors + CF to Stockholder
18. One would be indifferent between taking and not taking the investment when:
NPV is greater than Zero

NPV is equal to Zero
NPV is less than Zero
19. Which of the following is (are) a non-cash item(s) ?

Revenue
Expenses
Depreciation
20. Which of the following is NOT a shortcoming of Payback Rule?

Time value of money is ignored

It fails to consider risk differences
Simple and easy to calculate
21. You just won a prize, you can either receive Rs. 1000 today or Rs. 1,050 in one year.
Which option do you prefer and why if you can earn 5 percent on your money?
Rs. 1,000 because it has the higher future value

Rs. 1,000 because you receive it sooner
Rs. 1,050 because it is more money
Either because both options are of equal value
22. What is the effective annual rate of 7 percent compounded monthly?

7.00 percent
7.12 percent
7.19 percent
7.23 percent
23. Which of the following forms of business organizations is created as a distinct legal
entity owned by one or more individuals or entities?
Sole-proprietorship
General Partnership
Limited Partnership
Corporation
24. Business risk depends on which of the following risk of the firm’s assets ?
Systematic Risk
Diversifiable Risk
Unsystematic Risk
25. Which of the following type of risk can be eliminated by diversification?

Systematic Risk
Market Risk
Unsystematic Risk
26. Which of the following measure reveals how much profit a company generates with the
money shareholders have invested?
Profit Margin
Return on Assets
Return on Equity
Debt-Equity Ratio
27. Which of the following is(are) the basic area(s) of Finance?

Financial institutions
International finance
Investments
28. Which of the following is the return that firm’s creditors demand on new borrowings ?
Cost of debt
Cost of preferred stock
Cost of common equity
Cost of retained earnings
29. Systematic Risk is also known as:

Diversifiable Risk
Market Risk
Residual Risk
Asset-specific Risk
30. ABC Corporation has two shareholders; Mr. Aamir with 50 shares and Mr. Imran with 70
shares. Both want to be elected as one of the four directors but Mr. Imran doesn’t want
Mr. Aamir to be director. How much votes would Mr. Aamir be able to cast as per
cumulative voting procedure?
70
120
200
280
1. The time between sale of inventory and collection of receivable.

a account receivable
b operation cycle
c inventory period
d none of above
2. Allow a bank to substitute its creditworthiness for the customer, for a fee is called___________-
a open bank account

b commercial draft
c promisory note
d banker accetptance
3. Standard deviations for Investment A and Investment B are 25% and 12% respectively. This indicates that:
Investment A is less volatile than Investment B
Investment B is equally volatile to Investment A
Investment A is more volatile than Investment B
Investment B is more volatile than Investment A
4. Find the average 2%,5%,6%,8%

a 5%
b 5.25 %
c 6%
d 8%
5 what is standard deviation of this averages 2%,5%, 7%
6. As the dividend is always same for a zero growth stock, so the stock can also be viewed as
7. Which of the following statement shows revenue, expense, and net worth as of a specific date?
a balance sheet
b income statement
c cash flow
d none of above
8. Which of the following character is not a systematic risk?

Market risk
Interest risk
Inflation risk
Strike call in a company
9. A company has a two director and 1 shareholder which hav 25 power of share the voter for director is
a 100
b150
c50
d25
10.An investment will be _________ if the IRR doesn’t exceeds the required return and _________
otherwise.
Accepted; rejected
Accepted; accepted
Rejected; rejected
Rejected; accepted
11. Which of the following is the overall return the firm must earn on its existing assets to maintain the value of
the stock?
IRR (Internal Rate of Return)
MIRR (Modified Internal Rate of Return)
WACC (Weighted Average Cost of Capital) 146
AAR (Average Accounting Return)
Cost of debt pg 143
13.In which type of projects, the unequal lives of the projects do affect the analysis ?
Mutually exclusive
Dependent
Independent
Correlated
14.Mr. Naveed has bought 100 shares of a corporation one year ago at Rs. 23 per share. Over the last year, he
received a dividend of Rs. 1.50 per share. At the end of the year, the stock sells for Rs. 31. As per given
information, what will be his total percentage return ?
10.63%
20.20%
35.12%
41.30%
15.Which of the following is known as the group of assets such as stocks and bonds held by an investor ?
Stock Bundle
Portfolio
Capital Structure
16. Suppose the initial investment for a project is Rs. 16 million and the cash flows are Rs. 4 million in the first
year and Rs. 9 million in the second and Rs. 5 million in the third. The project will have a payback period of:
2.6 Years
3.1 Years
3.7 Years
4.1 Years
17. find the cash cycle inventory period is 38 days account payabel period is 50 days and average accoun
receivable period is 30 days
a.68
b 18
c 80
d 118
ACC501 All Solved Mid
Term MCQs

1. The difference between the return on a risky investment and that on
a risk-free investment.
A. Risk Return
B. Risk Premium
C. Risk Factor
A. Portfolio
C. Budget
A. Less
B. More
C. Same
A. Systematic Risk
C. Portfolio Risk
D. Total Risk
C. A & B
ACC501 All Solved Mid Term MCQs

A. Systematic Risk
C. Total Risk
D. Portfolio Risk
MCQ # 08 - 10 are based on the following data:
Suppose you bought 1,500 shares of a corporation at Rs. 25 each. After a year, you
received Rs. 3000 (Rs. 2 per share) in dividends. At the end of year the stock sells for Rs.
30 each. If you sell the stock at the end of the year, your total cash inflow will be Rs.
48,000 (1500 shares @ 30 each = Rs. 45000 & Dividend = 3000).
A. 10,500
B. 7,500
C. 10,000
D. 7,000
A. 8.50 %
B. 6.25%
C. 8.00%
D. 6.67%
A. 20%
B. 28%
C. 32%
D. 35%
1. Which one of the given options involves the sale of new securities from the
issuing company to general public?
A. Secondary market
B. Primary market
C. Capital market
D. Money market

3. The statement of cash flows helps users to assess and identify all of the
following except:

4. Suppose Younas Corporation has balance of merchandise of 5000 units. It

wants to sell 2000 units at 90% of its cost on cash. What would be the affect of
this transaction on the current ratio?
A. Fall
B. Rise
C. Remain unchanged
5. If the interest rate is 18% compounded quarterly, what would be the 8-year
discount factor?
A. 1.42215
B. 2.75886
C. 3.75886
D. 4.08998
6. You have a cash of Rs.150, 000. If a bank offers four different compounding
methods for interest, which method would you choose to maximize the value
of your Rs.150, 000?
A. Compounded daily
7. Ali Corporation has a cash coverage ratio of 6.5 times. Whereas its earning
before interest and tax is Rs.750 million and interest on long term loan is
Rs.160 million. What would be the annual depreciation for the current year?
B. b.Rs.240 million
C. c.Rs.275 million
D. d.Rs.290 million
8. Suppose RZ Corporation sales for the year are Rs.150 million. Out of this 20%
of the sales are on cash basis while remaining sales are on credit basis. The
past experience revealed that the average collection period is 45 days. What
would be the receivable turnover ratio?
A. 6.12 times
B. 7.11 times
C. 8.11 times
D. 9.11 times
9. A bank offers 20% compounded monthly. What would be the effective annual
rates of return?
A. 20.00%
B. 20.50%
C. 21.00%
D. 21.99%
10. Nz Corporation reported earning before interest and taxes of Rs.500, 000 for
the current year. It has taken a long term loan of Rs.2 million from a local
bank @ 10% interest. The tax is charged at the rate of 32%.What will be the
saving in taxes due to presence of debt financing in the capital structure of the
firm?
A. Rs.60, 000
B. Rs.64, 000
C. Rs.72, 000
D. Rs.74, 000
1. Ntp Corporation has decided to pay Rs.16 per share dividend every year. If this policy is
to continue indefinitely, then the value of a share of stock would be --------------, if the
required rate of return is 25%?
a. Rs.60
b. Rs.64
c. Rs.68
d. Rs.74
2. MT Corporation has a previous year dividend of Rs.14 per share where as investors
require a 17% return on the similar stocks .The Company’s dividend grows by 7%.The
price per share in this case would be______________.
a. Rs.149.8
b. Rs.184.9
c. Rs.198.4
d. Rs.229.9
3. RTU Corporation stock is selling for Rs.150 per share. The next dividend is Rs.35 per
share and it is expected to grow 14% more or less indefinitely. What would be the return
does this stock offer you if this is correct?
a. 17%
b. 27%
c. 37%
d. 47%
4. Suppose a Corporation has 3 shareholders; Mr.Salman with 25 shares, Mr. Kareem

with 35 shares, and Mr.Amjad with 40 shares. Each wants to be elected as one of the six
directors. According to cumulative voting rule Mr.Kareem would cast
a. 150 votes
b. 210 votes
c. 240 votes
d. 300 votes
a. Primary market
b. Secondary market
c. Financial market
d. Capital market
6. Suppose Mehran Corporation is dealing in the Automobile industry. Based on

projected costs and sales, it expects that the cash flows over the 3-year life of the project will
be Rs.5, 000,000 in first year, Rs.7, 000,000 in the next year and Rs.8, 000,000 in the last
year. This project would cost about Rs. 10,000,000.The net present value of the
project would be ________, if discount rate is assumed to be 25%.
a. Rs.2, 576, 000

b. Rs.3, 576, 000
c. Rs.1, 576, 000

d. Rs.4, 576, 000

Year Cash Flows
01 Rs.500,000
02 Rs.800,000
03 Rs.600,000
The projects costs are Rs.1, 500,000. The payback period for this investment would be
______________.
a. 1.50 years
b. 2.00 years
c. 2.33 years
d. 3.00 years
8. Suppose Z Corporation, has the present value of its future cash flows is Rs.450, 000
and the project has a cost of Rs.300, 000, then the profitability index would be
________________.
a. 0.667
b. 1
c. 1.25
d. 1.50
a. Opportunity cost
b. Sunk cost
c. Decremental cost
Rs.12, 000,000 during the same period. Assume the annual tax rate is 37%.Its annual
depreciation is Rs.5, 000, 000.The operating cash flow of the organization would be
_______________.
a. Rs. 3,810,000
b. Rs. 4,810,000
c. Rs. 5,190,000
d. Rs. 6,890,000

a. Default free
b. Taxable
c. Highly liquid
2. The difference between an investment’s market value and its cost is called the
__________ of the investment.
b. Economic value
c. Book value
d. Future value
a. Higher
b. Lower
c. Constant
4. _______ is a grant of authority by a shareholder to someone else to vote the

shareholder’s share.
b. Straight voting
c. Proxy voting

a. Chairman
c. Shareholders
d. Stakeholders
6. Based on ________ the investment is accepted if the _____ exceeds the required
return. It should be rejected otherwise.
b. Payback period

a. -1
b. 0
c. 1

a. Book value
b. Intrinsic value
c. Cost
d. Market value
10. It is not unusual for a project to have side or spillover effects both good and bad.
This phenomenon is called:
a. Erosion
b. Piracy
c. Cannibalism
1. The average time between purchasing or acquiring inventory and receiving

cash proceeds from its sale is called --------------.
a) Operating Cycle
b) Cash Cycle
d) Inventory period

a) Inventory period
3. Mr.Munir purchased goods of Rs.100,000 on June01, 2006 from Zeeshan and

brothers on credit terms of 3/10, net 30. On June 09 Mr. Munir decided to
make payment to Zeeshan and brothers. How much he would pay to Zeeshan
and brothers.
a) 100,000
b) 97,000
c) 103,000
d) 50,000
4. A firm has cash cycle of 100 days. It has an inventory turnover of 5 and
receivable turnover of 2. What would be its accounts payable turn over?
5. During the financial year 2005-2006 ended on June 30, the cash cycle of
Climax company was 150 days, and its payable turnover was 5. What was the
operating cycle of the company during 2005-2006?
a) 234 days
b) 223 days
c) 245 days
d) 230 days
6. Which of the following is the cheapest source of financing available to a

firm?
a) Bank loan
c) Trade credit
7. Which of the following illustrates the use of a hedging (or matching)

approach to financing?
8. --------------- is an incentive offered by a seller to encourage a buyer to pay

within a stipulated time.
a) Cash discount
c) Float discount
9. If a firm has a net float less than zero, then which of the following statements
is true about the firm.

a) An example of "moderate risk -- moderate (potential) profitability" asset

financing.

1. Suppose Flatiron Corporation has a debt-to- equity ratio of 2/3. You are analyzing
the capital structure of this Corporation. Base on debt-to- equity ratio of the
corporation, how much portion of the capital structure is financed through equity.
a) 66.67%
b) 33.34%
c) 0%
d) 60%
2. Suppose the common stocks of Bonanza Corporation have book value of $29 per
share. The market price of these common stocks is $69.50 per share. The
corporation paid $5.396 per share in dividend last year and analysts estimate that
this dividend will grow at a rate of 6% through the next three years. Using the
dividend growth model, estimated cost of equity of Bonanza corporation would
be
a) 11.15%
b) 16.13%
c) 15.80%
d) 13.14%
3. Which statement is true about the relationship between weighted average cost of
capital and value of a firm in the eyes of investors?
4. ---------------- refers to the extent to which fixed-income securities (debt and

preferred stock) are used in a firm's capital structure.
a) Financial risk
b) Portfolio risk
c) Operating risk
d) Market risk
5. Let’s imagine that Sony Corporation currently uses no-debt financing, it has
decided to go for capital restructuring. As result it would incorporate $ 1 billion of
debt at 6.6% p.a in its capital structure. Sony Corporation has 30 million Shares
outstanding and the price per share is $ 125. If the restructuring is expected to
increase EPS, what would be the minimum level of EBIT that Sony management
must be expecting?
a) $202,200,000
b) $247,500,000
c) $283,500,000
d) $321,250,000
6. A corporation has WACC of 13.5 %( excluding taxes). The current borrowing

rate in the market is 9.25%.If the corporation has a target capital structure of 65%
equity (there is no preferred stock in the capital structure of the corporation) and
35% debt, what would be the cost of equity of this corporation?
a) 13.5%
b) 17.75%
c) 15.79%
d) 17.13%
7. Suppose Dux Corporation has current assets of $44 Million. Cash is 25% of the
total current assets. After one year the cash item increase by 12%.This increase in
cash item is a
a) Source of cash
b) Use of cash
8. During 2005 a merchandize sales company had cash sales of $56.25 million,
which were 15% of the total sales. During this period accounts receivables of the
company were13% of total sales. What was the average collection period of the
company during 2005?
a) 62 days
b) 18 days
c) 56 days
d) 19 days
9. Suppose that Pearson Corporation has a capital structure which consists of both
equity and debt. It had issued two million worth of bonds at 6.5 % p.a. The tax
rate is 40%. Its EBIT is one million. The present value of tax shield for Pearson
corporation would be
a) Rs.1,000,000
b) Rs.1,200,000
c) Rs800,000
d) Rs.1,400,000
10. The use of Personal borrowing to alter the degree of financial leverage is called
_________________.

E. Sunk cost
F. Opportunity cost
G. Financing cost
E. 13.07 %
F. 15.67 %
G. 16.00 %
H. 18.80 %
E. Portfolio
F. Diversification
G. Stock Bundle
portfolio will be:
E. 37.5 %
F. 47.5 %
G. 62.5 %
H. 72.5 %
E. Systematic Risk
F. Market Risk
E. Systematic Risk
G. A & B
E. 2.6 Years
F. 3.1 Years
G. 3.6 Years
H. 4.1 Years

E. Most widely used
I. Ordinary Annuity
J. Perpetuity
K. Dividend
L. Interest
I. 15.00 %
J. 15.34 %
K. 15.87 %
L. 16.42 %
I. loan; receiver
J. dividend; issuer
L. loan; issuer
I. More
J. Less
K. Same

I. 30 %
J. 50 %
K. 70 %
L. 90 %
K. Sell new shares
discount rate.
I. Present Value
J. Future Value
K. Capital Gain
L. Net Profit
K. Rs. 319.45
L. Rs. 390.75
M. Rs. 419.45
N. Rs. 463.75
H. Time to maturity
I. Coupon rate
J. A and B
H. 8 %
I. 10 %
J. 12 %
K. 14 %

2. If you owned 100 shares of a company and there are three directors to be
elected.
A. 100 Votes
B. 200 Votes
C. 300 Votes
D. 400 Votes
3. SNT Corporation has policy of paying a Rs. 6 dividend per share every
year. If
this policy is to continue indefinitely, what will be the value of a share of
stock at a
A. Rs. 30
B. Rs. 40
C. Rs. 50
D. Rs. 60
5. A project has an initial investment of Rs. 400,000. What would be the
NPV for the
A. Rs. 30000
B. Rs. 40,500
C. Rs. 50,000
D. Rs. 60,000
6. What will be the proper order of completion regarding the capital

budgeting
process?
( II ) Generate project proposals; ( III ) Estimate appropriate cash flows; (
IV ) Select value-maximizing projects; ( V ) Evaluate projects.
Case I: Mr. A, as a financial consultant, has prepared a feasibility report for
a
project for ABC Company that the company is planning to undertake. He
has
Case II: Mr. A, as a financial consultant, has prepared a feasibility report of
a
project for XYZ Company that the company is planning to undertake. He
has
8. Suppose you buy some stock for Rs. 35 per share. At the end of the year,
the price
is Rs. 43 per share. During the year, you get a Rs. 4 dividend per share.
What will
A. 22.85 %
B. 25.16 %
C. 30.52 %
D. 34.29 %
9. If you have a portfolio with Rs. 10,000 in asset A and Rs. 15,000 in
another asset B
A. 0.30
B. 0.40
C. 0.60
D. 0.75
10. Which of the following set of cash flows represents the change in the
firm’s total


B. Equal to Rs. 100
closest to:
A. Rs. 29,454
B. Rs. 34,325
C. Rs. 39,272
D. Rs. 49,023
true?
A. Rs. 1,556
B. Rs. 1,712
C. Rs. 2,082
D. Rs. 2,420
B. Income Bonds
C. Put Bonds
A. Less
B. Zero
C. More
A. 6.639%
B. 8.251%
C. 10.00%
D. 11.43%
Which of the following set of ratios is used to assess a business's ability to generate earnings as compared to its
expenses and other relevant costs incurred during a specific period of time
Which one of the following costs refers to an outlay that has already occurred and hence is not affected by the decision
under consideration ?
Sunk
Opportunity
1) The alternative name used for Interest Coverage Ratio is

_____________________.

2) If you want to evaluate the performance of an organization, which one of the

following ratios will be helpful to you in evaluating the performance of an
organization?

3) Imran Corporation is a firm dealing in hardware industry. It sold 5000 units

of its product to Mr. Younas for a sum of Rs.150, 000 whose cost was Rs.160,
000.What would be the effect of this transaction on current ratio of the
company if the current ratio was 0.80 before this transaction?
a. Increase
b. Decrease
c. Remain unchanged
4) Mehran Corporation is dealing in furniture industry. It has an equity

multiplier of 1.78 times. The debt to equity ratio would be
_________________?
a. 0.38 times
b. 0.58 times
c. 0.78 times
d. 0.98 times
5) What would be the level of EBIT if Imran Corporation uses both debt as well
as equity financing in its capital structure, it has a cash coverage ratio of 7.5
times, annual interest expense is Rs.1 million and annual depreciation is Rs.3
million?
a. Rs. 2.5 million

b. Rs. 3 million
c. Rs. 3.5 million
d. Rs.4.5 million
6) Suppose, Neumann Corporation has a debt to equity ratio of 0.45 times. Its
return on equity is 18%.The return on assets would be _______________.
a. 9.414 %
b. 10.414 %
c. 11.412 %
d. 12.414 %
7) Suppose, Ilyas Corporation is one of the dominant firms in electronics

equipment industry. Its policy is very clear about dealing with stackholders.
It pays out 30% of its income in the form of dividend. If it pays a total sum of
Rs.150 millions as a dividend, then what would be the amount transferred to
the retained earning balance from current year profit?
a. Rs.150 millions
b. Rs.250 millions
c. Rs.350 millions
d. Rs.500 millions
8) Sian Corporation is one of the largest firms in the electronics industry

covering 70% of the market share. During the current year its performance is
analysed by judging the various indicators. It has return on assets of 12.5%
and retention ratio is 3/5. What would be the internal growth rate of the Sian
Corporation?
a. 12.29%
b. 14.29%
c. 16.29%
d. 18.92%
9) What would be the sustainable growth rate if the Corporation has a Return
on equity (ROE) of 20% and a retention ratio of 4/6?
a. 25 %
b. 35 %
c. 29%
d. 45%
10) Rehan Corporation is dealing in agriculture products. Its annual gross sales
are Rs.1975 millions. Out of which 34% are on cash basis. Their past collection
experiences show that it has an average collection period of 76 days. What
would be the balance of accounts receivable at the end of the year?

2. A decrease in the percentage of net income paid out as a dividend, will increase
the:
b. Retention ratio
c. Leverage ratio
d. Profit margin


a. (1+r) t
b. (1-r) t
c. 1/ (1+r) t
d. 1/ (1+r) 1/t


a. The firm grows
7. You can determine the number of periods (n) in a present value calculation, if
you know:
a. Future amount
b. Present value
c. Interest rate

9. If we deposit Rs. 5,000 toady in an account paying 10%, how long does it take to grow to
Rs. 10,000?
a. 5.27 years
b. 6.27 years
c. 7.2 7 years
d. 7.57 years
a. Rs. 116.64
b. Rs. 111.64
c. Rs. 164.64
d. Rs. 164.61
Total marks: 10

d. Both a & c
b. Assets increased
d. Cash withdrawn
3. Generally, changes made in cash, accounts receivable, depreciation, inventory

and accounts payable are reflected in:

4. _________are short-term, temporary investments that can be readily converted

into cash.
b. Cash equivalents
c. Treasury bills
5. The Cash flow statement records your_________ and expenditure at the end of
the 'forecast' period.

b. Un earned income
6. Ratios look at the relationships between individual values and relate them to
how a company:

c. Both a & b

b. Leverage ratio
c. Turnover ratio
8. __________is concerned with the relationship between the long terms liabilities
that a business has and its capital employed.
a. Gearing
b. Acid test ratio
9. ____________give a picture of a company's ability to generate cash flow and

pay it financial obligations:
d. Solvency Ratios
a. Net sales
b. Total revenue
c. Total assets
1. Ann is interested in purchasing Ted's factory. Since Ann is a poor

negotiator, she hires Mary to negotiate a purchase price. Identify the parties to
this transaction from the given options, keeping in view the agency theory:

a. Trading in a given auction exchange takes place at a single site on the floor of
the exchange.
b. Transaction prices of shares are communicated almost immediately to the
public.
c. Listing.
3. Suppose a Corporation has a taxable income of $200,000 and the tax

amount is as given in the calculations:
$ 50,000 x 15% = $ 7,500
($ 75,000 - 50,000) x 25% = 6,250
($ 100,000 - 75,000) x 34% = 8,500
($ 200,000 - 100,000) x 39% = 39,000
$ 61,250
a. 39%
b. 34%
c. 15%
d. 25%
4. A document that includes corporation’s name, intended life, business

purpose and number of shares and is necessary to form a corporation is
known as:
a. Charter
b. Set of bylaws
5. According to the accounting profession, which of the given options would be

considered a cash-flow item from an "investing" activity in a cash flow
statement?
6. Which one of the given options is generally considered the most liquid
asset?
b. inventory
c. net fixed assets
7. Which of the given options is an advantage of a corporation that is not an

advantage as a limited partner in a partnership?
c. Double taxation.
d. All of the options are advantages that the corporation has over the limited
partner.
8. In finance we refer to the market for relatively long-term financial

instruments as the __________ market.
a. money
b. capital
c. primary
d. secondary
9. __________ is concerned with the branch of economics relating the behavior of

principals and their agents.
c. Agency theory
a. Depreciation
b. Dividends
d. Taxes
1. A standardized financial statement presenting all items of the statement as

a percentage of total is:
d. a balance sheet
2. Ammar is running a company ‘Ammar & Co’. He has asked you to comment
on company’s ability to pay its bills over the short run without undue stress.
For this purpose you will study which category of ratios of the company?
b. Liquidity ratios
c. Debt ratios
d. Turnover ratios
3. Which one of the given options describes desirable current ratio for a
business?
e. 0
f. 0.2
g. 0.1
h. At least one
b. Liquidity Ratios
c. Debt Ratios

a. comparison
b. identification
c. calculation
d. liability
7. A series of constant cash flows that occur at the end of each period
for some fixed number of periods is
b. annuity due
d. perpetuity
8. Suppose the total cost of a college education will be $50,000 in 12
years for a child. The Parents have $5,000 to invest today. What rate
of interest must they earn on investment to cover the cost of child’s
education?
a. 21.15%
b. 12%
c. 18%
d. 30%
9. If the bank loans out $10,000 for 90 days at 8% simple interest, the PV
is:
a. $9,806.56
b. $9000
c. $10000
d. $9500
10. Suppose, you deposited an amount of Rs.1000 in Habib Bank at the start of
year 2006. How much interest amount will you have at the end of the year if
the bank pays simple interest @10% p.a.?
a. Rs.100
b. Rs.10
c. Rs.90
d. Rs.1000

M. Total Assets
O. Net Profit
P. Gross Profit
position?
M. Income Statement
N. Balance Sheet
another?
M. Primary Market
N. Secondary Market
O. Tertiary Market
M. Liquidity
O. Profitability
P. Market Value
M. Planning Process
P. Managing Process
M. 6.37 %
N. 8.37 %
O. 15.7 %
P. 12.5 %
7. S&T Company have 35 thousands shares outstanding and the stock sold for Rs. 99 per share at the
end of year. Income Statement reported a net income of Rs. 385,000. The Price Earning Ratio for S&T
Company will be:
M. 8 times
N. 9 times
O. 10 times
P. 11 times
8. While making Common-Size statement, Balance Sheet items are shown as a percentage of :
O. Total Assets
Q. Total Capital
R. Net Profit
9. A business, created as a distinct legal entity owned by one or more individuals or entities, is known
as:
M. Partnership
N. Corporation
L. Inventory
M. Accounts Payable
O. Depreciation

1. The difference between the return on a risky investment and that on a risk-free
investment.
A. Risk Return
B. Risk Premium
C. Risk Factor
A. Portfolio
C. Budget
A. Less
B. More
C. Same
A. Systematic Risk
C. Portfolio Risk
D. Total Risk
C. A & B

A. Systematic Risk
C. Total Risk
D. Portfolio Risk
MCQ # 08 - 10 are based on the following data:
received Rs. 3000 (Rs. 2 per share) in dividends. At the end of year the stock sells for Rs.
30 each. If you sell the stock at the end of the year, your total cash inflow will be Rs.
48,000 (1500 shares @ 30 each = Rs. 45000 & Dividend = 3000).
A. 10,500
B. 7,500
C. 10,000
D. 7,000
A. 8.50 %
B. 6.25%
C. 8.00%
D. 6.67%
A. 20%
B. 28%
C. 32%
D. 35%
A. Secondary market
B. Primary market
C. Capital market
D. Money market

following except:


A. Fall
B. Rise
C. Remain unchanged
discount factor?
A. 1.42215
B. 2.75886
C. 3.75886
D. 4.08998
A. Compounded daily
B. b.Rs.240 million
C. c.Rs.275 million
D. d.Rs.290 million
A. 6.12 times
B. 7.11 times
C. 8.11 times
D. 9.11 times
rates of return?
A. 20.00%
B. 20.50%
C. 21.00%
D. 21.99%
firm?
A. Rs.60, 000
B. Rs.64, 000
C. Rs.72, 000
D. Rs.74, 000
1. Ntp Corporation has decided to pay Rs.16 per share dividend every year. If this policy is
to continue indefinitely, then the value of a share of stock would be --------------, if the
a. Rs.60
b. Rs.64
c. Rs.68
d. Rs.74
a. Rs.149.8
b. Rs.184.9
c. Rs.198.4
d. Rs.229.9
a. 17%
b. 27%
c. 37%
d. 47%

a. 150 votes
b. 210 votes
c. 240 votes
d. 300 votes
a. Primary market
b. Secondary market
c. Financial market
d. Capital market

be Rs.5, 000,000 in first year, Rs.7, 000,000 in the next year and Rs.8, 000,000 in the last
year. This project would cost about Rs. 10,000,000.The net present value of the
a. Rs.2, 576, 000

b. Rs.3, 576, 000
c. Rs.1, 576, 000

d. Rs.4, 576, 000

Year Cash Flows
01 Rs.500,000
02 Rs.800,000
03 Rs.600,000
______________.
a. 1.50 years
b. 2.00 years
c. 2.33 years
d. 3.00 years
________________.
a. 0.667
b. 1
c. 1.25
d. 1.50
a. Opportunity cost
b. Sunk cost
c. Decremental cost
_______________.
a. Rs. 3,810,000
b. Rs. 4,810,000
c. Rs. 5,190,000
d. Rs. 6,890,000

a. Default free
b. Taxable
c. Highly liquid
b. Economic value
c. Book value
d. Future value
a. Higher
b. Lower
c. Constant

b. Straight voting
c. Proxy voting

a. Chairman
c. Shareholders
d. Stakeholders
b. Payback period

a. -1
b. 0
c. 1

a. Book value
b. Intrinsic value
c. Cost
d. Market value
a. Erosion
b. Piracy
c. Cannibalism

a) Operating Cycle
b) Cash Cycle
d) Inventory period

a) Inventory period

and brothers.
a) 100,000
b) 97,000
c) 103,000
d) 50,000
a) 234 days
b) 223 days
c) 245 days
d) 230 days

firm?
a) Bank loan
c) Trade credit


a) Cash discount
c) Float discount


financing.

a) 66.67%
b) 33.34%
c) 0%
d) 60%
be
a) 11.15%
b) 16.13%
c) 15.80%
d) 13.14%

a) Financial risk
b) Portfolio risk
c) Operating risk
d) Market risk
must be expecting?
a) $202,200,000
b) $247,500,000
c) $283,500,000
d) $321,250,000

a) 13.5%
b) 17.75%
c) 15.79%
d) 17.13%
cash item is a
a) Source of cash
b) Use of cash
a) 62 days
b) 18 days
c) 56 days
d) 19 days
a) Rs.1,000,000
b) Rs.1,200,000
c) Rs800,000
d) Rs.1,400,000
_________________.

E. Sunk cost
F. Opportunity cost
G. Financing cost
E. 13.07 %
F. 15.67 %
G. 16.00 %
H. 18.80 %
E. Portfolio
F. Diversification
G. Stock Bundle
portfolio will be:
E. 37.5 %
F. 47.5 %
G. 62.5 %
H. 72.5 %
E. Systematic Risk
F. Market Risk
E. Systematic Risk
G. A & B
E. 2.6 Years
F. 3.1 Years
G. 3.6 Years
H. 4.1 Years

E. Most widely used
I. Ordinary Annuity
J. Perpetuity
K. Dividend
L. Interest
I. 15.00 %
J. 15.34 %
K. 15.87 %
L. 16.42 %
I. loan; receiver
J. dividend; issuer
L. loan; issuer
I. More
J. Less
K. Same

I. 30 %
J. 50 %
K. 70 %
L. 90 %
K. Sell new shares
discount rate.
I. Present Value
J. Future Value
K. Capital Gain
L. Net Profit
K. Rs. 319.45
L. Rs. 390.75
M. Rs. 419.45
N. Rs. 463.75
H. Time to maturity
I. Coupon rate
J. A and B
H. 8 %
I. 10 %
J. 12 %
K. 14 %

elected.
A. 100 Votes
B. 200 Votes
C. 300 Votes
D. 400 Votes
year. If
stock at a
A. Rs. 30
B. Rs. 40
C. Rs. 50
D. Rs. 60
NPV for the
A. Rs. 30000
B. Rs. 40,500
C. Rs. 50,000
D. Rs. 60,000

budgeting
process?
( II ) Generate project proposals; ( III ) Estimate appropriate cash flows; (
IV ) Select value-maximizing projects; ( V ) Evaluate projects.
a
has
a
has
the price
What will
A. 22.85 %
B. 25.16 %
C. 30.52 %
D. 34.29 %
another asset B
A. 0.30
B. 0.40
C. 0.60
D. 0.75
firm’s total


B. Equal to Rs. 100
closest to:
A. Rs. 29,454
B. Rs. 34,325
C. Rs. 39,272
D. Rs. 49,023
true?
A. Rs. 1,556
B. Rs. 1,712
C. Rs. 2,082
D. Rs. 2,420
B. Income Bonds
C. Put Bonds
A. Less
B. Zero
C. More
A. 6.639%
B. 8.251%
C. 10.00%
D. 11.43%
Sunk
Opportunity

_____________________.


organization?


a. Increase
b. Decrease
c. Remain unchanged

_________________?
a. 0.38 times
b. 0.58 times
c. 0.78 times
d. 0.98 times
million?
a. Rs. 2.5 million

b. Rs. 3 million
c. Rs. 3.5 million
d. Rs.4.5 million
a. 9.414 %
b. 10.414 %
c. 11.412 %
d. 12.414 %

a. Rs.150 millions
b. Rs.250 millions
c. Rs.350 millions
d. Rs.500 millions

Corporation?
a. 12.29%
b. 14.29%
c. 16.29%
d. 18.92%
a. 25 %
b. 35 %
c. 29%
d. 45%

the:
b. Retention ratio
c. Leverage ratio
d. Profit margin


a. (1+r) t
b. (1-r) t
c. 1/ (1+r) t
d. 1/ (1+r) 1/t


a. The firm grows
you know:
a. Future amount
b. Present value
c. Interest rate

Rs. 10,000?
a. 5.27 years
b. 6.27 years
c. 7.2 7 years
d. 7.57 years
a. Rs. 116.64
b. Rs. 111.64
c. Rs. 164.64
d. Rs. 164.61
Total marks: 10

d. Both a & c
b. Assets increased
d. Cash withdrawn



into cash.
b. Cash equivalents
c. Treasury bills

b. Un earned income
how a company:

c. Both a & b

b. Leverage ratio
c. Turnover ratio
a. Gearing
b. Acid test ratio

d. Solvency Ratios
a. Net sales
b. Total revenue
c. Total assets

negotiator, she hires Mary to negotiate a purchase price. Identify the parties to
this transaction from the given options, keeping in view the agency theory:

the exchange.
public.
c. Listing.

$ 50,000 x 15% = $ 7,500
($ 75,000 - 50,000) x 25% = 6,250
($ 100,000 - 75,000) x 34% = 8,500
($ 200,000 - 100,000) x 39% = 39,000
$ 61,250
a. 39%
b. 34%
c. 15%
d. 25%

known as:
a. Charter
b. Set of bylaws

considered a cash-flow item from an "investing" activity in a cash flow
statement?
asset?
b. inventory
c. net fixed assets

c. Double taxation.
partner.

a. money
b. capital
c. primary
d. secondary

c. Agency theory
a. Depreciation
b. Dividends
d. Taxes

d. a balance sheet
b. Liquidity ratios
c. Debt ratios
d. Turnover ratios
business?
e. 0
f. 0.2
g. 0.1
h. At least one
b. Liquidity Ratios
c. Debt Ratios

a. comparison
b. identification
c. calculation
d. liability
7. A series of constant cash flows that occur at the end of each period
for some fixed number of periods is
b. annuity due
d. perpetuity
8. Suppose the total cost of a college education will be $50,000 in 12
years for a child. The Parents have $5,000 to invest today. What rate
of interest must they earn on investment to cover the cost of child’s
education?
a. 21.15%
b. 12%
c. 18%
d. 30%
is:
a. $9,806.56
b. $9000
c. $10000
d. $9500
10. Suppose, you deposited an amount of Rs.1000 in Habib Bank at the start of
year 2006. How much interest amount will you have at the end of the year if
the bank pays simple interest @10% p.a.?
a. Rs.100
b. Rs.10
c. Rs.90
d. Rs.1000

M. Total Assets
O. Net Profit
P. Gross Profit
position?
M. Income Statement
N. Balance Sheet
another?
M. Primary Market
N. Secondary Market
O. Tertiary Market
M. Liquidity
O. Profitability
P. Market Value
M. Planning Process
P. Managing Process
M. 6.37 %
N. 8.37 %
O. 15.7 %
P. 12.5 %
7. S&T Company have 35 thousands shares outstanding and the stock sold for Rs. 99 per share at the end of year. Income Statement
reported a net income of Rs. 385,000. The Price Earning Ratio for S&T Company will be:
M. 8 times
N. 9 times
O. 10 times
P. 11 times
O. Total Assets
Q. Total Capital
R. Net Profit
9. A business, created as a distinct legal entity owned by one or more individuals or entities, is known as:
M. Partnership
N. Corporation
L. Inventory
M. Accounts Payable
O. Depreciation

b operation cycle
c inventory period
d none of above
2. Allow a bank to substitute its creditworthiness for the customer, for a fee is called___________-
a open bank account

b commercial draft
c promisory note
3. Standard deviations for Investment A and Investment B are 25% and 12% respectively. This indicates that:

a 5%
b 5.25 %
c 6%
d 8%
7. Which of the following statement shows revenue, expense, and net worth as of a specific date?
a balance sheet
b income statement
c cash flow
d none of above

Market risk
Interest risk
Inflation risk
9. A company has a two director and 1 shareholder which hav 25 power of share the voter for director is
a 100
b150
c50
d25
10.An investment will be _________ if the IRR doesn’t exceeds the required return and _________
otherwise. Select correct option:
Accepted; rejected Choose the Most Appropriate Answer among the given choices.Accepted; accepted
Rejected; rejected Rejected; accepted
11. Which of the

1. The difference between the return on a risky investment and that on a risk-freefollowing is the overall return
investment.
the firm must earn on its A. Risk Returnexisting assets to maintain the value of the stock?
Select correct option: IRR (Internal Rate of Return)
MIRR (Modified Internal B. Risk PremiumRate of Return)
AAR (Average Accounting C. Risk FactorReturn)
12. Which of the following is D. None of the abovethe return that firm’s creditors demand on new borrowings ?
Select correct option: Cost of debt pg 143
Cost of preferred stock 2. A group of assets such as stocks and bonds held by an investor.Cost of common equity
A. Portfolio
13.In which type of projects, B. Capital Structurethe unequal lives of the projects do affect the analysis ?
Select correct option: Mutually exclusive
Dependent C. BudgetIndependent
Correlated
14.Mr. Naveed has
corporation one year ago
3. If the variance or standard deviation is larger then the spread in returns will be:bought 100 shares of a
at Rs. 23 per share. Over the
last year, he received a
total percentage return ?
A. Lessdividend of Rs. 1.50 per share. At the end of the year, the stock sells for Rs. 31. As per given information, what will be his
10.63% B. More20.20%
35.12% 41.30%
C. Same
15.Which of the following is D. None of the Aboveknown as the group of assets such as stocks and bonds held by an investor ?
Select correct option: Stock Bundle
Portfolio 4. The following risk is entirely wiped out by Diversification.Capital Structure
A. Systematic Risk
16. Suppose the initial investment for a project is Rs. 16 million and the cash flows are Rs. 4 million in the first year and Rs. 9
million in the second and Rs. B. Unsystematic Risk5 million in the third. The project will have a payback period of:
Select correct option: 2.6 Years
3.1 Years C. Portfolio Risk3.7 Years
4.1 Years
D. Total Risk
17. find the cash cycle 5. The objective for using the concept of Diversification is to :inventory period is 38 days account payabel period is 50
days and average accoun receivable period is 30 days
a.68 A. Minimize the Risk
b 18
c 80 B. Maximize the return
d 118
C. A & B

A. Systematic Risk
C. Total Risk
D. Portfolio Risk
received Rs. 3000 (Rs. 2 per share) in dividends. At the end of year the stock sells for
Rs. 30 each. If you sell the stock at the end of the year, your total cash inflow will be
Rs. 48,000 (1500 shares @ 30 each = Rs. 45000 & Dividend = 3000).
A. 10,500
B. 7,500
C. 10,000
D. 7,000
A. 8.50 %
B. 6.25%
C. 8.00%
D. 6.67%
A. 20%
B. 28%
C. 32%
D. 35%
A. Secondary market
B. Primary market
C. Capital market
D. Money market

following except:


A. Fall
B. Rise
C. Remain unchanged
discount factor?
A. 1.42215
B. 2.75886
C. 3.75886
D. 4.08998
A. Compounded daily
B. b.Rs.240 million
C. c.Rs.275 million
D. d.Rs.290 million
A. 6.12 times
B. 7.11 times
C. 8.11 times
D. 9.11 times
rates of return?
A. 20.00%
B. 20.50%
C. 21.00%
D. 21.99%
firm?
A. Rs.60, 000
B. Rs.64, 000
C. Rs.72, 000
D. Rs.74, 000
1. Ntp Corporation has decided to pay Rs.16 per share dividend every year. If this policy
is to continue indefinitely, then the value of a share of stock would be --------------, if the
a. Rs.60
b. Rs.64
c. Rs.68
d. Rs.74
a. Rs.149.8
b. Rs.184.9
c. Rs.198.4
d. Rs.229.9
a. 17%
b. 27%
c. 37%
d. 47%

a. 150 votes
b. 210 votes
c. 240 votes
d. 300 votes
a. Primary market
b. Secondary market
c. Financial market
d. Capital market

projected costs and sales, it expects that the cash flows over the 3-year life of the project
will be Rs.5, 000,000 in first year, Rs.7, 000,000 in the next year and Rs.8, 000,000 in the
last year. This project would cost about Rs. 10,000,000.The net present value of the
a. Rs.2, 576, 000

b. Rs.3, 576, 000
c. Rs.1, 576, 000

d. Rs.4, 576, 000

Year Cash Flows
01 Rs.500,000
02 Rs.800,000
03 Rs.600,000
______________.
a. 1.50 years
b. 2.00 years
c. 2.33 years
d. 3.00 years
________________.
a. 0.667
b. 1
c. 1.25
d. 1.50
a. Opportunity cost
b. Sunk cost
c. Decremental cost
_______________.
a. Rs. 3,810,000
b. Rs. 4,810,000
c. Rs. 5,190,000
d. Rs. 6,890,000

a. Default free
b. Taxable
c. Highly liquid
b. Economic value
c. Book value
d. Future value
a. Higher
b. Lower
c. Constant

b. Straight voting
c. Proxy voting

a. Chairman
c. Shareholders
d. Stakeholders
b. Payback period

a. -1
b. 0
c. 1

a. Book value
b. Intrinsic value
c. Cost
d. Market value
a. Erosion
b. Piracy
c. Cannibalism

a) Operating Cycle
b) Cash Cycle
d) Inventory period

a) Inventory period

and brothers.
a) 100,000
b) 97,000
c) 103,000
d) 50,000
a) 234 days
b) 223 days
c) 245 days
d) 230 days

firm?
a) Bank loan
c) Trade credit


a) Cash discount
c) Float discount


financing.

a) 66.67%
b) 33.34%
c) 0%
d) 60%
be
a) 11.15%
b) 16.13%
c) 15.80%
d) 13.14%

a) Financial risk
b) Portfolio risk
c) Operating risk
d) Market risk
must be expecting?
a) $202,200,000
b) $247,500,000
c) $283,500,000
d) $321,250,000

a) 13.5%
b) 17.75%
c) 15.79%
d) 17.13%
cash item is a
a) Source of cash
b) Use of cash
a) 62 days
b) 18 days
c) 56 days
d) 19 days
a) Rs.1,000,000
b) Rs.1,200,000
c) Rs800,000
d) Rs.1,400,000
_________________.

E. Sunk cost
F. Opportunity cost
G. Financing cost
E. 13.07 %
F. 15.67 %
G. 16.00 %
H. 18.80 %
E. Portfolio
F. Diversification
G. Stock Bundle
portfolio will be:
E. 37.5 %
F. 47.5 %
G. 62.5 %
H. 72.5 %
E. Systematic Risk
F. Market Risk
E. Systematic Risk
G. A & B
E. 2.6 Years
F. 3.1 Years
G. 3.6 Years
H. 4.1 Years

E. Most widely used
I. Ordinary Annuity
J. Perpetuity
K. Dividend
L. Interest
I. 15.00 %
J. 15.34 %
K. 15.87 %
L. 16.42 %
I. loan; receiver
J. dividend; issuer
L. loan; issuer
I. More
J. Less
K. Same

I. 30 %
J. 50 %
K. 70 %
L. 90 %
K. Sell new shares
discount rate.
I. Present Value
J. Future Value
K. Capital Gain
L. Net Profit
K. Rs. 319.45
L. Rs. 390.75
M. Rs. 419.45
N. Rs. 463.75
H. Time to maturity
I. Coupon rate
J. A and B
H. 8 %
I. 10 %
J. 12 %
K. 14 %

1. In the formula k e >= (D1 /P0 ) + g, what does (D 1 /P0 ) represent?
elected.
A. 100 Votes
B. 200 Votes
C. 300 Votes
D. 400 Votes
year. If
stock at a
A. Rs. 30
B. Rs. 40
C. Rs. 50
D. Rs. 60
NPV for the
A. Rs. 30000
B. Rs. 40,500
C. Rs. 50,000
D. Rs. 60,000

budgeting
process?
a
has
a
has
the price
What will
A. 22.85 %
B. 25.16 %
C. 30.52 %
D. 34.29 %
another asset B
A. 0.30
B. 0.40
C. 0.60
D. 0.75
firm’s total


B. Equal to Rs. 100
closest to:
A. Rs. 29,454
B. Rs. 34,325
C. Rs. 39,272
D. Rs. 49,023
true?
A. Rs. 1,556
B. Rs. 1,712
C. Rs. 2,082
D. Rs. 2,420
B. Income Bonds
C. Put Bonds
A. Less
B. Zero
C. More
A. 6.639%
B. 8.251%
C. 10.00%
D. 11.43%
Sunk
Opportunity

_____________________.


organization?


a. Increase
b. Decrease
c. Remain unchanged

_________________?
a. 0.38 times
b. 0.58 times
c. 0.78 times
d. 0.98 times
million?
a. Rs. 2.5 million

b. Rs. 3 million
c. Rs. 3.5 million
d. Rs.4.5 million
a. 9.414 %
b. 10.414 %
c. 11.412 %
d. 12.414 %

a. Rs.150 millions
b. Rs.250 millions
c. Rs.350 millions
d. Rs.500 millions

Corporation?
a. 12.29%
b. 14.29%
c. 16.29%
d. 18.92%
a. 25 %
b. 35 %
c. 29%
d. 45%

the:
b. Retention ratio
c. Leverage ratio
d. Profit margin


a. (1+r)t
b. (1-r)t
c. 1/ (1+r)t
d. 1/ (1+r)1/t


a. The firm grows
you know:
a. Future amount
b. Present value
c. Interest rate

Rs. 10,000?
a. 5.27 years
b. 6.27 years
c. 7.2 7 years
d. 7.57 years
a. Rs. 116.64
b. Rs. 111.64
c. Rs. 164.64
d. Rs. 164.61
Total marks: 10

d. Both a & c
b. Assets increased
d. Cash withdrawn



into cash.
b. Cash equivalents
c. Treasury bills

b. Un earned income
how a company:

c. Both a & b

b. Leverage ratio
c. Turnover ratio
a. Gearing
b. Acid test ratio

d. Solvency Ratios
a. Net sales
b. Total revenue
c. Total assets

negotiator, she hires Mary to negotiate a purchase price. Identify the parties
to this transaction from the given options, keeping in view the agency theory:
a. Ann is the principal and Mary is the agent .

the exchange.
public.
c. Listing.

$ 50,000 x 15% = $ 7,500
($ 75,000 – 50,000) x 25% = 6,250
($ 100,000 – 75,000) x 34% = 8,500
($ 200,000 – 100,000) x 39% = 39,000
$ 61,250
a. 39%
b. 34%
c. 15%
d. 25%

known as:
a. Charter
b. Set of bylaws
5. According to the accounting profession, which of the given options would

be considered a cash-flow item from an "investing" activity in a cash flow
statement?
asset?
b. inventory
c. net fixed assets

c. Double taxation.
partner.

a. money
b. capital
c. primary
d. secondary
9. __________ is concerned with the branch of economics relating the behavior

of principals and their agents.
c. Agency theory
a. Depreciation
b. Dividends
d. Ta xes
1. A standardized financial statement presenting all items of the statement

as a percentage of total is:
d. a balance sheet
b. Liquidity ratios
c. Debt ratios
d. Turnover ratios
business?
e. 0
f. 0.2
g. 0.1
h. At least one
b. Liquidity Ratios
c. Debt Ratios


a. comparison
b. identification
c. calculation
d. liability
7. A series of constant cash flows that occur at the end of each period for
some fixed number of periods is .
b. annuity due
d. perpetuity
8. Suppose the total cost of a college education will be $50,000 in 12 years

for a child. The Parents have $5,000 to invest today. What rate of interest
must they earn on investment to cover the cost of child’s education?

a. 21.15%
b. 12%
c. 18%
d. 30%
is:
a. $9,806.56
b. $9000
c. $10000
d. $9500
10. Suppose, you deposited an amount of Rs.1000 in Habib Bank at the start
of year 2006. How much interest amount will you have at the end of the year
if the bank pays simple interest @10% p.a.?
a. Rs.100
b. Rs.10
c. Rs.90
d. Rs.1000

M. Total Assets
O. Net Profit
P. Gross Profit
position?
M. Income Statement
N. Balance Sheet
another?
M. Primary Market
N. Secondary Market
O. Tertiary Market
M. Liquidity
O. Profitability
P. Market Value
M. Planning Process
P. Managing Process
M. 6.37 %
ACC 501 mcqs ACC501 All Solved Mid Term MCQs
1. Which of the following is the process of planning and managing a firm’s long-term investments?
Capital Structuring N. 8.37 % Capital Rationing
Capital Budgeting Working Capital Management
O. 15.7 %
2. Which of the following refers to the cash flows that result from the firm’s day-to-day ac
selling? P. 12.5 % Select correct option:
Flows
7. S&T Company have 35 thousands shares outstanding and the stock sold for
Flows 99 per share at the end of year. Income Statement reported a net income of R
Flows 385,000. The Price Earning Ratio for S&T Company will be: All of the give
M. 8 times
Select correct option: N. 9 times
Float Collar
Limit O. 10 times Surplus
P. 11 times
4. Which of the
acronym for 8. While making Common-Size statement, Balance Sheet items are shown as a
Select correct percentage of :
O. Total Assets Generally Applied Accountability Principles
Generally Accepted P. Total Liabilities Accounting Principles
Q. Total Capital
5. Which of the R. Net Profit following strategy belongs to restrictive policy regarding size of investm
Select correct
9. A business, created as a distinct legal entity owned by one or more individua
ratio of current or entities, is known as: assets to sales
To maintain a low L. Sole Proprietorship ratio of current assets to sales
To more short-term M. Partnership debt and less long-term debt
6. Quick Ratio is also N. Corporation known as:

Current Ratio O. None of the given options Acid-test Ratio
Cash Ratio None of the given opt
7. Mr. Y and Mr. Z are planning to share their capital to run a business. They are going to emp
type of business? L. Inventory Select correct option:
Sole-proprietorship
Partnership M. Accounts Payable Corporation
O. Depreciation be __ and __ respectively.
20%; 80%
tion
he given options
ue of money is an important finance concept because:

rrect option:
isk into account

ime into account
ompound interest into account
given options
erred stock of a company currently sells for Rs. 25 per share. The annual dividend of Rs. 2.50 is fixed. Assuming a consta
what is the rate of return on this stock?
rrect option:
ent
ent
ent
ent
the following ratios are particularly interesting to short-term creditors?

rrect option:
y Ratios
m Solvency Ratios
lity Ratios
Value Ratios
the following equation is known as Cash Flow (CF) identity?

rrect option:
Assets = CF to Creditors – CF to Stockholder

Assets = CF to Stockholders – CF to Creditors
ockholders = CF to Creditors + CF from Assets
Assets = CF to Creditors + CF to Stockholder
ld be indifferent between taking and not taking the investment when:

rrect option:
reater than Zero

qual to Zero
ss than Zero
given options
the following is (are) a non-cash item(s) ?

rrect option:
tion
given options
the following is NOT a shortcoming of Payback Rule?

rrect option:
ue of money is ignored
the following type of risk can be eliminated by diversification?
rrect option:
ic Risk
Risk
matic Business Finance (ACC501) Solution quiz 01 Risk
he given options Fall Semester 2006
the following measure reveals how much profit a company generates with the money shareholders have invested?
rrect option:
Highlight the correct option: Profit Margin
n Assets
n Equity
uity 1) The alternative name used for Interest Coverage Ratio is Ratio
_____________________.
the following is(are) the basic area(s) of Finance?
rrect option:
a. Time interest earned Financial institutions
onal b. Cash coverage ratio finance
nts c. Profit margin ratio All of the given options
the following is the return that firm’s creditors demand on new borrowings ?
rrect option:
2) If you want to evaluate the performance of an organization, which one of the Cost of debt
referred following ratios will be helpful to you in evaluating the performance of an stock
ommon equity
etained organization? earnings
ic Risk is a. Return on short as well as long term investments also known as:
rrect option:
c. Return on equity and profit margin Diversifiable Risk
Risk Residual Risk
ecific Risk d. All of the given options
3) Imran Corporation is a firm dealing in hardware industry. It sold 5000 units Corporation has tw
ders; Mr. of its product to Mr. Younas for a sum of Rs.150, 000 whose cost was Rs.160, Aamir with
an with 70 shares. Both
s one of the 000.What would be the effect of this transaction on current ratio of the four directors but M
want Mr. company if the current ratio was 0.80 before this transaction? Aamir to be director. How much votes
e able to cast as per cumulative voting procedure?
rrect option:
a. Increase
b. Decrease 70
c. Remain unchanged 200

_________________?
a. 0.38 times
Business Finance (ACC501) Solution quiz 01
Fall Semester 2006
million?
a. Rs. 2.5 million

b. Rs. 3 million
c. Rs. 3.5 million
d. Rs.4.5 million
a. 9.414 %
b. 10.414 %
c. 11.412 %
d. 12.414 %

a. Rs.150 millions
b. Rs.250 millions
c. Rs.350 millions
d. Rs.500 millions

Corporation?
Fall Semester 2006
a. 25 %
b. 35 %
c. 29%
d. 45%
(Total marks: 10)
Fall Semester 2006
following except:


A. Fall
B. Rise
C. Remain unchanged
discount factor?
A. 1.42215
B. 2.75886
C. 3.75886
D. 4.08998
A. Compounded daily
Fall Semester 2006
A. 6.12 times
B. 7.11 times
C. 8.11 times
D. 9.11 times
rates of return?
A. 20.00%
B. 20.50%
C. 21.00%
D. 21.99%
saving in taxes due to pres ence of debt financing in the capital structure of the
firm?
A. Rs.60, 000
B. Rs.64, 000
C. Rs.72, 000
D. Rs.74, 000
QUIZ # 3 (Solution)
Total
FALL SEMESTER 2006
Marks
ACC501 – BUSINESS FINANCE 10
Fall Semester 2006
C. Risk Factor
A. Portfolio
C. Budget
A. Less
B. More
C. Same
A. Systematic Risk
C. Portfolio Risk
D. Total Risk
C. A & B
Fall Semester 2006
C. Total Risk
D. Portfolio Risk

A. 10,500
B. 7,500
C. 10,000
D. 7,000
A. 8.50 %
B. 6.25%
C. 8.00%
D. 6.67%
A. 20%
B. 28%
C. 32%
D. 35%
Total marks: 10

Fall Semester 2006
b. Retention ratio
c. Leverage ratio
d. Profit margin


a. (1+r) t
b. (1-r) t
c. 1/ (1+r) t
d. 1/ (1+r) 1/t


a. The firm grows
you know:
a. Future amount
b. Present value
c. Interest rate

Fall Semester 2006
a. Rs. 116.64
b. Rs. 111.64
c. Rs. 164.64
d. Rs. 164.61
a. Rs.60
b. Rs.64
c. Rs.68
d. Rs.74
a. Rs.149.8
b. Rs.184.9
c. Rs.198.4
d. Rs.229.9
a. 17%
b. 27%
Fall Semester 2006
b. 210 votes
c. 240 votes
d. 300 votes
a. Primar y market
b. Secondary market
c. Financial market
d. Capital market

a. Rs.2, 576, 000

b. Rs.3, 576, 000
c. Rs.1, 576, 000
d. Rs.4, 576, 000

Year Cash Flows
01 Rs.500,000
02 Rs.800,000
03 Rs.600,000
______________.
a. 1.50 years
b. 2.00 years
c. 2.33 years
d. 3.00 years
Fall Semester 2006
a. Opportunity cost
b. Sunk cost
c. Decremental cost
_______________.
a. Rs. 3,810,000
b. Rs. 4,810,000
c. Rs. 5,190,000
d. Rs. 6,890,000
Total marks: 10

d. Both a & c

Fall Semester 2006


into cash.
b. Cash equivalents
c. Treasury bills
Fall Semester 2006

b. Un earned income
how a company:

c. Both a & b

b. Leverage ratio
c. Turnover ratio
a. Gearing
b. Acid test ratio
Fall Semester 2006

d. Solvency Ratios
a. Net sales
b. Total revenue
c. Total assets
QUIZ # 01
Total
SPRING SEMESTER 2007
Marks
SOLUTION
Most Appropriate Answer among the given choices has been chosen.
1. ________________ is considered as botto m line in Income Statement?

E. Total Assets
F. Total Liabilities
G. Net Profit
Fall Semester 2006
H. Owner's Equity Statement

another?
E. Primar y Market
F. Secondary Market
G. Tertiar y Market
E. Liquidity
F. Financial Leverage
G. Profitability
H. Market Value
E. Planning Process
F. Capital Structure
G. Capital Budgeting
H. Managing Process
E. 6.37 %
F. 8.37 %
G. 15.7 %
H. 12.5 %
E. 8 times
Fall Semester 2006
G. Total Capital
H. Net Profit
E. Sole Proprietorship
F. Partnership
G. Corporation
E. Inventory
F. Accounts Payable
G. Accounts Receivable
H. Depreciation
QUIZ # 02 (Solution)
Total
Marks
Instructions:
• Due Date and Time to submit the Quiz is . . .
Friday, Apr. 20, 2007 - - - Before 12’O Clock Midnight

• Quiz includes Lecture # 11 to Lecture # 18 of your course.
• You can choose the right option by Highlighting, Making Bold or Changing Color .
Fall Semester 2006
I. Ordinary Annuity
J. Perpetuity
K. Dividend
L. Interest
I. 15.00 %
J. 15.34 %
K. 15.87 %
L. 16.42 %
I. loan; receiver
J. dividend; issuer
L. loan; issuer
I. More
J. Less
K. Same
I. 30 %
J. 50 %
K. 70 %
L. 90 %
6. If sales are to grow at a rate higher than the sustainable growth rate, the f irm must:
Fall Semester 2006
I. Present Value
J. Future Value
K. Capital Gain
L. Net Profit
I. Rs. 319.45
J. Rs. 390.75
K. Rs. 419.45
L. Rs. 463.75
I. Time to maturity
J. Coupon rate
K. A and B
L. None of the given options
I. 8 %
J. 10 %
K. 12 %
L. 14 %
QUIZ # 03 (SOLUTION)
Total
Marks
Instructions:
Fall Semester 2006
• Quiz will not be acceptable in any way after the mentioned Date and Time.

M. Sunk cost
N. Opportunity cost
O. Financing cost
P. All of the given options
M. 13.07 %
N. 15.67 %
O. 16.00 %
P. 18.80 %
M. Portfolio
N. Diversification
O. Stock Bundle
M. Net Present Value (NPV)
N. Profitability Index (PI)
O. Average Accounting Return (AAR)
P. Internal Rate of Return (IRR)
portfolio will be:
M. 37.5 %
Fall Semester 2006
N. Market Risk
Made By Armaan Makhani
O. Non-diversifiable Risk
Armaan.makhani@gmail.com
Date :25-11-2010
ACC 501 Quiz Conference lecture 1 to 18
1. Which of the following issue is NOT covered by “Investment” area of finance?
M. Systematic
Select Risk
correct option:
N. Unsystematic
Best Risk
mixture of financial investment
International aspects of corporate finance
O. A &risks
Associated B and rewards
Pricing financial assets
2. Period costs include which of the following?
8. Suppose theoption:
Select correct initial investment for a project is Rs. 160,000 and the cash flows are Rs.
Selling expense
Raw material
M. 2.6
Direct Years
labor
Manufacturing overhead
N. 3.1 Years
3. Product costs include which of the following?
O. 3.6 Years
P. 4.1 Years
Selling expenses
9. General
A model expenses
which makes an assumption about the future growth of dividends is known as
M. Dividend
Administrative Price Model
expenses
Q. Dividend
4. Financial Growth by
policy is evaluated Model
which of the following?
N. Dividend Policy Model
Profit Margin
All ofTurnover
O. Assets
Total the given options
Debt-equity ratio
10.None
Which ofgiven
of the the following
options is not a quality of IRR ?
M. Most widely used
5. Cash flow from assets involves which of the following component(s)?
R. Ideal
Select correcttooption:
rank the mutually exclusive investments
N. Easily
Operating cashcommunicated
flow and understood
Capital spending
O. Can
Change beworking
in net estimated even without knowing the discount rate
capital

7. Finance is vital for which of the following business activity (activities)?

Marketing Research
Product Pricing
Design of marketing and distribution channels
8. Which of the following costs are reported on the income statement as the cost of goods
sold?
Product cost
Period cost
Both product cost and period cost
Neither product cost nor period cost
9. Standard Company had net sales of Rs. 750,000 over the past year. During that time,
average receivables were Rs. 150,000. Assuming a 365-day year, what was the average
collection period?
5 days
36 days
48 days
73 days
750000/150000=5
365/5=73days
10. Which of the following terms refers to the use of debt financing?
Operating Leverage
Financial Leverage
Manufacturing Leverage
11. In which type of market, new securities are traded?

Primary market
Secondary market
Tertiary market
Liquidity Ratios
Market Value Ratios
13. shows the sources from which cash has been generated and how it has been spent
during a period of time?
Income Statement
Balance Sheet
Cash Flow Statement
Owner’s Equity Statement
14. Standard Corporation sold fully depreciated equipment for Rs. 5,000. This transaction
will be reported on the cash flow statement as a(n):
Operating activity
Investing activity
Financing activity
15. me: Quick Ratio is also known as:

Current Ratio
Acid-test Ratio
Cash Ratio
16. of the following statement measures performance over a specific period of time?
Income Statement
Balance Sheet
Cash Flow Statement
Retained Earning Statement
17. A portion of profits, which a company retains itself for further expansion, is known as:
Dividends
Retained Earnings
Capital Gain
18. Net Income after taxation differs from Net Cash Flow from operations because:
Depreciation expense is shown in the Cash Flow Statement and not in the Income Statement
Non-cash items are included in the Income Statement, but not in the Cash Flow Statement
Cash sales are shown in the Cash Flow Statement but not in the Income Statement
Cash expenses are shown in the Cash Flow Statement but not in the Income Statement
19. Which of the following statement shows assets, liabilities, and net worth as of a specific
date?
Income Statement
Balance Sheet
Cash Flow Statement
Dividends
Retained Earnings
Capital Gain
21. Which one of the following is NOT a liquidity ratio?

Current Ratio
Quick Ratio
Cash Coverage Ratio
Cash Ratio
22. Which of the following ratio gives an idea as to how efficient management is at using its
assets to generate earnings?
Profit Margin
Return on Assets
Return on Equity
Total Assets Turnover
23. Which of the following is an example of capital spending?

Purchase of Fixed Assets

Decrease in Net Working Capital
Increase in Net Working Capital
24. Which of the following is measured by profit margin?

Operating efficiency
Asset use efficiency
Financial policy
Dividend policy
25. Who of the following make a broader use of accounting information?

Accountants
Financial Analysts
Auditors
Marketers
26. Which of the following set of ratios is used to assess a business's ability to generate
earnings as compared to its expenses and other relevant costs incurred during a specific
period of time?
Liquidity Ratios
Leverage Ratios
Market Value Ratios
27. A company having a current ratio of 1 will have __________ net working capital.
Positive
Negative
zero
28. which of the following is not a form of business organization

sole proprietorship
partnership
joint stock company
cooperative Society
29. Which of the following ratios are intended to address the firm’s financial leverage?
Liquidity Ratios
Asset Management Ratios
30. The accounting definition of income is:

Income = Current Assets – Current Liabilities

Income = Fixed Assets – Current Assets
Income = Revenues – Current Liabilities
Income = Revenues – Expenses
31. Which of the following item(s) is(are) not included while calculating Operating Cash
Flows?
Depreciation
Interest
Expenses related to firm’s financing of its assets
32. Suppose market value exceeds book value by Rs. 250,000. What will be the after-tax
proceeds if there is a tax rate of 34 percent ?
Rs. 105,600
Rs. 148,500
Rs. 165,000
Rs. 225,000
Solution=250000*34%=85000
250,000-85000=165000
33. When a corporation wishes to borrow from public on a long-term basis, it does so by
issuing or selling:
Debt securities or bonds lec 17

Common Stocks
Preferred Stock
period of time?
Liquidity Ratios
Leverage Ratios
Market Value Ratios
35. In which type of market, used securities are traded?

Primary market
Secondary market
Tertiary market

Accountants
Financial Analysts lec 2
Auditors
Marketers

Revenue
Expenses
Depreciation
38. What will be the coupon value of a Rs. 1,000 face-value bond with a 10% coupon rate?
Rs. 100
Rs. 510
Rs. 1,000
Rs. 1,100
Solution:
=1000/10
=100
39. Which of the following comes under the head of discounted cash flow criteria for capital
budgeting decisions?
Payback Period lec 28

Net Present Value
Average Accounting Return

Selling expense
Raw material
Direct labor
41. The value of net working capital will be greater than zero when:
Current Assets > Current Liabilities

Current Assets < Current Liabilities
Current Assets = Current Liabilities
42. According to Du Pont Identity, ROE is affected by which of the following?

Financial Leverage
Best mixture of financial investment
Associated risks and rewards
Operating activity
Investing activity
Financing activity
45. Balance sheet for a company reports current assets of Rs. 700,000 and current liabilities
of Rs. 460,000. What would be the Current Ratio for the company if there is an
inventory level of Rs. 120,000?
1.01
1.26
1.39
1.52
Solution= 700000/460000=1.52
46. In which type of business, all owners share in gains and losses and all have unlimited
liability for all business debts?
Sole-proprietorship
General Partnership pg 6
Limited Partnerhsip
Corporation
47. a firm uses cash to purchase inventory, its current ratio will:
Increase
Decrease
Remain unaffected
Become zero
48. Which of the following is a special case of annuity, where the stream of cash flows
continues forever?
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity
49. Which of the following is an example of positive covenant?

Maintaining any collateral or security in good condition
Limiting the amount of dividend according to some formula
Restricting pledging assets to other lenders
Barring merger with another firm
50. Which of the following refers to the difference between the sale price and cost of
inventory?
Net loss
Net worth
Markup
Markdown
51. Which of the following allows a company to repurchase part or all of the bond issue at a
stated price?
Repayment
Seniority
Call provision
Protective covenants
52. ____________ shows the sources from which cash has been generated and how it has
been spent during a period of time?
Income Statement
Balance Sheet
Cash Flow Statement
53. Which of the following is a cash flow from financing activity?

Cash outflow to the government for taxes
Cash outflow to shareholders as dividends
Cash outflow to lenders as interest
Cash outflow to purchase bonds issued by another company
54. Which of the following form of business organization is least regulated?

Sole-proprietorship
General Partnership
Limited Partnership
Corporation
55. The principal amount of a bond at issue is called:
Par value
Coupon value
Present value of an annuity
Present value of a lump sum
56. Which of the following relationships holds TRUE if a bond sells at a discount?
Bond Price < Par Value and YTM > coupon rate
Bond Price > Par Value and YTM > coupon rate
Bond Price > Par Value and YTM < coupon rate
Bond Price < Par Value and YTM < coupon rate
issuing or selling:
Debt securities or bonds
Common Stocks
Preferred Stock
58. Which of the following item provides the important function of shielding part of income
from taxes?
Inventory
Supplies
Machinery
Depreciation
59. A firm reports total liabilities of Rs. 300,000 and owner’s equity of Rs. 500,000. What
would be the total worth of the firm’s assets?
Rs. 300,000
Rs. 500,000
Rs. 800,000
Rs. 1100,000
sol
Asset= liabilities+ capital so 300+500=800,000
Sole-proprietorship
General Partnership
Limited Partnership
Corporation
61. in which form of Business, owners have limited libility.

sole proprietorship
partnership
joint stock company
none of the above
63. The difference between current assets and current liabilities is known as:
Surplus Asset
Short-term Ratio
Working Capital
Current Ratio
64. A borrower is able to pay Rs. 40,000 in 5 years. Given a discount rate of 12 percent,
what amount of money the lender should lend?
Rs. 14,186
Rs. 18,256
Rs. 22,697
Rs. 28,253
solution
40000*1/(1+0.12)^5=22697.07
65. Which of the following statement is considered as the accountant’s snapshot of firm’s
accounting value as of a particular date?
Income Statement
Balance Sheet
Cash Flow Statement
Par value
Coupon value
67. Which of the following statement about bond ratings is TRUE?

Bond ratings are typically paid for by a compan y’s bondholders.
Bond ratings are based solely on information acquired from sources other than the bond
issuer.
Bond ratings represent an independent assessment of the credit-worthiness of bonds.

69. Which of the following is NOT an internal use of financial statements information?
Planning for the future through historic information
Evaluation of performance through profit margin and return on equity
Evaluation of credit standing of new customer
70. A firm has paid out Rs. 150,000 as dividends from its net income of Rs. 250,000. What is
the retention ratio for the firm?
12 %
25 %
40 %
60 %
Solution
Net income-dividend / net income *100
250000-150000/250000*100=40%
A company having a current ratio of 1 will have __________ net working capital.
Positive
Negative
zero
71. A portion of profits, which a company distributes among its shareholders, is known as:
Dividends
Retained Earnings
Capital Gain

Investments
73. Which of the following ratios is NOT from the set of Asset Management Ratios?
Inventory Turnover Ratio

Receivable Turnover
Capital Intensity Ratio
Return on Assets

Operating Leverage
Financial Leverage
b
76. You need Rs. 10,000 to buy a new television. If you have Rs. 6,000 to invest at 5 percent
compounded annually, how long will you have to wait to buy the television?
8.42 years
10.51 years
15.75 years
18.78 years
6000(1+5%)^10.51=around 10,000

Maintaining firm’s working capital at or above some specified minimum level

Furnishing audited financial statements periodically to the lender
Restricting selling or leasing assets
78. Which of the following is measured by retention ratio?

Financial policy
Dividend policy
date?
Income Statement
Balance Sheet
Cash Flow Statement
Armaan: b

Selling expenses
General expenses
Administrative expenses
81. An account was opened with an investment of Rs. 3,000 ten years ago. The ending
balance in the account is Rs. 4,100. If interest was compounded, how much
compounded interest was earned?
Rs. 500
Rs. 752
Rs. 1,052
Rs. 1,100
4100-3000=1100

7.00 percent
7.12 percent
7.19 percent
7.23 percent
83. Which of the following cash flow activities are reported in the Cash Flow Statement and
Income Statement?
Operating Activities
Investing Activities
Financing Activities
84. Which of the following term refers to establish of a standard to follow for comparison?
Benchmarking 48
Standardizing
Comparison
Evaluation

Operating efficiency pg 44
Financial policy
Dividend policy
86. Rule of 72 for finding the number of periods is fairly applicable to which of the
following range of discount rates?
2% to 8%
4% to 25%
5% to 20%
10% to 50%
87. Which of the following refers to a conflict of interest between principal and agent?
Management Conflict
Interest Conflict
Agency Problem
88. Which of the following is a series of constant cash flows that occur at the end of each
period for some fixed number of periods?
Ordinary annuity 63
Annuity due
Perpetuity
89. Which of the following area of finance deals with stocks and bonds?
Investments
90. 7:03 AM Which of the following is NOT an external use of financial statements
information?

Evaluation of financial worth of supplier
Evaluation of potential strength of the competitor

Investments
92. If a firm has a ROA of 8 percent, sales of Rs. 100,000, and total assets of Rs. 75,000.
What is the profit margin?
4.30%
6.00%
10.70%
16.73%
solution
Net income =ROA*total asset
Net income=8%*75000=6000
Profit margin=net income/ sales*100
Profit margin=6000/100000*100= 6%
investments?
Capital Structuring
Capital Rationing
Capital Budgeting

Current Ratio
Acid-test Ratio
Cash Ratio
Sole-proprietorship
Partnership
Corporation
20%; 80%
37%; 63%
63%; 37%
80%; 20%
98. When corporations borrow, they generally promise to: I. Make regular scheduled
interest payments II. Give the right of voting to bondholders III. Repay the original
amount borrowed (principal) IV. Give an ownership interest in the firm
ACC 501 mcqs

I and II
I and III
II and IV
I, III, and IV
99. Which of the following is NOT included in a bond indenture?

The basic terms of bond issue
The total amount of bonds issued
A personal profile of the issuer
A description of the security
100. What would be the present value of Rs. 10,000 to be received after 6 years at a
discount rate of 8 percent?
Rs. 6,302
Rs. 9,981
Rs. 14,800
Rs. 15,869
101. Which of the following statement is TRUE regarding debt?
Debt is an ownership interest in the firm.

Unpaid debt can result in bankruptcy or financial failure.
Debt provides the voting rights to the bondholders.
Corporation’s payment of interest on debt is fully taxable.
5.00 percent
7.00 percent
8.45 percent
10.0 percent
continues forever?
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity
Capital Structuring
Capital Rationing
Capital Budgeting
2. Which of the following refers to the cash flows that result from the firm’s day-to-day activities of producing and selling?

Float
Collar
Limit
Surplus


5. Which of the following strategy belongs to restrictive policy regarding size of investments in current assets?


Current Ratio
Acid-test Ratio
Cash Ratio
7. Mr. Y and Mr. Z are planning to share their capital to run a business. They are going to employ which of the following type of business?
Sole-proprietorship
Partnership
Corporation
8. If you have Rs. 30 in asset A and Rs. 120 in another asset B, the weights for assets A and B will be __ and __ respectively.
20%; 80%
37%; 63%
63%; 37%
80%; 20%
Carrying costs
Shortage costs
Storing costs
financing costs
Every asset is assigned to a particular class which establishes asset’s life for tax purposes.
11.
Depreciation is computed for each year by multiplying the cost of the asset by a fixed percentage.
The expected salvage value and the actual expected economic life are not explicitly considered in calculation of depreciation.


13. Mr. A has just recently started a business by investing a capital of Rs. 500,000. He will be the only owner of the business and also enjoy all the
profits of the business. Which type of business is being employed by Mr. A?
Sole-proprietorship
Partnership
Corporation


15. The preferred stock of a company currently sells for Rs. 25 per share. The annual dividend of Rs. 2.50 is fixed. Assuming a constant dividend
forever, what is the rate of return on this stock?
5.00 percent
7.00 percent
8.45 percent
10.0 percent
Liquidity Ratios
Market Value Ratios



Revenue
Expenses
Depreciation


21. You just won a prize, you can either receive Rs. 1000 today or Rs. 1,050 in one year. Which option do you prefer and why if you can earn 5 percent
on your money?


7.00 percent
7.12 percent
7.19 percent
7.23 percent
23. Which of the following forms of business organizations is created as a distinct legal entity owned by one or more individuals or entities?
Sole-proprietorship
General Partnership
Limited Partnership
Corporation
Systematic Risk
Diversifiable Risk
Unsystematic Risk

Systematic Risk
Market Risk
Unsystematic Risk
26. Which of the following measure reveals how much profit a company generates with the money shareholders have invested?
Profit Margin
Return on Assets
Return on Equity
Debt-Equity Ratio
International finance ACC501 All Solved Mid Term MCQs Investments
28. Which of the Choose the Most Appropriate Answer among the given choices. following is the return that firm’s creditors
demand on new borrowings ?
Cost of debt
investment.
Cost of preferred A. Risk Return stock
Cost of retained B. Risk Premium earnings
29. Systematic Risk is also C. Risk Factor known as:

Diversifiable Risk D. None of the above Market Risk
Residual Risk Asset-specific Risk
30. ABC Corporation has two shareholders; Mr. Aamir with 50 shares and Mr. Imran with 70 shares. Both want to be elected as
one of the four A. Portfolio directors but Mr. Imran doesn’t want Mr. Aamir to be director. How much votes would Mr. Aamir be
able to cast as per cumulative voting procedure?
70 120
C. Budget
200 280
31. D. None of the above
A. Less
B. More
C. Same
A. Systematic Risk
C. Portfolio Risk
D. Total Risk
C. A & B

A. Systematic Risk
C. Total Risk
D. Portfolio Risk
A. 10,500
B. 7,500
C. 10,000
D. 7,000
A. 8.50 %
B. 6.25%
C. 8.00%
D. 6.67%
A. 20%
B. 28%
C. 32%
D. 35%
A. Secondary market
B. Primary market
C. Capital market
D. Money market

following except:


A. Fall
B. Rise
C. Remain unchanged
discount factor?
A. 1.42215
B. 2.75886
C. 3.75886
D. 4.08998
A. Compounded daily
B. b.Rs.240 million
C. c.Rs.275 million
D. d.Rs.290 million
A. 6.12 times
B. 7.11 times
C. 8.11 times
D. 9.11 times
rates of return?
A. 20.00%
B. 20.50%
C. 21.00%
D. 21.99%
firm?
A. Rs.60, 000
B. Rs.64, 000
C. Rs.72, 000
D. Rs.74, 000
a. Rs.60
b. Rs.64
c. Rs.68
d. Rs.74
a. Rs.149.8
b. Rs.184.9
c. Rs.198.4
d. Rs.229.9
a. 17%
b. 27%
c. 37%
d. 47%

a. 150 votes
b. 210 votes
c. 240 votes
d. 300 votes
a. Primary market
b. Secondary market
c. Financial market
d. Capital market

a. Rs.2, 576, 000

b. Rs.3, 576, 000
c. Rs.1, 576, 000

d. Rs.4, 576, 000

Year Cash Flows
01 Rs.500,000
02 Rs.800,000
03 Rs.600,000
______________.
a. 1.50 years
b. 2.00 years
c. 2.33 years
d. 3.00 years
________________.
a. 0.667
b. 1
c. 1.25
d. 1.50
a. Opportunity cost
b. Sunk cost
c. Decremental cost
_______________.
a. Rs. 3,810,000
b. Rs. 4,810,000
c. Rs. 5,190,000
d. Rs. 6,890,000

a. Default free
b. Taxable
c. Highly liquid
b. Economic value
c. Book value
d. Future value
a. Higher
b. Lower
c. Constant

b. Straight voting
c. Proxy voting

a. Chairman
c. Shareholders
d. Stakeholders
b. Payback period

a. -1
b. 0
c. 1

a. Book value
b. Intrinsic value
c. Cost
d. Market value
a. Erosion
b. Piracy
c. Cannibalism

a) Operating Cycle
b) Cash Cycle
d) Inventory period

a) Inventory period

and brothers.
a) 100,000
b) 97,000
c) 103,000
d) 50,000
a) 234 days
b) 223 days
c) 245 days
d) 230 days

firm?
a) Bank loan
c) Trade credit


a) Cash discount
c) Float discount


financing.

a) 66.67%
b) 33.34%
c) 0%
d) 60%
be
a) 11.15%
b) 16.13%
c) 15.80%
d) 13.14%

a) Financial risk
b) Portfolio risk
c) Operating risk
d) Market risk
must be expecting?
a) $202,200,000
b) $247,500,000
c) $283,500,000
d) $321,250,000

a) 13.5%
b) 17.75%
c) 15.79%
d) 17.13%
cash item is a
a) Source of cash
b) Use of cash
a) 62 days
b) 18 days
c) 56 days
d) 19 days
a) Rs.1,000,000
b) Rs.1,200,000
c) Rs800,000
d) Rs.1,400,000
_________________.

E. Sunk cost
F. Opportunity cost
G. Financing cost
E. 13.07 %
F. 15.67 %
G. 16.00 %
H. 18.80 %
E. Portfolio
F. Diversification
G. Stock Bundle
portfolio will be:
E. 37.5 %
F. 47.5 %
G. 62.5 %
H. 72.5 %
E. Systematic Risk
F. Market Risk
E. Systematic Risk
G. A & B
E. 2.6 Years
F. 3.1 Years
G. 3.6 Years
H. 4.1 Years

E. Most widely used
I. Ordinary Annuity
J. Perpetuity
K. Dividend
L. Interest
I. 15.00 %
J. 15.34 %
K. 15.87 %
L. 16.42 %
I. loan; receiver
J. dividend; issuer
L. loan; issuer
I. More
J. Less
K. Same

I. 30 %
J. 50 %
K. 70 %
L. 90 %
K. Sell new shares
discount rate.
I. Present Value
J. Future Value
K. Capital Gain
L. Net Profit
K. Rs. 319.45
L. Rs. 390.75
M. Rs. 419.45
N. Rs. 463.75
H. Time to maturity
I. Coupon rate
J. A and B
H. 8 %
I. 10 %
J. 12 %
K. 14 %

elected.
A. 100 Votes
B. 200 Votes
C. 300 Votes
D. 400 Votes
year. If
stock at a
A. Rs. 30
B. Rs. 40
C. Rs. 50
D. Rs. 60
NPV for the
A. Rs. 30000
B. Rs. 40,500
C. Rs. 50,000
D. Rs. 60,000

budgeting
process?
a
has
a
has
the price
What will
A. 22.85 %
B. 25.16 %
C. 30.52 %
D. 34.29 %
another asset B
A. 0.30
B. 0.40
C. 0.60
D. 0.75
firm’s total


B. Equal to Rs. 100
closest to:
A. Rs. 29,454
B. Rs. 34,325
C. Rs. 39,272
D. Rs. 49,023
true?
A. Rs. 1,556
B. Rs. 1,712
C. Rs. 2,082
D. Rs. 2,420
B. Income Bonds
C. Put Bonds
A. Less
B. Zero
C. More
A. 6.639%
B. 8.251%
C. 10.00%
D. 11.43%
Sunk
Opportunity

_____________________.


organization?


a. Increase
b. Decrease
c. Remain unchanged

_________________?
a. 0.38 times
b. 0.58 times
c. 0.78 times
d. 0.98 times
million?
a. Rs. 2.5 million

b. Rs. 3 million
c. Rs. 3.5 million
d. Rs.4.5 million
a. 9.414 %
b. 10.414 %
c. 11.412 %
d. 12.414 %

a. Rs.150 millions
b. Rs.250 millions
c. Rs.350 millions
d. Rs.500 millions

Corporation?
a. 12.29%
b. 14.29%
c. 16.29%
d. 18.92%
a. 25 %
b. 35 %
c. 29%
d. 45%

the:
b. Retention ratio
c. Leverage ratio
d. Profit margin


a. (1+r)t
b. (1-r)t
c. 1/ (1+r)t
d. 1/ (1+r)1/t


a. The firm grows
you know:
a. Future amount
b. Present value
c. Interest rate

Rs. 10,000?
a. 5.27 years
b. 6.27 years
c. 7.2 7 years
d. 7.57 years
a. Rs. 116.64
b. Rs. 111.64
c. Rs. 164.64
d. Rs. 164.61
Total marks: 10

d. Both a & c
b. Assets increased
d. Cash withdrawn



into cash.
b. Cash equivalents
c. Treasury bills

b. Un earned income
how a company:

c. Both a & b

b. Leverage ratio
c. Turnover ratio
a. Gearing
b. Acid test ratio

d. Solvency Ratios
a. Net sales
b. Total revenue
c. Total assets


the exchange.
public.
c. Listing.

$ 50,000 x 15% = $ 7,500
($ 75,000 – 50,000) x 25% = 6,250
($ 100,000 – 75,000) x 34% = 8,500
($ 200,000 – 100,000) x 39% = 39,000
$ 61,250
a. 39%
b. 34%
c. 15%
d. 25%

known as:
a. Charter
b. Set of bylaws

statement?
asset?
b. inventory
c. net fixed assets

c. Double taxation.
partner.

a. money
b. capital
c. primary
d. secondary

c. Agency theory
a. Depreciation
b. Dividends
d. Ta xes

d. a balance sheet
b. Liquidity ratios
c. Debt ratios
d. Turnover ratios
business?
e. 0
f. 0.2
g. 0.1
h. At least one
b. Liquidity Ratios
c. Debt Ratios


a. comparison
b. identification
c. calculation
d. liability
b. annuity due
d. perpetuity


a. 21.15%
b. 12%
c. 18%
d. 30%
is:
a. $9,806.56
b. $9000
c. $10000
d. $9500
a. Rs.100
b. Rs.10
c. Rs.90
d. Rs.1000

M. Total Assets
O. Net Profit
P. Gross Profit
position?
M. Income Statement
N. Balance Sheet
another?
M. Primary Market
N. Secondary Market
O. Tertiary Market
M. Liquidity
O. Profitability
P. Market Value
M. Planning Process
P. Managing Process
M. 6.37 %
N. 8.37 %
O. 15.7 %
P. 12.5 %a account receivable
7. S&T Company have 35 thousands shares outstanding and the stock
sold
99 for
perRs.
share at the end of year. Income Statement reported a net income
of Rs. The Price Earning Ratio for S&T Company will be:
385,000.
M. 8 timesb operation cycle
c inventory period
N. 9 timesd none of above
O. 10 times2. Allow a bank to substitute its creditworthiness for the customer,
for a fee is called___________-
P. 11 times
8. While making Common-Size statement, Balance Sheet items are shown
aspercentage
a of :
O. Total Assetsa open bank account
b commercial draft
P. Total Liabilitiesc promisory note
Q. Total Capital
3. Standard deviations for Investment A and Investment B
R. Net Profitare 25% and 12% respectively. This indicates that:
9. A business, created as a distinct legal entity owned by one or more
individuals
L. Sole ProprietorshipSelect correct option:
M. PartnershipInvestment B is equally volatile to Investment A
N. Corporation
Investment B is more volatile than
Investment A
L. Inventory
M. Accounts Payable
N. Accounts Receivablea 5%
O. Depreciation
b 5.25 %
c 6%
d 8%
7. Which of the following statement shows revenue, expense, and net worth as of a specific
date?
a balance sheet
b income statement
c cash flow
d none of above

Market risk
Interest risk
Inflation risk
9. A company has a two director and 1 shareholder which hav 25 power of share the voter for
director is
a 100
b150
c50
d25
10.An investment will be _________ if the IRR doesn’t exceeds the required return and
_________ otherwise.
Accepted; rejected
Accepted; accepted
Rejected; rejected
Rejected; accepted
11. Which of the following is the overall return the firm must earn on its existing assets to
maintain the value of the stock?
Cost of debt pg 143
Mutually exclusive
Dependent
Independent
Correlated
14.Mr. Naveed has bought 100 shares of a corporation one year ago at Rs. 23 per share. Over the
last year, he received a dividend of Rs. 1.50 per share. At the end of the year, the stock sells for
Rs. 31. As per given information, what will be his total percentage return ?
10.63%
20.20%
35.12%
41.30%
15.Which of the following is known as the group of assets such as stocks and bonds held by an
investor ?
Stock Bundle
Portfolio
Capital Structure
16. Suppose the initial investment for a project is Rs. 16 million and the cash flows are Rs. 4
million in the first year and Rs. 9 million in the second and Rs. 5 million in the third. The project
will have a payback period of:
2.6 Years
3.1 Years
3.7 Years
4.1 Years
17. find the cash cycle inventory period is 38 days account payabel period is 50 days and
average accoun receivable period is 30 days
a.68
b 18
c 80
d 118
Question 63= operating cash flow of Rs. 200,000. Net working capital has
decreased by Rs. 50,000 and there is a net capital spending of Rs. 0 during the year. Calculate
total cash flow. (3marks)
Solution:
Total cash flow=200000-(-50000)
toal cash flow =250,000
Question 64= snk company find the profitability index dividend 2 and price= 200 (3marks)
solution= 2/200=0.01=1answer
question 65=3marks
question 66= define systematic risk and unsystematic risk and also define which risk is
eliminated by diversification 5 marks
Quesion 67= which issue cover in finance and investment area 5marks
questin 68= credit policy and its component 5makrs
question 69= define optimal policy 5marks
ACC 501 Mcqs for Final Term

Restricting selling or leasing assets wrong question option d is negative and all is
positive example
Wrong, wrong, wrong question it is unfair discipline
2. AST Company’s debt-to-total assets ratio is 0.45. What is its debt -to-equity
ratio?
0.101
0.220
0.667
0.818
Reference:(1-0.45=0.55)
=0.45/0.55=0.818
3. What amount a borrower would pay at the end of fourth year with a 4-year,
12%, interest-only loan of Rs. 8,000?
Rs. 1,360
Rs. 2,000
Rs. 5,625
Rs. 8,960
Reference: 8000*12/100=8960
4. What will be the price per share if there is a current dividend of Rs. 4.75,
required rate of return of 12% and growth rate of 5%?
Rs. 30.19
Rs. 43.52
Rs. 56.53
Rs. 71.25
Reference: D*1+g/r-g
4.75*(1+0.5/4.75-0.5)=71.25
5. A given rate is quoted as 9 percent APR, but the EAR is 9.38 percent. What
is the compounding period?
Semiannually
Quarterly
Monthly
Daily
Reference:(1+APR/m)^m-1
APR=9
M=30
(1+9/30)^30-1=9.38
6. Mr. Aslam owns 100 shares of a company and there are four directors to be
elected. How much votes Mr. Aslam would have as per cumulative voting
procedure?
100 votes
200 votes
300 votes
400 votes
Reference: 100*4=400
7. SNT Corporation has policy of paying a Rs. 6 per share dividend every year.
If this policy is to continue indefinitely, what will be the value of a share of
stock at a 15% required rate of return?
Rs. 30
Rs. 40
Rs. 50
Rs. 60
Reference: 6/0.15=40
8. Which of the following process can be defined as the process of generating
earnings from previous earnings?
Discounting
Compounding
Factorization
9. Which of the following is the amount of cash we would get if we actually sell
an asset?
Market Value
Book Value
Intrinsic Value
10.
11. Which of the following financial statement shows both dollars and
percentages in the report?
Balance Sheet
Common-Size Statement
Income Statement
Relative Statement of Equity
sole proprietorship
partnership
joint stock company
none of the above
13. Suppose the initial investment for a project is Rs. 16 million and the cash
flows are Rs. 4 million in the first year and Rs. 9 million in the second and
Rs. 5 million in the third. The project will have a payback period of:
2.6 Years
3.1 Years
3.7 Years
4.1 Years
None of the given options pg 106
15. When a corporation wishes to borrow from public on a long-term basis, it
does so by issuing or selling:
Debt securities or bonds pg 71

Common Stocks
Preferred Stock
16. Treasury notes and bonds are examples of which of the following types of
bonds?
Government bonds 85
Zero coupon bonds
Floating-rate bonds
Euro bonds
17. When real rate is _____, all interest rates will tend to be _____.
Low; higher
High; lower
High; higher pg 88
18. Which of the following statements is(are) CORRECT regarding a bond?
A bond is an evidence of debt issued by a corporation or a governmental body. A
bond represents a loan made by investors to the issuer.
When a corporation wishes to borrow from public on a long term basis, it does so by
issuing or selling bonds.
19. Between the two identical bonds having different coupon, the price of the
________ bond will change less than that of ________ bond.
Higher-coupon; lower-coupon
Lower-coupon; higher-coupon
Long-term; short-term
20. As the dividend is always same for a zero growth stock, so the stock can also
be viewed as:
Ordinary Annuity
Annuity Due
Ordinary perpetuity pg 91
21. The coupon rate of a floating-rate bond is capped and upper and lower rates
are called:
Float
Collar pg 86
Limit
Surplus
22. Internal Rate of Return (IRR) is sometimes referred to as:
Simple Interest Rate
Compound Interest Rate
Economic Rate of Return
Required Rate of Return
23. If the dividend for a share is growing at a steady rate then which of the
following formula(s) can be used to find the dividend in two periods?
D2 = D1 x (1 + g )
D2 = Do x ( 1 + g )2
D2 = Do x ( 1 + g )2
All of the given options pg 92
24. A project whose acceptance does not prevent or require the acceptance of
one or more alternative projects is referred to as a(n):
mutually exclusive project
independent project
dependent project
contingent project
25. A project has an initial investment of Rs. 600,000. What would be the NPV
for the project if it has a profitability index of 1.12?
Rs. 40,000
Rs. 55,000
Rs. 65,000
Rs. 72,000
Reference=600000*1.12=672000-600000=72000
Unpaid debt can result in bankruptcy or financial failure. Pg 78
27. If a firm is allowed to miss a coupon payment on a bond in a year in which it
reports an operating loss, the bond is most likely a(n) _______ bond.
Income
Zero coupon
Floating-rate
Put
28. A ______ covenant limits or prohibits actions that company might take.
Positive
Negative pg 80
Neutral
29. IRR and NPV rules always lead to identical decisions as long as:
Cash flow s are conventional
Cash flow s are independent
Cash flow s are both conventional and independent pg 110
30. Which of the following allows a company to repurchase part or all of the
bond issue at a stated price?
Repayment
Seniority
Call provision
31. Which of the following is NOT a quality of IRR?
Most widely used
Ideal to rank the mutually exclusive investments pg 116
Easily communicated and understood
Can be estimated even without knowing the discount rate
32. In which type of the market, previously issued securities are traded among
investors?
Primary Market
Secondary Market pg 100
Tertiary Market
33. A model which makes an assumption about the future growth of dividends is
known as:
Dividend Price Model
Dividend Growth Model
Dividend Policy Model
34. Which of the following represents the linear relation between Net Present
Value (NPV) and Profitability Index (PI)?
If Profitability Index > 1, NPV is Negative (-)
If Profitability Index < 1, NPV is Positive (+)
If Profitability Index > 1, NPV is Positive (+)
If Profitability Index > 1, NPV is Zero (0)
35. Which of the following comes under the head of discounted cash flow criteria
for capital budgeting decisions?
Payback Period
Net Present Value pg 118
36.
Which of the following is NOT included in discounted cash flow criteria for
capital budgeting decision?
Payback Period pg 119
Net Present Value
Profitability Index
Internal Rate of Return
38. Which of the following is the most common capital budgeting technique?
Payback Period
Net Present Value

Profitability Index
39. Which of the following measures the present value of an investment per
dollar invested?
Net Present Value (NPV)
Average Accounting Return (AAR)
Internal Rate of Return (IRR)
Profitability Index (PI) pg 119
40. Which of the following is a measure of accounting profit relative to the book
value?
Net Present Value
Profitability Index
Average Accounting Return pg 119
41. Which one of the following typically applies to preferred stock but not to
common stock?
Dividend yield
Cumulative dividends
Voting rights
Tax deductible dividends
bonds?
Government bonds pg 86
Zero coupon bonds
Floating-rate bonds
Euro bonds
43. Expectation of a ____ inflation rate will push long term interest rates ____
than short term rates reflected by an upward term structure.
Lower; higher
Higher; lower
Higher; higher pg 88
44. A company issues bonds with a Rs. 1,000 face value. What is the coupon rate
if the coupon payments of Rs. 60 are paid every 6 months?
3 percent
6 percent
9 percent
12 percent
60+60=120/1000=12%
45. The projected cash flows from a project are: Year 1: Rs. 100 Year 2: Rs. 300
Year 3: Rs. 400 Year 4: Rs. 800 The Project cost is Rs. 800. What would be
the payback period for the project?
2.00 Years
2.67 Years
3.00 Years
3.67 Years
Project=800 paid in 1 year=100, 2nd year=300 and 3rd year=400 total 800 paid in 3rd
year
In which of the following type of annuity, cash flows occur at the beginning of
each period?
Ordinary annuity
Annuity due pg 66
Perpetuity
46. Which of the following is NOT an important feature of treasury notes and
bonds?
Default free
Taxable
Least liquid pg 90
Highly liquid
Which of the following is NOT a determinant of term structure?
Real rate of interest
Internal rate of interest pg 88
Expected inflation
Interest rate risk

47. Which of the following is the amount of time required for an investment to
generate cash flows sufficient to recover its initial cost?
Yield to maturity
Maturity Period
Payback period pg 104
Accounts Receivable period
m.q .z
48. In which type of the market, securities are originally sold to the investors?
Primary Market
Secondary Market
Tertiary Market
49. A _________ is an agent who arranges security transactions among investors.
Broker pg 100
Dealer
Member
Specialist
volatile
50. Which of the following is a characteristic of preferred stock?
These stocks have not stated liquidating value
Dividends on these stocks can be cumulative pg 100
These bonds hold credit ratings quite different from bonds
These stocks have not any kind of priority over common stocks
51. Which of the following type of bond pays no coupon at all and are offered at
a price that is much lower than its stated value?
Government bonds
Zero coupon bonds pg 85
Floating-rate bonds
Euro bonds
52. An investment will be _________ if the IRR doesn’t exceeds the required
return and _________ otherwise.
Accepted; rejected
Accepted; accepted
Rejected; rejected
Rejected; accepted pg 109 conceptual
53. Which of the following comes under the head of accounting criteria for
Payback Period
Net Present Value
Profitability Index
54. Which of the following is a series of constant cash flows that occur at the end
of each period for some fixed number of periods?
Ordinary annuity pg 63
Annuity due
Perpetuity
55. Which of the following term refers to the difference between the present
value of cash inflows and the present value of cash outflows?
Profitability Index (PI)
56. One would be indifferent between taking and not taking the investment
when:
NPV is equal to Zero pg 104 doubt ask question in mdb

57. Which one of the following terms refers to the risk arises for bond owners
from fluctuating interest rates?
Fluctuations Risk
Interest Rate Risk pg75
Real-Time Risk
Inflation Risk
58. All else equal, the market value of a corporate bond is always inversely
related to its:
Time to maturity
Coupon rate
Yield to maturity
59. Which of the following issue is NOT covered by “Investment” area of
finance?
Selling expense
Raw material
Direct labor
Selling expenses
General expenses
62. Financial policy is evaluated by which of the following?
Profit Margin
Debt-equity ratio
Operating cash flow
Capital spending
Change in net working capital
64. Which of the following refers to the cash flows that result from the firm’s
day-to-day activities of producing and selling?
Marketing Research
Product Pricing
66. Which of the following costs are reported on the income statement as the cost
of goods sold?
Product cost
Period cost
67. Standard Company had net sales of Rs. 750,000 over the past year. During
that time, average receivables were Rs. 150,000. Assuming a 365-day year,
what was the average collection period?
5 days
36 days
48 days
73 days
750000/150000=5
365/5=73days
Operating Leverage
Financial Leverage
Primary market
Secondary market
Tertiary market
70. Which of the following ratios are particularly interesting to short-term
creditors?
Liquidity Ratios
Market Value Ratios
71. shows the sources from which cash has been generated and how it has been
spent during a period of time?
Income Statement
Balance Sheet
Cash Flow Statement
72. Standard Corporation sold fully depreciated equipment for Rs. 5,000. This
transaction will be reported on the cash flow statement as a(n):
Operating activity
Investing activity
Financing activity
Current Ratio
Acid-test Ratio
Cash Ratio
74. of the following statement measures performance over a specific period of
time?
Income Statement
Balance Sheet
Cash Flow Statement
75. Which of the following statement shows assets, liabilities, and net worth as of
a specific date?

Income Statement
Balance Sheet
Cash Flow Statement
76. A portion of profits, which a company retains itself for further expansion, is
known as:
Dividends
Retained Earnings
Capital Gain
Current Ratio
Quick Ratio
Cash Coverage Ratio
Cash Ratio
78. Which of the following ratio gives an idea as to how efficient management is
at using its assets to generate earnings?
Profit Margin
Return on Assets
Return on Equity

Financial policy
Dividend policy
Accountants
Financial Analysts
Auditors
Marketers
82. Which of the following set of ratios is used to assess a business's ability to
generate earnings as compared to its expenses and other relevant costs
incurred during a specific period of time?
Liquidity Ratios
Leverage Ratios
Market Value Ratios
83. A company having a current ratio of 1 will have __________ net working
capital.
Positive
Negative
zero

sole proprietorship
partnership
joint stock company
cooperative Society
85. Which of the following ratios are intended to address the firm’s financial
leverage?
Liquidity Ratios
Income = Current Assets - Current Liabilities
Income = Fixed Assets - Current Assets
Income = Revenues - Current Liabilities
Income = Revenues - Expenses
87. Which of the following item(s) is(are) not included while calculating
Operating Cash Flows?
Depreciation
Interest
88. Suppose market value exceeds book value by Rs. 250,000. What will be the
after-tax proceeds if there is a tax rate of 34 percent ?
Rs. 105,600
Rs. 148,500
Rs. 165,000
Rs. 225,000
Solution=250000*34%=85000
250,000-85000=165000
Common Stocks
Preferred Stock
Primary market
Secondary market
Tertiary market
Accountants
Auditors
Marketers
Revenue
Expenses
Depreciation
93. What will be the coupon value of a Rs. 1,000 face-value bond with a 10%
coupon rate?
Rs. 100
Rs. 510
Rs. 1,000
Rs. 1,100
Solution:
=1000/10
=100
Net Present Value
Selling expense
Raw material
Direct labor
Financial Leverage
finance?
Operating activity
Investing activity
Financing activity
100. Balance sheet for a company reports current assets of Rs. 700,000 and
current liabilities of Rs. 460,000. What would be the Current Ratio for the
company if there is an inventory level of Rs. 120,000?
1.01
1.26
1.39
1.52
Solution= 700000/460000=1.52
101. In which type of business, all owners share in gains and losses and all
have unlimited liability for all business debts?
Sole-proprietorship
Limited Partnerhsip
Corporation
Increase
Decrease
Remain unaffected
Become zero
103. Which of the following is a special case of annuity, where the stream
of cash flows continues forever?
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity
105. Which of the following refers to the difference between the sale price
and cost of inventory?
Net loss
Net worth
Markup
Markdown
106. Which of the following allows a company to repurchase part or all of
the bond issue at a stated price?
Repayment
Seniority
Call provision
107. ____________ shows the sources from which cash has been generated
and how it has been spent during a period of time?
Income Statement
Balance Sheet
Cash Flow Statement
109. Which of the following form of business organization is least
regulated?
Sole-proprietorship
General Partnership
Limited Partnership
Corporation
Par value
Coupon value
111. Which of the following relationships holds TRUE if a bond sells at a
discount?
112. When a corporation wishes to borrow from public on a long-term
basis, it does so by issuing or selling:
Common Stocks
Preferred Stock
113. Which of the following item provides the important function of
shielding part of income from taxes?
Inventory
Supplies
Machinery
Depreciation
114. A firm reports total liabilities of Rs. 300,000 and owner’s equity of Rs.
500,000. What would be the total worth of the firm’s assets?
Rs. 300,000
Rs. 500,000
Rs. 800,000
Rs. 1100,000
sol
115. Which of the following forms of business organizations is created as a
distinct legal entity owned by one or more individuals or entities?
Sole-proprietorship
General Partnership
Limited Partnership
Corporation
sole proprietorship
partnership
joint stock company
none of the above
CF from Assets = CF to Creditors - CF to Stockholder
CF from Assets = CF to Stockholders - CF to Creditors
118. The difference between current assets and current liabilities is known
as:
Surplus Asset
Short-term Ratio
Working Capital
Current Ratio
119. A borrower is able to pay Rs. 40,000 in 5 years. Given a discount rate
of 12 percent, what amount of money the lender should lend?
Rs. 14,186
Rs. 18,256
Rs. 22,697
Rs. 28,253
solution
40000*1/(1+0.12)^5=22697.07
120. Which of the following statement is considered as the accountant’s
snapshot of firm’s accounting value as of a particular date?
Income Statement
Balance Sheet
Cash Flow Statement
Par value
Coupon value

Bond ratings are typically paid for by a company’s bondholders.
issuer.
Bond ratings represent an independent assessment of the credit-worthiness of
bonds.
124. Which of the following is NOT an internal use of financial statements
information?
125. A firm has paid out Rs. 150,000 as dividends from its net income of
Rs. 250,000. What is the retention ratio for the firm?
12 %
25 %
40 %
60 %
Solution
250000-150000/250000*100=40%
A company having a current ratio of 1 will have __________ net working capital. Select
correct option:
Positive
Negative
zero

126. A portion of profits, which a company distributes among its
shareholders, is known as:
Dividends
Retained Earnings
Capital Gain
Investments
128. Which of the following ratios is NOT from the set of Asset
Management Ratios?
Receivable Turnover
Return on Assets
129. You just won a prize, you can either receive Rs. 1000 today or Rs.
1,050 in one year. Which option do you prefer and why if you can earn 5
percent on your money?
Operating Leverage
Financial Leverage
b
131. You need Rs. 10,000 to buy a new television. If you have Rs. 6,000 to
invest at 5 percent compounded annually, how long will you have to wait to
buy the television?
8.42 years
10.51 years
15.75 years
18.78 years
6000(1+5%)^10.51=around 10,000
Maintaining firm’s working capital at or above some specified minimum
level
Financial policy
Dividend policy
134. Which of the following statement shows assets, liabilities, and net
worth as of a specific date?
Income Statement
Balance Sheet
Cash Flow Statement
Armaan: b

Selling expenses
General expenses
136. An account was opened with an investment of Rs. 3,000 ten years ago.
The ending balance in the account is Rs. 4,100. If interest was compounded,
how much compounded interest was earned?
Rs. 500
Rs. 752
Rs. 1,052
Rs. 1,100
4100-3000=1100
7.00 percent
7.12 percent
7.19 percent
7.23 percent
138. Which of the following cash flow activities are reported in the Cash
Flow Statement and Income Statement?
139. Which of the following term refers to establish of a standard to follow
for comparison?
Benchmarking 48
Standardizing
Comparison
Evaluation
Financial policy
Dividend policy
141. Rule of 72 for finding the number of periods is fairly applicable to
which of the following range of discount rates?
2% to 8%
4% to 25%
5% to 20%
10% to 50%
142. Which of the following refers to a conflict of interest between
principal and agent?
Management Conflict
Interest Conflict
Agency Problem
143. Which of the following is a series of constant cash flows that occur at
the end of each period for some fixed number of periods?
Ordinary annuity 63
Annuity due
Perpetuity
Investments
145. 7:03 AM Which of the following is NOT an external use of financial
statements information?
Investments
147. If a firm has a ROA of 8 percent, sales of Rs. 100,000, and total assets
of Rs. 75,000. What is the profit margin?
4.30%
6.00%
10.70%
16.73%
solution
Net income=8%*75000=6000
Profit margin=6000/100000*100= 6%
148. Which of the following is the process of planning and managing a
firm’s long-term investments?
Capital Structuring
Capital Rationing
Capital Budgeting

149. Which of the following refers to the cash flows that result from the
firm’s day-to-day activities of producing and selling?
Current Ratio
Acid-test Ratio
Cash Ratio
151. Mr. Y and Mr. Z are planning to share their capital to run a business.
They are going to employ which of the following type of business?
Sole-proprietorship
Partnership
Corporation
152. If you have Rs. 30 in asset A and Rs. 120 in another asset B, the
weights for assets A and B will be __ and __ respectively.
20%; 80%
37%; 63%
63%; 37%
80%; 20%
153. When corporations borrow, they generally promise to: I. Make
regular scheduled interest payments II. Give the right of voting to
bondholders III. Repay the original amount borrowed (principal) IV. Give an
ownership interest in the firm
I and II
I and III
II and IV
I, III, and IV
155. What would be the present value of Rs. 10,000 to be received after 6
years at a discount rate of 8 percent?
Rs. 6,302
Rs. 9,981
Rs. 14,800
Rs. 15,869
157. The preferred stock of a company currently sells for Rs. 25 per share.
The annual dividend of Rs. 2.50 is fixed. Assuming a constant dividend
5.00 percent
7.00 percent
8.45 percent
10.0 percent
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity
159. JJ Inc. has a 4 percent return on total assets of Rs. 500,000 and a net
profit margin of 5 percent. Total sales for JJ Inc. would be :
Rs. 150,000
Rs. 200,000
Rs. 250,000
Rs. 400,000
ROTA = N.P / Total Assets
4 % = N.P / 500,000
4% * 500,000 = N.P
N.P = Rs. 20,000
N.P Margin = N.P / Sales
5 % = 20,000 / Sales
5% * Sales = 20,000
Sales = 20,000 / 5%
Sales = 400,000
160. Which of the following rate makes the Net Present Value (NPV) equal
to zero?
Internal Rate of Return (IRR) pg 109
Required Rate of Return (RRR)
Weighted Average Cost of Capital (WACC)
161. Which of the following is the expected rate of return on a bond if
bought at its current market price and held to maturity
Current Yield
Yield To Maturity
Coupon Yield
Capital Gains Yield
162. If a firm uses cash to purchase inventory, its quick ratio

will:
Increase
Decrease
Remain unaffected
Become zero
163. a firm uses cash to purchase inventory, its current ratio
will:
Increase
Decrease
Remain unaffected
Become zero
ACC 501 mcqs

JOPSON ALI
investments?
Capital Structuring
Capital Rationing
Capital Budgeting

3. The coupon rate of a floating-rate bond is capped and upper and lower rates are
called:
Float
Collar
Limit
Surplus


5. Which of the following strategy belongs to restrictive policy regarding size of

investments in current assets?


Current Ratio
Acid-test Ratio
Cash Ratio
7. Mr. Y and Mr. Z are planning to share their capital to run a business. They are going
to employ which of the following type of business?
Sole-proprietorship
Partnership
Corporation
8. If you have Rs. 30 in asset A and Rs. 120 in another asset B, the weights for assets A
and B will be __ and __ respectively.
20%; 80%
37%; 63%
63%; 37%
80%; 20%
Carrying costs
Shortage costs
Storing costs
financing costs
10. Which one of the following statement is INCORRECT regarding MACRS

depreciation?
purposes.
11.
percentage.


13. Mr. A has just recently started a business by investing a capital of Rs. 500,000. He will
be the only owner of the business and also enjoy all the profits of the business. Which
type of business is being employed by Mr. A?
Sole-proprietorship
Partnership
Corporation

5.00 percent
7.00 percent
8.45 percent
10.0 percent
Liquidity Ratios
Market Value Ratios



Revenue
Expenses
Depreciation




7.00 percent
7.12 percent
7.19 percent
7.23 percent
Sole-proprietorship
General Partnership
Limited Partnership
Corporation
Systematic Risk
Diversifiable Risk
Unsystematic Risk

Systematic Risk
Market Risk
Unsystematic Risk
26. Which of the following measure reveals how much profit a company generates with
the money shareholders have invested?
Profit Margin
Return on Assets
Return on Equity
Debt-Equity Ratio

Investments
28. Which of the following is the return that firm’s creditors demand on new borrowings
?
Cost of debt

Diversifiable Risk
Market Risk
Residual Risk
Asset-specific Risk
30. ABC Corporation has two shareholders; Mr. Aamir with 50 shares and Mr. Imran
with 70 shares. Both want to be elected as one of the four directors but Mr. Imran
doesn’t want Mr. Aamir to be director. How much votes would Mr. Aamir be able to
cast as per cumulative voting procedure?
70
120
200
280

investment.
A. Risk Return
B. Risk Premium
C. Risk Factor
A. Portfolio
C. Budget
A. Less
B. More
C. Same
A. Systematic Risk
C. Portfolio Risk
D. Total Risk

C. A & B

A. Systematic Risk
C. Total Risk
D. Portfolio Risk

Suppose you bought 1,500 shares of a corporation at Rs. 25 each. After a year, you received
Rs. 3000 (Rs. 2 per share) in dividends. At the end of year the stock sells for Rs. 30 each. If
you sell the stock at the end of the year, your total cash inflow will be Rs. 48,000 (1500
shares @ 30 each = Rs. 45000 & Dividend = 3000).
A. 10,500
B. 7,500
C. 10,000
D. 7,000
A. 8.50 %
B. 6.25%
C. 8.00%
D. 6.67%
A. 20%
B. 28%
C. 32%
D. 35%
A. Secondary market
B. Primary market
C. Capital market
D. Money market
3. The statement of cash flows helps users to assess and identify all of the following
except:
4. Suppose Younas Corporation has balance of merchandise of 5000 units. It wants to
sell 2000 units at 90% of its cost on cash. What would be the affect of this transaction
on the current ratio?
A. Fall
B. Rise
C. Remain unchanged
discount factor?
A. 1.42215
B. 2.75886
C. 3.75886
D. 4.08998
methods for interest, which method would you choose to maximize the value of
your Rs.150, 000?
A. Compounded daily
7. Ali Corporation has a cash coverage ratio of 6.5 times. Whereas its earning before
interest and tax is Rs.750 million and interest on long term loan is Rs.160 million.
What would be the annual depreciation for the current year?
B. b.Rs.240 million
C. c.Rs.275 million
D. d.Rs.290 million
8. Suppose RZ Corporation sales for the year are Rs.150 million. Out of this 20% of
the sales are on cash basis while remaining sales are on credit basis. The past
experience revealed that the average collection period is 45 days. What would be the
receivable turnover ratio?
A. 6.12 times
B. 7.11 times
C. 8.11 times
D. 9.11 times
rates of return?
A. 20.00%
B. 20.50%
C. 21.00%
D. 21.99%
10. Nz Corporation reported earning before interest and taxes of Rs.500, 000 for the
current year. It has taken a long term loan of Rs.2 million from a local bank @ 10%
interest. The tax is charged at the rate of 32%.What will be the saving in taxes due to
presence of debt financing in the capital structure of the firm?
A. Rs.60, 000
B. Rs.64, 000
C. Rs.72, 000
D. Rs.74, 000
1. Ntp Corporation has decided to pay Rs.16 per share dividend every year. If this policy is to
continue indefinitely, then the value of a share of stock would be --------------, if the required rate
of return is 25%?
a. Rs.60
b. Rs.64
c. Rs.68
d. Rs.74
2. MT Corporation has a previous year dividend of Rs.14 per share where as investors require a
17% return on the similar stocks .The Company’s dividend grows by 7%.The price per share in
this case would be______________.
a. Rs.149.8
b. Rs.184.9
c. Rs.198.4
d. Rs.229.9
3. RTU Corporation stock is selling for Rs.150 per share. The next dividend is Rs.35 per share
and it is expected to grow 14% more or less indefinitely. What would be the return does this
stock offer you if this is correct?
a. 17%
b. 27%
c. 37%
d. 47%
4. Suppose a Corporation has 3 shareholders; Mr.Salman with 25 shares, Mr. Kareem with 35
shares, and Mr.Amjad with 40 shares. Each wants to be elected as one of the six directors.
According to cumulative voting rule Mr.Kareem would cast
a. 150 votes
b. 210 votes
c. 240 votes
d. 300 votes
a. Primary market
b. Secondary market
c. Financial market
d. Capital market
6. Suppose Mehran Corporation is dealing in the Automobile industry. Based on projected costs
and sales, it expects that the cash flows over the 3-year life of the project will be Rs.5, 000,000 in
first year, Rs.7, 000,000 in the next year and Rs.8, 000,000 in the last year. This project would
cost about Rs. 10,000,000.The net present value of the project would be ________, if discount
rate is assumed to be 25%.
a. Rs.2, 576, 000
b. Rs.3, 576, 000
c. Rs.1, 576, 000
d. Rs.4, 576, 000
Year Cash Flows
01 Rs.500,000
02 Rs.800,000
03 Rs.600,000
______________.
a. 1.50 years
b. 2.00 years
c. 2.33 years
d. 3.00 years
8. Suppose Z Corporation, has the present value of its future cash flows is Rs.450, 000 and the
project has a cost of Rs.300, 000, then the profitability index would be ________________.
a. 0.667
b. 1
c. 1.25
d. 1.50
a. Opportunity cost
b. Sunk cost
c. Decremental cost
_______________.
a. Rs. 3,810,000
b. Rs. 4,810,000
c. Rs. 5,190,000
d. Rs. 6,890,000
a. Default free
b. Taxable
c. Highly liquid
b. Economic value
c. Book value
d. Future value
a. Higher
b. Lower
c. Constant
b. Straight voting
c. Proxy voting
a. Chairman
c. Shareholders
d. Stakeholders
b. Payback period
a. -1
b. 0
c. 1
a. Book value
b. Intrinsic value
c. Cost
d. Market value
10. It is not unusual for a project to have side or spillover effects both good and bad. This
phenomenon is called:
a. Erosion
b. Piracy
c. Cannibalism
1. The average time between purchasing or acquiring inventory and receiving cash
proceeds from its sale is called --------------.
a) Operating Cycle
b) Cash Cycle
d) Inventory period
a) Inventory period
brothers on credit terms of 3/10, net 30. On June 09 Mr. Munir decided to make
payment to Zeeshan and brothers. How much he would pay to Zeeshan and
brothers.
a) 100,000
b) 97,000
c) 103,000
d) 50,000
4. A firm has cash cycle of 100 days. It has an inventory turnover of 5 and receivable
turnover of 2. What would be its accounts payable turn over?
5. During the financial year 2005-2006 ended on June 30, the cash cycle of Climax
company was 150 days, and its payable turnover was 5. What was the operating
cycle of the company during 2005-2006?
a) 234 days
b) 223 days
c) 245 days
d) 230 days
a) Bank loan
c) Trade credit
7. Which of the following illustrates the use of a hedging (or matching) approach to
financing?
8. --------------- is an incentive offered by a seller to encourage a buyer to pay within
a stipulated time.
a) Cash discount
c) Float discount
9. If a firm has a net float less than zero, then which of the following statements is
true about the firm.
1. Suppose Flatiron Corporation has a debt-to- equity ratio of 2/3. You are analyzing the
capital structure of this Corporation. Base on debt-to- equity ratio of the corporation, how
much portion of the capital structure is financed through equity.
a) 66.67%
b) 33.34%
c) 0%
d) 60%
share. The market price of these common stocks is $69.50 per share. The corporation
paid $5.396 per share in dividend last year and analysts estimate that this dividend will
grow at a rate of 6% through the next three years. Using the dividend growth model,
estimated cost of equity of Bonanza corporation would be
a) 11.15%
b) 16.13%
c) 15.80%
d) 13.14%
4. ---------------- refers to the extent to which fixed-income securities (debt and preferred
stock) are used in a firm's capital structure.
a) Financial risk
b) Portfolio risk
c) Operating risk
d) Market risk
5. Let’s imagine that Sony Corporation currently uses no-debt financing, it has decided to
go for capital restructuring. As result it would incorporate $ 1 billion of debt at 6.6% p.a
in its capital structure. Sony Corporation has 30 million Shares outstanding and the price
per share is $ 125. If the restructuring is expected to increase EPS, what would be the
minimum level of EBIT that Sony management must be expecting?
a) $202,200,000
b) $247,500,000
c) $283,500,000
d) $321,250,000
6. A corporation has WACC of 13.5 %( excluding taxes). The current borrowing rate in
the market is 9.25%.If the corporation has a target capital structure of 65% equity (there
is no preferred stock in the capital structure of the corporation) and 35% debt, what
would be the cost of equity of this corporation?
a) 13.5%
b) 17.75%
c) 15.79%
d) 17.13%
7. Suppose Dux Corporation has current assets of $44 Million. Cash is 25% of the total
current assets. After one year the cash item increase by 12%.This increase in cash item is
a
a) Source of cash
b) Use of cash
8. During 2005 a merchandize sales company had cash sales of $56.25 million, which
were 15% of the total sales. During this period accounts receivables of the company
were13% of total sales. What was the average collection period of the company during
2005?
a) 62 days
b) 18 days
c) 56 days
d) 19 days
9. Suppose that Pearson Corporation has a capital structure which consists of both equity
and debt. It had issued two million worth of bonds at 6.5 % p.a. The tax rate is 40%. Its
EBIT is one million. The present value of tax shield for Pearson corporation would be
a) Rs.1,000,000
b) Rs.1,200,000
c) Rs800,000
d) Rs.1,400,000
_________________.

E. Sunk cost
F. Opportunity cost
G. Financing cost
E. 13.07 %
F. 15.67 %
G. 16.00 %
H. 18.80 %
E. Portfolio
F. Diversification
G. Stock Bundle

portfolio will be:
E. 37.5 %
F. 47.5 %
G. 62.5 %
H. 72.5 %
E. Systematic Risk
F. Market Risk
E. Systematic Risk
G. A & B
E. 2.6 Years
F. 3.1 Years
G. 3.6 Years
H. 4.1 Years

E. Most widely used

I. Ordinary Annuity
J. Perpetuity
K. Dividend
L. Interest
I. 15.00 %
J. 15.34 %
K. 15.87 %
L. 16.42 %

I. loan; receiver
J. dividend; issuer
L. loan; issuer
I. More
J. Less
K. Same
I. 30 %
J. 50 %
K. 70 %
L. 90 %

K. Sell new shares
discount rate.
I. Present Value
J. Future Value
K. Capital Gain
L. Net Profit
coupon is Rs. 50. The bonds mature in 30 years and the market’s required rate on similar
bonds is 12% p. a. What would be the present value of each bond?
K. Rs. 319.45
L. Rs. 390.75
M. Rs. 419.45
N. Rs. 463.75
H. Time to maturity
I. Coupon rate
J. A and B
H. 8 %
I. 10 %
J. 12 %
K. 14 %

elected.
A. 100 Votes
B. 200 Votes
C. 300 Votes
D. 400 Votes
this policy is to continue indefinitely, what will be the value of a share of stock at
a
A. Rs. 30
B. Rs. 40
C. Rs. 50
D. Rs. 60
5. A project has an initial investment of Rs. 400,000. What would be the NPV for
the
A. Rs. 30000
B. Rs. 40,500
C. Rs. 50,000
D. Rs. 60,000
process?
8. Suppose you buy some stock for Rs. 35 per share. At the end of the year, the
price
A. 22.85 %
B. 25.16 %
C. 30.52 %
D. 34.29 %
9. If you have a portfolio with Rs. 10,000 in asset A and Rs. 15,000 in another
asset B
A. 0.30
B. 0.40
C. 0.60
D. 0.75
10. Which of the following set of cash flows represents the change in the firm’s
total
B. Equal to Rs. 100
closest to:
A. Rs. 29,454
B. Rs. 34,325
C. Rs. 39,272
D. Rs. 49,023
true?
A. Rs. 1,556
B. Rs. 1,712
C. Rs. 2,082
D. Rs. 2,420
B. Income Bonds
C. Put Bonds
A. Less
B. Zero
C. More
A. 6.639%
B. 8.251%
C. 10.00%
D. 11.43%
Which of the following set of ratios is used to assess a business's ability to generate earnings as compared to its expenses and
other relevant costs incurred during a specific period of time
Which one of the following costs refers to an outlay that has already occurred and hence is not affected by the decision under
consideration ?
Sunk
Opportunity

organization?
3) Imran Corporation is a firm dealing in hardware industry. It sold 5000 units of its
product to Mr. Younas for a sum of Rs.150, 000 whose cost was Rs.160, 000.What
would be the effect of this transaction on current ratio of the company if the current
ratio was 0.80 before this transaction?
a. Increase
b. Decrease
c. Remain unchanged
4) Mehran Corporation is dealing in furniture industry. It has an equity multiplier of
1.78 times. The debt to equity ratio would be _________________?
a. 0.38 times
b. 0.58 times
c. 0.78 times
d. 0.98 times
5) What would be the level of EBIT if Imran Corporation uses both debt as well as
equity financing in its capital structure, it has a cash coverage ratio of 7.5 times,
annual interest expense is Rs.1 million and annual depreciation is Rs.3 million?
a. Rs. 2.5 million
b. Rs. 3 million
c. Rs. 3.5 million
d. Rs.4.5 million
6) Suppose, Neumann Corporation has a debt to equity ratio of 0.45 times. Its return
on equity is 18%.The return on assets would be _______________.
a. 9.414 %
b. 10.414 %
c. 11.412 %
d. 12.414 %
7) Suppose, Ilyas Corporation is one of the dominant firms in electronics equipment
industry. Its policy is very clear about dealing with stackholders. It pays out 30% of
its income in the form of dividend. If it pays a total sum of Rs.150 millions as a
dividend, then what would be the amount transferred to the retained earning
balance from current year profit?
a. Rs.150 millions
b. Rs.250 millions
c. Rs.350 millions
d. Rs.500 millions
8) Sian Corporation is one of the largest firms in the electronics industry covering
70% of the market share. During the current year its performance is analysed by
judging the various indicators. It has return on assets of 12.5% and retention ratio is
3/5. What would be the internal growth rate of the Sian Corporation?
a. 12.29%
b. 14.29%
c. 16.29%
d. 18.92%
9) What would be the sustainable growth rate if the Corporation has a Return on
equity (ROE) of 20% and a retention ratio of 4/6?
a. 25 %
b. 35 %
c. 29%
d. 45%
10) Rehan Corporation is dealing in agriculture products. Its annual gross sales are
Rs.1975 millions. Out of which 34% are on cash basis. Their past collection
experiences show that it has an average collection period of 76 days. What would be
the balance of accounts receivable at the end of the year?
b. Retention ratio
c. Leverage ratio
d. Profit margin
t
a. (1+r)
t
b. (1-r)
t
c. 1/ (1+r)
1/t
d. 1/ (1+r)
a. The firm grows
7. You can determine the number of periods (n) in a present value calculation, if you
know:
a. Future amount
b. Present value
c. Interest rate
9. If we deposit Rs. 5,000 toady in an account paying 10%, how long does it take to grow to Rs.
10,000?
a. 5.27 years
b. 6.27 years
c. 7.2 7 years
d. 7.57 years
a. Rs. 116.64
b. Rs. 111.64
c. Rs. 164.64
d. Rs. 164.61
Total marks: 10
d. Both a & c
b. Assets increased
d. Cash withdrawn
3. Generally, changes made in cash, accounts receivable, depreciation, inventory and
accounts payable are reflected in:
4. _________are short-term, temporary investments that can be readily converted into
cash.
b. Cash equivalents
c. Treasury bills
5. The Cash flow statement records your_________ and expenditure at the end of the
'forecast' period.
b. Un earned income
6. Ratios look at the relationships between individual values and relate them to how a
company:
c. Both a & b
b. Leverage ratio
c. Turnover ratio
8. __________is concerned with the relationship between the long terms liabilities that
a business has and its capital employed.
a. Gearing
b. Acid test ratio
9. ____________give a picture of a company's ability to generate cash flow and pay it
financial obligations:
d. Solvency Ratios
a. Net sales
b. Total revenue
c. Total assets
1. Ann is interested in purchasing Ted's factory. Since Ann is a poor negotiator, she
hires Mary to negotiate a purchase price. Identify the parties to this transaction
from the given options, keeping in view the agency theory:

a. Trading in a given auction exchange takes place at a single site on the floor of the
exchange.
c. Listing.
3. Suppose a Corporation has a taxable income of $200,000 and the tax amount is as
given in the calculations:
$ 50,000 x 15% = $ 7,500
($ 75,000 – 50,000) x 25% = 6,250
($ 100,000 – 75,000) x 34% = 8,500
($ 200,000 – 100,000) x 39% = 39,000
$ 61,250
a. 39%
b. 34%
c. 15%
d. 25%
4. A document that includes corporation’s name, intended life, business purpose and
number of shares and is necessary to form a corporation is known as:
a. Charter
b. Set of bylaws

considered a cash-flow item from an "investing" activity in a cash flow statement?
b. inventory
c. net fixed assets

c. Double taxation.
8. In finance we refer to the market for relatively long-term financial instruments as

the __________ market.
a. money
b. capital
c. primary
d. secondary

c. Agency theory
a. Depreciation
b. Dividends
d. Taxes
d. a balance sheet
2. Ammar is running a company ‘Ammar & Co’. He has asked you to comment on
company’s ability to pay its bills over the short run without undue stress. For this
purpose you will study which category of ratios of the company?
b. Liquidity ratios
c. Debt ratios
d. Turnover ratios
e. 0
f. 0.2
g. 0.1
h. At least one
b. Liquidity Ratios
c. Debt Ratios

a. comparison
b. identification
c. calculation
d. liability
7. A series of constant cash flows that occur at the end of each period for some
fixed number of periods is .
b. annuity due
d. perpetuity
8. Suppose the total cost of a college education will be $50,000 in 12 years for a
child. The Parents have $5,000 to invest today. What rate of interest must they
earn on investment to cover the cost of child’s education?
a. 21.15%
b. 12%
c. 18%
d. 30%
a. $9,806.56
b. $9000
c. $10000
d. $9500
10. Suppose, you deposited an amount of Rs.1000 in Habib Bank at the start of year
2006. How much interest amount will you have at the end of the year if the bank
pays simple interest @10% p.a.?
a. Rs.100
b. Rs.10
c. Rs.90
d. Rs.1000
M. Total Assets
O. Net Profit
P. Gross Profit
2. ____________ can be considered as a snapshot of a company's financial position?
M. Income Statement
N. Balance Sheet
3. ______________ involves the sale of used securities from one investor to another?
M. Primary Market
N. Secondary Market
O. Tertiary Market
M. Liquidity
O. Profitability
P. Market Value
M. Planning Process
P. Managing Process
6. Income statement for Sumi Inc. shows the net income of Rs. 363,000 whereas the total
sales are Rs. 2,311,000. The profit margin for the Sumi Inc. will be:
M. 6.37 %

investment.
A. Risk Return
B. Risk Premium
C. Risk Factor
A. Portfolio
C. Budget
A. Less
B. More
C. Same
A. Systematic Risk
C. Portfolio Risk
D. Total Risk
N. 8.37 %
O. 15.7 %
P. 12.5 %
7. S&T Company have 35 thousands shares outstanding and the stock sold for Rs. 99 per share at the end of year. Income Statement reported a net
income of Rs. 385,000. The Price Earning Ratio for S&T Company will be:
M. 8 times
N. 9 times
O. 10 times
P. 11 times
O. Total Assets
Q. Total Capital
R. Net Profit
9. A business, created as a distinct legal entity owned by one or more individuals or entities, is known as:
M. Partnership
N. Corporation
L. Inventory
M. Accounts Payable
O. Depreciation
C. A & B

A. Systematic Risk
C. Total Risk
D. Portfolio Risk
A. 10,500
B. 7,500
C. 10,000
D. 7,000
A. 8.50 %
B. 6.25%
C. 8.00%
D. 6.67%
A. 20%
B. 28%
C. 32%
D. 35%
A. Secondary market
B. Primary market
C. Capital market
D. Money market

following except:


A. Fall
B. Rise
C. Remain unchanged
discount factor?
A. 1.42215
B. 2.75886
C. 3.75886
D. 4.08998
A. Compounded daily
B. b.Rs.240 million
C. c.Rs.275 million
D. d.Rs.290 million
A. 6.12 times
B. 7.11 times
C. 8.11 times
D. 9.11 times
rates of return?
A. 20.00%
B. 20.50%
C. 21.00%
D. 21.99%
firm?
A. Rs.60, 000
B. Rs.64, 000
C. Rs.72, 000
D. Rs.74, 000
a. Rs.60
b. Rs.64
c. Rs.68
d. Rs.74
a. Rs.149.8
b. Rs.184.9
c. Rs.198.4
d. Rs.229.9
a. 17%
b. 27%
c. 37%
d. 47%

a. 150 votes
b. 210 votes
c. 240 votes
d. 300 votes
a. Primary market
b. Secondary market
c. Financial market
d. Capital market

a. Rs.2, 576, 000

b. Rs.3, 576, 000
c. Rs.1, 576, 000

d. Rs.4, 576, 000

Year Cash Flows
01 Rs.500,000
02 Rs.800,000
03 Rs.600,000
______________.
a. 1.50 years
b. 2.00 years
c. 2.33 years
d. 3.00 years
________________.
a. 0.667
b. 1
c. 1.25
d. 1.50
a. Opportunity cost
b. Sunk cost
c. Decremental cost
_______________.
a. Rs. 3,810,000
b. Rs. 4,810,000
c. Rs. 5,190,000
d. Rs. 6,890,000

a. Default free
b. Taxable
c. Highly liquid
b. Economic value
c. Book value
d. Future value
a. Higher
b. Lower
c. Constant

b. Straight voting
c. Proxy voting

a. Chairman
c. Shareholders
d. Stakeholders
b. Payback period

a. -1
b. 0
c. 1

a. Book value
b. Intrinsic value
c. Cost
d. Market value
a. Erosion
b. Piracy
c. Cannibalism

a) Operating Cycle
b) Cash Cycle
d) Inventory period

a) Inventory period

and brothers.
a) 100,000
b) 97,000
c) 103,000
d) 50,000
a) 234 days
b) 223 days
c) 245 days
d) 230 days

firm?
a) Bank loan
c) Trade credit


a) Cash discount
c) Float discount


financing.

a) 66.67%
b) 33.34%
c) 0%
d) 60%
be
a) 11.15%
b) 16.13%
c) 15.80%
d) 13.14%

a) Financial risk
b) Portfolio risk
c) Operating risk
d) Market risk
must be expecting?
a) $202,200,000
b) $247,500,000
c) $283,500,000
d) $321,250,000

a) 13.5%
b) 17.75%
c) 15.79%
d) 17.13%
cash item is a
a) Source of cash
b) Use of cash
a) 62 days
b) 18 days
c) 56 days
d) 19 days
a) Rs.1,000,000
b) Rs.1,200,000
c) Rs800,000
d) Rs.1,400,000
_________________.

E. Sunk cost
F. Opportunity cost
G. Financing cost
E. 13.07 %
F. 15.67 %
G. 16.00 %
H. 18.80 %
E. Portfolio
F. Diversification
G. Stock Bundle
portfolio will be:
E. 37.5 %
F. 47.5 %
G. 62.5 %
H. 72.5 %
E. Systematic Risk
F. Market Risk
E. Systematic Risk
G. A & B
E. 2.6 Years
F. 3.1 Years
G. 3.6 Years
H. 4.1 Years

E. Most widely used
I. Ordinary Annuity
J. Perpetuity
K. Dividend
L. Interest
I. 15.00 %
J. 15.34 %
K. 15.87 %
L. 16.42 %
I. loan; receiver
J. dividend; issuer
L. loan; issuer
I. More
J. Less
K. Same

I. 30 %
J. 50 %
K. 70 %
L. 90 %
K. Sell new shares
discount rate.
I. Present Value
J. Future Value
K. Capital Gain
L. Net Profit
K. Rs. 319.45
L. Rs. 390.75
M. Rs. 419.45
N. Rs. 463.75
H. Time to maturity
I. Coupon rate
J. A and B
H. 8 %
I. 10 %
J. 12 %
K. 14 %

elected.
A. 100 Votes
B. 200 Votes
C. 300 Votes
D. 400 Votes
year. If
stock at a
A. Rs. 30
B. Rs. 40
C. Rs. 50
D. Rs. 60
NPV for the
A. Rs. 30000
B. Rs. 40,500
C. Rs. 50,000
D. Rs. 60,000

budgeting
process?
a
has
a
has
the price
What will
A. 22.85 %
B. 25.16 %
C. 30.52 %
D. 34.29 %
another asset B
A. 0.30
B. 0.40
C. 0.60
D. 0.75
firm’s total


B. Equal to Rs. 100
closest to:
A. Rs. 29,454
B. Rs. 34,325
C. Rs. 39,272
D. Rs. 49,023
true?
A. Rs. 1,556
B. Rs. 1,712
C. Rs. 2,082
D. Rs. 2,420
B. Income Bonds
C. Put Bonds
A. Less
B. Zero
C. More
A. 6.639%
B. 8.251%
C. 10.00%
D. 11.43%
Sunk
Opportunity

_____________________.


organization?


a. Increase
b. Decrease
c. Remain unchanged

_________________?
a. 0.38 times
b. 0.58 times
c. 0.78 times
d. 0.98 times
million?
a. Rs. 2.5 million

b. Rs. 3 million
c. Rs. 3.5 million
d. Rs.4.5 million
a. 9.414 %
b. 10.414 %
c. 11.412 %
d. 12.414 %

a. Rs.150 millions
b. Rs.250 millions
c. Rs.350 millions
d. Rs.500 millions

Corporation?
a. 12.29%
b. 14.29%
c. 16.29%
d. 18.92%
a. 25 %
b. 35 %
c. 29%
d. 45%

the:
b. Retention ratio
c. Leverage ratio
d. Profit margin


a. (1+r)t
b. (1-r)t
c. 1/ (1+r)t
d. 1/ (1+r)1/t


a. The firm grows
you know:
a. Future amount
b. Present value
c. Interest rate

Rs. 10,000?
a. 5.27 years
b. 6.27 years
c. 7.2 7 years
d. 7.57 years
a. Rs. 116.64
b. Rs. 111.64
c. Rs. 164.64
d. Rs. 164.61
Total marks: 10

d. Both a & c
b. Assets increased
d. Cash withdrawn



into cash.
b. Cash equivalents
c. Treasury bills

b. Un earned income
how a company:

c. Both a & b

b. Leverage ratio
c. Turnover ratio
a. Gearing
b. Acid test ratio

d. Solvency Ratios
a. Net sales
b. Total revenue
c. Total assets


the exchange.
public.
c. Listing.

$ 50,000 x 15% = $ 7,500
($ 75,000 – 50,000) x 25% = 6,250
($ 100,000 – 75,000) x 34% = 8,500
($ 200,000 – 100,000) x 39% = 39,000
$ 61,250
a. 39%
b. 34%
c. 15%
d. 25%

known as:
a. Charter
b. Set of bylaws

statement?
asset?
b. inventory
c. net fixed assets

c. Double taxation.
partner.

a. money
b. capital
c. primary
d. secondary

c. Agency theory
a. Depreciation
b. Dividends
d. Ta xes

d. a balance sheet
b. Liquidity ratios
c. Debt ratios
d. Turnover ratios
business?
e. 0
f. 0.2
g. 0.1
h. At least one
b. Liquidity Ratios
c. Debt Ratios


a. comparison
b. identification
c. calculation
d. liability
b. annuity due
d. perpetuity


a. 21.15%
b. 12%
c. 18%
d. 30%
is:
a. $9,806.56
b. $9000
c. $10000
d. $9500
a. Rs.100
b. Rs.10
c. Rs.90
d. Rs.1000

M. Total Assets
O. Net Profit
P. Gross Profit
position?
M. Income Statement
N. Balance Sheet
another?
M. Primary Market
N. Secondary Market
O. Tertiary Market
M. Liquidity
O. Profitability
P. Market Value
M. Planning Process
P. Managing Process
M. 6.37 %
ACC 501 mcqs ACC501 All Solved Mid Term MCQs
the following is the process of planning and managing a firm’s long-term investments?
rrect option: N. 8.37 %
tructuring Capital Rationing
Budgeting O. 15.7 % Working Capital Management
the P. 12.5 % following refers to the cash flows that result from the firm’s day-to-day activities of prod
Sele
g Cash 99 per share at the end of year. Income Statement reported a net income of Rs. Flows
Cash 385,000. The Price Earning Ratio for S&T Company will be: Flows
g Cash Flows
M. 8 times
given options
N. 9 times
on rate of a floating-rate bond is capped and upper and lower rates are called:
rrect option: O. 10 times
Collar
P. 11 times Surplus

the percentage of : following
for GAAP? O. Total Assets Select correct option:
Accounting P. Total Liabilities Assessment Principles
y Accepted Accounting Principles
Accepted Q. Total Capital Assessment Principles
R. Net Profit
the follow
o 9. A business, created as a distinct legal entity owned by one or more individuals restric
g size of or entities, is known as: investments in current assets?
rrect option: L. Sole Proprietorship
ain a high ratio of current assets to sales
ain a low M. Partnership ratio of current assets to sales
hort-term debt and more long-term debt
short-term N. Corporation debt and less long-term debt
atio is also O. None of the given options known as:

rrect option:
10. Which one of these is considered as a non-cash item? Current Ratio
Ratio Cash Ratio
he given L. Inventory options
d Mr. Z are M. Accounts Payable planning to share their capital to run a business. They are going to employ w
type of business?
rrect option: N. Accounts Receivable
prietorship Partnership
tion
O. Depreciation None of the given options
ve Rs. 30 in asset A and Rs. 120 in another asset B, the weights for assets A and B will be __ and __ respectively.
rrect option:
tion
he given options
ue of money is an important finance concept because:

rrect option:
isk into account

ime into account
ompound interest into account
given options
erred stock of a company currently sells for Rs. 25 per share. The annual dividend of Rs. 2.50 is fixed. Assuming a consta
what is the rate of return on this stock?
rrect option:
ent
ent
ent
ent
the following ratios are particularly interesting to short-term creditors?

rrect option:
y Ratios
m Solvency Ratios
lity Ratios
Value Ratios
the following equation is known as Cash Flow (CF) identity?

rrect option:
Assets = CF to Creditors – CF to Stockholder

Assets = CF to Stockholders – CF to Creditors
ockholders = CF to Creditors + CF from Assets
Assets = CF to Creditors + CF to Stockholder
ld be indifferent between taking and not taking the investment when:

rrect option:
reater than Zero

qual to Zero
ss than Zero
given options
the following is (are) a non-cash item(s) ?

rrect option:
tion
given options
the following is NOT a shortcoming of Payback Rule?

rrect option:
ue of money is ignored
the following type of risk can be eliminated by diversification?
rrect option:
ic Risk
Risk Unsystematic Risk
he given options Composed & Solved
the following measure reveals how much profit a company generates with the money shareholders have invested?
rrect option:
ACC501 3 Finalterm Papers and Important MCQS Profit M
n Assets Return o
uity Ratio Solved…
the following is(are) the basic area(s) of By Finance?
rrect option:
l institutions International finance
FINALTERM
nts EXAMINATION All of the given options
Paper 1
the following is the return that firm’s creditors demand on new borrowings ?
rrect option:
Question No: 1 ( Marks: 1 ) - Please choose one
Cost of debt
referred stock
ommon The accounting definition of income is: equity
etained earnings
Income = Current Assets -Current Liabilities
ic Risk is also known as:
rrect option:
able Risk Income = Fixed Assets - Current Assets Market Risk
Risk Asset-specific Risk
rporation has two shareholders; Mr. Aamir with 50 shares and Mr. Imran
oth want to be elected as one of the four directors but Mr. Imran doesn’t w
be director.
Income = Revenues - Expenses pg 17 How much votes would Mr. Aamir be able to cast as per cumu
e? Select correct option:
Question No: 2 ( Marks: 1 ) - Please choose one 70
What would be the capital spending for an organization who has purchased fixed 280
assets of Rs. 200,000 and sold fixed assets of Rs. 45,000?
Rs. 245,000
Rs. 200,000
R s. 1 55 , 0 00
Rs. 45,000
200000-
45000=155000
Composed & Solved
o Proceeds from sale of equipment Rs. 25,000

On its cash flow statement for the year, SNT Company should report net cash
flow from financing activities as:
Rs. 3,000 net cash inflow
Rs. 3,000 net cash outflow
SNT Company has a current r atio of 3:2. Current Liabilities reported by the
comp any are Rs. 30,000 . Wh at would be the Net Working Capital for the
company?
Rs. 45,000
Rs. 15,000
( R s . 4 5 ,0 0 0 )
( Rs. 15,000)
Which of the following would not improve the current ratio?
Borrow short-term to finance additional fixed assets
Issue long-term debt to buy inventory

Composed & Solved
Which of the following are incorporated into the calculation of the Du -Pont
Identity?
I. Return o n assets II.
Equity Multiplier
III. Total Assets Turnover
IV. Profit Margin
I, II, and III only
I, III, and IV only
II, III and IV only pg 45
I, II, III, a n d IV
The concepts of present value and future value are:
Directly related to each other
Not related to each other
Proportionately related to each other
Inversely related to each other
Which of the following is a special case of annuity, where the stream of cash flows
continues forever?
Composed & Solved
Perpetuity
Which of the following is an unsecured bond for which no specific pledge of

property is made?
Mortgage
Debenture
Collateral
Note Payable
Debenture is an unsecured bond
for which no specific pledge of
property is made
Which of the following type of return refers to th e percentage chan ge in the

amount of money you have?
Nominal return
Real return
Inflation return
None of the given option

Your nominal return is the
percentage change in t he amount
of money you have.
Composed & Solved
High; lower
High; higher

When real rate is high, all interest
rates will tend to be hi gher and
vice versa.
Which of the following is the extra yield that investors dem and on a taxable bond
as a compensation for the unfavorable tax treatment?
Interest rate risk premium
Inflation risk premium
Default risk premium
Taxability premium
Investors demand extra yield on a t axable bond as a compensation for the unfavorable tax
treatment, known as
taxability premium
In which type of the market, previously issued securities are traded among
investors ?
Primary Market

Composed & Solved
investors
Place the following items in the proper order of completion regarding the capital
budgeting process.
(I) Perform a post-audit for completed projects;
(II) Generate project proposals;
(III) Estimate appropriate cash flows; (IV)
Select value-maximizing projects; (V)
Evaluate projects.
II, V, III, IV, and I
III, II, V, IV, and I
II, III, V, IV, and I
II, III, IV, V, and I

http://wps.pearsoned.co
.uk/wps/grader
An investment w ill be ___________ if the IR R doesn’t exceed s the required return

and ___________ otherwise.
Accepted; rejected
Accepted; accepted
Rejected; rejected
Rejected; accepted pg 109

Composed & Solved
Cash flows are conventional
Cash flows are independent
Cash flows are both conventional and independent
A project whose acceptance does not prevent or require the acceptance of one or
more alternative projects is referred to as :
A mutually exclusive project
An independent project
A dependent project
A contingent project
Finding Net Present Value comes under which type of capital budgeting criteria
?
Discounted Cash Flow Criteria pg 118
Accounting Criteria
Payback Criteria
Composed & Solved
the decision under consideration.

Sunk
Opportunity
Fixed
Variable

Which of the following is the overall return the firm must earn on its existing
assets to maintain the value of the stock ?
WACC (Weighted Average Cost of Capital)
Mr. A, as a financial consultant, has prepared a feasibility report of a project for

XYZ Company that the company is planning to undertake. He has suggested that
the project is feasible. The consultancy fee paid to Mr. A will be considered as:
Sunk cost
Opportunity cost
Both sunk cost and opportunity cost

Composed & Solved
required rate of return on SNT stock?
9.00 percent
9.14 percent
9.33 percent
10.65 percent
Which of the following are rights of an owner of a share of common stock for
firm which has no preferred share?
The right to vote for directors
The right to share proportionately in dividend paid
The right to vote on stockholder matters of great importance
Which one of the following typically applies to preferred stock but not to
common stock?
Dividend yield
Composed & Solved
You must own which of the following to vote against a merger proposal from
another corporation?
Preferred share
A debenture
Common stock
Cumulative dividend stock
Which of the following strategy belongs to flexible policy regarding size of

investments in current assets ?
To maintain less short-term debt and more long-term debt
To maintain more short-term debt and less long- term debt
Size of investments i n current assets

•Flexible policy
•maintain a high ratio of current assets to sales
•Restrictive policy
•maintain a low ratio of current assets to sales
Financing of current assets
•Flexible policy
Composed & Solved
current assets ?
Suppose you have Rs. 10,000 on deposit. One day, you write a cheque for Rs.
2,000 and deposit Rs. 4,000. What is your collection float ?
Rs. 4,000
+ Rs. 2,000
Rs. 2,000
+ Rs. 4,000
Which of the following is known as the group of assets such as stocks and bonds
held by an investor ?
Stock Bundle
Composed & Solved
Which of the following is referred as the ratio of the standard deviation of a

distribution to the mean of that distribution ?
Probability distribution
The expected return
The standard deviation

Coefficient of variation
The MC Inc. purchased a share of common stock exactly one year ago for Rs. 45.
During the past year the common stock paid an annual dividend of Rs. 2.40. The
firm sold the stock today for Rs. 80. What is the rate of return the firm has
earned?
5.3%
194.2%
83.11%
94.2%
Mr. Sami has bought 50 shares of a corporation one year ago at Rs. 20 per share.
Over the last year, he received a dividend of Rs. 2 per share. At the end of the
Composed & Solved
35 %
45 %
Dividend yield= 2/20=0.1%

Capital gain yield =(25-20)/20=0.25%
Total percentage return 0.1+0.25*100=35%
While performing the feasibility analysis for a project, an operating cash flow of Rs.
225,000 has been calculated. Net working cap ital has declined by Rs. 40,000. There
w as a net capital sp ending of Rs. 100,000 d u ring the year. What w ill be the
total cash flow for the project?
Rs. 85,000
Rs. 165,000
Rs. 285,000
Rs. 365,000
Operating cash
flow – change in
NWC – Capital
spending
225000-(-40000)-
100000=165000
The total market value of a company s stocks is calculated as Rs. 250 million and the
total market value of the compan y s debt are calculated as Rs. 150 million.
Composed & Solved
62.50%
70.00%
250+150=400
250/400=0.625
0.625*100=62.5 is equity and
100-62.5=37.5 is debt
Suppose a firm borrow s Rs. 800,000 at 7%. What w ill be the after -tax interest rate
if tax rate is 34%?
3.00%
4.62%
5.20%
8.00%
R D x (1
– T C ).
7%X(1-
0.34)=4
.62
Opportunity losses from having inadequate inventor y are termed as:
Carrying costs
Composed & Solved
•Safety reserve costs – opportunit y losses from having inadequate inventory e.g. lost sales and
goodwill
•A t rade-off
•Carrying costs increase with i nventory levels and shortage or restocking costs decline with
inventory levels
•The goal of inventory
management is to minimize
the sum of these two costs
What w ill be the Economic Order Quantity (EOQ) if total u nit sales (T) = 400,
fixed costs (F) = Rs. 30 and carr ying costs (CC) = Rs. 5 ?
65 units
69 units
89 units
95 units
EOQ = (2T x F
/ CC) 1/ 2
2*400=800
800*30=24000
24000/5=4800
4800^0.5=69.28
The cost of common equity for a firm is:

Composed & Solved
A firm has 3 million in comm on stock, 1 million in preferred stock and 2 million
in debt. What is the percentage of firm s financing that is debt ?
20%
33%
40%
67%
The book value of a system is Rs. 50,350 at the end of year 3 of its life. What will be
the total after-tax cash flow from sale if we sell this system for Rs. 30,000 at this
time? (Tax rate is 34%)
Rs. 20,350
Rs. 30,919
Rs. 36,919
Rs. 80,350
50350-30000=20350x34%=6919
30000+6919=36919

Composed & Solved
0.0892
0.5319
Cannot be estimated without more information
Question No: 43 ( Marks: 3 )
Write down the components of total return in terms of dividend growth model.
Answer
R = D 1 /P0 + g
This tells us that the total return, R, has two components
D1 /P0 is called the Dividend Yield . Because this is calculated as the expected cash dividend by
the
current price, it i s conceptually similar to the current yield on a bond
Growth rate, g, is also the rate at which the stock price grows. So i t can be i nterpreted as
capital
gains yield
What is the difference between operating cycle and cash cycle?

The operating cycle is the sum of the inventory and receivable periods
Operating cycle = Inventory period + Receivable period
Cash cycle
•The time between cash disbursement and cash collection. (We spend cash on day 30, but don't
collect until
day 105. so we have to arrange finances $1,000 for 105 – 30 = 75 days)
•So we can describe the cash cycle as:
Cash cycle = Operating cycle – Accounts payable period
75 days = 105 days – 30 days

Composed & Solved
•Cost of capital will reflect

•Cost of equit y capital
•Cost of debt capital
Cost of Equity
Define the following terms:

(i) Dealer
An agent who buys and sells securities from a maintained inventory
It stands ready to buy securities from investors wishing to sell them and sells securities to
investors
wishing to buy them
(ii) Broker
An agent who arranges security t ransactions among investors, matching investors wishing to buy
securities with investors wishing to sell securities
They do not buy or sell securities for their own accounts. Facilitat ing trades others is their
business
(iii) Bid Price
(iv) Strike Price

The price t hat the dealer wishes to pay is the bid price and the price at which the dealer sells the
securities is called the
strike price.
(v) Spread
The difference
between the bid and
ask price is called the
spread
A firm has a total value of Rs. 1 million and debt valued at Rs. 400,000. What is
the af ter-tax weighted average cost of capital if the cost of debt is 12%, the cost of
equity is 15% and tax rate is 35% ?
Composed & Solved
Preferred shares = Rs. 2.65 Billion

Common shares = Rs. 9.35 Billion
Total = Rs. 17 Billion
Bonds carry an interest rate of 11.5%. Common stocks and Preferred stocks have a
return of 15.50 % and 12% respectively and corporate tax rate is 40%. Compute the
present Weighted Average Cost of Capital (WACC) for SNT & Co.
Standard Manufacturing Company (SMC) need s one of two machines. Machine X

costs Rs. 25,000 and has cash flow s of Rs. 8,000 a year for six years. Machine Y
costs Rs. 30,000 and has cash flow s Rs. 7,000 a year for six years. SMC has 12%
cost of capital. Calculate each machine s Payback Period and NPV (N et Present
Value) and evaluate the results.
Paper 2
Which of the following is the difference between current assets and current?
Liabilities?
Surplus Asset
Short-term R atio
Working Capital
Current Ratio
A business owned by a single person is known as:

Composed & Solved
Corporation
In a common-size balance sheet, all items are shown as a percentage of:
Total Assets
Total Liabilities
To tal Own er s Eq u ity

A company's ability to meet long-term obligations can be estimated by using
which of the following set of ratios?
Liquidity Ratio
Solvency Ratios
pg 34
Market Value Ratios
According to Du Pont Identity, ROE is affected by which of the following?
Composed & Solved
Financial Leverage (as

measured by equity multiplier)
Which of the following is a series of constant cash flows that occur at the end of?
each period f or some fixed number of periods?
Ordinary annuity
Annuity due
Perpetuity

A series of constant, or level, cash flows that occur at the end of each period for some fixed
number of
periods is called an ordinary
Annuity
A portion of profits, which a company distributes among its shareholders, is

known as:
Dividends
Retained Earnings
Capital Gain
nterest
What amount a borrower would pay at the end of fourth year with a 4 -year, 12%,
interest-only loan of Rs. 3,000?
Composed & Solved
A company issues bonds with a Rs. 1,000 face value. What is the coupon rate if
the coupon payments of Rs. 45 are paid every 6 months?
3 percent
6 percent
9 percent
12 percent
Given two bonds identical but for maturity, the price of the longer-term bond will
change _ _ _ _ _ _ _ _ that of the shorter-term bond, for a given change in market
interest rates.
More than
Lessthan
Equal to
When corporations borrow, they generally promise to:

I. Make regular scheduled interest payments
II. Give the right of voting to bondholders
III. Repay the original amo unt borrowed (principal)
IV. Give an ownership interest in the firm
Composed & Solved
II and IV
I, III, and IV
Which of the following allows a company to repurchase part or all of the bond?
issue at a stated price?
Repayment
Seniority
Call provision
Sumi Inc. has policy of paying a Rs. 9 per share dividend ever y year. If this
policy is to con tinue indefinitely, what will be the value of a share of stock at a
Rs. 30
Rs. 45
Rs. 60
Rs. 75
9/0.12=75

Composed & Solved
Secondary Market
Tertiary Market
An investment should be accepted if the net present value is __________ and

rejected if it is ________.
Positive; positive
Positive; negative
Negative; negative
Negative; positive
The XYZ Corporation is considering an investment that will cost Rs. 80,000 and
have a useful life of 4 years. During the first 2 years, the net incremental after-tax
cash flows are Rs. 25,000 per year and for the last two years they are Rs. 20,000
per year. What is the payback period for this investment ?
3.2 Years
3.5 Years
4.0 Years
Cannot be determined from the given information

Composed & Solved
greater than 1
If the NPV of a project is greater than 0, then its PI will exceed 1
If the IRR of a project is 8%, its NPV, using a discount rate, k, greater than
8%, will be less than 0
If the PI of a project equals 0, then the project's initial cash outflow equals
the PV of its cash flows
Which of the following set of cash flows represent the change in the firm s total
cash flow that occurs as direct result of accepting the project ?
Relevant Cash Flows
Incremental Cash Flows
Negative Cash Flows
Which of the following is NOT a problem while determining incremental cash

flows?
Merchandize cost
Sunk cost
Opportunity cost
Composed & Solved
Sunk
Opportunity
Fixed
Variable
The overall (weighted average) cost of capital is composed of a weighted average

of :
The cost of common equity and the cost of debt

pg 146
The cost of common equity and the cost of preferred stock
The cost of preferred stock and the cost of debt
The cost of common equity, the cost of preferred stock, and the cost of debt
Which of the following is a characteristic of preferred stock?
Dividends on these stocks can be cumulative

pg100
These stocks hold credit ratings quite different from bonds

Composed & Solved
Sunk cost
Opportunity cost
Neither sunk cost nor opportunity cost
One would be indifferent between taking and not taking the investment when:
Which of the following is a measure of accounting profit relative to book value?
Net Present Value
Profitability Index

Composed & Solved
Which of the following M&M propositions states that it is completely irrelevant

how a firm chooses to arrange its finances ?
1st proposition
2nd proposition
3rd proposition
According to 2nd M&M proposition, cost of equity does NOT depend upon
which of the following ?
The required return of firm s assets
The firm s cost of debt
The firm s stockholders pg 153
The firm s debt-equity ratio
Which of the following risk is associated with the unique circumstances of a

particular compan y ?
Financial Risk
Composed & Solved
Which of the following type of risk influences a large number of assets ?
Systematic Risk
Unsystematic Risk
Diversifiable Risk
Asset-specific risk
The true risk of an investment is the unanticipated or surprising part of the return.
•If we always receive exactl y what we expect then the investment will be risk-free.
•Systematic Risk
•A risk that influences a
large number of assets. It is
also called market risk
Which of the following is an example of unsystematic risk ?
Increasing Recession
Rise in Interest Rate
Rise in Inflation
Strike call in a company pg

140
A set of possible values that a random variable can assume and their associated
probabilities of occurrence are referred as :
Composed & Solved
Coefficient o f variation
Over the last year, you received a dividend of Rs. 2 per share. At the end of the year,
the stock sells for Rs. 25. If Mr. Sami sells the stock at the end of the year,
what will be his total cash inflow ?
Rs. 100
Rs. 250
Rs. 1,000
Rs. 1,350
50*20=1000
50*25=1250
1250-1000=250
250,000 has been calculated . Net working capital has increased by Rs. 50,000. There
was no capital spending during the year. What w ill be the total cash flow
for the project?
Rs. 170,000
Rs. 200,000
Rs. 215,000
Rs. 230,000
Composed & Solved
class?
3-year
5-year
7-year

3-year Equipment used in research
5-year Autos, Computers
7-year Most industrial equipment
The next dividend for a company is Rs. 5 per share. The stock current price is Rs. 50
per share. What w ill b e the cost of capital if the dividend s are estimated to
Grow steadily at 5%?
12.88%
13.07%
14.22%
15.00% pg
142
Trade credit is more likely to be granted if:
The selling firm has a cost advantage over other lenders

Composed & Solved
•The selling firm has a cost advantage over other lenders.

•The selling firm can engage in price discrimination.
•The selling firm can obtain favorable tax treatment.
•The selling firm has no established reputation for quality products or services.
•The selling firm perceives a long-term strategic relationship.
•The optimal credit policy depends on the characteristics of particular firms.
•Excess capacity
A firm makes a sale of Rs. 2,000 on January 05, 2005. The firm is offering credit
term of 3/10 net 30. How much it will receive if the customer makes the payment
on January 09, 2005 ?
Rs. 1,000
Rs. 1,940
Rs. 2,000
Rs. 2,100
Shortage or Restocking costs ___________ with inventory

levels
Rise
Decline
Remain unaffected

Composed & Solved
Which one of the following motives refers to the need for holding cash to satisfy
norm al disbursement and collection activities associated with a firm s ongoing
Operations?
Speculative motive
Transaction motive
Precautionary motive
Personal motive
Speculative Motive - the need to hold cash to take advantage of additional investment
opportunities,
such as bargain purchases, attractive interest rates and favorable exchange rater fluctuations.
•Reserve borrowing utility and Marketable securities
•Transaction Motive - the need to hold cash to satisfy normal disbursement and collection
activities
associated wit h a fi rm’s
ongoing operations.
What would be the standard deviation of returns for an investment that has a
Variance of 0.008?
0.08944
0.09101
0.09487
0.10521
Composed & Solved
40%
67%
Which of the following statement is INCORRECT regarding financial leverage ?
Financial leverage can dramatically alter the payoffs to the shareholders.
Financial leverage refers to the extent to which a firm relies on the debt.
Financial leverage must affect the overall cost of capital in any

condition. pg 149
Financial leverage may not affect the overall cost of capital.
Define Net Present Value (NPV) and write down the NPV rule to accept a
project.
What do you mean by the terms of business risk and financial risk?
Suppose there is an operating cash flow of Rs. 520,000. Net working capital has
increased by Rs. 200,000 and there is a net capital spending of Rs. 120,000 during
the year. Calculate total cash flow.
Composed & Solved
Describe the relationship between capital structure and weighted average cost of
capital (WACC).
The capital budgeting director of MKJ Inc. is supposed to analyze two proposed
capital investments projects S and T. Each project has a cost of Rs.100,000, and
the cost of capital (discounting rate) for each project is 12%. The projects
expected net cash flows are as follows :
Cash flow rs
Year Project A Project B
1 30000 30000
2 30000 30000
3 35000 20000
4 25000 30000
5 25000 250000
Calculate Internal Rate of Return (IRR) for both projects.

On the basis of findings in (i):
a. Which project should be selected if projects are mutually exclusive?
b. Which project or projects should be selected if projects are
independent
Identify the sources and uses of cash and complete the table by following the
example.
Example Increasing current liabilities Increase So ur c

Composed & Solved
6. Increasing equity
7. Decreasing long-term debt
8. Decreasing current assets other than cash
9. Accounts Payable go up by Rs. 1,500
10. Accounts receivable go up by Rs.
2,000
Paper 3
FINALTERM EXAMINATION
armaan.makhani@gmail.com
Which of the following refers to a conflict of interest between principal and

agent?
Management Conflict
Interest Conflict
Agency Problem

The Agency Problem
Agency relat ionship
Principal hires an agent to represent their int erest
Stockholders (principals) hire managers (agents) to run the company
Agency problem
Conflict of interest between principal and agent
Management goals and agency
costs

Composed & Solved
Budgeting
Liquidity pg 14
Product costs do NOT include which of the following?
Raw material
Direct labor
Which of the following can be computed by using the information only from
balanc e sheet?
Equity multiplier
Inventory turnover
Receivable turnover
Return on equity
Which of the following is CORRECT regarding the present value discount factor?
Composed & Solved
How much must be deposited at 8% each of the next 20 ye ars to have Rs.
10,296.44?
Rs. 225
Rs. 341
Rs. 410
Rs. 452
In order to compa re different investment opportunitie s (each with the same risk)
with interest rates reported in different manners you should:
Conve rt each interest rate to an effective annual rate
Conve rt each interest rate to a monthly nominal rate
Conve rt each interest rate to an annual nominal rate
Compare the published annual rates
You have Rs. 1,0 0 0 to invest. You have 2 choices; first is the savings account A, which
Composed & Solved
Account B; because it has a higher effective annual rate
Account A; because it has the higher quoted rate
Account B; because the quoted rate is higher
What will be the value of a Rs. 1,0 0 0 face-value bond with an 8% coupon rate at
More than its face value
Less than its face value
Equal to its fa ce value
Cannot be dete rmined without more information
Which of the following statement is FALSE regarding debt?
Debt is not an ownership interest in the firm.
Debt provides the voting rights to the bondholder s. pg

78
Corporations payment of interest on debt is fully tax deductible.

Composed & Solved
BCG Matrix
Investors dem and a higher yield as compensation to the risk of possible default.
This extra premium is called:
Taxability premium
For which type of stocks, the dividends grow at a constant rate?
Zero Growth Stocks pg 91
Constant Growth Stocks
Non-Constant Growth Stocks

Composed & Solved
Statutory Voting
Cumulative Voting
In which of the following procedure of voting for a company's directors, e ach

shareholder is entitled to one vote per share ?
Straight Voting
Proportional Voting
Cumulative Voting
Which of the following is the price that the dealer wishes to pay for a share ?
Simple Price
Bid Price
Strike Price pg 100
Complex Price

Composed & Solved
2.6 Years
3.1 Years
3.6 Years
4.1 Years
have a useful life of 4 years. During the first 2 yea rs, the net incremental after-tax
cash flows are Rs. 25,000 per year and for the last two yea rs they are Rs. 20,000
3.2 Years
3.5 Years
4.0 Years
Which of the following measures the present value of an investment per dollar
invested ?

Composed & Solved
Which of the following set of cash flows should be considered in the decision at
hand?
Relevant Cash Flows
Negative Cash Flows
___________ Cost is an outlay that has already occurred and hence is not affected by
the de cision under consideration.
Sunk
Opportunity
Fixed
Variable

of :
Composed & Solved
Over the past four years, a company ha s paid dividends of Rs. 1.00, Rs. 1.10, Rs.
1.20 and Rs. 1.30 respectively. This pattern is expected to continue into the future.
This is an example of a company pay a dividend tha t grows:
By 10 percent each year
At a constant rate
By a decreasing amount
At a decreasing rate
Which of the following statement is INCORRECT regarding Average Accounting

Return?
AAR is a rate that makes the NPV equal to zero
AAR is a measure of accounting profit relative to book value
An investment is acceptable if its AAR is greater than a benchmark AAR

worng questions
Composed & Solved
1st proposition
2nd proposition
3rd proposition
SNT Corporation has a WACC of 16% (ignoring taxes). It can borrow at 9% .

Assuming that SNT has a target capital structure of 75% equity and 25% debt,
what will be its cost of equity ?
13.00%
15.23%
18.33%
20.98%
25%/75%==0.33
16%+(16%-9%)x0.33
0.16+(0.16-0.09)x0.33
0.16+0.0231=18.31%
Which of the following activities decreases c ash ?

Composed & Solved
Increasing equity
Acti vities that decrease cash (uses of cash)
•Decreasing long term debt
•Decreasing equity
•Decreasing current liabilities
•Increasing current assets other than cash
•Increasing fixed assets
Which of the following describes how a product moves through the current asset
accounts ?
Cash Cycle
Operating Cycle
Current Cycle

An operati ng cycle describes how a product moves through the current asset accounts
•It begins life as inventory
•Converted to a receivable when it is sold
•Converted to cash when we
collect from the sal e
Which of the following is the time between sale of inventory and collection of
receivables ?
Inventory period
Composed & Solved
Suppose you ha ve Rs. 10,000 on deposit. One day, you write a cheque for Rs.
2,000 and deposit Rs. 4,000. What is your disbursement float ?
Rs. 4,000
+ Rs. 2,000
Rs. 2,000
+ Rs. 4,000
Suppose you ha ve Rs. 70 in stock A and Rs. 120 in another stock B in your
portfolio. Stock A ha s an expe cted return of 25% and stock B has an expected
return of 20%. What will be the portfolio expected return ?
18.27%
21.84%
22.50%
25.13%
Which of the following statement(s) is (are) true regarding Return on

Investment?
Composed & Solved
The dollar returns are the sum of the cash received and the change in
dollar value of the asset
The MC Inc. purchased a share of common stock exactly one ye ar ago for Rs. 45.
During the past year the c ommon stock paid an annual dividend of Rs. 2.40. The firm
sold the stoc k today for Rs. 80. What is the rate of return the firm has earned?
5.3%
194.2%
83.11%
94.2%
What will be the c ash inflow if we have sales of Rs. 400,000 a nd accounts
receivable are increased by Rs. 70,000?
Rs. 70,000
Rs. 230,000
Rs. 330,000
Rs. 470,000
Composed & Solved
RS 230000
Rs. 370,000
correct
Rs. 470,000
300000-
70000=230000
Su p pose a firm borrow s Rs. 800,000 at 7%. What w ill be the total interest bill p er
year if tax rate is 34% ?
Rs. 19,040
Rs. 36,960
Rs. 56,000
Rs. 800,000
800000*7%=56000
56000*34%=19040
Which one of the following motives refers to the need for holding cash as a sa fety
margin to act as a financial reserve?
Speculative motive
Transaction motive
Composed & Solved
Suppose market value exceed s book value by Rs. 225,000. What w ill be the after-
tax proceeds if there is a tax rate of 34 perc ent?
Rs. 105,600
Rs. 148,500
Rs. 191,000
Rs. 225,000
225000*34%=765,00
225000-765000=148500
Question No: 39
( Marks: 1 ) - Please choose one
Su p pose you have bou ght 100 shares of a corporation one ye ar ago at Rs. 18 per share.
Over the last year, you have receive d a d ivid end of Rs. 2 p er share. At the end of the
year, the stock sells for Rs. 27. As p er given inform ation, w hat w ill be
the capital gains yield?
15
%
25
%
Composed & Solved
SN T Com pany p u rchased a vehicle for Rs. 450,000. Based on historical averages, this
vehicle is w orth 25% of the p u rchase pric e now and it is being sold at this
p rice. What is the vehicle s m arket valu e ?
Rs. 14,875
Rs. 112,500
Rs. 337,500
Rs. 230,000
Sta ndard deviations for Investment A and Investment B are 19% and 28%
respectively. This indicates that:
Investment A is equally volatile to Investme nt B
Investment B is less volatile than Investment A

Composed & Solved
Financial leverage must affect the overall cost of capital in any condition.
What is the difference between dealer and broker ?
What does Static Theory of Capital Structure state?
Suppose there is an expected rate of 20%. What will be the risk premium if risk
free rate is (i) 8% and (ii) 12% ?
What is the difference between Leverage and Un-levering?
Match the capital budgeting te chniques a re given in Column A to the criteria in Column
B. Provide the correct answer in Column C.
Column A Column B Column C

Composed & Solved
Each of the following mutually exclusive investment projects involves an initial

ou tlay of Rs. 240,000. The com p any s required rate of return is 11 percent. The
estimated net cash flows for the projects are as follows:
Cash flow rs
1 140000 20000
2 80000 40000
3 60000 60000
4 20000 100000
5 20000 180000
Calculate the NPV and PI for both projects. If both projects are mutually
exclusive then which project should be chosen and why?
Consider the following chronological events:
Day Activity Cash effect

0 Acquire inventory on c redit None
35 Pay for inventory Rs 5000
70 Sell inventory on credit None
110 Collect on sale +Rs 6000
From the given information, find out:

(i) inventory period
(ii) Accounts receivable period
(iii) Accounts payable period
Composed & Solved
The next dividend for a compan y is Rs. 6 per share. The stock current price is Rs. 57 per
share. What will be the cost of capital if the dividends are estimated to grow steadily at
5% ?
12.88%
13.07%
14.22%
15.53%
D1 = D0 x (1 + g)
RE = D1 / P0 + g
6x(1+0.05)=6.3
6.3/57+0.05=16.
Which of the following is the time period between the acquisition of inventory and the
collection of cash from receivables
Select correct option
Operating Cycle pg 164
Cash Cycle
Current Cycle
Question # 2 of 15 ( Start time: 04:07:41 PM ) Total Marks: 1

Which of the following is the time between receipt of inventory and payment for it ?
Operating Cycle
Cash Cycle
Current Cycle
Composed & Solved

What will be the affect of capital structure on the value of the firm and WACC when
there are no taxes and bankruptcy costs ?
Value of the firm increases and WACC decreases
Value of the firm decreases and WACC increases
Value of the firm and WACC both are not affected pg 158
Capital structure have to do nothing with value of the firm and WACC

Sources of cash always involve ______ a liability (or equity) account or ______ an asset
account.
increasing; decreasing pg 163
decreasing; increasing
increasing; increasing
decreasing; decreasing

Which of the following refers to the use of borrowed money to increase the return on
equity of an investment purchase ?
Financial Leverage
Operating Leverage
Structural Leverage

The value of the firm’s cash flows (or the value of the firm) is __________ when the
WACC is __________ .
minimized; minimized
maximized; maximized
Composed & Solved

20%
33%
40%
67%
Ref:
4+2=6
4/6=0.66
0.66*100=66.67 is equity and
100-67=33 is debt

Which of the following risk is associated with the unique circumstances of a particular
company ?
Financial Risk
Business Risk
Functional Risk

According to 2nd M&M proposition, cost of equity does NOT depend upon which of the
following ?
The required return of firm’s assets
The firm’s cost of debt
The firm’s stockholders pg 153
The firm’s debt-equity ratio

Which of the following is the difference between the current assets and the current
liabilities ?
Net difference
Net working capital
Composed & Solved
Inventory period – accounts receivable period

Inventory period + accounts receivable period pg 164
Inventory period + account payable period

A firm’s capital structure may include which of the following ?
Common stocks
Preferred Stocks not sure
Bonds

Mr. Nadeem has bought 100 shares of a corporation one year ago at Rs. 22 per share.
Over the last year, he received a dividend of Rs. 2.50 per share. At the end of the year,
the stock sells for Rs. 28. As per given information, what will be the capital gains yield ?
15.85%
25.10%
27.27%
45.00%
Capital gain yield formula
(28-22)/22
=0.2727

Which of the following term refers to the situation when investors loan out the money ?
Leverage
Levering
Un-levering pg 152
Loaning
Question # 1 of 15 ( Start time: 11:23:11 AM ) Total Marks: 1

Which of the following activities does not increase cash ?
Composed & Solved
The increase in debt financing raises the required return on equity because the risk born
by the investors increases which is called:
Financial Risk pg 155
Business Risk
Functional Risk

What will happen to cash cycle if payable period is lengthened ?
Cash cycle increases
Cash cycle decreases 167
Cash cycle remain unaffected
Cash cycle has to do nothing with payable period

Which of the following M&M propositions states that it is completely irrelevant how a
firm chooses to arrange its finances ?
1st proposition pg 153
2nd proposition
3rd proposition

The total market value of a company’s stocks is calculated as Rs. 250 million and the
total market value of the company’s debt are calculated as Rs. 150 million. What p ercent
of the firm’s financing is equity ?
33.33%
50.00%
62.50%
85.00%
Composed & Solved

The expected return

Cash cycle = ________________
Inventory period + accounts receivable period
Operating cycle – accounts payable period pg 165

According to which of the following theory, the firm's capital structure is determined by a
trade-off of the value of tax shields against the costs of bankruptcy.
M&M Proposition
Modern theory of bankruptcy costs
Static theory of capital structure not sure
Dividend growth theor y

The required rate of return on the company's stock
The yield to maturity on the bond
The risk-free rate
The market risk premium

Standard deviations for Investment A and Investment B are 25% and 12% respectively.
This indicates that :
Composed & Solved
Cash Cycle
Current Cycle

Which of the following is the overall return the firm must earn on its existing assets to

What will happen to cash cycle if inventory and receivable periods get longer ?
Cash cycle increases pg 167
Cash cycle decreases
Cash cycle has to do nothing with inventory and receivable periods
Standard deviations for Investment A and Investment B are 15% and 32%
respectively. This indicates that :
Investment A is equally volatile to Investment B

Which of the following term refers to the use of personal borrowing to alter the degree of
financial leverage ?
Un-levering
Homemade leverage pg 151
Composed & Solved


A firm’s equity is worth 4 million and its debt is worth 2 million. What is the percentage
of firm’s financing that is equity ?
20%
33%
40%
67%
4+2=6
4/6=0.67

Under what situation, we can safely say that one capital structure is better than the other ?
If it results in a higher weighted average cost of capital
If it results in a lower weighted average cost of capital pg 149
If it results in a lower value of the firm
Capital structure has to do nothing with weighted average cost of capital
Finished last quiz of acc 501

Good bye all V U students
Badal pe chalta hu mai

Ghirta sambhalta hu mai
Khuwishein krta hu mai
Khony se darta hu mai
Jaga na soya hu mai

Musafir khoya hu mai
Composed & Solved
Starting lec 1 to 35 Date :19-jan-2011
Question # 5 of 15 ( Start time: 10:55:09 PM )
Total Marks: 1
Suppose market value exceeds book value by Rs. 200,000. What will be the after-tax
proceeds if
there is a tax rate of 35 percent ?
Rs. 97,500
Rs. 105,600
Rs. 130,000
Rs. 150,000
200000*35%=70000
200000-70000=130000

In which type of projects, the unequal lives of the projects do affect the analysis ?
Mutually exclusive
Dependent
Independent
Correlated
Mr. Naveed has bought 100 shares of a corporation one year ago at Rs. 23 per share.
the stock sells for Rs. 31. As per given information, what will be his total percentage
return ?
10.63%
20.20%
35.12%
41.30%
Composed & Solved
The book value of a system is Rs. 35,500 at the end of year 4 of its life. What will be the
total after-tax cash flow from sale if we sell this system for Rs. 20,000 at this time? (Tax
rate is 35%)
Rs. 15,000
Rs. 15,220
Rs. 20,327
Rs. 25,425
Which one of the following statement is INCORRECT regarding MACRS depreciation ?

percentage.
Total portfolio risk is equal to :

systematic risk plus non-diversifiable risk

unsystematic risk plus diversifiable risk
systematic risk plus market risk
systematic risk plus diversifiable risk
Over the last year, he received a dividend of Rs. 2.50 per share. As per given information
what will be the dividend yield ?
9.92%
11.36%
Composed & Solved
Which of the following type of risk can be eliminated b y diversification ?

Systematic Risk
Mar ket Risk
Unsystematic Risk
Which of the following is the return that firm’s creditors demand on new borrowings ?
Cost of debt
What will be the risk premium for a stock that has an expected return rate of 14% and a
risk-free rate of 5% ?
6%
9%
15 %
24%
14-5=9
Which of the following is NOT an example of systematic risk ?

Interest Rate
Inflation
Gross Domestic Product
Your gain (or loss) on an investment that you buy is called your :
Risk on investment
Return on investment
Gain on investment
Composed & Solved
Rs. 14,875
Rs. 112,500
Rs. 337,500
Rs. 230,000

ABC Corporation has two shareholders; Mr. Aamir with 50 shares and Mr. Imran with 70
70
120
200
280
4*50=200

In MACRS property classes, 7-year class includes which of the following ?
Equipment used in research
Autos & computers
Most industrial equipment


Systematic Risk is also known as :
Composed & Solved
A project has an initial investment of Rs. 600,000. What would be the NPV for the
Rs. 40,000
Rs. 55,000
Rs. 65,000
Rs. 72,000
600000*1.12=672000
672000-600000=72000

Unsystematic Risk is also known as :
Diversifiable Risk
Mar ket Risk
Non-diversifiable Risk

Which of the following is NOT included in discounted cash flow criteria for capital
budgeting decision?
Payback Period
Net Present Value
Profitability Index

Which of the following is NOT a quality of IRR?
Most widely used
Ideal to rank the mutually exclusive investments
Composed & Solved

Which of the following set of cash flows represent the change in the firm’s total cash
flow that occurs as direct result of accepting the project ?
Relevant Cash Flows

Negative Cash Flows

What would be the standard deviation of returns for an investment that has a variance of
0.0075 ?
0.08660
0.09101
0.09487
0.10521

Investors demand a higher yield as compensation to the risk of possible default. This
extra premium is called:
Taxability premium

What will be the cash inflow if we have sales of Rs. 400,000 and accounts receivable are
decreased by Rs. 70,000 ?
Rs. 70,000
Rs. 230,000
Composed & Solved
Capital Asset Pricing Model

Fisher’s Effect
BCG Matrix

Which of the following set of cash flows should be considered in the decision at hand?
Relevant Cash Flows
Negative Cash Flows

What will be the real rate if the nominal rate is 14% and the inflation rate is 6%?
6.02%
7.55%
10.0%
14.3%
(1+r)/(1+h)
1.14/1.06=1.07
1.07*100=107.55
107.55-100=7.55

total market value of the company’s debt are calculated as Rs. 100 million. What percent
of the firm’s financing is debt ?
28.57%
50.00%
62.50%
70.00%
250/350*100-100=28.57

Composed & Solved

The expected return

A project whose acceptance does not prevent or require the acceptance of one or more
alternative projects is referred to as a(n):
independent project
dependent project
contingent project

Which of the following is the most common capital budgeting technique?
Payback Period
Net Present Value
Profitability Index

500,000 has been calculated. Net working capital has declined by Rs. 45,000. There was
no capital spending during the year. What will be the total cash flow for the project ?
Rs. 200,000
Rs. 315,000
Rs. 455,000
Rs. 545,000
Composed & Solved
Po = D1 / (R – g)

Which of the following statement is NOT correct regarding cost of preferred shares ?
Prefer red stock has fixed dividend paid every period forever
Fixed dividend paid every period makes preferred stock a perpetuity
Cost of preferred stock can be estimated by using firm’s bond ratings
Cost of preferred stock can be estimated by observing the required r eturn on other
similarly rated shares of preferred stock

IRR and NPV rules always lead to identical decisions as long as:

_________ paid by corporation is tax deductible but _________ paid are not tax
deductible.
Interest; dividend
Dividend; interest
Bonus; interest

Which one of the following costs refers to an outlay that has already occurred and hence
is not affected by the decision under consideration ?
Sunk
Opportunity
Fixed
Variable
Composed & Solved
3.7 Years
4.1 Years

Which of the following statement is TRUE regarding Average Accounting Return?
An investment is acceptable if its AAR is less than a benchmark AAR

Sumi Inc. has just paid a dividend of Rs. 7 per share. The dividend of this company
grows at a steady rate of 5% per year. What will be the dividend in 5 years?
Rs. 4.41
Rs. 6.12
Rs. 7.35
Rs. 8.93
5/100=0.05+1=1.05^5=1.2762*7=8.93

An investment should be accepted if the Net Present Value (NPV) is ________ and
rejected if it is ______ .
Positive; positive
Positive; negative
Negative; negative
Negative; positive
Ending lec 1 to 35
19-Jan-02
________________________________________________________________________
___
Composed & Solved

positive example
ratio?
0.101
0.220
0.667
0.818
Reference:(1-0.45=0.55)
=0.45/0.55=0.818
Rs. 1,360
Rs. 2,000
Rs. 5,625
Rs. 8,960
Reference: 8000*12/100=8960
Rs. 30.19
Rs. 43.52
Rs. 56.53
Rs. 71.25
4.75*(1+0.5/4.75-0.5)=71.25
Composed & Solved
APR=9
M=30
(1+9/30)^30-1=9.38
procedure?
100 votes
200 votes
300 votes
400 votes
Rs. 30
Rs. 40
Rs. 50
Rs. 60

Discounting
Compounding
Factorization
an asset?
Composed & Solved
Balance Sheet
Income Statement

sole proprietorship
partnership
joint stock company
none of the above
2.6 Years
3.1 Years
3.7 Years
4.1 Years


Composed & Solved

Common Stocks
Prefer red Stock
bonds?
Government bonds 85
Zero coupon bonds
Floating-rate bonds
Euro bonds
Low; higher
High; lower
High; higher pg 88

A bond is an evidence of debt issued by a corporation or a governmental body.

A bond represents a loan made by investors to the issuer.
When a corporation wishes to borrow from public on a long term basis, it does so
by issuing or selling bonds.
Composed & Solved
be viewed as:
Ordinary Annuity
Annuity Due
are called:
Float
Collar pg 86
Limit
Surplus


Composed & Solved

independent project
dependent project
contingent project
Rs. 40,000
Rs. 55,000
Rs. 65,000
Rs. 72,000
Reference=600000*1.12=672000-600000=72000



Composed & Solved
Positive
Negative pg 80
Neutral

Repayment
Seniority
Call provision

Most widely used
Composed & Solved
known as:
Payback Period
36.
Net Present Value
Profitability Index

Composed & Solved
Net Present Value

Profitability Index
dollar invested?
value?
Net Present Value
Profitability Index
common stock?
Dividend yield
Voting rights
bonds?
Zero coupon bonds
Floating-rate bonds
Euro bonds
Composed & Solved
3 percent
6 percent
9 percent
12 percent
60+60=120/1000=12%
2.00 Years
2.67 Years
3.00 Years
3.67 Years
Project=800 paid in 1 year=100, 2 nd year=300 and 3 rd year=400 total 800 paid in
3rd year
each period?
Ordinary annuity
Annuity due pg 66
Perpetuity
bonds?
Default free
Taxable
Least liquid pg 90
Composed & Solved
Interest rate risk
Yield to maturity
Maturity Period
m.q .z
Primary Market
Secondar y Market
Tertiary Market

Broker pg 100
Dealer
Member
Specialist
volatile
Composed & Solved
Floating-rate bonds
Euro bonds
Accepted; rejected
Accepted; accepted
Rejected; rejected
Payback Period
Net Present Value
Profitability Index
Annuity due
Perpetuity
Composed & Solved

Fluctuations Risk
Real-Time Risk
Inflation Risk
related to its:
Time to maturity
Coupon rate
Yield to maturity
Made By
Date :25-11-2010
This Mcqs for Midterm

finance?

Composed & Solved
Direct labor

Selling expenses
Gener al expenses

Profit Margin
Debt-equity ratio
Operating cash flow

Capital spending

Composed & Solved
of goods sold?
Product cost
Period cost
5 days
36 days
48 days
73 days
750000/150000=5
365/5=73days
Operating Leverage
Financial Leverage

Primary market
Secondar y market
Composed & Solved
Liquidity Ratios
Mar ket Value Ratios
Income Statement
Balance Sheet
Cash Flow Statement
Operating activity
Investing activity
Financing activity

Current Ratio
Acid-test Ratio
Cash Ratio

time?
Income Statement
Balance Sheet
Composed & Solved
Income Statement
Balance Sheet
Cash Flow Statement
known as:
Dividends
Retained Earnings
Capital Gain

Current Ratio
Quick Ratio
Cash Coverage Ratio
Cash Ratio
Profit Margin
Return on Assets
Composed & Solved


Financial policy
Dividend policy

Accountants
Financial Analysts
Auditors
Marketers
Liquidity Ratios
Leverage Ratios
Market Value Ratios
Composed & Solved

sole proprietorship
partnership
joint stock company
cooperative Society
leverage?
Liquidity Ratios


Depreciation
Interest
Composed & Solved
Rs. 105,600
Rs. 148,500
Rs. 165,000
Rs. 225,000
Solution=250000*34%=85000
250,000-85000=165000
89. When a corporation wishes to borrow from public on a long -term basis, it

Common Stocks
Prefer red Stock

Primary market
Secondary market
Tertiary market

Accountants
Auditors
Mar keters
Composed & Solved
Depreciation
coupon rate?
Rs. 100
Rs. 510
Rs. 1,000
Rs. 1,100
Solution:
=1000/10
=100

Net Present Value

Selling expense
Raw material
Direct labor
Composed & Solved

Financial Leverage

finance?
Operating activity
Investing activity
Financing activity
1.01
1.26
1.39
1.52
Solution= 700000/460000=1.52
Composed & Solved
Increase
Decrease
Remain unaffected
Become zero
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity

Net loss
Net worth
Mar kup
Mar kdown

Composed & Solved
Income Statement
Balance Sheet
Cash Flow Statement


regulated?
Sole-proprietorship
Gener al Partnership
Limited Partnership
Corporation

Par value
Coupon value

discount?
Composed & Solved
Common Stocks
Pref erred Stock

Inventory
Supplies
Machinery
Depreciation
Rs. 300,000
Rs. 500,000
Rs. 800,000
Rs. 1100,000
sol

Sole-proprietorship
Limited Partnership
Corporation

Composed & Solved
as:
Surplus Asset
Short-term Ratio
Working Capital
Current Ratio
Rs. 14,186
Rs. 18,256
Rs. 22,697
Rs. 28,253
solution
40000*1/(1+0.12)^5=22697.07

Income Statement
Balance Sheet
Cash Flow Statement

Composed & Solved

Bond ratings are based solely on information acquired from sources other than the
bond issuer.
Bond ratings represent an independent assessment of the credit-worthiness
of bonds .

Gener ally Applied Accountability Principles
Gener al Accounting Assessment Principles
Gener al Accepted Assessment Principles

information?
12 %
25 %
40 %
60 %
Solution
250000-150000/250000*100=40%
Composed & Solved

Dividends
Retained Earnings
Capital Gain

Investments
Management Ratios?

Receivable Turnover
Return on Assets

Rs. 1,000 because you r eceive it sooner
Composed & Solved
Financial Leverage
b
buy the television?
8.42 years
10.51 years
15.75 years
18.78 years
6000(1+5%)^10.51=around 10,000


level

Financial policy
Dividend policy
Composed & Solved

Selling expenses
Gener al expenses
Rs. 500
Rs. 752
Rs. 1,052
Rs. 1,100
4100-3000=1100

7.00 percent
7.12 percent
7.19 percent
7.23 percent
Composed & Solved
Comparison
Evaluation

Financial policy
Dividend policy

2% to 8%
4% to 25%
5% to 20%
10% to 50%

Management Conflict
Interest Conflict
Agency Problem
Ordinary annuity 63
Annuity due
Composed & Solved
Investments



Investments
4.30%
6.00%
10.70%
16.73%
solution
Net income=8%*75000=6000
Profit margin=6000/100000*100= 6%

Composed & Solved

Current Ratio
Acid-test Ratio
Cash Ratio
Sole-proprietorship
Partnership
Corporation
20%; 80%
37%; 63%
63%; 37%
80%; 20%
Composed & Solved
II and IV
I, III, and IV

Rs. 6,302
Rs. 9,981
Rs. 14,800
Rs. 15,869

5.00 percent
7.00 percent
8.45 percent
10.0 percent
Composed & Solved
Rs. 150,000
Rs. 200,000
Rs. 250,000
Rs. 400,000
4 % = N.P / 500,000
4% * 500,000 = N.P
N.P = Rs. 20,000

5 % = 20,000 / Sales
5% * Sales = 20,000
Sales = 20,000 / 5%
Sales = 400,000
to zero?

Weighted Average Cost of Capital ( WACC)

Composed & Solved
ACC501 3 Finalterm Papers and Important MCQS

162. Solved…
If a firm uses cash to purchase inventory, its quick ratio will:
Increase
By
Decrease
Remain unaffected FINALTERM
Become zero EXAMINATION
Paper 1

The accounting definition of income is:
Increase
Income = Current Assets -Current Liabilities
Decrease
Remain
Income unaffected
= Fixed Assets - Current Assets
Become zero
Income = Revenues - Expenses pg 17
What would be the capital spending for an organization who has purchased fixed
Rs. 245,000
Rs. 200,000
R s. 1 55 , 0 00
Rs. 45,000
200000-
45000=155000
Composed & Solved

Rs. 3,000 net cash outflow
SNT Company has a current r atio of 3:2. Current Liabilities reported by the
comp any are Rs. 30,000 . Wh at would be the Net Working Capital for the
company?
Rs. 45,000
Rs. 15,000
( R s . 4 5 ,0 0 0 )
( Rs. 15,000)
Borrow short-term to finance additional fixed assets
Issue long-term debt to buy inventory

Composed & Solved
Identity?
I. Return o n assets II.
Equity Multiplier
IV. Profit Margin
I, II, and III only
I, III, and IV only
II, III and IV only pg 45
I, II, III, a n d IV
Directly related to each other
Not related to each other
Proportionately related to each other
Inversely related to each other
continues forever?
Composed & Solved
Perpetuity

property is made?
Mortgage
Debenture
Collateral
Note Payable
property is made
Which of the following type of return refers to th e percentage chan ge in the

Nominal return
Real return
Inflation return
None of the given option

percentage change in t he amount
of money you have.
Composed & Solved
High; lower
High; higher

rates will tend to be hi gher and
vice versa.
Which of the following is the extra yield that investors dem and on a taxable bond
as a compensation for the unfavorable tax treatment?
Taxability premium
Investors demand extra yield on a t axable bond as a compensation for the unfavorable tax
treatment, known as
taxability premium
investors ?
Primary Market

Composed & Solved
investors
budgeting process.
Evaluate projects.
II, V, III, IV, and I
III, II, V, IV, and I
II, III, V, IV, and I
II, III, IV, V, and I

.uk/wps/grader
An investment w ill be ___________ if the IR R doesn’t exceed s the required return

and ___________ otherwise.
Accepted; rejected
Accepted; accepted
Rejected; rejected
Rejected; accepted pg 109

Composed & Solved
A mutually exclusive project
An independent project
A dependent project
A contingent project
?
Discounted Cash Flow Criteria pg 118
Accounting Criteria
Payback Criteria
Composed & Solved

Sunk
Opportunity
Fixed
Variable


Sunk cost
Opportunity cost

Composed & Solved
9.00 percent
9.14 percent
9.33 percent
10.65 percent
The right to vote for directors
The right to share proportionately in dividend paid
The right to vote on stockholder matters of great importance
common stock?
Dividend yield
Composed & Solved
Preferred share
A debenture
Common stock
Cumulative dividend stock

Size of investments i n current assets

•Flexible policy
•Flexible policy
Composed & Solved
current assets ?
Rs. 4,000
+ Rs. 2,000
Rs. 2,000
+ Rs. 4,000
Stock Bundle
Composed & Solved

The expected return

earned?
5.3%
194.2%
83.11%
94.2%
Over the last year, he received a dividend of Rs. 2 per share. At the end of the
Composed & Solved
35 %
45 %

Rs. 85,000
Rs. 165,000
Rs. 285,000
Rs. 365,000
Operating cash
flow – change in
NWC – Capital
spending
225000-(-40000)-
100000=165000
total market value of the compan y s debt are calculated as Rs. 150 million.
Composed & Solved
62.50%
70.00%
250+150=400
250/400=0.625
0.625*100=62.5 is equity and
100-62.5=37.5 is debt
if tax rate is 34%?
3.00%
4.62%
5.20%
8.00%
R D x (1
– T C ).
7%X(1-
0.34)=4
.62
Opportunity losses from having inadequate inventor y are termed as:
Carrying costs
Composed & Solved
•Safety reserve costs – opportunit y losses from having inadequate inventory e.g. lost sales and
goodwill
•A t rade-off
•Carrying costs increase with i nventory levels and shortage or restocking costs decline with
inventory levels
fixed costs (F) = Rs. 30 and carr ying costs (CC) = Rs. 5 ?
65 units
69 units
89 units
95 units
EOQ = (2T x F
/ CC) 1/ 2
2*400=800
800*30=24000
24000/5=4800
4800^0.5=69.28

Composed & Solved
A firm has 3 million in comm on stock, 1 million in preferred stock and 2 million
in debt. What is the percentage of firm s financing that is debt ?
20%
33%
40%
67%
the total after-tax cash flow from sale if we sell this system for Rs. 30,000 at this
time? (Tax rate is 34%)
Rs. 20,350
Rs. 30,919
Rs. 36,919
Rs. 80,350
50350-30000=20350x34%=6919
30000+6919=36919

Composed & Solved
0.0892
0.5319
Cannot be estimated without more information
Answer
R = D 1 /P0 + g
D1 /P0 is called the Dividend Yield . Because this is calculated as the expected cash dividend by
the
current price, it i s conceptually similar to the current yield on a bond
Growth rate, g, is also the rate at which the stock price grows. So i t can be i nterpreted as
capital
gains yield

Cash cycle
collect until
day 105. so we have to arrange finances $1,000 for 105 – 30 = 75 days)
Cash cycle = Operating cycle – Accounts payable period
75 days = 105 days – 30 days

Composed & Solved

•Cost of equit y capital
Cost of Equity

(i) Dealer
investors
wishing to buy them
(ii) Broker
An agent who arranges security t ransactions among investors, matching investors wishing to buy
They do not buy or sell securities for their own accounts. Facilitat ing trades others is their
business
(iii) Bid Price
(iv) Strike Price

The price t hat the dealer wishes to pay is the bid price and the price at which the dealer sells the
strike price.
(v) Spread
The difference
between the bid and
spread
A firm has a total value of Rs. 1 million and debt valued at Rs. 400,000. What is
the af ter-tax weighted average cost of capital if the cost of debt is 12%, the cost of
equity is 15% and tax rate is 35% ?
Composed & Solved


cost of capital. Calculate each machine s Payback Period and NPV (N et Present
Value) and evaluate the results.
Paper 2
Liabilities?
Surplus Asset
Short-term R atio
Working Capital
Current Ratio

Composed & Solved
Corporation
Total Assets
Total Liabilities
To tal Own er s Eq u ity

Liquidity Ratio
Solvency Ratios
pg 34
Market Value Ratios
Composed & Solved

each period f or some fixed number of periods?
Ordinary annuity
Annuity due
Perpetuity

number of
Annuity

known as:
Dividends
Retained Earnings
Capital Gain
nterest
Composed & Solved
A company issues bonds with a Rs. 1,000 face value. What is the coupon rate if
the coupon payments of Rs. 45 are paid every 6 months?
3 percent
6 percent
9 percent
12 percent
interest rates.
More than
Lessthan
Equal to

III. Repay the original amo unt borrowed (principal)
Composed & Solved
II and IV
I, III, and IV
Repayment
Seniority
Call provision
Sumi Inc. has policy of paying a Rs. 9 per share dividend ever y year. If this
policy is to con tinue indefinitely, what will be the value of a share of stock at a
Rs. 30
Rs. 45
Rs. 60
Rs. 75
9/0.12=75

Composed & Solved
Secondary Market
Tertiary Market

Positive; positive
Positive; negative
Negative; negative
Negative; positive
have a useful life of 4 years. During the first 2 years, the net incremental after-tax
cash flows are Rs. 25,000 per year and for the last two years they are Rs. 20,000
3.2 Years
3.5 Years
4.0 Years

Composed & Solved
greater than 1
Relevant Cash Flows
Negative Cash Flows

flows?
Merchandize cost
Sunk cost
Opportunity cost
Composed & Solved
Sunk
Opportunity
Fixed
Variable

of :

pg 146

pg100

Composed & Solved
Sunk cost
Opportunity cost
Net Present Value
Profitability Index

Composed & Solved

1st proposition
2nd proposition
3rd proposition

particular compan y ?
Financial Risk
Composed & Solved
Systematic Risk
Unsystematic Risk
Diversifiable Risk
Asset-specific risk
•If we always receive exactl y what we expect then the investment will be risk-free.
•Systematic Risk
Rise in Inflation

140
Composed & Solved
Coefficient o f variation
Over the last year, you received a dividend of Rs. 2 per share. At the end of the year,
the stock sells for Rs. 25. If Mr. Sami sells the stock at the end of the year,
Rs. 100
Rs. 250
Rs. 1,000
Rs. 1,350
50*20=1000
50*25=1250
1250-1000=250
250,000 has been calculated . Net working capital has increased by Rs. 50,000. There
was no capital spending during the year. What w ill be the total cash flow
for the project?
Rs. 170,000
Rs. 200,000
Rs. 215,000
Rs. 230,000
Composed & Solved
class?
3-year
5-year
7-year

The next dividend for a company is Rs. 5 per share. The stock current price is Rs. 50
per share. What w ill b e the cost of capital if the dividend s are estimated to
12.88%
13.07%
14.22%
15.00% pg
142

Composed & Solved

•Excess capacity
Rs. 1,000
Rs. 1,940
Rs. 2,000
Rs. 2,100

levels
Rise
Decline
Remain unaffected

Composed & Solved
Operations?
Speculative motive
Transaction motive
Personal motive
opportunities,
activities
associated wit h a fi rm’s
ongoing operations.
What would be the standard deviation of returns for an investment that has a
Variance of 0.008?
0.08944
0.09101
0.09487
0.10521
Composed & Solved
40%
67%

condition. pg 149
project.
increased by Rs. 200,000 and there is a net capital spending of Rs. 120,000 during
the year. Calculate total cash flow.
Composed & Solved
capital (WACC).
capital investments projects S and T. Each project has a cost of Rs.100,000, and
the cost of capital (discounting rate) for each project is 12%. The projects
Cash flow rs
1 30000 30000
2 30000 30000
3 35000 20000
4 25000 30000
5 25000 250000

independent
example.
Example Increasing current liabilities Increase So ur c

Composed & Solved
2,000
Paper 3

agent?
Management Conflict
Interest Conflict
Agency Problem

The Agency Problem
Agency relat ionship
Principal hires an agent to represent their int erest
Agency problem
costs

Composed & Solved
Budgeting
Liquidity pg 14
Raw material
Direct labor
balanc e sheet?
Equity multiplier
Inventory turnover
Receivable turnover
Return on equity
Composed & Solved
How much must be deposited at 8% each of the next 20 ye ars to have Rs.
10,296.44?
Rs. 225
Rs. 341
Rs. 410
Rs. 452
In order to compa re different investment opportunitie s (each with the same risk)
with interest rates reported in different manners you should:
Conve rt each interest rate to an effective annual rate
Conve rt each interest rate to a monthly nominal rate
Conve rt each interest rate to an annual nominal rate
Composed & Solved
Equal to its fa ce value
Cannot be dete rmined without more information
Debt provides the voting rights to the bondholder s. pg

78

Composed & Solved
BCG Matrix
Investors dem and a higher yield as compensation to the risk of possible default.
This extra premium is called:
Taxability premium

Composed & Solved
Statutory Voting
Cumulative Voting
In which of the following procedure of voting for a company's directors, e ach

Straight Voting
Proportional Voting
Cumulative Voting
Simple Price
Bid Price
Strike Price pg 100
Complex Price

Composed & Solved
2.6 Years
3.1 Years
3.6 Years
4.1 Years
have a useful life of 4 years. During the first 2 yea rs, the net incremental after-tax
cash flows are Rs. 25,000 per year and for the last two yea rs they are Rs. 20,000
3.2 Years
3.5 Years
4.0 Years
invested ?

Composed & Solved
hand?
Relevant Cash Flows
Negative Cash Flows
the de cision under consideration.
Sunk
Opportunity
Fixed
Variable

of :
Composed & Solved
Over the past four years, a company ha s paid dividends of Rs. 1.00, Rs. 1.10, Rs.
1.20 and Rs. 1.30 respectively. This pattern is expected to continue into the future.
This is an example of a company pay a dividend tha t grows:
At a constant rate

Return?

worng questions
Composed & Solved
1st proposition
2nd proposition
3rd proposition

13.00%
15.23%
18.33%
20.98%
25%/75%==0.33
16%+(16%-9%)x0.33
0.16+(0.16-0.09)x0.33
0.16+0.0231=18.31%
Which of the following activities decreases c ash ?

Composed & Solved
Increasing equity
Acti vities that decrease cash (uses of cash)
accounts ?
Cash Cycle
Operating Cycle
Current Cycle

An operati ng cycle describes how a product moves through the current asset accounts
collect from the sal e
receivables ?
Inventory period
Composed & Solved
Suppose you ha ve Rs. 10,000 on deposit. One day, you write a cheque for Rs.
Rs. 4,000
+ Rs. 2,000
Rs. 2,000
+ Rs. 4,000
Suppose you ha ve Rs. 70 in stock A and Rs. 120 in another stock B in your
portfolio. Stock A ha s an expe cted return of 25% and stock B has an expected
18.27%
21.84%
22.50%
25.13%

Investment?
Composed & Solved
The MC Inc. purchased a share of common stock exactly one ye ar ago for Rs. 45.
During the past year the c ommon stock paid an annual dividend of Rs. 2.40. The firm
sold the stoc k today for Rs. 80. What is the rate of return the firm has earned?
5.3%
194.2%
83.11%
94.2%
What will be the c ash inflow if we have sales of Rs. 400,000 a nd accounts
Rs. 70,000
Rs. 230,000
Rs. 330,000
Rs. 470,000
Composed & Solved
RS 230000
Rs. 370,000
correct
Rs. 470,000
300000-
70000=230000
Su p pose a firm borrow s Rs. 800,000 at 7%. What w ill be the total interest bill p er
year if tax rate is 34% ?
Rs. 19,040
Rs. 36,960
Rs. 56,000
Rs. 800,000
800000*7%=56000
56000*34%=19040
Which one of the following motives refers to the need for holding cash as a sa fety
Speculative motive
Transaction motive
Composed & Solved
Suppose market value exceed s book value by Rs. 225,000. What w ill be the after-
tax proceeds if there is a tax rate of 34 perc ent?
Rs. 105,600
Rs. 148,500
Rs. 191,000
Rs. 225,000
225000*34%=765,00
225000-765000=148500
Question No: 39
Su p pose you have bou ght 100 shares of a corporation one ye ar ago at Rs. 18 per share.
Over the last year, you have receive d a d ivid end of Rs. 2 p er share. At the end of the
year, the stock sells for Rs. 27. As p er given inform ation, w hat w ill be
15
%
25
%
Composed & Solved
vehicle is w orth 25% of the p u rchase pric e now and it is being sold at this
Rs. 14,875
Rs. 112,500
Rs. 337,500
Rs. 230,000
Sta ndard deviations for Investment A and Investment B are 19% and 28%
Investment A is equally volatile to Investme nt B

Composed & Solved
Suppose there is an expected rate of 20%. What will be the risk premium if risk
free rate is (i) 8% and (ii) 12% ?
What is the difference between Leverage and Un-levering?
Match the capital budgeting te chniques a re given in Column A to the criteria in Column

Composed & Solved
Each of the following mutually exclusive investment projects involves an initial

ou tlay of Rs. 240,000. The com p any s required rate of return is 11 percent. The
Cash flow rs
1 140000 20000
2 80000 40000
3 60000 60000
4 20000 100000
5 20000 180000

0 Acquire inventory on c redit None

Composed & Solved
The next dividend for a compan y is Rs. 6 per share. The stock current price is Rs. 57 per
5% ?
12.88%
13.07%
14.22%
15.53%
D1 = D0 x (1 + g)
RE = D1 / P0 + g
6x(1+0.05)=6.3
6.3/57+0.05=16.
Cash Cycle
Current Cycle

Operating Cycle
Cash Cycle
Current Cycle
Composed & Solved


account.

Financial Leverage
Operating Leverage
Structural Leverage

WACC is __________ .
Composed & Solved

20%
33%
40%
67%
Ref:
4+2=6
4/6=0.66
0.66*100=66.67 is equity and
100-67=33 is debt

company ?
Financial Risk
Business Risk
Functional Risk

following ?

liabilities ?
Net difference
Net working capital
Composed & Solved


Common stocks
Bonds

the stock sells for Rs. 28. As per given information, what will be the capital gains yield ?
15.85%
25.10%
27.27%
45.00%
(28-22)/22
=0.2727

Leverage
Levering
Un-levering pg 152
Loaning

Composed & Solved
The increase in debt financing raises the required return on equity because the risk born
by the investors increases which is called:
Business Risk
Functional Risk

What will happen to cash cycle if payable period is lengthened ?

2nd proposition
3rd proposition

total market value of the company’s debt are calculated as Rs. 150 million. What p ercent
33.33%
50.00%
62.50%
85.00%
Composed & Solved

The expected return

Cash cycle = ________________
Operating cycle – accounts payable period pg 165

M&M Proposition
Dividend growth theor y

The risk-free rate

Composed & Solved
Cash Cycle
Current Cycle



Un-levering
Composed & Solved


A firm’s equity is worth 4 million and its debt is worth 2 million. What is the percentage
of firm’s financing that is equity ?
20%
33%
40%
67%
4+2=6
4/6=0.67



Jaga na soya hu mai

Composed & Solved
Total Marks: 1
proceeds if
Rs. 97,500
Rs. 105,600
Rs. 130,000
Rs. 150,000
200000*35%=70000
200000-70000=130000

Mutually exclusive
Dependent
Independent
Correlated
return ?
10.63%
20.20%
35.12%
41.30%
Composed & Solved
rate is 35%)
Rs. 15,000
Rs. 15,220
Rs. 20,327
Rs. 25,425

percentage.


9.92%
11.36%
Composed & Solved
Which of the following type of risk can be eliminated b y diversification ?

Systematic Risk
Mar ket Risk
Unsystematic Risk
Cost of debt
6%
9%
15 %
24%
14-5=9

Interest Rate
Inflation
Risk on investment
Gain on investment
Composed & Solved
Rs. 14,875
Rs. 112,500
Rs. 337,500
Rs. 230,000

70
120
200
280
4*50=200

Autos & computers


Composed & Solved
Rs. 40,000
Rs. 55,000
Rs. 65,000
Rs. 72,000
600000*1.12=672000
672000-600000=72000

Diversifiable Risk
Mar ket Risk

budgeting decision?
Payback Period
Net Present Value
Profitability Index

Most widely used
Composed & Solved

Relevant Cash Flows

Negative Cash Flows

0.0075 ?
0.08660
0.09101
0.09487
0.10521

Taxability premium

Rs. 70,000
Rs. 230,000
Composed & Solved

Fisher’s Effect
BCG Matrix

Relevant Cash Flows
Negative Cash Flows

6.02%
7.55%
10.0%
14.3%
(1+r)/(1+h)
1.14/1.06=1.07
1.07*100=107.55
107.55-100=7.55

28.57%
50.00%
62.50%
70.00%
250/350*100-100=28.57

Composed & Solved

The expected return

independent project
dependent project
contingent project

Payback Period
Net Present Value
Profitability Index

500,000 has been calculated. Net working capital has declined by Rs. 45,000. There was
no capital spending during the year. What will be the total cash flow for the project ?
Rs. 200,000
Rs. 315,000
Rs. 455,000
Rs. 545,000
Composed & Solved
Po = D1 / (R – g)

Prefer red stock has fixed dividend paid every period forever
Cost of preferred stock can be estimated by observing the required r eturn on other


deductible.
Interest; dividend
Dividend; interest
Bonus; interest

Sunk
Opportunity
Fixed
Variable
Composed & Solved
3.7 Years
4.1 Years

An investment is acceptable if its AAR is less than a benchmark AAR

Rs. 4.41
Rs. 6.12
Rs. 7.35
Rs. 8.93
5/100=0.05+1=1.05^5=1.2762*7=8.93

rejected if it is ______ .
Positive; positive
Positive; negative
Negative; negative
Negative; positive
Ending lec 1 to 35
19-Jan-02
________________________________________________________________________
___
Composed & Solved

positive example
ratio?
0.101
0.220
0.667
0.818
Reference:(1-0.45=0.55)
=0.45/0.55=0.818
Rs. 1,360
Rs. 2,000
Rs. 5,625
Rs. 8,960
Reference: 8000*12/100=8960
Rs. 30.19
Rs. 43.52
Rs. 56.53
Rs. 71.25
4.75*(1+0.5/4.75-0.5)=71.25
Composed & Solved
APR=9
M=30
(1+9/30)^30-1=9.38
procedure?
100 votes
200 votes
300 votes
400 votes
Rs. 30
Rs. 40
Rs. 50
Rs. 60

Discounting
Compounding
Factorization
an asset?
Composed & Solved
Balance Sheet
Income Statement

sole proprietorship
partnership
joint stock company
none of the above
2.6 Years
3.1 Years
3.7 Years
4.1 Years


Composed & Solved

Common Stocks
Prefer red Stock
bonds?
Government bonds 85
Zero coupon bonds
Floating-rate bonds
Euro bonds
Low; higher
High; lower
High; higher pg 88


Composed & Solved
be viewed as:
Ordinary Annuity
Annuity Due
are called:
Float
Collar pg 86
Limit
Surplus


Composed & Solved

independent project
dependent project
contingent project
Rs. 40,000
Rs. 55,000
Rs. 65,000
Rs. 72,000
Reference=600000*1.12=672000-600000=72000



Composed & Solved
Positive
Negative pg 80
Neutral

Repayment
Seniority
Call provision

Most widely used
Composed & Solved
known as:
Payback Period
36.
Net Present Value
Profitability Index

Composed & Solved
Net Present Value

Profitability Index
dollar invested?
value?
Net Present Value
Profitability Index
common stock?
Dividend yield
Voting rights
bonds?
Zero coupon bonds
Floating-rate bonds
Euro bonds
Composed & Solved
3 percent
6 percent
9 percent
12 percent
60+60=120/1000=12%
2.00 Years
2.67 Years
3.00 Years
3.67 Years
Project=800 paid in 1 year=100, 2 nd year=300 and 3 rd year=400 total 800 paid in
3rd year
each period?
Ordinary annuity
Annuity due pg 66
Perpetuity
bonds?
Default free
Taxable
Least liquid pg 90
Composed & Solved
Interest rate risk
Yield to maturity
Maturity Period
m.q .z
Primary Market
Secondar y Market
Tertiary Market

Broker pg 100
Dealer
Member
Specialist
volatile
Composed & Solved
Floating-rate bonds
Euro bonds
Accepted; rejected
Accepted; accepted
Rejected; rejected
Payback Period
Net Present Value
Profitability Index
Annuity due
Perpetuity
Composed & Solved

Fluctuations Risk
Real-Time Risk
Inflation Risk
related to its:
Time to maturity
Coupon rate
Yield to maturity
Made By
Date :25-11-2010

finance?

Composed & Solved
Direct labor

Selling expenses
Gener al expenses

Profit Margin
Debt-equity ratio
Operating cash flow

Capital spending

Composed & Solved
of goods sold?
Product cost
Period cost
5 days
36 days
48 days
73 days
750000/150000=5
365/5=73days
Operating Leverage
Financial Leverage

Primary market
Secondar y market
Composed & Solved
Liquidity Ratios
Mar ket Value Ratios
Income Statement
Balance Sheet
Cash Flow Statement
Operating activity
Investing activity
Financing activity

Current Ratio
Acid-test Ratio
Cash Ratio

time?
Income Statement
Balance Sheet
Composed & Solved
Income Statement
Balance Sheet
Cash Flow Statement
known as:
Dividends
Retained Earnings
Capital Gain

Current Ratio
Quick Ratio
Cash Coverage Ratio
Cash Ratio
Profit Margin
Return on Assets
Composed & Solved


Financial policy
Dividend policy

Accountants
Financial Analysts
Auditors
Marketers
Liquidity Ratios
Leverage Ratios
Market Value Ratios
Composed & Solved

sole proprietorship
partnership
joint stock company
cooperative Society
leverage?
Liquidity Ratios


Depreciation
Interest
Composed & Solved
Rs. 105,600
Rs. 148,500
Rs. 165,000
Rs. 225,000
Solution=250000*34%=85000
250,000-85000=165000
89. When a corporation wishes to borrow from public on a long -term basis, it

Common Stocks
Prefer red Stock

Primary market
Secondary market
Tertiary market

Accountants
Auditors
Mar keters
Composed & Solved
Depreciation
coupon rate?
Rs. 100
Rs. 510
Rs. 1,000
Rs. 1,100
Solution:
=1000/10
=100

Net Present Value

Selling expense
Raw material
Direct labor
Composed & Solved

Financial Leverage

finance?
Operating activity
Investing activity
Financing activity
1.01
1.26
1.39
1.52
Solution= 700000/460000=1.52
Composed & Solved
Increase
Decrease
Remain unaffected
Become zero
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity

Net loss
Net worth
Mar kup
Mar kdown

Composed & Solved
Income Statement
Balance Sheet
Cash Flow Statement


regulated?
Sole-proprietorship
Limited Partnership
Corporation

Par value
Coupon value

discount?
Composed & Solved
Common Stocks
Pref erred Stock

Inventory
Supplies
Machinery
Depreciation
Rs. 300,000
Rs. 500,000
Rs. 800,000
Rs. 1100,000
sol

Sole-proprietorship
Limited Partnership
Corporation

Composed & Solved
as:
Surplus Asset
Short-term Ratio
Working Capital
Current Ratio
Rs. 14,186
Rs. 18,256
Rs. 22,697
Rs. 28,253
solution
40000*1/(1+0.12)^5=22697.07

Income Statement
Balance Sheet
Cash Flow Statement

Composed & Solved

bond issuer.
Bond ratings represent an independent assessment of the credit-worthiness
of bonds .

Gener ally Applied Accountability Principles
Gener al Accounting Assessment Principles
Gener al Accepted Assessment Principles

information?
12 %
25 %
40 %
60 %
Solution
250000-150000/250000*100=40%
Composed & Solved

Dividends
Retained Earnings
Capital Gain

Investments
Management Ratios?

Receivable Turnover
Return on Assets

Rs. 1,000 because you r eceive it sooner
Composed & Solved
Financial Leverage
b
buy the television?
8.42 years
10.51 years
15.75 years
18.78 years
6000(1+5%)^10.51=around 10,000


level

Financial policy
Dividend policy
Composed & Solved

Selling expenses
Gener al expenses
Rs. 500
Rs. 752
Rs. 1,052
Rs. 1,100
4100-3000=1100

7.00 percent
7.12 percent
7.19 percent
7.23 percent
Composed & Solved
Comparison
Evaluation

Financial policy
Dividend policy

2% to 8%
4% to 25%
5% to 20%
10% to 50%

Management Conflict
Interest Conflict
Agency Problem
Ordinary annuity 63
Annuity due
Composed & Solved
Investments



Investments
4.30%
6.00%
10.70%
16.73%
solution
Net income=8%*75000=6000
Profit margin=6000/100000*100= 6%

Composed & Solved

Current Ratio
Acid-test Ratio
Cash Ratio
Sole-proprietorship
Partnership
Corporation
20%; 80%
37%; 63%
63%; 37%
80%; 20%
Composed & Solved
II and IV
I, III, and IV

Rs. 6,302
Rs. 9,981
Rs. 14,800
Rs. 15,869

5.00 percent
7.00 percent
8.45 percent
10.0 percent
Composed & Solved
Rs. 150,000
Rs. 200,000
Rs. 250,000
Rs. 400,000
4 % = N.P / 500,000
4% * 500,000 = N.P
N.P = Rs. 20,000

5 % = 20,000 / Sales
5% * Sales = 20,000
Sales = 20,000 / 5%
Sales = 400,000
to zero?

Weighted Average Cost of Capital ( WACC)

ACC 501 mcqs
Capital Structuring
Capital Rationing Composed & Solved Capital Budgeting
2. Which of the following refers to the cash flows that result from the firm’s day-to-day activities of
producing and selling? Select correct option:
All of the given
options 162. If a firm uses cash to purchase inventory, its quick ratio will:
3. The coupon rate of a Increase floating-rate bond is capped and upper and lower rates are called:
Select correct option: Decrease
Float Remain unaffected Collar
Limit Surplus
Become zero

Select correct 163. a firm uses cash to purchase inventory, its current ratio will:
option: Select correct option:
Increase
Generally Accepted Decrease Accounting Principles
Remain unaffected
General Accepted Become zero Assessment Principles


Current Ratio
Acid-test Ratio
Cash Ratio
7. Mr. Y and Mr. Z are planning to share their capital to run a business. They are going to employ which of the
following type of business?
Sole-proprietorship
Partnership
This VU Group
Noteis: not
Solve
responsible
these papers
for by
anyyourself
solved content
Corporation
8. If you have Rs. 30 in asset A and Rs. 120 in another asset B, the weights for assets A and B will
be __ and __ respectively.
20%; 80%
37%; 63%
63%; 37%
80%; 20%
Carrying costs
Shortage costs
Storing costs
financing costs
11.
The expected salvage value and the actual expected economic life are not explicitly considered in
calculation of depreciation.


13. Mr. A has just recently started a business by investing a capital of Rs. 500,000. He will be the only owner of the
business and also enjoy all the profits of the business. Which type of business is being employed by Mr. A?
Sole-proprietorship
Partnership
Corporation


15. The preferred stock of a company currently sells for Rs. 25 per share. The annual dividend of Rs. 2.50 is fixed.
Assuming a constant dividend forever, what is the rate of return on this stock?
5.00 percent
7.00 percent
8.45 percent
10.0 percent
Liquidity Ratios
Market Value Ratios



Revenue
Expenses
Depreciation


21. You just won a prize, you can either receive Rs. 1000 today or Rs. 1,050 in one year. Which option do you prefer
and why if you can earn 5 percent on your money?


7.00 percent
7.12 percent
7.19 percent
7.23 percent
23. Which of the following forms of business organizations is created as a distinct legal entity owned by one or more
individuals or entities?
Sole-proprietorship
General Partnership
Limited Partnership
Corporation
Systematic Risk
Diversifiable Risk
Unsystematic Risk

Systematic Risk
Market Risk
Unsystematic Risk
26. Which of the following measure reveals how much profit a company generates with the money shareholders have
invested?
Profit Margin
Return on Assets
Return on Equity
Debt-Equity Ratio

Investments
Cost of debt

Diversifiable Risk
Market Risk
Residual Risk
Asset-specific Risk
30. ABC Corporation has two shareholders; Mr. Aamir with 50 shares and Mr. Imran with 70 shares. Both want to
be elected as one of the four directors but Mr. Imran doesn’t want Mr. Aamir to be director. How much votes
would Mr. Aamir be able to cast as per cumulative voting procedure?
70
120
200
280
31.

positive example
ratio?
0.101
0.220
0.667
0.818
Reference:(1-0.45=0.55)
=0.45/0.55=0.818
Rs. 1,360
Rs. 2,000
Rs. 5,625
Rs. 8,960
Reference: 8000*12/100=8960
Rs. 30.19
Rs. 43.52
Rs. 56.53
Rs. 71.25
4.75*(1+0.5/4.75-0.5)=71.25
Semiannually
Quarterly
Monthly
Daily
APR=9
M=30
(1+9/30)^30-1=9.38
procedure?
100 votes
200 votes
300 votes
400 votes
Rs. 30
Rs. 40
Rs. 50
Rs. 60
Discounting
Compounding
Factorization
an asset?
Market Value
Book Value
Intrinsic Value
10.
Balance Sheet
Income Statement
sole proprietorship
partnership
joint stock company
none of the above
2.6 Years
3.1 Years
3.7 Years
4.1 Years
Common Stocks
Preferred Stock
bonds?
Government bonds 85
Zero coupon bonds
Floating-rate bonds
Euro bonds
Low; higher
High; lower
High; higher pg 88
be viewed as:
Ordinary Annuity
Annuity Due
are called:
Float
Collar pg 86
Limit
Surplus
D2 = D1 x (1 + g )
D2 = Do x ( 1 + g )2
D2 = Do x ( 1 + g )2
independent project
dependent project
contingent project
Rs. 40,000
Rs. 55,000
Rs. 65,000
Rs. 72,000
Reference=600000*1.12=672000-600000=72000
Income
Zero coupon
Floating-rate
Put
Positive
Negative pg 80
Neutral
Repayment
Seniority
Call provision
Most widely used
investors?
Primary Market
Tertiary Market
known as:
Payback Period
36.
Net Present Value
Profitability Index
Payback Period
Net Present Value
Profitability Index
dollar invested?
value?
Net Present Value
Profitability Index
common stock?
Dividend yield
Voting rights
bonds?
Zero coupon bonds
Floating-rate bonds
Euro bonds
Lower; higher
Higher; lower
3 percent
6 percent
9 percent
12 percent
60+60=120/1000=12%
2.00 Years
2.67 Years
3.00 Years
3.67 Years
year
each period?
Ordinary annuity
Annuity due pg 66
Perpetuity
bonds?
Default free
Taxable
Least liquid pg 90
Highly liquid
Expected inflation
Interest rate risk
Yield to maturity
Maturity Period
m.q .z
Primary Market
Secondary Market
Tertiary Market
Broker pg 100
Dealer
Member
Specialist
volatile
Government bonds
Floating-rate bonds
Euro bonds
Accepted; rejected
Accepted; accepted
Rejected; rejected
Payback Period
Net Present Value
Profitability Index
Annuity due
Perpetuity
when:
Fluctuations Risk
Real-Time Risk
Inflation Risk
related to its:
Time to maturity
Coupon rate
Yield to maturity
finance?
Selling expense
Raw material
Direct labor
Selling expenses
General expenses
Profit Margin
Debt-equity ratio
Operating cash flow
Capital spending
Marketing Research
Product Pricing
of goods sold?
Product cost
Period cost
5 days
36 days
48 days
73 days
750000/150000=5
365/5=73days
Operating Leverage
Financial Leverage
Primary market
Secondary market
Tertiary market
creditors?
Liquidity Ratios
Market Value Ratios
Income Statement
Balance Sheet
Cash Flow Statement
Operating activity
Investing activity
Financing activity
Current Ratio
Acid-test Ratio
Cash Ratio
time?
Income Statement
Balance Sheet
Cash Flow Statement
a specific date?
Income Statement
Balance Sheet
Cash Flow Statement
known as:
Dividends
Retained Earnings
Capital Gain
Current Ratio
Quick Ratio
Cash Coverage Ratio
Cash Ratio
Profit Margin
Return on Assets
Return on Equity
Financial policy
Dividend policy
Accountants
Financial Analysts
Auditors
Marketers
Liquidity Ratios
Leverage Ratios
Market Value Ratios
capital.
Positive
Negative
zero
sole proprietorship
partnership
joint stock company
cooperative Society
leverage?
Liquidity Ratios
Depreciation
Interest
Rs. 105,600
Rs. 148,500
Rs. 165,000
Rs. 225,000
Solution=250000*34%=85000
250,000-85000=165000
Common Stocks
Preferred Stock
Primary market
Secondary market
Tertiary market
Accountants
Auditors
Marketers
Revenue
Expenses
Depreciation
coupon rate?
Rs. 100
Rs. 510
Rs. 1,000
Rs. 1,100
Solution:
=1000/10
=100
Net Present Value
Selling expense
Raw material
Direct labor
Financial Leverage
finance?
Operating activity
Investing activity
Financing activity
1.01
1.26
1.39
1.52
Solution= 700000/460000=1.52
Sole-proprietorship
Limited Partnerhsip
Corporation
Increase
Decrease
Remain unaffected
Become zero
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity
Net loss
Net worth
Markup
Markdown
Repayment
Seniority
Call provision
Income Statement
Balance Sheet
Cash Flow Statement
regulated?
Sole-proprietorship
General Partnership
Limited Partnership
Corporation
Par value
Coupon value
discount?
Common Stocks
Preferred Stock
Inventory
Supplies
Machinery
Depreciation
Rs. 300,000
Rs. 500,000
Rs. 800,000
Rs. 1100,000
sol
Sole-proprietorship
General Partnership
Limited Partnership
Corporation
sole proprietorship
partnership
joint stock company
none of the above
as:
Surplus Asset
Short-term Ratio
Working Capital
Current Ratio
Rs. 14,186
Rs. 18,256
Rs. 22,697
Rs. 28,253
solution
40000*1/(1+0.12)^5=22697.07
Income Statement
Balance Sheet
Cash Flow Statement
Par value
Coupon value
issuer.
bonds.
information?
12 %
25 %
40 %
60 %
Solution
250000-150000/250000*100=40%
correct option:
Positive
Negative
zero
Dividends
Retained Earnings
Capital Gain
Investments
Management Ratios?
Receivable Turnover
Return on Assets
Operating Leverage
Financial Leverage
b
buy the television?
8.42 years
10.51 years
15.75 years
18.78 years
6000(1+5%)^10.51=around 10,000
level
Financial policy
Dividend policy
Income Statement
Balance Sheet
Cash Flow Statement
Armaan: b
Selling expenses
General expenses
Rs. 500
Rs. 752
Rs. 1,052
Rs. 1,100
4100-3000=1100
7.00 percent
7.12 percent
7.19 percent
7.23 percent
for comparison?
Benchmarking 48
Standardizing
Comparison
Evaluation
Financial policy
Dividend policy
2% to 8%
4% to 25%
5% to 20%
10% to 50%
Management Conflict
Interest Conflict
Agency Problem
Ordinary annuity 63
Annuity due
Perpetuity
Investments
Investments
4.30%
6.00%
10.70%
16.73%
solution
Net income=8%*75000=6000
Profit margin=6000/100000*100= 6%
Capital Structuring
Capital Rationing
Capital Budgeting
Current Ratio
Acid-test Ratio
Cash Ratio
Sole-proprietorship
Partnership
Corporation
20%; 80%
37%; 63%
63%; 37%
80%; 20%
I and II
I and III
II and IV
I, III, and IV
Rs. 6,302
Rs. 9,981
Rs. 14,800
Rs. 15,869
5.00 percent
7.00 percent
8.45 percent
10.0 percent
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity
Rs. 150,000
Rs. 200,000
Rs. 250,000
Rs. 400,000
4 % = N.P / 500,000
4% * 500,000 = N.P
N.P = Rs. 20,000
5 % = 20,000 / Sales
5% * Sales = 20,000
Sales = 20,000 / 5%
Sales = 400,000
to zero?
Current Yield
Yield To Maturity
Coupon Yield
Capital Gains Yield
will:
Increase
Decrease
Remain unaffected
Become zero
will:
Increase
Decrease
Remain unaffected
Become zero
Which of the following relationships holds TRUE if a bond sells at a discount?

Currently Mr. Safdar has a saving of Rs. 70,000. On the day of his retirement after 20 years, he wants to have Rs. 1,000,000
available for his retirement needs. What is the rate of return he needs to earn to reach his goal?
7.89%
8.49%
8.78%
9.03%
Which of the following item provides the important function of shielding part of income from taxes?
Inventory
Supplies
Machinery
Depreciation
In which of the following form of business “All Business income is not considered as personal income”?
Corporate form
Partnership
Sole proprietorship
which of the following is not a form of business organozation

sole proprietorship
partnership
joint stock comapny
cooperative Society
Which of the given is (are) major difference(s) between net income and cash flow of the company?
Accounts receivable only
Depreciation only
Accounts payable only
Which one of the following is NOT a liquidity ratio?

Current Ratio
Quick Ratio
Cash Coverage Ratio
Cash Ratio
When corporations borrow, they generally promise to: I. Make regular scheduled interest payments II. Give the right of voting
to bondholders III. Repay the original amount borrowed (principal) IV. Give an ownership interest in the firm
I and II
I and III
II and IV
I, III, and IV
What will be the annual payment on a 7-year Rs. 18,000 loan that carries a 14% interest rate?
Rs. 3,612.09
Rs. 3,872.26
Rs. 4,197.46
Rs. 4603.97
A company having a current ratio of 1 will have ________ net working capital.
Positive
Negative
zero
Which of the following form of business organization is least regulated?

Sole-proprietorship
General Partnership
Limited Partnership
Corporation
__________ shows the sources from which cash has been generated and how it has been spent during a period of time?
Income Statement
Balance Sheet
Cash Flow Statement
In which of the following type of annuity, cash flows occur at the beginning of each period?
Ordinary annuity
Annuity due
Perpetuity
Mr. Y and Mr. Z are planning to share their capital to run a business. They are going to employ which of the following type of
business?
Sole-proprietorship
Partnership
Corporation
Which of the following process can be defined as the process of generating earnings from previous earnings?
Discounting
Compounding
Factorization
ACC 501 mcqs

Capital Structuring
Capital Rationing
Capital Budgeting
2. Which of the following refers to the cash flows that result from the firm’s day-to-day activities of producing and
selling?

Float
Collar
Limit
Surplus




Current Ratio
Acid-test Ratio
Cash Ratio
Sole-proprietorship
Partnership
Corporation
20%; 80%
37%; 63%
63%; 37%
80%; 20%
Carrying costs
Shortage costs
Storing costs
financing costs
11.
The expected salvage value and the actual expected economic life are not explicitly considered in
calculation of depreciation.


Sole-proprietorship
Partnership
Corporation


5.00 percent
7.00 percent
8.45 percent
10.0 percent
Liquidity Ratios
Market Value Ratios



Revenue
Expenses
Depreciation




7.00 percent
7.12 percent
7.19 percent
7.23 percent
Sole-proprietorship
General Partnership
Limited Partnership
Corporation
Systematic Risk
Diversifiable Risk
Unsystematic Risk

Systematic Risk
Market Risk
Unsystematic Risk
invested?
Profit Margin
Return on Assets
Return on Equity
Debt-Equity Ratio

Investments
Cost of debt

Diversifiable Risk
Market Risk
Residual Risk
Asset-specific Risk
70
120
200
280
31.
Salma: You've been invited to this chat room!

7:11 PM hi
me: asad
good
hello start
Salma: ok
mai karti hu
me: just hurry you know I have limited time
7:12 PM Salma: ok
me: ok start
Salma: hu 20 marks
me: haan
I know
Salma: Which of the following financial statement shows both dollars and percentages in the report?
Balance Sheet
Income Statement
7:13 PM 1
me: 2
wo sirif percentages show karti hai
Salma: sure
ok
7:14 PM me: yes
Salma: In 3 years you are to receive Rs. 5,000. If the interest rate were to suddenly decrease, the present value of that future amount to you would:
Fall
Rise
Remain same
Cannot be determined with the given information
1
me: 1
yes
next
Salma: Which of the following statement measures performance over a specific period of time?
Income Statement
Balance Sheet
Cash Flow Statement
7:15 PM 1
me: 1
next
Salma: Which one of the following is NOT a liquidity ratio?
Current Ratio
Quick Ratio
Cash Coverage Ratio
Cash Ratio
me: 3
next
Salma: Which of the given is (are) major difference(s) between net income and cash flow of the company?
Accounts receivable only
Depreciation only
Accounts payable only

7:16 PM me: 4
Salma: An account was opened with an investment of Rs. 3,000 ten years ago. The ending balance in the account is Rs. 4,100. If interest was compounded, how much compounded interest was earned?
Rs. 500
Rs. 752
Rs. 1,052
Rs. 1,100
7:17 PM me: 4
confirm
Salma: 4
me: next
Salma: The principal amount of a bond at issue is called:
Par value
Coupon value
2
me: 1
confirm
7:18 PM next
Salma: Which of the following refers to a conflict of interest between principal and agent?
Management Conflict
Interest Conflict
Agency Problem
1
usman.bashir.dogar@gmail.com has joined
me: 3
next
Salma: Product costs include which of the following?
Selling expenses
General expenses
7:19 PM 3
me: 3
confirm
next
Salma: Financial policy is evaluated by which of the following?
Profit Margin
Debt-equity ratio
usman.bashir.dogar: g
MC100403017 : Usman Bashir Dogar
Quiz Start Time: 07:07 PM Time Left 87

sec(s)

A portion of profits, which a company retains itself for further expansion, is known as:
Dividends
Retained Earnings
Capital Gain
Salma: mujay an karo aziz
me: 2
next
Salma: yeh koon haai
7:20 PM most common application of term “Finance” involves raising money to acquire_______.
Land & Building
Machinery & Equipment
Inventory

3
me: pata nahi4
4
4
usman.bashir.dogar: MC100403017 : Usman Bashir Dogar

sec(s)

Which of the following is measured by profit margin?
Financial policy
Dividend policy
me: 4
Salma: yeh kon hai
me: net1
1
1
1
7:21 PM next
sec(s)

Sole-proprietorship
General partnership
Limited partnership
Corporation
Salma: kis ko kah rahay hu
muajy
usman.bashir.dogar: mera tha ye sorry
Salma: Balance sheet for a company reports current assets of Rs. 700,000 and current liabilities of Rs. 460,000. What would be the Current Ratio for the company if there is an inventory level of Rs. 120,000?
1.01
1.26
1.39
1.52
7:22 PM me: 4
confirm
next

sec(s)

Which of the following is the expected rate of return on a bond if bought at its current market price and held to maturity
Current Yield
Yield To Maturity
Coupon Yield
Capital Gains Yield
me: 2
confirm
next

sec(s)

Which of the following item(s) is(are) not included while calculating Operating Cash Flows?
Depreciation
Interest
Salma: Which of the following item(s) is(are) not included while calculating Operating Cash Flows?
Depreciation
Interest
me: 4
confirm
next
7:23 PM Salma: During the accounting period, sales revenue is Rs. 25,000 and accounts receivable increases by Rs. 8,000. What will be the amount of cash received from customers for the period?
Rs. 33,000
Rs. 25,000
Rs. 17,000
Rs. 8,000
1
me: 1
next
confrim
Salma: many years will it take to pay off a Rs. 11,000 loan with a Rs. 1,241.08 annual payment and a 5% interest rate?
6 years
12 years
24 years
48 years
7:24 PM me: 1
Salma: sure
me: it may
no idea
usman.bashir.dogar@gmail.com has left
Salma: muaj bhi nahi hu raha
7:25 PM me: short term payment value hai
is lie 6 hoga
Salma: How many Rs. 190 annual payments must be invested at 12% to accumulate Rs. 57,921?
14
28
32
56
yeh book mai kaha haai
7:26 PM me: nahi hai
32
not confirm
Salma: Between the two identical bonds having different coupon, the price of the ______ bond will change less than that of ______bond.
me: aapke question different hain end main
3
confirm
7:27 PM next
Salma: If you plan to save Rs. 5,000 with a bank at an interest rate of 8%, what will be the worth of your amount after 4 years if interest is compounded annually?
Rs. 5,400
Rs. 5,900
Rs. 6,600
Rs. 6,802
me: 1
7:28 PM Salma: Which of the following is the acronym for GAAP?

asad.cooll: Salma , aap ka quiz complete ho gaya?
me: 3
confirm
7:29 PM 3
3
next
Salma: Finance is vital for which of the following business activity (activities)?
Marketing Research
Product Pricing
me: 4
Salma: 4
me: confirm
next
Salma: finish
thanks
me: good
Salma: acha
me: 2 or 3 fudda kia mere saath bhi kia tha
7:30 PM Salma: kuch lka solution samj nahi a raha
me: magar solve hogae
hahah
Salma: hmm
me: Inshallah you will succeed
next asad
where are you asad
asad.cooll: yes im here
me: start
Salma: wo kah chala jata haai
asad.cooll: wait , i am opening my lms
me: ok
Salma: ok
7:32 PM asad.cooll: opening
me: yest
go head
salma be focused
Salma: ok
me: good
7:33 PM asad.cooll: acc501 quiz here i start
ready?
me: ok
7:34 PM kia huwa
asad.cooll: MC110404078 : Asad Akhtar

sec(s)

XYZ Company has a ROE of 12 percent and a dividend payout ratio of 40 percent. What is the firm’s maximum sustainable rate of growth?
3.73%
5.93%
7.76%
9.17%
me: 1
7:35 PM dividend isse ziada nahi banta

sec(s)

In 3 years you are to receive Rs. 5,000. If the interest rate were to suddenly decrease, the present value of that future amount to you would:
Fall
Rise
Remain same
Cannot be determined with the given information
me: 1
next

sec(s)

Rule of 72 for finding the number of periods is fairly applicable to which of the following range of discount rates?
2% to 8%
4% to 25%
5% to 20%
10% to 50%
me: 3
confirm
7:36 PM next

sec(s)

Which of the following is disadvantage of sole proprietor business?
Easy to start
Business income is considered as personal income

Limited sources

me: 4
next
Salma: yeh
7:37 PM me: yes

sec(s)

Which of the following statement is TRUE regarding debt?

me: disadvantage ki baat kar raha hai
2
confirm
next

sec(s)

Which of the following equation is known as Cash Flow (CF) identity?

me: Unpaid debt can result in bankruptcy or financial failure.
7:38 PM 4
next
confrim
next
Salma: 4

sec(s)

Which of the following is the amount of cash we would get if we actually sell an asset?
Market Value
Book Value
Intrinsic Value
7:39 PM 1?
Salma: 1
me: 1

sec(s)

Between the two identical bonds having different coupon, the price of the ______ bond will change less than that of ______ bond.
me: 3
7:40 PM confirm
next

sec(s)

Which of the following is measured by retention ratio?
Financial policy
Dividend policy
1?
me: 4
ncet
4
444
next

sec(s)

Which of the following statement is CORRECT regarding compound interest?

7:41 PM me: 3
confrim
next

sec(s)

If you plan to save Rs. 5,000 with a bank at an interest rate of 8%, what will be the worth of your amount after 4 years if interest is compounded annually?
Rs. 5,400
Rs. 5,900
Rs. 6,600
Rs. 6,802
me: 1
7:42 PM isko search karna
baad main

sec(s)

Which of the following statement shows assets, liabilities, and net worth as of a specific date?
Income Statement
Balance Sheet
Cash Flow Statement
me: next
1
7:43 PM Salma: yeh kaha haai
me: next
income will show these above
asad.cooll: ??
me: y1
1
1
1
next
aap check karna

sec(s)

Period costs include which of the following?
Selling expense
Raw material
Direct labor
Salma: 4
me: 1
next
7:44 PM asad.cooll: 1 or 4 ?
me: 1
1
1
confrim

sec(s)
Standard Corporation sold fully depreciated equipment for Rs. 5,000. This transaction will be reported on the cash flow statement as a(n):
Operating activity
Investing activity
Financing activity
me: 4
7:45 PM next
asad.cooll: 4?
ok
me: yes
next

sec(s)

Decisions about “how to raise money” and “what to do with it” are part of which of the following?
Business Finance
Change management
Costing for accounting

me: 4
next
confirm

sec(s)

Anwar wants to invest some money so that he will have Rs. 50,000 for his child’s school education 15 years from now. He can earn 8 percent compounded annually. How much does he need to invest today?
Rs. 15,762
Rs. 17,271
Rs. 18,980
Rs. 20,404
7:46 PM me: no idea
Salma: yeh kaha say question
asad.cooll: hmm
Salma: dein raha haai
me: mix hain
7:47 PM Salma: koi side hai
me: kia karine
Salma: mar na jaye exams mai
me: hahaah
next

sec(s)

Which of the following is a cash flow from financing activity?

3?
me: 2
7:48 PM confrim
nextg

sec(s)

Which of the following issue is NOT covered by “Investment” area of finance?

me: 2
confirm
nexty

sec(s)

If you plan to save Rs. 5,000 with a bank at an interest rate of 8%, what will be the worth of your amount after 4 years if bank offers simple interest?
Rs. 5,400
Rs. 5,900
Rs. 6,600
Rs. 6,802
me: 1
Salma: 1
yeh tu maiar bhi tha
hana
7:49 PM me: ok
next

sec(s)

Which of the following statements is(are) CORRECT regarding a bond?

When a corporation wishes to borrow from public on a long term basis, it does so by issuing or selling bonds.
1?
me: 4
4
4
next
next
Pdf cnvrtdChoose the Most Appropriate Answer among the given choices.
investment.
A. Risk Return
B. Risk Premium
C. Risk Factor
A. Portfolio
C. Budget
A. Less
B. More
C. Same
A. Systematic Risk
C. Portfolio Risk
D. Total Risk

C. A & B

A. Systematic Risk
C. Total Risk
D. Portfolio Risk
A. 10,500
B. 7,500
C. 10,000
D. 7,000
A. 8.50 %
B. 6.25%
C. 8.00%
D. 6.67%
A. 20%
B. 28%
C. 32%
D. 35%
1. Which one of the given options involves the sale of new securities from the issuing company to general public?
A. Secondary market
B. Primary market
C. Capital market
D. Money market


4. Suppose Younas Corporation has balance of merchandise of 5000 units. It wants to sell 2000 units at 90% of its
cost on cash. What would be the affect of this transaction on the current ratio?
A. Fall
B. Rise
C. Remain unchanged
A. 1.42215
B. 2.75886
C. 3.75886
D. 4.08998
6. You have a cash of Rs.150, 000. If a bank offers four different compounding methods for interest, which method
would you choose to maximize the value of your Rs.150, 000?
A. Compounded daily
7. Ali Corporation has a cash coverage ratio of 6.5 times. Whereas its earning before interest and tax is Rs.750
million and interest on long term loan is Rs.160 million. What would be the annual depreciation for the current
year?
B. b.Rs.240 million
C. c.Rs.275 million
D. d.Rs.290 million
8. Suppose RZ Corporation sales for the year are Rs.150 million. Out of this 20% of the sales are on cash basis
while remaining sales are on credit basis. The past experience revealed that the average collection period is 45
days. What would be the receivable turnover ratio?
A. 6.12 times
B. 7.11 times
C. 8.11 times
D. 9.11 times
A. 20.00%
B. 20.50%
C. 21.00%
D. 21.99%
10. Nz Corporation reported earning before interest and taxes of Rs.500, 000 for the current year. It has taken a long
term loan of Rs.2 million from a local bank @ 10% interest. The tax is charged at the rate of 32%.What will be the
saving in taxes due to presence of debt financing in the capital structure of the firm? http://www.vustudents.net
A. Rs.60, 000
B. Rs.64, 000
C. Rs.72, 000
D. Rs.74, 000

1. Ntp Corporation has decided to pay Rs.16 per share dividend every year. If this policy is to continue indefinitely, then the
value of a share of stock would be --------------, if the required rate of return is 25%?
a. Rs.60
b. Rs.64
c. Rs.68
d. Rs.74
2. MT Corporation has a previous year dividend of Rs.14 per share where as investors require a 17% return on the similar
stocks .The Company’s dividend grows by 7%.The price per share in this case would be______________.
a. Rs.149.8
b. Rs.184.9
c. Rs.198.4
d. Rs.229.9
3. RTU Corporation stock is selling for Rs.150 per share. The next dividend is Rs.35 per share and it is expected to grow 14%
more or less indefinitely. What would be the return does this stock offer you if this is correct?
a. 17%
b. 27%
c. 37%
d. 47%
4. Suppose a Corporation has 3 shareholders; Mr.Salman with 25 shares, Mr. Kareem with 35 shares, and Mr.Amjad with 40
shares. Each wants to be elected as one of the six directors. According to cumulative voting rule Mr.Kareem would cast
a. 150 votes
b. 210 votes
c. 240 votes
d. 300 votes
a. Primary market
b. Secondary market
c. Financial market
d. Capital market
6. Suppose Mehran Corporation is dealing in the Automobile industry. Based on projected costs and sales, it expects that the
cash flows over the 3-year life of the project will be Rs.5, 000,000 in first year, Rs.7, 000,000 in the next year and Rs.8,
000,000 in the last year. This project would cost about Rs. 10,000,000.The net present value of the project would be ________,
if discount rate is assumed to be 25%. http://www.vustudents.net
a. Rs.2, 576, 000

b. Rs.3, 576, 000
c. Rs.1, 576, 000
d. Rs.4, 576, 000

Year Cash Flows
01 Rs.500,000
02 Rs.800,000
03 Rs.600,000
a. 1.50 years
b. 2.00 years
c. 2.33 years
d. 3.00 years
8. Suppose Z Corporation, has the present value of its future cash flows is Rs.450, 000 and the project has a cost of Rs.300,
000, then the profitability index would be ________________.
a. 0.667
b. 1
c. 1.25
d. 1.50
a. Opportunity cost
b. Sunk cost
c. Decremental cost
Rs.12, 000,000 during the same period. Assume the annual tax rate is 37%.Its annual depreciation is Rs.5, 000, 000.The
operating cash flow of the organization would be _______________.
a. Rs. 3,810,000
b. Rs. 4,810,000
c. Rs. 5,190,000
d. Rs. 6,890,000

a. Default free
b. Taxable
c. Highly liquid
2. The difference between an investment’s market value and its cost is called the __________ of the investment.
b. Economic value
c. Book value
d. Future value
a. Higher
b. Lower
c. Constant
b. Straight voting
c. Proxy voting

a. Chairman
c. Shareholders
d. Stakeholders
6. Based on ________ the investment is accepted if the _____ exceeds the required return. It should be rejected otherwise.
b. Payback period

a. -1
b. 0
c. 1

a. Book value
b. Intrinsic value
c. Cost
d. Market value
10. It is not unusual for a project to have side or spillover effects both good and bad. This phenomenon is called:
a. Erosion
b. Piracy
c. Cannibalism
1. The average time between purchasing or acquiring inventory and receiving cash proceeds from its sale is called -
-------------.
a) Operating Cycle
b) Cash Cycle
d) Inventory period
a) Inventory period
12. Mr.Munir purchased goods of Rs.100,000 on June01, 2006 from Zeeshan and brothers on credit terms of 3/10,
net 30. On June 09 Mr. Munir decided to make payment to Zeeshan and brothers. How much he would pay to
Zeeshan and brothers.
a) 100,000
b) 97,000
c) 103,000
d) 50,000
13. A firm has cash cycle of 100 days. It has an inventory turnover of 5 and receivable turnover of 2. What would be
its accounts payable turn over?
14. During the financial year 2005-2006 ended on June 30, the cash cycle of Climax company was 150 days, and its
payable turnover was 5. What was the operating cycle of the company during 2005-2006?
a) 234 days
b) 223 days
c) 245 days
d) 230 days
a) Bank loan
c) Trade credit
http://www.vustudents.net
a) Cash discount
c) Float discount
18. If a firm has a net float less than zero, then which of the following statements is true about the firm.


1. Suppose Flatiron Corporation has a debt-to- equity ratio of 2/3. You are analyzing the capital structure of this
Corporation. Base on debt-to- equity ratio of the corporation, how much portion of the capital structure is financed
through equity.
a) 66.67%
b) 33.34%
c) 0%
d) 60%
2. Suppose the common stocks of Bonanza Corporation have book value of $29 per share. The market price of these
common stocks is $69.50 per share. The corporation paid $5.396 per share in dividend last year and analysts estimate
that this dividend will grow at a rate of 6% through the next three years. Using the dividend growth model, estimated
cost of equity of Bonanza corporation would be
a) 11.15%
b) 16.13%
c) 15.80%
d) 13.14%
3. Which statement is true about the relationship between weighted average cost of capital and value of a firm in the eyes
of investors?
4. ---------------- refers to the extent to which fixed-income securities (debt and preferred stock) are used in a firm's capital
structure.
a) Financial risk
b) Portfolio risk
c) Operating risk
d) Market risk
5. Let’s imagine that Sony Corporation currently uses no-debt financing, it has decided to go for capital restructuring. As
result it would incorporate $ 1 billion of debt at 6.6% p.a in its capital structure. Sony Corporation has 30 million
Shares outstanding and the price per share is $ 125. If the restructuring is expected to increase EPS, what would be the
a) $202,200,000
b) $247,500,000
c) $283,500,000
d) $321,250,000
6. A corporation has WACC of 13.5 %( excluding taxes). The current borrowing rate in the market is 9.25%.If the
corporation has a target capital structure of 65% equity (there is no preferred stock in the capital structure of the
corporation) and 35% debt, what would be the cost of equity of this corporation?
a) 13.5%
b) 17.75%
c) 15.79%
d) 17.13%
7. Suppose Dux Corporation has current assets of $44 Million. Cash is 25% of the total current assets. After one year the
cash item increase by 12%.This increase in cash item is a
a) Source of cash
b) Use of cash
8. During 2005 a merchandize sales company had cash sales of $56.25 million, which were 15% of the total sales. During
this period accounts receivables of the company were13% of total sales. What was the average collection period of the
a) 62 days
b) 18 days
c) 56 days
d) 19 days
9. Suppose that Pearson Corporation has a capital structure which consists of both equity and debt. It had issued two
million worth of bonds at 6.5 % p.a. The tax rate is 40%. Its EBIT is one million. The present value of tax shield for
Pearson corporation would be
a) Rs.1,000,000
b) Rs.1,200,000
c) Rs800,000
d) Rs.1,400,000

E. Sunk cost
F. Opportunity cost
G. Financing cost
E. 13.07 %
F. 15.67 %
G. 16.00 %
H. 18.80 %
E. Portfolio
F. Diversification
G. Stock Bundle

portfolio will be:
E. 37.5 %
F. 47.5 %
G. 62.5 %
H. 72.5 %
E. Systematic Risk
F. Market Risk
E. Systematic Risk
G. A & B
E. 2.6 Years
F. 3.1 Years
G. 3.6 Years
H. 4.1 Years

E. Most widely used


I. Ordinary Annuity
J. Perpetuity
K. Dividend
L. Interest
I. 15.00 %
J. 15.34 %
K. 15.87 %
L. 16.42 %
I. loan; receiver
J. dividend; issuer
L. loan; issuer
I. More
J. Less
K. Same
would be the Retention Ratio for SNT Corporation? http://www.vustudents.net
I. 30 %
J. 50 %
K. 70 %
L. 90 %

K. Sell new shares
discount rate.
I. Present Value
J. Future Value
K. Capital Gain
L. Net Profit
K. Rs. 319.45
L. Rs. 390.75
M. Rs. 419.45
N. Rs. 463.75
H. Time to maturity
I. Coupon rate
J. A and B
H. 8 %
I. 10 %
J. 12 %
K. 14 %
www.virtualinspire.com
ACC501 Current 11 Solved Finalterm Papers and Important
MCQS
Solved…
By
EXAMINATION

►Income = Current Assets -Current Liabilities
►Income = Fixed Assets - Current Assets

►Income = Revenues - Current Liabilities
►Income = Revenues - Expenses pg 17
What would be the capital spending for an organization who has purchased fixed
►Rs. 245,000
►Rs. 200,000
►Rs.1 55 , 0 0 0
►Rs. 45,000
200000-
45000=155000
Selected information from SNT Company's accounting records is as

follows:
o Cash paid to retired common shares Rs. 15,000
o Proceeds from issuance of preferred shares Rs. 20,000
o Cash dividends paid Rs. 8,000

►Rs. 3,000 net cash inflow
►Rs. 3,000 net cash outflow

SNT Company has a current ratio of 3:2. Current Liabilities reported by

the company are Rs. 30,000 . What would be the Net Working Capital
for the
company?
►Rs. 45,000
►Rs. 15,000
► ( R s . 4 5 ,0 0 0 )
►( Rs. 15,000)
►Borrow short-term to finance additional fixed assets
►Issue long-term debt to buy inventory
►Sell common stock to reduce current
liabilities ►Sell fixed assets to reduce accounts
payable

Which of the following are incorporated into the calculation of the Du -

Pont Identity?
I. Return on assets II.
Equity Multiplier
IV. Profit Margin
►I, II, and III only
►I, III, and IV only

► II, III and IV only pg 45
►I, II, III, a n d IV
►Directly related to each other
►Not related to each other
►Proportionately related to each other
►Inversely related to each other
Which of the following is a special case of annuity, where the stream of cash
flows continues forever?
►Special Annuity
►Ordinary Annuity
►Annuity Due
►Perpetuity
Which of the following is an unsecured bond for which no specific pledge

of property is made?
►Mortgage
►Debenture
►Collateral
►Note Payable
property is made
Which of the following type of return refers to the percentage change in

the amount of money you have?
►Nominal return
►Real return
►Inflation return
►None of the given option

percentage change in the amount
of money you have.
When real rate is _____, all interest rates will tend to be _____.
►Low; higher
►High; lower
►High; higher
►None of the given options

rates will tend to be higher and
vice versa.
Which of the following is the extra yield that investors dem and on a taxable
bond as a compensation for the unfavorable tax treatment?
►Interest rate risk premium
►Inflation risk premium
►Default risk premium
►Taxability premium
Investors demand extra yield on a taxable bond as a compensation for the unfavorable tax
treatment, known as
taxability premium
In which type of the market, previously issued securities are traded

among investors ?
►Primary Market
►Secondary Market pg 100
►Tertiary Market

Secondary Market
The market in which previously
issued securities are traded among
investors
Place the following items in the proper order of completion regarding the
capital budgeting process.
Evaluate projects.
►II, V, III, IV, and I
►III, II, V, IV, and I
►II, III, V, IV, and I
►II, III, IV, V, and I

.uk/wps/grader
An investment w ill be ___________ if the IRR doesn’t exceed s the required

return and ___________ otherwise.
►Accepted; rejected
►Accepted; accepted
►Rejected; rejected
►Rejected; accepted pg 109

IRR and NPV rules always lead to identical decisions as long as :

►Cash flows are conventional
►Cash flows are independent
►Cash flows are both conventional and independent
►A mutually exclusive project
►An independent project
►A dependent project
►A contingent project
Finding Net Present Value comes under which type of capital budgeting
criteria
?
►Discounted Cash Flow Criteria pg 118
►Accounting Criteria
►Payback Criteria


►Sunk
►Opportunity
►Fixed
►Variable

►WACC (Weighted Average Cost of Capital)
►AAR (Average Accounting Return)
►IRR (Internal Rate of Return)
►MIRR (Modified Internal Rate of Return)
Mr. A, as a financial consultant, has prepared a feasibility report of a project

for XYZ Company that the company is planning to undertake. He has
suggested that the project is feasible. The consultancy fee paid to Mr. A will be
considered as:
►Sunk cost
►Opportunity cost
►Both sunk cost and opportunity cost
►Neither sunk cost nor opportunity cost
The current price of SNT stock is Rs. 50. Dividends are expected to grow at
7 percent indefinitely and the most current dividend was Rs. 1.00. What is the
►9.00 percent
►9.14 percent
►9.33 percent
►10.65 percent
►The right to vote for directors
►The right to share proportionately in dividend paid
►The right to vote on stockholder matters of great importance
►All of the given options
Which one of the following typically applies to preferred stock but not
to common stock?
►Dividend yield
►Cumulative dividends
►Voting rights
►Tax deductible dividends

You must own which of the following to vote against a merger proposal
from another corporation?
►Preferred share
►A debenture
►Common stock
►Cumulative dividend stock
Which of the following strategy belongs to flexible policy regarding size

of investments in current assets ?
►To maintain a high ratio of current assets to sales
►To maintain a low ratio of current assets to sales
►To maintain less short-term debt and more long-term
debt ►To maintain more short-term debt and less long-term
debt
Size of investments in current assets

•Flexible policy
•Flexible policy
•less short-term debt and more long-term debt
•more short-term debt and less long-term debt
If policies
Which of the following strategy belongs to flexible policy regarding financing of
current assets ?
►To maintain a high ratio of current assets to
sales
►To maintain a low ratio of current assets to
sales
►To maintain less short-term debt and more long-term debt
►To maintain more short-term debt and less long-term debt
►Rs. 4,000
►+ Rs. 2,000
►Rs. 2,000
►+ Rs. 4,000

►Stock Bundle
►Portfolio
►Capital Structure

Which of the following is referred as the ratio of the standard deviation

of a distribution to the mean of that distribution ?
►Probability distribution
►The expected return
►The standard deviation

►Coefficient of variation
The MC Inc. purchased a share of common stock exactly one year ago for
Rs. 45.
During the past year the common stock paid an annual dividend of Rs. 2.40.
The
earned?
►5.3%
►194.2%
►83.11%
►94.2%
Over
the last year, he received a dividend of Rs. 2 per share. At the end of the
year, the stock sells for Rs. 25. As per given information, what will be his
►10 %
►20 %
►35 %
►45 %

►Rs. 85,000
►Rs. 165,000
►Rs. 285,000
►Rs. 365,000
Operating cash
flow - change in
NWC - Capital
spending
225000-(-40000)-
100000=165000
total market value of the company s debt are calculated as Rs. 150 million.
What percent of the firm s financing is debt?
►37.50%
►50.00%
►62.50%
►70.00%
250+150=400
250/400=0.625
0.625*100=62.5 is equity and
100-62.5=37.5 is debt
if tax rate is 34%?
►3.00%
►4.62%
►5.20%
►8.00%
RD x (1
- TC).
7%X(1-
0.34)=4
.62
Opportunity losses from having inadequate inventory are termed as:
►Carrying costs
►Opportunity costs
►Restocking costs
►Safety reserve costs

Restocking costs - costs of placing an order with suppliers or the cost of setting up a production
run
•Safety reserve costs - opportunity losses from having inadequate inventory e.g. lost sales and
goodwill
•A trade-off
•Carrying costs increase with inventory levels and shortage or restocking costs decline with
inventory levels
fixed costs (F) = Rs. 30 and carrying costs (CC) = Rs. 5 ?
►65 units
►69 units
►89 units
►95 units
EOQ = (2T x F
/ CC)1/2
2*400=800
800*30=24000
24000/5=4800
4800^0.5=69.28
►The required rate of return on the company's
stock ►The yield to maturity on the bond
►The risk-free rate
►The market risk premium

A firm has 3 million in comm on stock, 1 million in preferred stock and 2

million in debt. What is the percentage of firm s financing that is debt ?
►20%
►33%
►40%
►67%
The book value of a system is Rs. 50,350 at the end of year 3 of its life. What will
be the
total after-tax cash flow from sale if we sell this system for Rs. 30,000 at this time?
(Tax rate is 34%)
►Rs. 20,350
►Rs. 30,919
►Rs. 36,919
►Rs. 80,350
50350-30000=20350x34%=6919
30000+6919=36919
What w ill be the variance if standard deviation for the returns of an investment is
0.2829 ?
►0.0800
►0.0892
►0.5319
►Cannot be estimated without more information
Write down the components of total return in terms of dividend growth

model. Answer
R = D1 /P0 + g
D1/P0 is called the Dividend Yield. Because this is calculated as the expected cash dividend by
the
current price, it is conceptually similar to the current yield on a bond
Growth rate, g, is also the rate at which the stock price grows. So it can be interpreted as
capital
gains yield

Cash cycle
collect until
day 105. so we have to arrange finances $1,000 for 105 - 30 = 75 days)
Cash cycle = Operating cycle - Accounts payable period
75 days = 105 days - 30 days

How a firm s overall cost of capital is calculated ?
We know that a firm’s overall cost of capital will reflect the required return on the firm’s assets as a
whole.
•Given that a firms uses both debt and equity capital, this overall cost of capital will be a mixture
of the
returns needed to compensate its creditors and stockholders.

•Cost of equity capital
Cost of Equity

(i) Dealer
investors
wishing to buy them
(ii) Broker
An agent who arranges security transactions among investors, matching investors wishing to buy
They do not buy or sell securities for their own accounts. Facilitating trades others is their
business
(iii) Bid Price
(iv) Strike Price

The price that the dealer wishes to pay is the bid price and the price at which the dealer sells the
strike price.
(v) Spread
The difference
between the bid and
spread
A firm has a total value of Rs. 1 million and debt valued at Rs. 400,000. What is the
after-tax weighted average cost of capital if the cost of debt is 12%, the cost of equity is
15% and tax rate is 35% ?
SNT & Co. has the following Target capital structure :
Debentures = Rs. 5.00 Billion


Bonds carry an interest rate of 11.5%. Common stocks and Preferred stocks
have a return of 15.50 % and 12% respectively and corporate tax rate is 40%.
Compute the present Weighted Average Cost of Capital (WACC) for SNT & Co.

cost of
capital. Calculate each machine s Payback Period and NPV (N et Present Value)
and
evaluate the results.
Paper 2
Which of the following is the difference between current assets and

current? Liabilities?
►Surplus Asset
►Short-term Ratio
►Working Capital
►Current Ratio
►Sole-proprietorship
►General partnership
►Limited partnership
►Corporation
►Total Assets
►Total Liabilities
►TotalOwnersEquity

A company's ability to meet long-term obligations can be estimated byusing
►Liquidity Ratio
►Solvency Ratios
pg 34
►Asset Management Ratios
►Market Value Ratios
►Operating efficiency
►Asset use efficiency
►Financial Leverage

The Du Pont identity tells us that ROE is affected by three things:
Operating efficiency (as measured by profit margin)
Asset use efficiency (as measured by total assets turnover)

each period for some fixed number of periods?
►Ordinary annuity
►Annuity due
►Perpetuity
number of
Annuity
A portion of profits, which a company distributes among its shareholders,

is known as:
►Dividends
►Retained Earnings
►Capital Gain
►nterest
What amount a borrower would pay at the end of fourth year with a 4 -year,
►Rs. 360
►Rs. 2,000
►Rs. 3,000
►Rs. 3,360
A company issues bonds with a Rs. 1,000 face value. What is the coupon rate
►3 percent
►6 percent
►9 percent
►12 percent
Given two bonds identical but for maturity, the price of the longer-term bond
will change _ _ _ _ _ _ _ _ that of the shorter-term bond, for a given change in
market interest rates.
►More than
►Lessthan
►Equal to

III. Repay the original amount borrowed (principal)
►I and II
►I and III pg
77
►II and IV
►I, III, and IV
►Repayment
►Seniority
►Call provision
►Protective covenants
Sumi Inc. has policy of paying a Rs. 9 per share dividend every year. If this
policy is to continue indefinitely, what will be the value of a share of stock at a
►Rs. 30
►Rs. 45
►Rs. 60
►Rs. 75
9/0.12=75

among investors ?
Primary Market
Secondary Market
Tertiary Market
An investment should be accepted if the net present value is __________

and rejected if it is ________.
Positive; positive
Positive; negative
Negative; negative
Negative; positive
have a useful life of 4 years. During the first 2 years, the net incremental
after-tax cash flows are Rs. 25,000 per year and for the last two years they are
Rs. 20,000 per year. What is the payback period for this investment ?
3.2 Years
3.5 Years
4.0 Years
Which of the following statement is INCORRECT regarding a normal project ?
If the IRR of a project is greater than the discount rate, k, then its PI will be
greater than 1

Which of the following set of cash flows represent the change in the firm s
total cash flow that occurs as direct result of accepting the project ?
Relevant Cash Flows

Negative Cash Flows
Which of the following is NOT a problem while determining incremental

cash flows?
Merchandize cost
Sunk cost
Opportunity cost
___________ Cost refers to the cash flows that could be generated from an asset
the firm already owns provided it is not used for the project in question.
Sunk
Opportunity
Fixed
Variable

of :

pg
146
Dividends on these stocks can be

cumulative pg100


XYZ Company that the company is planning to undertake. He has

considered as:
Sunk cost
Opportunity cost
Neither sunk cost nor opportunity
cost
Net Present Value
Profitability Index

•AAR is a measure of accounting profit relative to book value
•AAR rule is to take an investment
if its AAR exceeds a benchmark
AAR

1st proposition
2nd proposition
3rd proposition
According to 2nd M&M proposition, cost of equity does NOT depend

upon which of the following ?
Which of the following risk is associated with the unique circumstances

of a particular company ?
Financial Risk
Business Risk found

on internet
Functional Risk

Systematic Risk
Unsystematic Risk
Diversifiable Risk
Asset-specific risk
•If we always receive exactly what we expect then the investment will be risk-free.
•Systematic Risk
Rise in Inflation

140
A set of possible values that a random variable can assume and their
associated probabilities of occurrence are referred as :
The expected return

Over the last year, you received a dividend of Rs. 2 per share. At the end of the
year, the stock sells for Rs. 25. If Mr. Sami sells the stock at the end of the year,
Rs. 100
Rs. 250
Rs. 1,000
Rs. 1,350
50*20=1000
50*25=1250
1250-1000=250
250,000 has been calculated . Net working capital has increased by Rs. 50,000.
There was no capital spending during the year. What w ill be the total cash flow
for the project?
Rs. 170,000
Rs. 200,000
Rs. 215,000
Rs. 230,000
2050000-
(+50000)
200000
Autos & computers are included in which of the following MACRS property
class?
3-year
5-year
7-year

The next dividend for a company is Rs. 5 per share. The stock current price is Rs.
50 per share. What w ill be the cost of capital if the dividend s are estimated to
12.88%
13.07%
14.22%
15.00% pg
142
The selling firm has a cost advantage over other
lenders
The selling firm can engage in price discrimination
The selling firm can obtain favorable tax treatment

Trade Credit is more likely to be granted if:

•Excess capacity
Rs. 1,000
Rs. 1,940
Rs. 2,000
Rs. 2,100
Shortage or Restocking costs with inventory

levels
Rise
Decline
Remain unaffected

Carrying costs increase with
inventory levels and shortage or
restocking costs decline with
inventory levels
Which one of the following motives refers to the need for holding cash to
satisfy norm al disbursement and collection activities associated with a
firm s ongoing Operations?
Speculative motive
Transaction motive
Personal motive
opportunities,
activities
associated with a firm’s
ongoing operations.
What would be the standard deviationof returns for aninvestmentthat has a

Variance of 0.008?
0.08944
0.09101
0.09487
0.10521
A firm has 3 million in common stock, 1 million in preferred stock and 2

million in debt. What is the that is debt ?
20%
33%
40%
67%
Financial leverage can dramatically alter the payoffs to the
shareholders. Financial leverage refers to the extent to which a firm
relies on the debt.
Financial leverage must affect the overall cost of capital in

any condition. pg 149
Define Net Present Value (NPV) and write down the NPV rule to
accept a project.
increased by Rs. 200,000 and there is a net capital spending of Rs. 120,000
during the year. Calculate total cash flow.
A replacement project has an initial investment of Rs.10,000; and cash flows are
Rs.3,400; Rs. 2,500; Rs.3,900; and Rs.5,200 for years 1 through 4, respectively. The
firm has decided to assume that the appropriate cost of capital is 10%. What
will be the net present value of the project? Is the project feasible?

Describe the relationship between capital structure and weighted average
cost of capital (WACC).

capital investments projects S and T. Each project has a cost of Rs.100,000,
and the cost of capital (discounting rate) for each project is 12%. The projects
Cash flow rs
1 30000 30000
2 30000 30000
3 35000 20000
4 25000 30000
5 25000 250000

b. Which project or projects should be selected if projects
are independent
Identify the sources and uses of cash and complete the table by following
the example.
Example Increasing current liabilities Increase Sourc

e
1. Increasing fixed asset
2. Decreasing equity
3. Increasing long-term debt
4. Decreasing fixed assets
5. Increasing current assets other than cash
2,000
Paper 3

agent?
Management Conflict
Interest Conflict
Agency Problem

The Agency Problem
Agency relationship
Principal hires an agent to represent their interest
Agency problem
costs
Which of the following term refers to the ease and quickness with which assets can be
converted to cash?
Analysis
Structuring
Budgeting
Liquidity pg 14
Raw material
Direct labor
balance sheet?
Equity multiplier
Inventory turnover
Receivable turnover
Return on equity
It is always greater than 1.0
It decreases as the discount rate increases
It is equal to zero when discount rate is zero

It increases as the time period increases
How much must be deposited at 8% each of the next 20 years to have Rs.
10,296.44?
Rs. 225
Rs. 341
Rs. 410
Rs. 452
In order to compare different investment opportunities (each with the same risk) with
interest rates reported in different manners you should:
Convert each interest rate to an effective annual rate
Convert each interest rate to a monthly nominal rate
Convert each interest rate to an annual nominal rate
earns 8.75 percent com pounded annually and second is the savings account B, which earns
8.50 percent com pounded monthly. Which account
should you choose and why?
Account A; because it has a higher effective annual rate

Equal to its face value
Cannot be determined without more information
Debt provides the voting rights to the bondholders. pg

78
The relationship between real and nominal returns is described by the:
M&M Proposition

Fisher s Effect
BCG Matrix
Investors dem and a higher yield as compensation to the risk of possible default. This
Taxability premium
In which type of voting, each shareholder is entitled one vote per share times the
number of directors to be elected?
Straight Voting
Statutory Voting
Cumulative Voting
In which of the following procedure of voting for a company's directors, each

Straight Voting
Proportional Voting
Cumulative Voting
Simple Price
Bid Price
Strike Price pg 100
Complex Price
Suppose the initial investment for a project is Rs. 160,000 and the cash flows are Rs.
2.6 Years
3.1 Years
3.6 Years
4.1 Years
The XYZ Corporation is considering an investment that will cost Rs. 80,000 and have a
useful life of 4 years. During the first 2 years, the net incremental after-tax cash
flows are Rs. 25,000 per year and for the last two years they are Rs. 20,000 per year.
What is the payback period for this investment ?
3.2 Years
3.5 Years
4.0 Years
invested ?
Profitability Index (PI) pg

119

hand?
Relevant Cash Flows
Negative Cash Flows
___________ Cost is an outlay that has already occurred and hence is not affected by the
decision under consideration.
Sunk
Opportunity
Fixed
Variable

of :
The cost of common equity and the cost of preferred stock The
cost of preferred stock and the cost of debt

Over the past four years, a company has paid dividends of Rs. 1.00, Rs. 1.10, Rs.
1.20 and Rs. 1.30 respectively. This pattern is expected to continue into the future. This is
an example of a company pay a dividend that grows:
At a constant rate

Return?

worng questions

1st proposition
2nd proposition
3rd proposition

13.00%
15.23%
18.33%
20.98%
25%/75%==0.33
16%+(16%-9%)x0.33
0.16+(0.16-0.09)x0.33
0.16+0.0231=18.31%
Which of the following activities decreases cash ?
Increasing current liabilities
Decreasing long term debt
Decreasing fixed assets

Increasing equity
Activities that decrease cash (uses of cash)
accounts ?
Cash Cycle
Operating Cycle
Current Cycle

An operating cycle describes how a product moves through the current asset accounts
collect from the sale
receivables ?
Inventory period
Accounts receivable period pg 164
Collection period
Accounts payable period

Rs. 4,000
+ Rs. 2,000
Rs. 2,000
+ Rs. 4,000
Suppose you have Rs. 70 in stock A and Rs. 120 in another stock B in your
portfolio. Stock A has an expected return of 25% and stock B has an expected
18.27%
21.84%
22.50%
25.13%

Investment?
One of the responsibilities of the financial manager is to assess the value of the
proposed investment
The return consists of income earned and capital gain

During the past year the common stock paid an annual dividend of Rs. 2.40. The firm sold
the stock today for Rs. 80. What is the rate of return the firm has earned?
5.3%
194.2%
83.11%
94.2%
What will be the cash inflow if we have sales of Rs. 400,000 and accounts
Rs. 70,000
Rs. 230,000
Rs. 330,000
Rs. 470,000
receivable are decreased by Rs. 70,000?
Rs. 70,000
RS 230000
Rs. 370,000
correct
Rs. 470,000
300000-
70000=230000
Su p pose a firm borrow s Rs. 800,000 at 7%. What w ill be the total interest bill p er year if
tax rate is 34% ?
Rs. 19,040
Rs. 36,960
Rs. 56,000
Rs. 800,000
800000*7%=56000
56000*34%=19040
Which one of the following motives refers to the need for holding cash as a safety
Speculative motive
Transaction motive
Personal motive
•Precautionary
Motive - the need to
hold cash as a safety
margin to act as a
financial reserve
Suppose market value exceed s book value by Rs. 225,000. What w ill be the aftertax
proceeds if there is a tax rate of 34 percent?
Rs. 105,600
Rs. 148,500
Rs. 191,000
Rs. 225,000
225000*34%=765,00
225000-765000=148500
Question No: 39
Su p pose you have bou ght 100 shares of a corporation one year ago at Rs. 18 per share.
Over the last year, you have received a d ivid end of Rs. 2 p er share. At the end of the year, the
stock sells for Rs. 27. As p er given inform ation, w hat w ill be
15
%
25
%
35
%
50
%
(27-18)/18=0.5%
vehicle is w orth 25% of the p u rchase price now and it is being sold at this
Rs. 14,875
Rs. 112,500
Rs. 337,500
Rs. 230,000
Suppose there is an expected rate of 20%. What will be the risk premium if risk free
rate is (i) 8% and (ii) 12% ?
What is the difference between Leverage and Un -levering?
Match the capital budgeting techniques are given in Column A to the criteria in Column
Net Present Value Discounted Cash Flow Criteria

Average Accounting Return Payback Criteria
Payback Period Discounted Cash Flow Criteria
Internal Rate of Return Accounting Criteria
Each of the following mutually exclusive investment projects involves an initial ou

tlay of Rs. 240,000. The com p any s required rate of return is 11 percent. The
Cash flow rs
1 140000 20000
2 80000 40000
3 60000 60000
4 20000 100000
5 20000 180000

0 Acquire inventory on credit None

(iv) Operating cycle
(v) Cash cycle
57 per
share. What will be the cost of capital if the dividends are estimated to grow
steadily at
5% ?
12.88%
13.07%
14.22%
15.53%
D1 = D0 x (1 + g)
RE = D1 / P0 + g
6x(1+0.05)=6.3
6.3/57+0.05=16.
Which of the following is the time period between the acquisition of inventory
and the collection of cash from receivables
Cash Cycle
Current Cycle

Operating Cycle
Cash Cycle
Current Cycle
Business risk depends on which of the following risk of the firm’s assets ?
Systematic Risk pg 155
Diversifiable Risk
Unsystematic Risk

What will be the affect of capital structure on the value of the firm and WACC
when there are no taxes and bankruptcy costs ?
Value of the firm increases and WACC
decreases
Sources of cash always involve ______ a liability (or equity) account or ______ an
asset account.

Financial Leverage
Operating Leverage
Structural Leverage

The value of the firm’s cash flows (or the value of the firm) is __________ when
the WACC is __________.
maximized; minimized pg 149

A firm’s equity is worth 4 million and its debt is worth 2 million. What is the
percentage of firm’s financing that is debt ?

20%
33%
40%
67%
Ref:
4+2=6
4/6=0.66
0.66*100=66.67 is equity and
100-67=33 is debt

particular company ?
Financial Risk
Business Risk
Functional Risk

According to 2nd M&M proposition, cost of equity does NOT depend upon which
of the following ?

Which of the following is the difference between the current assets and the
current liabilities ?
Net difference
Net working capital
Current ratio
Net available capital
Question # 1 of 15 ( Start time: 02:38:01 PM ) Total Marks:

1 Operating cycle = ________________
Collection period - accounts payable period
Inventory period - accounts receivable period


Common stocks
Bonds

Over the last year, he received a dividend of Rs. 2.50 per share. At the end of the year, the
stock
sells for Rs. 28. As per given information, what will be the capital gains yield ? Select
correct
option:
15.85%
25.10%
27.27%
45.00%
(28-22)/22
=0.2727

Leverage
Levering
Un-levering pg 152
Loaning

Increasing equity
Increasing current assets other than cash pg 163
The increase in debt financing raises the required return on equity because the risk
born by the investors increases which is called:
Business Risk
Functional Risk
What will happen to cash cycle if payable period is lengthened
? Select correct option:

Which of the following M&M propositions states that it is completely irrelevant how
a firm chooses to arrange its finances ?
2nd proposition
3rd proposition

33.33%
50.00%
62.50%
85.00%
=250+150=400
250/400=62.5equity and remaining 37.5 is debt

Which of the following is referred as the ratio of the standard deviation of a distribution
to the mean of that distribution ?

The expected return
Question # 10 of 15 ( Start time: 11:32:28 AM ) Total

Marks: 1 Cash cycle = ________________
Operating cycle - accounts payable period pg 165
According to which of the following theory, the firm's capital structure is
determined by a trade-off of the value of tax shields against the costs of bankruptcy.
M&M Proposition
Dividend growth theory
The risk-free rate
Investment A is less volatile than Investment
B
Which of the following is the time between receipt of inventory and payment
for it ? Select correct option:
Operating Cycle
Cash Cycle
Current Cycle
assets to maintain the value of the stock?

What will happen to cash cycle if inventory and receivable periods get
longer ? Select correct option:
Standard deviations for Investment A and Investment B are 15% and

32% respectively. This indicates that :
Investment A is more volatile than Investment
B
Investment A is equally volatile to Investment
B
Which of the following term refers to the use of personal borrowing to alter the
degree of financial leverage ?
Un-levering
Levering
Loaning

Cost of debt pg 143

A firm’s equity is worth 4 million and its debt is worth 2 million. What is the
percentage of firm’s financing that is equity ?
20%
33%
40%
67%
4+2=6
4/6=0.67


Question # 5 of 15 ( Start time: 10:55:09 PM
) Total Marks: 1
Suppose market value exceeds book value by Rs. 200,000. What will be the after-
tax proceeds if
Rs. 97,500
Rs. 105,600
Rs. 130,000
Rs. 150,000
200000*35%=70000
200000-70000=130000

Mutually exclusive
Dependent
Independent
Correlated
Mr. Naveed has bought 100 shares of a corporation one year ago at Rs. 23 per
share.
Over the last year, he received a dividend of Rs. 1.50 per share. At the end of the
year,
the stock sells for Rs. 31. As per given information, what will be his total
percentage
return ?
10.63%
20.20%
35.12%
41.30%
First find dividend yield then capital gain yield then plus both answer
Let see
Dividend yield= 1.50/23=0.06521%
Total percentage return 0.06521+0.3478*100=41.30
the total
after-tax cash flow from sale if we sell this system for Rs. 20,000 at this time? (Tax
rate is
35%)
Rs. 15,000
Rs. 15,220
Rs. 20,327
Rs. 25,425
Which one of the following statement is INCORRECT regarding MACRS

depreciation ? Select correct option:
purposes. Depreciation is computed for each year by multiplying the cost of the
asset by a fixed
percentage.
The expected salvage value and the actual expected economic life are not
explicitly considered in calculation of depreciation.


9.92%
11.36%
21.12%
40.00%
d.y= 2.50/22=0.1136%

Which of the following type of risk can be eliminated by

diversification ? Select correct option:
Systematic Risk
Market Risk
Unsystematic Risk
Cost of debt
6%
9%
15 %
24%
14-5=9
Which of the following is NOT an example of systematic risk

? Select correct option:
Interest Rate
Inflation
Risk on investment
Gain on investment
loss on investment
Standard Company purchased a vehicle for Rs. 450,000. Based on historical

averages, this vehicle is worth 25% of the purchase price now and it is being sold at
this price. What is the vehicle’s market value ?
Rs. 14,875
Rs. 112,500
Rs. 337,500
Rs. 230,000
shares. Both want to be elected as one of the four directors but Mr. Imran doesn’t
want Mr. Aamir to be director. How much votes would Mr. Aamir be able to cast as
per cumulative voting procedure?
70
120
200
280
4*50=200
In MACRS property classes, 7-year class includes which of the
following ? Select correct option:
Autos & computers
Investment A is more volatile than Investment
B
Investment A is equally volatile to Investment
B
Investment B is less volatile than Investment
A
1 Systematic Risk is also known as :
Diversifiable Risk
Market Risk
Residual Risk
Asset-specific Risk
A project has an initial investment of Rs. 600,000. What would be the NPV
Rs. 40,000
Rs. 55,000
Rs. 65,000
Rs. 72,000
600000*1.12=672000
672000-600000=72000
Question # 8 of 15 ( Start time: 05:29:04 PM ) Total
Marks: 1 Unsystematic Risk is also known as :
Diversifiable Risk
Market Risk

Payback Period
Net Present Value
Profitability Index

1 Which of the following is NOT a quality of IRR?
Most widely used

Which of the following is known as the group of assets such as stocks and bonds held
by an investor ?
Stock Bundle
Portfolio
Capital Structure

Relevant Cash Flows

Negative Cash Flows
0.0075 ?
0.08660
0.09101
0.09487
0.10521
Taxability premium

What will be the cash inflow if we have sales of Rs. 400,000 and accounts receivable
are decreased by Rs. 70,000 ?
Rs. 70,000
Rs. 230,000
Rs. 330,000 not sure
Rs. 470,000

The relationship between real and nominal returns is described by
the: Select correct option:
M&M Proposition

Fisher’s Effect
BCG Matrix

Relevant Cash Flows
Negative Cash Flows

6.02%
7.55%
10.0%
14.3%
(1+r)/(1+h)
1.14/1.06=1.07
1.07*100=107.55
107.55-100=7.55

28.57%
50.00%
62.50%
70.00%
250/350*100-100=28.57

Which of the following is referred as a statistical measure of the variability
of a distribution around its mean ?
The expected return

The expected return

more alternative projects is referred to as a(n):
independent project
dependent project
contingent project

Which of the following is the most common capital budgeting
technique? Select correct option:
Payback Period
Net Present Value
Profitability Index
500,000 has been calculated. Net working capital has declined by Rs. 45,000. There
was no capital spending during the year. What will be the total cash flow for the
project ? Select
correct option:
Rs. 200,000
Rs. 315,000
Rs. 455,000
Rs. 545,000
Which of the following formula is used to calculate the price of a zero growth
stock? Select correct option:
Po = D / R
Po = Do (1+g) / R
Po = Do(1+g) / (R - g)
Po = D1 / (R - g)

Which of the following statement is NOT correct regarding cost of preferred
shares ? Select correct option:
Preferred stock has fixed dividend paid every period forever
Cost of preferred stock can be estimated by observing the required return on
other similarly rated shares of preferred stock
_________ paid by corporation is tax deductible but _________ paid are not
tax deductible.
Interest; dividend
Dividend; interest
Bonus; interest
Sunk
Opportunity
Fixed
Variable

Suppose the initial investment for a project is Rs. 16 million and the cash flows are Rs. 4
million in the first year and Rs. 9 million in the second and Rs. 5 million in the third.
The project will have a payback period of:
2.6 Years
3.1 Years
3.7 Years
4.1 Years

Which of the following statement is TRUE regarding Average Accounting
Return? Select correct option:
An
investment is acceptable if its AAR is less than a benchmark AAR None
of the
given options
Sumi Inc. has just paid a dividend of Rs. 7 per share. The dividend of this
company grows at a steady rate of 5% per year. What will be the dividend in 5
years?
Rs. 4.41
Rs. 6.12
Rs. 7.35
Rs. 8.93
5/100=0.05+1=1.05^5=1.2762*7=8.93

An investment should be accepted if the Net Present Value (NPV) is ________
and rejected if it is ______.
Positive; positive
Positive; negative
Negative; negative
Negative; positive
___
ACC 501 Quiz Conference
lecture
This Mcqs for Final Term

level Furnishing audited financial statements periodically to the lender
Restricting selling or leasing assets wrong question option d is negative and
all is positive example
2. AST Company’s debt-to-total assets ratio is 0.45. What is its debt -to-
equity
ratio?
0.101
0.220
0.667
0.818
Reference:(1-0.45=0.55)
=0.45/0.55=0.818
3. What amount a borrower would pay at the end of fourth year with a 4-
year,
Rs. 1,360
Rs. 2,000
Rs. 5,625
Rs. 8,960
Reference: 8000*12/100=8960
4. What will be the price per share if there is a current dividend of Rs.
4.75,
Rs. 30.19
Rs. 43.52
Rs. 56.53
Rs. 71.25
4.75*(1+0.5/4.75-0.5)=71.25
5. A given rate is quoted as 9 percent APR, but the EAR is 9.38 percent.
What
Semiannually
Quarterly
Monthly
Daily
APR=9
M=30
(1+9/30)^30-1=9.38
6. Mr. Aslam owns 100 shares of a company and there are four directors
to be
elected. How much votes Mr. Aslam would have as per cumulative
voting
procedure?
100 votes
200 votes
300 votes
400 votes
7. SNT Corporation has policy of paying a Rs. 6 per share dividend every
year.
If this policy is to continue indefinitely, what will be the value of a share
of
Rs. 30
Rs. 40
Rs. 50
Rs. 60
8. Which of the following process can be defined as the process of

generating
Discounting
Compounding
Factorization
9. Which of the following is the amount of cash we would get if we

actually sell
an asset?
Market Value
Book Value
Intrinsic Value
10.
11. Which of the following financial statement shows both dollars

and
Balance Sheet
Income Statement
12. in which form of Business, owners have limited

libility.
sole proprietorship
partnership
joint stock company
none of the above
13. Suppose the initial investment for a project is Rs. 16 million and the
cash
flows are Rs. 4 million in the first year and Rs. 9 million in the second
and
2.6 Years
3.1 Years
3.7 Years
4.1 Years
14. Which of the following is NOT a shortcoming of Payback

Rule?


basis, it

Common Stocks
Preferred Stock
16. Treasury notes and bonds are examples of which of the following
types of
bonds?
Government bonds 85
Zero coupon bonds
Floating-rate bonds
Euro bonds
17. When real rate is _____, all interest rates will tend to be
_____.
Low; higher
High; lower
High; higher pg 88
18. Which of the following statements is(are) CORRECT regarding a

bond?
A bond is an evidence of debt issued by a corporation or a governmental

body. A bond represents a loan made by investors to the issuer.
When a corporation wishes to borrow from public on a long term basis, it does
so by issuing or selling bonds.
19. Between the two identical bonds having different coupon, the price
of the
20. As the dividend is always same for a zero growth stock, so the stock
can also
be viewed as:
Ordinary Annuity
Annuity Due
21. The coupon rate of a floating-rate bond is capped and upper and lower
rates
are called:
Float
Collar pg 86
Limit
Surplus


23. If the dividend for a share is growing at a steady rate then which
of the
D2 = D1 x (1 + g )
D2 = Do x ( 1 + g )2
D2 = Do x ( 1 + g )2
24. A project whose acceptance does not prevent or require the

acceptance of

independent project
dependent project
contingent project
NPV
Rs. 40,000
Rs. 55,000
Rs. 65,000
Rs. 72,000
Reference=600000*1.12=672000-600000=72000


27. If a firm is allowed to miss a coupon payment on a bond in a year in

which it
Income
Zero coupon
Floating-rate
Put
Positive
Negative pg 80
Neutral

30. Which of the following allows a company to repurchase part or all

of the
Repayment
Seniority
Call provision
31. Which of the following is NOT a quality of

IRR?
Most widely used
32. In which type of the market, previously issued securities are traded
among
investors?
Primary Market
Tertiary Market
33. A model which makes an assumption about the future growth of

dividends is
known as:
34. Which of the following represents the linear relation between Net
Present
35. Which of the following comes under the head of discounted cash flow
criteria
Payback Period
36.
Which of the following is NOT included in discounted cash flow criteria
for capital budgeting decision?
Net Present Value
Profitability Index
37. Which of the following is an example of positive

covenant?
Limiting the amount of dividend according to some
formula Restricting pledging assets to other lenders
38. Which of the following is the most common capital budgeting

technique?
Payback Period
Net Present Value

Profitability Index
39. Which of the following measures the present value of an investment

per
dollar invested?
40. Which of the following is a measure of accounting profit relative to the

book
value?
Net Present Value
Profitability Index
41. Which one of the following typically applies to preferred stock but
not to
common stock?
Dividend yield
Voting rights
types of
bonds?
Zero coupon bonds
Floating-rate bonds
Euro bonds
43. Expectation of a ____ inflation rate will push long term interest rates
____
Lower; higher
Higher; lower
44. A company issues bonds with a Rs. 1,000 face value. What is the coupon
rate
3 percent
6 percent
9 percent
12 percent
60+60=120/1000=12%
45. The projected cash flows from a project are: Year 1: Rs. 100 Year 2:
Rs. 300
Year 3: Rs. 400 Year 4: Rs. 800 The Project cost is Rs. 800. What would
be
2.00 Years
2.67 Years
3.00 Years
3.67 Years
Project=800 paid in 1 year=100, 2nd year=300 and 3rd year=400 total 800 paid
in 3rd
year
In which of the following type of annuity, cash flows occur at the

beginning of each period?
Ordinary annuity
Annuity due pg 66
Perpetuity
46. Which of the following is NOT an important feature of treasury

notes and
bonds?
Default free
Taxable
Least liquid pg 90
Highly liquid

Expected inflation
Interest rate risk
47. Which of the following is the amount of time required for an

investment to
Yield to maturity
Maturity Period
m.q .z
48. In which type of the market, securities are originally sold to the
investors?
Primary Market
Secondary Market
Tertiary Market
49. A _________ is an agent who arranges security transactions among

investors.
Broker pg 100
Dealer
Member
Specialist
volatile
50. Which of the following is a characteristic of preferred
stock?
51. Which of the following type of bond pays no coupon at all and are
offered at
Government bonds
Floating-rate bonds
Euro bonds
52. An investment will be _________ if the IRR doesn’t exceeds the

required
Accepted; rejected
Accepted; accepted
Rejected; rejected
53. Which of the following comes under the head of accounting criteria
for
Payback Period
Net Present Value
Profitability Index
54. Which of the following is a series of constant cash flows that occur at the
end
Annuity due
Perpetuity
55. Which of the following term refers to the difference between the
present
56. One would be indifferent between taking and not taking the
investment
when:

57. Which one of the following terms refers to the risk arises for bond
owners
Fluctuations Risk
Real-Time Risk
Inflation Risk
58. All else equal, the market value of a corporate bond is always
inversely
related to its:
Time to maturity
Coupon rate
Yield to maturity
59. Which of the following issue is NOT covered by “Investment”

area of
finance?

60. Period costs include which of the

following?
Selling expense
Raw material
Direct labor
61. Product costs include which of the

following?
Selling expenses
General expenses
62. Financial policy is evaluated by which of the

following?
Profit Margin
Debt-equity ratio
63. Cash flow from assets involves which of the following

component(s)?
Operating cash flow

Capital spending
firm’s

65. Finance is vital for which of the following business activity

(activities)?
Marketing Research
Product Pricing
66. Which of the following costs are reported on the income statement as
the cost
of goods sold?
Product cost
Period cost
67. Standard Company had net sales of Rs. 750,000 over the past year.
During
that time, average receivables were Rs. 150,000. Assuming a 365-day
year,
5 days
36 days
48 days
73 days
750000/150000=5
365/5=73days
68. Which of the following terms refers to the use of debt

financing?
Operating Leverage
Financial Leverage
69. In which type of market, new securities are

traded?
Primary market
Secondary market
Tertiary market
70. Which of the following ratios are particularly interesting to short-

term
creditors?
Liquidity Ratios
Market Value Ratios
71. shows the sources from which cash has been generated and how it has
been
Income Statement
Balance Sheet
Cash Flow Statement
72. Standard Corporation sold fully depreciated equipment for Rs. 5,000.
This
Operating activity
Investing activity
Financing activity

Current Ratio
Acid-test Ratio
Cash Ratio
74. of the following statement measures performance over a specific

period of
time?
Income Statement
Balance Sheet
Cash Flow Statement
75. Which of the following statement shows assets, liabilities, and net worth
as of
a specific date?
Income Statement
Balance Sheet
Cash Flow Statement
76. A portion of profits, which a company retains itself for further

expansion, is
known as:
Dividends
Retained Earnings
Capital Gain

Current Ratio
Quick Ratio
Cash Coverage Ratio
Cash Ratio
78. Which of the following ratio gives an idea as to how efficient

management is
Profit Margin
Return on Assets
Return on Equity



Financial policy
Dividend policy

Accountants
Financial Analysts
Auditors
Marketers
82. Which of the following set of ratios is used to assess a business's

ability to
Liquidity Ratios
Leverage Ratios
Market Value Ratios
83. A company having a current ratio of 1 will have __________ net

working
capital.
Positive
Negative
zero

sole proprietorship
partnership
joint stock company
cooperative Society
85. Which of the following ratios are intended to address the firm’s
financial
leverage?
Liquidity Ratios


87. Which of the following item(s) is(are) not included while

calculating
Depreciation
Interest
88. Suppose market value exceeds book value by Rs. 250,000. What will be
the
Rs. 105,600
Rs. 148,500
Rs. 165,000
Rs. 225,000
Solution=250000*34%=85000
250,000-85000=165000

basis, it

Common Stocks
Preferred Stock

Primary market
Secondary market
Tertiary market

Accountants
Auditors
Marketers

Revenue
Expenses
Depreciation
93. What will be the coupon value of a Rs. 1,000 face-value bond with a
10%
coupon rate?
Rs. 100
Rs. 510
Rs. 1,000
Rs. 1,100
Solution:
=1000/10
=100
criteria

Net Present Value

Selling expense
Raw material
Direct labor

97. According to Du Pont Identity, ROE is affected by which of the

following?
Financial Leverage

area of
finance?
This
Operating activity
Investing activity
Financing activity
100. Balance sheet for a company reports current assets of Rs. 700,000
and
current liabilities of Rs. 460,000. What would be the Current Ratio for
the
1.01
1.26
1.39
1.52
Solution= 700000/460000=1.52
Sole-proprietorship
Limited Partnerhsip
Corporation
Increase
Decrease
Remain unaffected
Become zero
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity

Net loss
Net worth
Markup
Markdown

Repayment
Seniority
Call provision
107. ____________ shows the sources from which cash has been
generated
Income Statement
Balance Sheet
Cash Flow Statement


regulated?
Sole-proprietorship
General Partnership
Limited Partnership
Corporation

Par value
Coupon value

discount?
Bond Price < Par Value and YTM > coupon
rate
Bond Price > Par Value and YTM > coupon
rate
Bond Price > Par Value and YTM < coupon
rate

Common Stocks
Preferred Stock

Inventory
Supplies
Machinery
Depreciation
Rs. 300,000
Rs. 500,000
Rs. 800,000
Rs. 1100,000
sol

Sole-proprietorship
General Partnership
Limited Partnership
Corporation

sole proprietorship
partnership
joint stock company
none of the above
CF from Assets = CF to Creditors - CF to
Stockholder
CF from Assets = CF to Stockholders - CF to
Creditors
as:
Surplus Asset
Short-term Ratio
Working Capital
Current Ratio
Rs. 14,186
Rs. 18,256
Rs. 22,697
Rs. 28,253
solution
40000*1/(1+0.12)^5=22697.07

Income Statement
Balance Sheet
Cash Flow Statement

Par value
Coupon value

bond
issuer.
Bond ratings represent an independent assessment of the credit-
worthiness of bonds.
Generally Applied Accountability
Principles General Accounting Assessment
Principles
information?
Evaluation of performance through profit margin and return on
equity Evaluation of credit standing of new customer
125. A firm has paid out Rs. 150,000 as dividends from its net income
of
12 %
25 %
40 %
60 %
Solution
250000-150000/250000*100=40%
Positive
Negative
zero

Dividends
Retained Earnings
Capital Gain

Investments
Management Ratios?

Receivable Turnover
Return on Assets
129. You just won a prize, you can either receive Rs. 1000 today or
Rs.
1,050 in one year. Which option do you prefer and why if you can
earn 5

Operating Leverage
Financial Leverage
b
131. You need Rs. 10,000 to buy a new television. If you have Rs. 6,000
to
invest at 5 percent compounded annually, how long will you have to
wait to
buy the television?
8.42 years
10.51 years
15.75 years
18.78 years
6000(1+5%)^10.51=around 10,000


level
Furnishing audited financial statements periodically to the
lender Maintaining any collateral or security in good condition

Financial policy
Dividend policy
Income Statement
Balance Sheet
Cash Flow Statement
Armaan: b

Selling expenses
General expenses
136. An account was opened with an investment of Rs. 3,000 ten years
ago.
The ending balance in the account is Rs. 4,100. If interest was
compounded,
Rs. 500
Rs. 752
Rs. 1,052
Rs. 1,100
4100-3000=1100

7.00 percent
7.12 percent
7.19 percent
7.23 percent

for comparison?
Benchmarking 48
Standardizing
Comparison
Evaluation

Financial policy
Dividend policy

2% to 8%
4% to 25%
5% to 20%
10% to 50%

Management Conflict
Interest Conflict
Agency Problem
143. Which of the following is a series of constant cash flows that

occur at
Ordinary annuity 63
Annuity due
Perpetuity
Investments



Investments
4.30%
6.00%
10.70%
16.73%
solution
Net income=8%*75000=6000
Profit margin=6000/100000*100= 6%

Capital Structuring
Capital Rationing
Capital Budgeting
149. Which of the following refers to the cash flows that result from
the

Current Ratio
Acid-test Ratio
Cash Ratio
Sole-proprietorship
Partnership
Corporation
20%; 80%
37%; 63%
63%; 37%
80%; 20%

bondholders III. Repay the original amount borrowed (principal) IV.
Give an ownership interest in the firm
I and II
I and III
II and IV
I, III, and IV

Rs. 6,302
Rs. 9,981
Rs. 14,800
Rs. 15,869

157. The preferred stock of a company currently sells for Rs. 25 per
share.
5.00 percent
7.00 percent
8.45 percent
10.0 percent
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity
159. JJ Inc. has a 4 percent return on total assets of Rs. 500,000 and a
net
Rs. 150,000
Rs. 200,000
Rs. 250,000
Rs. 400,000
4 % = N.P / 500,000
4% * 500,000 = N.P
N.P = Rs. 20,000

5 % = 20,000 / Sales
5% * Sales = 20,000
Sales = 20,000 / 5%
Sales = 400,000
to zero?

161. Which of the following is the expected rate of return on a bond

if
Current Yield
Yield To Maturity
Coupon Yield
Capital Gains Yield
162. If a firm uses cash to purchase inventory, its quick ratio will:
Increase
Decrease
Remain unaffected
Become zero
Increase
Decrease
Remain unaffected
Become zero
ACC501 3 Finalterm Papers and Important MCQS

Solved…
By Armaan Makhani
FINALTERM
EXAMINATION
Paper 1
►Income = Current Assets -Current Liabilities
►Income = Fixed Assets - Current Assets
►Income = Revenues - Current Liabilities
►Income = Revenues - Expenses pg 17
What would be the capital spending for an organization who has purchased fixed assets
of Rs. 200,000 and sold fixed assets of Rs. 45,000?
►Rs. 245,000
►Rs. 200,000
►Rs.1 55 , 0 0 0
►Rs. 45,000
200000-
45000=155000
Selected information from SNT Company's accounting records is as follows:

o Proceeds from issuance of preferred shares Rs. 20,000 o
Cash dividends paid Rs. 8,000
On its cash flow statement for the year, SNT Company should report net cash flow
from financing activities as:
SNT Company has a current ratio of 3:2. Current Liabilities reported by the
company are Rs. 30,000 . What would be the Net Working Capital for the
company?
►Rs. 45,000
►Rs. 15,000
► ( R s . 4 5 ,0 0 0 )
►( Rs. 15,000)
►Sell common stock to reduce current liabilities
►Sell fixed assets to reduce accounts payable

Identity?
Equity Multiplier
IV. Profit Margin
continues forever?
►Special Annuity
►Ordinary Annuity
►Annuity Due
►Perpetuity

property is made?
►Mortgage
►Debenture
►Collateral
►Note Payable
property is made
Which of the following type of return refers to the percentage change in the
►Nominal return
►Real return
►Inflation return

of money you have.
►Low; higher
►High; lower
►High; higher

vice versa.
Which of the following is the extra yield that investors dem and on a taxable bond as a
compensation for the unfavorable tax treatment?
treatment, known as
taxability premium
investors ?
►Primary Market
►Tertiary Market

Secondary Market
investors
budgeting process.
(I) Perform a post-audit for completed projects; (II)
Generate project proposals;
Evaluate projects.

.uk/wps/grader
An investment w ill be ___________ if the IRR doesn’t exceed s the required return and
___________ otherwise.

Note: Solve these papers by yourself

This VU Group is not responsible for any solved content
www.vuaskari.com
alternative projects is referred to as :
?
►Payback Criteria
www.vuaskari.com
►Sunk
►Opportunity
►Fixed
►Variable

Which of the following is the overall return the firm must earn on its existing assets
to maintain the value of the stock ?

►Sunk cost
►Opportunity cost
The current price of SNT stock is Rs. 50. Dividends are expected to grow at 7
percent indefinitely and the most current dividend was Rs. 1.00. What is the

www.vuaskari.com
►9.00 percent
►9.14 percent
►9.33 percent
►10.65 percent
Which of the following are rights of an owner of a share of common stock for firm
which has no preferred share?
►The right to vote on stockholder matters of great importance ►All
of the given options
common stock?
►Dividend yield
►Voting rights

►Preferred share
►A debenture
►Common stock


•Flexible policy
•Flexible policy
If policies

current assets ?
Suppose you have Rs. 10,000 on deposit. One day, you write a cheque for Rs. 2,000
and deposit Rs. 4,000. What is your collection float ?
►Rs. 4,000
►+ Rs. 2,000
►Rs. 2,000
►+ Rs. 4,000
Which of the following is known as the group of assets such as stocks and bonds held
by an investor ?
►Stock Bundle
►Portfolio



earned?
►5.3%
►194.2%
►83.11%
►94.2%
Mr. Sami has bought 50 shares of a corporation one year ago at Rs. 20 per share. Over
year, the stock sells for Rs. 25. As per given information, what will be his total
percentage return ?
►10 %
►20 %
Composed & Solved
►35 %
►45 %

225,000 has been calculated. Net working cap ital has declined by Rs. 40,000. There w as a
net capital sp ending of Rs. 100,000 d u ring the year. What w ill be the
►Rs. 85,000
►Rs. 165,000
►Rs. 285,000
►Rs. 365,000
Operating cash
flow - change in
NWC - Capital
spending
225000-(-40000)-
100000=165000
The total market value of a company s stocks is calculated as Rs. 250 million and the total
market value of the company s debt are calculated as Rs. 150 million.
►37.50%
►50.00%
►62.50%
►70.00%
250+150=400
250/400=0.625
0.625*100=62.5 is equity and
100-62.5=37.5 is debt
Suppose a firm borrow s Rs. 800,000 at 7%. What w ill be the after -tax interest rate if tax
rate is 34%?
►3.00%
►4.62%
►5.20%
►8.00%
RD x (1
- TC).
7%X(1-
0.34)=4
.62
►Carrying costs
►Restocking costs

run
goodwill
•A trade-off
inventory levels
What w ill be the Economic Order Quantity (EOQ) if total u nit sales (T) = 400, fixed
costs (F) = Rs. 30 and carrying costs (CC) = Rs. 5 ?
►65 units
►69 units
►89 units
►95 units
EOQ = (2T x F
/ CC)1/2
2*400=800
800*30=24000
24000/5=4800
4800^0.5=69.28
►The required rate of return on the company's stock
►The yield to maturity on the bond

A firm has 3 million in comm on stock, 1 million in preferred stock and 2 million in
debt. What is the percentage of firm s financing that is debt ?
►20%
►33%
►40%
►67%
rate is 34%)
►Rs. 20,350
►Rs. 30,919
►Rs. 36,919
►Rs. 80,350
50350-30000=20350x34%=6919
30000+6919=36919
0.2829 ?
►0.0800
►0.0892
►0.5319
Answer
R = D1 /P0 + g
D1/P0 is called the Dividend Yield. Because this is calculated as the expected cash dividend by
the
current price, it is conceptually similar to the current yield on a bond
Growth rate, g, is also the rate at which the stock price grows. So it can be interpreted as
capital
gains yield

Cash cycle
collect until
day 105. so we have to arrange finances $1,000 for 105 - 30 = 75 days)
Cash cycle = Operating cycle - Accounts payable period
75 days = 105 days - 30 days

How a firm s overall cost of capital is calculated ?
We know that a firm’s overall cost of capital will reflect the required return on the firm’s assets as a
whole.
•Given that a firms uses both debt and equity capital, this overall cost of capital will be a mixture
of the
returns needed to compensate its creditors and stockholders.
•Cost of equity capital
Cost of Equity

(i) Dealer
investors
wishing to buy them
(ii) Broker
An agent who arranges security transactions among investors, matching investors wishing to buy

They do not buy or sell securities for their own accounts. Facilitating trades others is their
business
(iii) Bid Price
(iv) Strike Price

The price that the dealer wishes to pay is the bid price and the price at which the dealer sells the
strike price.
(v) Spread
The difference
between the bid and
spread
A firm has a total value of Rs. 1 million and debt valued at Rs. 400,000. What is the
after-tax weighted average cost of capital if the cost of debt is 12%, the cost of equity is
15% and tax rate is 35% ?
SNT & Co. has the following Target capital structure :
Debentures = Rs. 5.00 Billion


costs Rs. 25,000 and has cash flow s of Rs. 8,000 a year for six years. Machine Y costs
Rs. 30,000 and has cash flow s Rs. 7,000 a year for six years. SMC has 12% cost of
capital. Calculate each machine s Payback Period and NPV (N et Present Value) and
evaluate the results.
Paper 2
Liabilities?
►Surplus Asset
►Short-term Ratio
►Working Capital
►Current Ratio
►Corporation
►Total Assets

►Liquidity Ratio
►Solvency Ratios
pg 34

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Which of the following is a series of constant cash flows that occur at the end of? each
►Ordinary annuity
►Annuity due
►Perpetuity

number of
Annuity

known as:
►Dividends
►Capital Gain
►nterest
►Rs. 360
►Rs. 2,000
►Rs. 3,000
►Rs. 3,360

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
A company issues bonds with a Rs. 1,000 face value. What is the coupon rate if the
coupon payments of Rs. 45 are paid every 6 months?
►3 percent
►6 percent
►9 percent
►12 percent
interest rates.
►More than
►Lessthan
►Equal to

III. Repay the original amount borrowed (principal) IV.
►I and II
►I and III pg
77

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
►II and IV
►I, III, and IV
Which of the following allows a company to repurchase part or all of the bond? issue
at a stated price?
►Repayment
►Seniority
►Call provision
policy is to continue indefinitely, what will be the value of a share of stock at a 12%
required rate of return?
►Rs. 30
►Rs. 45
►Rs. 60
►Rs. 75
9/0.12=75
investors ?
Primary Market

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Secondary Market
Tertiary Market

Positive; positive
Positive; negative
Negative; negative
Negative; positive
The XYZ Corporation is considering an investment that will cost Rs. 80,000 and have
a useful life of 4 years. During the first 2 years, the net incremental after-tax cash
3.2 Years
3.5 Years
4.0 Years
www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
greater than 1
If the IRR of a project is 8%, its NPV, using a discount rate, k, greater than 8%,
will be less than 0
If the PI of a project equals 0, then the project's initial cash outflow equals the
PV of its cash flows
Relevant Cash Flows
Negative Cash Flows

flows?
Merchandize cost
Sunk cost
Opportunity cost
___________ Cost refers to the cash flows that could be generated from an asset the
firm already owns provided it is not used for the project in question.

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Sunk
Opportunity
Fixed
Variable

of :
The cost of common equity and the cost of debt pg

146

pg100


www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Sunk cost
Opportunity cost
Net Present Value
Profitability Index

AAR
www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Which of the following M&M propositions states that it is completely irrelevant how
a firm chooses to arrange its finances ?
1st proposition
2nd proposition
3rd proposition

particular company ?
Financial Risk
Business Risk found

on internet
Functional Risk

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Systematic Risk
Unsystematic Risk
Diversifiable Risk
Asset-specific risk
•Systematic Risk
Rise in Inflation

140
The expected return

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Over the last year, you received a dividend of Rs. 2 per share. At the end of the year, the
stock sells for Rs. 25. If Mr. Sami sells the stock at the end of the year,
Rs. 100
Rs. 250
Rs. 1,000
Rs. 1,350
50*20=1000
50*25=1250
1250-1000=250
250,000 has been calculated . Net working capital has increased by Rs. 50,000. There was
no capital spending during the year. What w ill be the total cash flow
for the project?
Rs. 170,000
Rs. 200,000
Rs. 215,000
Rs. 230,000
2050000-
(+50000)
200000
www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
class?
3-year
5-year
7-year

The next dividend for a company is Rs. 5 per share. The stock current price is Rs. 50 per
share. What w ill be the cost of capital if the dividend s are estimated to
12.88%
13.07%
14.22%
15.00% pg
142


www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
•Excess capacity
A firm makes a sale of Rs. 2,000 on January 05, 2005. The firm is offering credit term
of 3/10 net 30. How much it will receive if the customer makes the payment on January
09, 2005 ?
Rs. 1,000
Rs. 1,940
Rs. 2,000
Rs. 2,100

levels
Rise
Decline
Remain unaffected

inventory levels

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Operations?
Speculative motive
Transaction motive
Personal motive
opportunities,
activities
ongoing operations.

Variance of 0.008?
0.08944
0.09101
0.09487
0.10521
A firm has 3 million in common stock, 1 million in preferred stock and 2 million in
debt. What is the that is debt ?
20%
33%
www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
40%
67%

condition. pg 149
project.
increased by Rs. 200,000 and there is a net capital spending of Rs. 120,000 during the
year. Calculate total cash flow.
A replacement project has an initial investment of Rs.10,000; and cash flows are
Rs.3,400; Rs. 2,500; Rs.3,900; and Rs.5,200 for years 1 through 4, respectively. The
firm has decided to assume that the appropriate cost of capital is 10%. What will be
the net present value of the project? Is the project feasible?
www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
capital (WACC).
capital investments projects S and T. Each project has a cost of Rs.100,000, and the
cost of capital (discounting rate) for each project is 12%. The projects
Cash flow rs
1 30000 30000
2 30000 30000
3 35000 20000
4 25000 30000
5 25000 250000
Calculate Internal Rate of Return (IRR) for both projects. On

the basis of findings in (i):
independent
example.
Example Increasing current liabilities Increase Sourc

e
1. Increasing fixed asset
2. Decreasing equity
3. Increasing long-term debt
4. Decreasing fixed assets
5. Increasing current assets other than cash
www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
2,000
Paper 3
Which of the following refers to a conflict of interest between principal

and agent?
Management Conflict
Interest Conflict
Agency Problem

The Agency Problem
Agency relationship
Agency problem
costs
Which of the following term refers to the ease and quickness with which
assets can be converted to cash?
Analysis
Structuring

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Budgeting
Liquidity pg 14
Raw material
Direct labor
Which of the following can be computed by using the information only

from balance sheet?
Equity multiplier
Inventory turnover
Receivable turnover
Return on equity

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
How much must be deposited at 8% each of the next 20 years to have

Rs. 10,296.44?
Rs. 225
Rs. 341
Rs. 410
Rs. 452
In order to compare different investment opportunities (each with the same

risk) with interest rates reported in different manners you should:
You have Rs. 1,0 0 0 to invest. You have 2 choices; first is the savings account A,
which earns 8.75 percent com pounded annually and second is the savings account
B, which earns 8.50 percent com pounded monthly. Which account

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
What will be the value of a Rs. 1,0 0 0 face-value bond with an8% coupon rate at

pg
78
M&M Proposition
Fisher s Effect
www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
BCG Matrix
Investors dem and a higher yield as compensation to the risk of possible

default. This extra premium is called:
Taxability premium
In which type of voting, each shareholder is entitled one vote per share times
the number of directors to be elected?
Straight Voting

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Statutory Voting
Cumulative Voting
In which of the following procedure of voting for a company's directors,

each shareholder is entitled to one vote per share ?
Straight Voting
Proportional Voting
Cumulative Voting
Simple Price
Bid Price
Strike Price pg 100
Complex Price
Suppose the initial investment for a project is Rs. 160,000 and the cash flows are
Rs. 40,000 in the first year and Rs. 90,000 in the second and Rs. 50,000 in the
third. The project will have a payback period of:
www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
2.6 Years
3.1 Years
3.6 Years
4.1 Years
The XYZ Corporation is considering an investment that will cost Rs. 80,000
and have a useful life of 4 years. During the first 2 years, the net incremental
3.2 Years
3.5 Years
4.0 Years
Which of the following measures the present value of an investment per

dollar invested ?

119

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Which of the following set of cash flows should be considered in the decision
at hand?
Relevant Cash Flows
Negative Cash Flows
___________ Cost is an outlay that has already occurred and hence is not affected
by the decision under consideration.
Sunk
Opportunity
Fixed
Variable
The overall (weighted average) cost of capital is composed of a weighted

average
of :
The cost of common equity and the cost of preferred
stock The cost of preferred stock and the cost of debt

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
1.20 and Rs. 1.30 respectively. This pattern is expected to continue into the
future. This is an example of a company pay a dividend that grows:
At a constant rate
Which of the following statement is INCORRECT regarding Average

Accounting Return?

worng questions
Which of the following M&M propositions states that it is completely

irrelevant how a firm chooses to arrange its finances ?
www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
1st proposition
2nd proposition
3rd proposition
SNT Corporation has a WACC of 16% (ignoring taxes). It can borrow at

9% . Assuming that SNT has a target capital structure of 75% equity and
25% debt, what will be its cost of equity ?
13.00%
15.23%
18.33%
20.98%
25%/75%==0.33
16%+(16%-9%)x0.33
0.16+(0.16-0.09)x0.33
0.16+0.0231=18.31%

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Increasing equity
Which of the following describes how a product moves through the current
asset accounts ?
Cash Cycle
Operating Cycle
Current Cycle

receivables ?
Inventory period
Collection period

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Suppose you have Rs. 10,000 on deposit. One day, you write a cheque for
Rs. 2,000 and deposit Rs. 4,000. What is your disbursement float ?
Rs. 4,000
+ Rs. 2,000
Rs. 2,000
+ Rs. 4,000
portfolio. Stock A has an expected return of 25% and stock B has an
expected return of 20%. What will be the portfolio expected return ?
18.27%
21.84%
22.50%
25.13%
Which of the following statement(s) is (are) true regarding Return

on Investment?
One of the responsibilities of the financial manager is to assess the value

of the proposed investment

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
The dollar returns are the sum of the cash received and the change
in dollar value of the asset
firm sold the stock today for Rs. 80. What is the rate of return the firm has earned?
5.3%
194.2%
83.11%
94.2%
What will be the cash inflow if we have sales of Rs. 400,000 and
accounts receivable are increased by Rs. 70,000?
Rs. 70,000
Rs. 230,000
Rs. 330,000
Rs. 470,000
What will be the cash inflow if we have sales of Rs. 300,000 and
accounts receivable are decreased by Rs. 70,000?
Rs. 70,000

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
RS 230000
Rs. 370,000
correct
Rs. 470,000
300000-
70000=230000
Su p pose a firm borrow s Rs. 800,000 at 7%. What w ill be the total interest bill p
er year if tax rate is 34% ?
Rs. 19,040
Rs. 36,960
Rs. 56,000
Rs. 800,000
800000*7%=56000
56000*34%=19040
Which one of the following motives refers to the need for holding cash as a
safety margin to act as a financial reserve?
Speculative motive
Transaction motive
Personal motive
•Precautionary
margin to act as a
financial reserve

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Suppose market value exceed s book value by Rs. 225,000. What w ill be the
aftertax proceeds if there is a tax rate of 34 percent?
Rs. 105,600
Rs. 148,500
Rs. 191,000
Rs. 225,000
225000*34%=765,00
225000-765000=148500
Question No: 39
Su p pose you have bou ght 100 shares of a corporation one year ago at Rs. 18 per
share. Over the last year, you have received a d ivid end of Rs. 2 p er share. At the
end of the year, the stock sells for Rs. 27. As p er given inform ation, w hat w ill be
15
%
25
%
35
%
50
%
(27-18)/18=0.5%

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
SN T Com pany p u rchased a vehicle for Rs. 450,000. Based on historical averages,
this vehicle is w orth 25% of the p u rchase price now and it is being sold at this
Rs. 14,875
Rs. 112,500
Rs. 337,500
Rs. 230,000
Standard deviations for Investment A and Investment B are 19% and

28% respectively. This indicates that:
Investment B is less volatile than Investment
shareholders.
Financial leverage refers to the extent to which a firm relies on the
debt.

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Suppose there is an expected rate of 20%. What will be the risk premium if
risk free rate is (i) 8% and (ii) 12% ?
What is the difference between Leverage and Un -levering?
Match the capital budgeting techniques are given in Column A to the criteria in Column
Net Present Value Discounted Cash Flow Criteria

Average Accounting Return Payback Criteria
Payback Period Discounted Cash Flow Criteria
Internal Rate of Return Accounting Criteria

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Each of the following mutually exclusive investment projects involves an

initial ou tlay of Rs. 240,000. The com p any s required rate of return is 11
percent. The estimated net cash flows for the projects are as follows:
Cash flow rs
1 140000 20000
2 80000 40000
3 60000 60000
4 20000 100000
5 20000 180000

0 Acquire inventory on credit None

(iv) Operating cycle
(v) Cash cycle
Acc501 lec 1 to 40
1st Feb. to 2nd Feb

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
The next dividend for a company is Rs. 6 per share. The stock current price is Rs. 57 per
5% ?
12.88%
13.07%
14.22%
15.53%
D1 = D0 x (1 + g)
RE = D1 / P0 + g
6x(1+0.05)=6.3
6.3/57+0.05=16.
Cash Cycle
Current Cycle

Which of the following is the time between receipt of inventory and payment for it ? Select
correct option:
Operating Cycle
Cash Cycle
Current Cycle

Business risk depends on which of the following risk of the firm’s assets ? Select
correct option:
Systematic Risk pg 155
Diversifiable Risk
Unsystematic Risk

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com


account.

Which of the following refers to the use of borrowed money to increase the return on equity
of an investment purchase ?
Financial Leverage
Operating Leverage
Structural Leverage

WACC is __________.
maximized; minimized pg 149

A firm’s equity is worth 4 million and its debt is worth 2 million. What is the percentage of
firm’s financing that is debt ?

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
20%
33%
40%
67%
Ref:
4+2=6
4/6=0.66
0.66*100=66.67 is equity and
100-67=33 is debt

company ?
Financial Risk
Business Risk
Functional Risk

following ?

liabilities ?
Net difference
Net working capital
Current ratio
Net available capital

Operating cycle = ________________
Collection period - accounts payable period

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Question # 2 of 15 ( Start time: 02:39:24 PM ) Total Marks: 1 A

firm’s capital structure may include which of the following ? Select
correct option:
Common stocks
Bonds

Over the last year, he received a dividend of Rs. 2.50 per share. At the end of the year, the stock
sells for Rs. 28. As per given information, what will be the capital gains yield ? Select correct
option:
15.85%
25.10%
27.27%
45.00%
(28-22)/22
=0.2727

Which of the following term refers to the situation when investors loan out the money ? Select
correct option:
Leverage
Levering
Un-levering pg 152
Loaning

Which of the following activities does not increase cash ? Select
correct option:
Increasing equity
Increasing current assets other than cash pg 163

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
The increase in debt financing raises the required return on equity because the risk born by
the investors increases which is called:
Business Risk
Functional Risk
Question # 5 of 15 ( Start time: 11:27:05 AM ) Total Marks: 1 What

will happen to cash cycle if payable period is lengthened ? Select
correct option:

Which of the following M&M propositions states that it is completely irrelevant how a firm
chooses to arrange its finances ?
2nd proposition
3rd proposition

total market value of the company’s debt are calculated as Rs. 150 million. What percent of the
firm’s financing is equity ?
33.33%
50.00%
62.50%
85.00%
=250+150=400
250/400=62.5equity and remaining 37.5 is debt

Which of the following is referred as the ratio of the standard deviation of a distribution to the
mean of that distribution ?

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
The expected return

Cash cycle = ________________
Operating cycle - accounts payable period pg 165

M&M Proposition
Dividend growth theory
Question # 13 of 15 ( Start time: 11:34:55 AM ) Total Marks: 1 The

cost of common equity for a firm is:
The required rate of return on the company's stock The
yield to maturity on the bond
The risk-free rate

Standard deviations for Investment A and Investment B are 25% and 12% respectively. This
indicates that :

Operating Cycle
www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Cash Cycle
Current Cycle



Un-levering
Levering
Loaning

Which of the following is the return that firm’s creditors demand on new borrowings ? Select
correct option:
Cost of debt pg 143
www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com

A firm’s equity is worth 4 million and its debt is worth 2 million. What is the percentage of
firm’s financing that is equity ?
20%
33%
40%
67%
4+2=6
4/6=0.67

Under what situation, we can safely say that one capital structure is better than the other ? Select
correct option:


Jaga na soya hu mai

Kch sir fira sa hu mai
Budhu zara sa hu mai………

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Total Marks: 1
proceeds if
Rs. 97,500
Rs. 105,600
Rs. 130,000
Rs. 150,000
200000*35%=70000
200000-70000=130000

In which type of projects, the unequal lives of the projects do affect the analysis ? Select
correct option:
Mutually exclusive
Dependent
Independent
Correlated
return ?
10.63%
20.20%
35.12%
41.30%
First find dividend yield then capital gain yield then plus both answer
Let see
Dividend yield= 1.50/23=0.06521%
Total percentage return 0.06521+0.3478*100=41.30

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
The book value of a system is Rs. 35,500 at the end of year 4 of its life. What will be the total
after-tax cash flow from sale if we sell this system for Rs. 20,000 at this time? (Tax rate is
35%)
Rs. 15,000
Rs. 15,220
Rs. 20,327
Rs. 25,425

percentage.


Over the last year, he received a dividend of Rs. 2.50 per share. As per given information what
will be the dividend yield ?
9.92%
11.36%
21.12%
40.00%
d.y= 2.50/22=0.1136%

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Which of the following type of risk can be eliminated by diversification ?
Systematic Risk
Market Risk
Unsystematic Risk
Which of the following is the return that firm’s creditors demand on new borrowings ? Select
correct option:
Cost of debt
6%
9%
15 %
24%
14-5=9

Interest Rate
Inflation
Your gain (or loss) on an investment that you buy is called your : Select
correct option:
Risk on investment
Gain on investment
loss on investment
Standard Company purchased a vehicle for Rs. 450,000. Based on historical averages, this
vehicle is worth 25% of the purchase price now and it is being sold at this price. What is the
vehicle’s market value ?

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Rs. 14,875
Rs. 112,500
Rs. 337,500
Rs. 230,000

shares. Both want to be elected as one of the four directors but Mr. Imran doesn’t want Mr.
Aamir to be director. How much votes would Mr. Aamir be able to cast as per cumulative
voting procedure?
70
120
200
280
4*50=200

Autos & computers


Diversifiable Risk
Market Risk
Residual Risk
Asset-specific Risk

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Rs. 40,000
Rs. 55,000
Rs. 65,000
Rs. 72,000
600000*1.12=672000
672000-600000=72000

Diversifiable Risk
Market Risk

budgeting decision?
Payback Period
Net Present Value
Profitability Index

Most widely used

Which of the following is known as the group of assets such as stocks and bonds held by an
investor ?
Stock Bundle
Portfolio
Capital Structure

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com

Which of the following set of cash flows represent the change in the firm’s total cash flow
that occurs as direct result of accepting the project ?
Relevant Cash Flows

Negative Cash Flows

0.0075 ?
0.08660
0.09101
0.09487
0.10521

Investors demand a higher yield as compensation to the risk of possible default. This extra
premium is called:
Taxability premium

Rs. 70,000
Rs. 230,000
Rs. 330,000 not sure
Rs. 470,000

M&M Proposition
www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Fisher’s Effect
BCG Matrix

Which of the following set of cash flows should be considered in the decision at hand? Select
correct option:
Relevant Cash Flows
Negative Cash Flows

What will be the real rate if the nominal rate is 14% and the inflation rate is 6%? Select
correct option:
6.02%
7.55%
10.0%
14.3%
(1+r)/(1+h)
1.14/1.06=1.07
1.07*100=107.55
107.55-100=7.55

total market value of the company’s debt are calculated as Rs. 100 million. What percent of the
firm’s financing is debt ?
28.57%
50.00%
62.50%
70.00%
250/350*100-100=28.57

Which of the following is referred as a statistical measure of the variability of a
distribution around its mean ?
The expected return

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com

The expected return

independent project
dependent project
contingent project

Payback Period
Net Present Value
Profitability Index

500,000 has been calculated. Net working capital has declined by Rs. 45,000. There was no
capital spending during the year. What will be the total cash flow for the project ? Select
correct option:
Rs. 200,000
Rs. 315,000
Rs. 455,000
Rs. 545,000

Which of the following formula is used to calculate the price of a zero growth stock?
Po = D / R
Po = Do (1+g) / R
Po = Do(1+g) / (R - g)

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Po = D1 / (R - g)

Preferred stock has fixed dividend paid every period forever
Cost of preferred stock can be estimated by observing the required return on other

IRR and NPV rules always lead to identical decisions as long as: Select
correct option:

deductible.
Interest; dividend
Dividend; interest
Bonus; interest

Which one of the following costs refers to an outlay that has already occurred and hence is not
affected by the decision under consideration ?
Sunk
Opportunity
Fixed
Variable

Suppose the initial investment for a project is Rs. 16 million and the cash flows are Rs. 4 million
in the first year and Rs. 9 million in the second and Rs. 5 million in the third. The project will
have a payback period of:
2.6 Years
3.1 Years
www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
3.7 Years
4.1 Years

An investment is acceptable if its AAR is greater than a benchmark AAR An
investment is acceptable if its AAR is less than a benchmark AAR None of the
given options

Rs. 4.41
Rs. 6.12
Rs. 7.35
Rs. 8.93
5/100=0.05+1=1.05^5=1.2762*7=8.93

rejected if it is ______.
Positive; positive
Positive; negative
Negative; negative
Negative; positive
Ending lec 1 to 35
19-Jan-02
___
Date :4-jan-2011

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
positive example
ratio?
0.101
0.220
0.667
0.818
Reference:(1-0.45=0.55)
=0.45/0.55=0.818
Rs. 1,360
Rs. 2,000
Rs. 5,625
Rs. 8,960
Reference: 8000*12/100=8960
Rs. 30.19
Rs. 43.52
Rs. 56.53
Rs. 71.25
4.75*(1+0.5/4.75-0.5)=71.25
Semiannually
Quarterly
Monthly
Daily

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
APR=9
M=30
(1+9/30)^30-1=9.38
procedure?
100 votes
200 votes
300 votes
400 votes
Rs. 30
Rs. 40
Rs. 50
Rs. 60

Discounting
Compounding
Factorization
an asset?
Market Value
Book Value
Intrinsic Value
10.

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Balance Sheet
Income Statement

sole proprietorship
partnership
joint stock company
none of the above
2.6 Years
3.1 Years
3.7 Years
4.1 Years




www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com

Common Stocks
Preferred Stock
bonds?
Government bonds 85
Zero coupon bonds
Floating-rate bonds
Euro bonds
Low; higher
High; lower
High; higher pg 88



www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
be viewed as:
Ordinary Annuity
Annuity Due
are called:
Float
Collar pg 86
Limit
Surplus


D2 = D1 x (1 + g )
D2 = Do x ( 1 + g )2
D2 = Do x ( 1 + g )2

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com

independent project
dependent project
contingent project
Rs. 40,000
Rs. 55,000
Rs. 65,000
Rs. 72,000
Reference=600000*1.12=672000-600000=72000



Income
Zero coupon
Floating-rate
Put

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Positive
Negative pg 80
Neutral

Repayment
Seniority
Call provision

Most widely used
investors?
Primary Market
Tertiary Market

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
known as:
Payback Period
36.
Net Present Value
Profitability Index

Payback Period

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Net Present Value
Profitability Index
dollar invested?
value?
Net Present Value
Profitability Index
common stock?
Dividend yield
Voting rights
bonds?
Zero coupon bonds
Floating-rate bonds
Euro bonds
Lower; higher
Higher; lower

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
3 percent
6 percent
9 percent
12 percent
60+60=120/1000=12%
2.00 Years
2.67 Years
3.00 Years
3.67 Years
year
each period?
Ordinary annuity
Annuity due pg 66
Perpetuity
bonds?
Default free
Taxable
Least liquid pg 90
Highly liquid

Expected inflation

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Interest rate risk
Yield to maturity
Maturity Period
m.q .z
Primary Market
Secondary Market
Tertiary Market

Broker pg 100
Dealer
Member
Specialist
volatile
Government bonds

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Floating-rate bonds
Euro bonds
Accepted; rejected
Accepted; accepted
Rejected; rejected
Payback Period
Net Present Value
Profitability Index
Annuity due
Perpetuity
when:

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Fluctuations Risk
Real-Time Risk
Inflation Risk
related to its:
Time to maturity
Coupon rate
Yield to maturity

Date :25-11-2010

finance?


Selling expense
Raw material

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Direct labor

Selling expenses
General expenses

Profit Margin
Debt-equity ratio
Operating cash flow

Capital spending

Marketing Research
Product Pricing

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
of goods sold?
Product cost
Period cost
5 days
36 days
48 days
73 days
750000/150000=5
365/5=73days
Operating Leverage
Financial Leverage

Primary market
Secondary market
Tertiary market

creditors?

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Liquidity Ratios
Market Value Ratios
Income Statement
Balance Sheet
Cash Flow Statement
Operating activity
Investing activity
Financing activity

Current Ratio
Acid-test Ratio
Cash Ratio

time?
Income Statement
Balance Sheet
Cash Flow Statement
a specific date?

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Income Statement
Balance Sheet
Cash Flow Statement
known as:
Dividends
Retained Earnings
Capital Gain

Current Ratio
Quick Ratio
Cash Coverage Ratio
Cash Ratio
Profit Margin
Return on Assets
Return on Equity


www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com

Financial policy
Dividend policy

Accountants
Financial Analysts
Auditors
Marketers
Liquidity Ratios
Leverage Ratios
Market Value Ratios
capital.
Positive
Negative
zero

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com

sole proprietorship
partnership
joint stock company
cooperative Society
leverage?
Liquidity Ratios


Depreciation
Interest

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Rs. 105,600
Rs. 148,500
Rs. 165,000
Rs. 225,000
Solution=250000*34%=85000
250,000-85000=165000


Common Stocks
Preferred Stock

Primary market
Secondary market
Tertiary market

Accountants
Auditors
Marketers

Revenue
Expenses

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Depreciation
coupon rate?
Rs. 100
Rs. 510
Rs. 1,000
Rs. 1,100
Solution:
=1000/10
=100

Net Present Value

Selling expense
Raw material
Direct labor


www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Financial Leverage

finance?
Operating activity
Investing activity
Financing activity
1.01
1.26
1.39
1.52
Solution= 700000/460000=1.52
Sole-proprietorship
Limited Partnerhsip
Corporation

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Increase
Decrease
Remain unaffected
Become zero
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity

Net loss
Net worth
Markup
Markdown

Repayment
Seniority
Call provision

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Income Statement
Balance Sheet
Cash Flow Statement


regulated?
Sole-proprietorship
General Partnership
Limited Partnership
Corporation

Par value
Coupon value

discount?


www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Common Stocks
Preferred Stock

Inventory
Supplies
Machinery
Depreciation
Rs. 300,000
Rs. 500,000
Rs. 800,000
Rs. 1100,000
sol

Sole-proprietorship
General Partnership
Limited Partnership
Corporation

sole proprietorship
partnership
joint stock company
none of the above

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
as:
Surplus Asset
Short-term Ratio
Working Capital
Current Ratio
Rs. 14,186
Rs. 18,256
Rs. 22,697
Rs. 28,253
solution
40000*1/(1+0.12)^5=22697.07

Income Statement
Balance Sheet
Cash Flow Statement

Par value
Coupon value

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
issuer.
bonds.


information?
12 %
25 %
40 %
60 %
Solution
250000-150000/250000*100=40%
correct option:
Positive
Negative
zero

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com

Dividends
Retained Earnings
Capital Gain

Investments
Management Ratios?

Receivable Turnover
Return on Assets

Operating Leverage

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Financial Leverage
b
buy the television?
8.42 years
10.51 years
15.75 years
18.78 years
6000(1+5%)^10.51=around 10,000


level

Financial policy
Dividend policy
Income Statement
Balance Sheet
Cash Flow Statement
Armaan: b

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com

Selling expenses
General expenses
Rs. 500
Rs. 752
Rs. 1,052
Rs. 1,100
4100-3000=1100

7.00 percent
7.12 percent
7.19 percent
7.23 percent

for comparison?
Benchmarking 48
Standardizing

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Comparison
Evaluation

Financial policy
Dividend policy

2% to 8%
4% to 25%
5% to 20%
10% to 50%

Management Conflict
Interest Conflict
Agency Problem
Ordinary annuity 63
Annuity due
Perpetuity

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Investments



Investments
4.30%
6.00%
10.70%
16.73%
solution
Net income=8%*75000=6000
Profit margin=6000/100000*100= 6%

Capital Structuring
Capital Rationing
Capital Budgeting

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com

Current Ratio
Acid-test Ratio
Cash Ratio
Sole-proprietorship
Partnership
Corporation
20%; 80%
37%; 63%
63%; 37%
80%; 20%

I and II
I and III

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
II and IV
I, III, and IV

Rs. 6,302
Rs. 9,981
Rs. 14,800
Rs. 15,869

5.00 percent
7.00 percent
8.45 percent
10.0 percent
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Rs. 150,000
Rs. 200,000
Rs. 250,000
Rs. 400,000
4 % = N.P / 500,000
4% * 500,000 = N.P
N.P = Rs. 20,000

5 % = 20,000 / Sales
5% * Sales = 20,000
Sales = 20,000 / 5%
Sales = 400,000
to zero?


Current Yield
Yield To Maturity
Coupon Yield
Capital Gains Yield

www.vuaskari.com
Composed & Solved
Armaan Makhani
Vu Askari Team
www.vuaskari.com
Increase
Decrease
Remain unaffected
Become zero
Increase
Decrease
Remain unaffected
Become zero

www.vuaskari.com
Date :25-11-2010



Selling expense
Raw material
Direct labor

Selling expenses
General expenses

Profit Margin
Debt-equity ratio

Operating cash flow

Capital spending


Marketing Research
Product Pricing
sold?
Product cost
Period cost
collection period?
5 days
36 days
48 days
73 days
750000/150000=5
365/5=73days
Operating Leverage
Financial Leverage

Primary market
Secondary market
Tertiary market
Liquidity Ratios
Market Value Ratios
Income Statement
Balance Sheet
Cash Flow Statement
Operating activity
Investing activity
Financing activity

Current Ratio
Acid-test Ratio
Cash Ratio
Income Statement
Balance Sheet
Cash Flow Statement
Dividends
Retained Earnings
Capital Gain
date?
Income Statement
Balance Sheet
Cash Flow Statement
Dividends
Retained Earnings
Capital Gain

Current Ratio
Quick Ratio
Cash Coverage Ratio
Cash Ratio
Profit Margin
Return on Assets
Return on Equity



Financial policy
Dividend policy

Accountants
Financial Analysts
Auditors
Marketers
earnings as compared to its expenses and other relevant costs incurred during a specific period
of time?
Liquidity Ratios
Leverage Ratios
Market Value Ratios
Positive
Negative
zero

sole proprietorship
partnership
joint stock company
cooperative Society
Liquidity Ratios


Flows?
Depreciation
Interest
Rs. 105,600
Rs. 148,500
Rs. 165,000
Rs. 225,000
Solution=250000*34%=85000
250,000-85000=165000
issuing or selling:

Common Stocks
Preferred Stock
earnings as compared to its expenses and other relevant costs incurred during a specific period
of time?
Liquidity Ratios
Leverage Ratios
Market Value Ratios

Primary market
Secondary market
Tertiary market

Accountants
Auditors
Marketers

Revenue
Expenses
Depreciation
Rs. 100
Rs. 510
Rs. 1,000
Rs. 1,100
Solution:
=1000/10
=100

Net Present Value

Selling expense
Raw material
Direct labor


Financial Leverage
Operating activity
Investing activity
Financing activity
of Rs. 460,000. What would be the Current Ratio for the company if there is an
1.01
1.26
1.39
1.52
Solution= 700000/460000=1.52
Sole-proprietorship
Limited Partnerhsip
Corporation
Increase
Decrease
Remain unaffected
Become zero
continues forever?
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity

inventory?
Net loss
Net worth
Markup
Markdown
stated price?
Repayment
Seniority
Call provision
Income Statement
Balance Sheet
Cash Flow Statement


Sole-proprietorship
General Partnership
Limited Partnership
Corporation
Par value
Coupon value
issuing or selling:
Common Stocks
Preferred Stock
from taxes?
Inventory
Supplies
Machinery
Depreciation
59. A firm reports total liabilities of Rs. 300,000 and owner’s equity of Rs. 500,000. What
Rs. 300,000
Rs. 500,000
Rs. 800,000
Rs. 1100,000
sol
Sole-proprietorship
General Partnership
Limited Partnership
Corporation

sole proprietorship
partnership
joint stock company
none of the above
Surplus Asset
Short-term Ratio
Working Capital
Current Ratio
Rs. 14,186
Rs. 18,256
Rs. 22,697
Rs. 28,253
solution
40000*1/(1+0.12)^5=22697.07
Income Statement
Balance Sheet
Cash Flow Statement
Par value
Coupon value

Bond ratings are based solely on information acquired from sources other than the bond issuer.

12 %
25 %
40 %
60 %
Solution
250000-150000/250000*100=40%
correct option:
Positive
Negative
zero
Dividends
Retained Earnings
Capital Gain

Investments

Receivable Turnover
Return on Assets

Operating Leverage
Financial Leverage
b
8.42 years
10.51 years
15.75 years
18.78 years
6000(1+5%)^10.51=around 10,000



Financial policy
Dividend policy
date?
Income Statement
Balance Sheet
Cash Flow Statement
Armaan: b

Selling expenses
General expenses
Rs. 500
Rs. 752
Rs. 1,052
Rs. 1,100
4100-3000=1100

7.00 percent
7.12 percent
7.19 percent
7.23 percent
Income Statement?
Benchmarking 48
Standardizing
Comparison
Evaluation

Financial policy
Dividend policy
2% to 8%
4% to 25%
5% to 20%
10% to 50%
Management Conflict
Interest Conflict
Agency Problem
Ordinary annuity 63
Annuity due
Perpetuity
Investments
information?


Investments
4.30%
6.00%
10.70%
16.73%
solution
Net income=8%*75000=6000
Profit margin=6000/100000*100= 6%
investments?
Capital Structuring
Capital Rationing
Capital Budgeting

Current Ratio
Acid-test Ratio
Cash Ratio
Sole-proprietorship
Partnership
Corporation
20%; 80%
37%; 63%
63%; 37%
80%; 20%
I and II
I and III
II and IV
I, III, and IV

Rs. 6,302
Rs. 9,981
Rs. 14,800
Rs. 15,869

dividend of Rs. 2.50 is fixed. Assuming a constant dividend forever, what is the rate of return
on this stock?
5.00 percent
7.00 percent
8.45 percent
10.0 percent
continues forever?
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity

Fall Semester 2006

_____________________.


organization?


a. Increase
b. Decrease
c. Remain unchanged

_________________?
a. 0.38 times
b. 0.58 times
c. 0.78 times
d. 0.98 times
1
Fall Semester 2006
million?
a. Rs. 2.5 million

b. Rs. 3 million
c. Rs. 3.5 million
d. Rs.4.5 million
a. 9.414 %
b. 10.414 %
c. 11.412 %
d. 12.414 %

a. Rs.150 millions
b. Rs.250 millions
c. Rs.350 millions
d. Rs.500 millions

Corporation?
a. 12.29%
b. 14.29%
c. 16.29%
d. 18.92%
2
Fall Semester 2006
a. 25 %
b. 35 %
c. 29%
d. 45%
(Total marks: 10)
A. Secondary market
B. Primary market
C. Capital market
D. Money market
3
Fall Semester 2006
following except:


A. Fall
B. Rise
C. Remain unchanged
discount factor?
A. 1.42215
B. 2.75886
C. 3.75886
D. 4.08998
A. Compounded daily
B. b.Rs.240 million
C. c.Rs.275 million
D. d.Rs.290 million
4
Fall Semester 2006
A. 6.12 times
B. 7.11 times
C. 8.11 times
D. 9.11 times
rates of return?
A. 20.00%
B. 20.50%
C. 21.00%
D. 21.99%
firm?
A. Rs.60, 000
B. Rs.64, 000
C. Rs.72, 000
D. Rs.74, 000
Total marks: 10

the:
7
Fall Semester 2006
b. Retention ratio
c. Leverage ratio
d. Profit margin


a. (1+r) t
b. (1-r) t
c. 1/ (1+r) t
d. 1/ (1+r) 1/t


a. The firm grows
you know:
a. Future amount
b. Present value
c. Interest rate

Rs. 10,000?
a. 5.27 years
b. 6.27 years
c. 7.2 7 years
d. 7.57 years
8
Fall Semester 2006
a. Rs. 116.64
b. Rs. 111.64
c. Rs. 164.64
d. Rs. 164.61
1. Ntp Corporation has decided to pay Rs.16 per share dividend every year. If this policy is to
continue indefinitely, then the value of a share of stock would be --------------, if the required
rate of return is 25%?
a. Rs.60
b. Rs.64
c. Rs.68
d. Rs.74
2. MT Corporation has a previous year dividend of Rs.14 per share where as investors require
a 17% return on the similar stocks .The Company’s dividend grows by 7%.The price per
share in this case would be______________.
a. Rs.149.8
b. Rs.184.9
c. Rs.198.4
d. Rs.229.9
3. RTU Corporation stock is selling for Rs.150 per share. The next dividend is Rs.35 per share
and it is expected to grow 14% more or less indefinitely. What would be the return does this
stock offer you if this is correct?
a. 17%
b. 27%
c. 37%
d. 47%

a. 150 votes
9
Fall Semester 2006
b. 210 votes
c. 240 votes
d. 300 votes
a. Primary market
b. Secondary market
c. Financial market
d. Capital market

be Rs.5, 000,000 in first year, Rs.7, 000,000 in the next year and Rs.8, 000,000 in the last year.
This project would cost about Rs. 10,000,000.The net present value of the
a. Rs.2, 576, 000

b. Rs.3, 576, 000
c. Rs.1, 576, 000
d. Rs.4, 576, 000

Year Cash Flows
01 Rs.500,000
02 Rs.800,000
03 Rs.600,000
______________.
a. 1.50 years
b. 2.00 years
c. 2.33 years
d. 3.00 years
8. Suppose Z Corporation, has the present value of its future cash flows is Rs.450, 000 and
the project has a cost of Rs.300, 000, then the profitability index would be
________________.
a. 0.667
b. 1
c. 1.25
d. 1.50
10
Fall Semester 2006
a. Opportunity cost
b. Sunk cost
c. Decremental cost
_______________.
a. Rs. 3,810,000
b. Rs. 4,810,000
c. Rs. 5,190,000
d. Rs. 6,890,000
Total marks: 10

d. Both a & c
b. Assets increased
d. Cash withdrawn

11
1.The time between sale of inventory and collection of receivable.
b operation cycle
c inventory period
d none of above
2. allow a bank to substitute its creditworthiness for the customer, for a fee is
called___________-
a open bank account

b commercial draft
c promisory note
3.Standard deviations for Investment A and Investment B are 25% and 12% respectively. This
indicates that :
4. find the average 2%,5%,6%,8%

a 5%
b 5.25 %
c 6%
d 8%
5 what is standard deviation of thise averages 2%,5%, 7%

6.As the dividend is always same for a zero growth stock, so the stock can also be viewed
as
7.Which of the following statement shows revenue, expense, and net worth as of a specific
date?
a balance sheet
b income statement
c cashflow
d none of above
8. which of the following character is not a systematic risk
market risk
interest risk
inflation risk
strike call in a company
director is
a 100
b150
c50
d25
Accepted; rejected
Accepted; accepted
Rejected; rejected
Rejected; accepted
Cost of debt
Mutually exclusive
Dependent
Independent
Correlated
14.Mr. Naveed has bought 100 shares of a corporation one year ago at Rs. 23 per share. Over
the last year, he received a dividend of Rs. 1.50 per share. At the end of the year, the stock sells
for Rs. 31. As per given information, what will be his total percentage return ?
10.63%
20.20%
35.12%
41.30%
investor ?
Stock Bundle
Portfolio
Capital Structure
million in the first year and Rs. 9 million in the second and Rs. 5 million in the third. The
2.6 Years
3.1 Years
3.7 Years
4.1 Years
a.68
b 18
c 80
d 118
1.
investment.
M. Risk Return
N. Risk Premium
O. Risk Factor
P. None of the above
M. Portfolio
O. Budget
M. Less
N. More
O. Same
P. None of the Above
M. Systematic Risk
N. Unsystematic Risk
O. Portfolio Risk
P. Total Risk
M. Minimize the Risk

N. Maximize the return
O. A & B
P. None of the Above
M. Higher the risk, lower the return

N. Lower the risk, higher the return
O. Higher the risk, higher the return
M. Systematic Risk
O. Total Risk
P. Portfolio Risk
O. 10,500
P. 7,500
Q. 10,000
R. 7,000
L. 8.50 %
M. 6.25%
N. 8.00%
O. 6.67%
L. 20%
M. 28%
N. 32%
O. 35%

11. Which one of the given options involves the sale of new securities from the issuing company to general public?
A. Secondary market
B. Primary market
C. Capital market
D. Money market


14. Suppose Younas Corporation has balance of merchandise of 5000 units. It wants to sell 2000 units at 90% of its
cost on cash. What would be the affect of this transaction on the current ratio?
A. Fall
B. Rise
C. Remain unchanged
A. 1.42215
B. 2.75886
C. 3.75886
D. 4.08998
16. You have a cash of Rs.150, 000. If a bank offers four different compounding methods for interest, which method
would you choose to maximize the value of your Rs.150, 000?
A. Compounded daily
17. Ali Corporation has a cash coverage ratio of 6.5 times. Whereas its earning before interest and tax is Rs.750
million and interest on long term loan is Rs.160 million. What would be the annual depreciation for the current
year?
B. b.Rs.240 million
C. c.Rs.275 million
D. d.Rs.290 million
18. Suppose RZ Corporation sales for the year are Rs.150 million. Out of this 20% of the sales are on cash basis
while remaining sales are on credit basis. The past experience revealed that the average collection period is 45
days. What would be the receivable turnover ratio?
A. 6.12 times
B. 7.11 times
C. 8.11 times
D. 9.11 times
A. 20.00%
B. 20.50%
C. 21.00%
D. 21.99%
20. Nz Corporation reported earning before interest and taxes of Rs.500, 000 for the current year. It has taken a long
term loan of Rs.2 million from a local bank @ 10% interest. The tax is charged at the rate of 32%.What will be the
saving in taxes due to presence of debt financing in the capital structure of the firm?
A. Rs.60, 000
B. Rs.64, 000
C. Rs.72, 000
D. Rs.74, 000

1. Ntp Corporation has decided to pay Rs.16 per share dividend every year. If this policy is to continue indefinitely, then the
value of a share of stock would be --------------, if the required rate of return is 25%?
a. Rs.60
b. Rs.64
c. Rs.68
d. Rs.74
2. MT Corporation has a previous year dividend of Rs.14 per share where as investors require a 17% return on the similar
stocks .The Company’s dividend grows by 7%.The price per share in this case would be______________.
a. Rs.149.8
b. Rs.184.9
c. Rs.198.4
d. Rs.229.9
3. RTU Corporation stock is selling for Rs.150 per share. The next dividend is Rs.35 per share and it is expected to grow 14%
more or less indefinitely. What would be the return does this stock offer you if this is correct?
a. 17%
b. 27%
c. 37%
d. 47%
4. Suppose a Corporation has 3 shareholders; Mr.Salman with 25 shares, Mr. Kareem with 35 shares, and Mr.Amjad with 40
shares. Each wants to be elected as one of the six directors. According to cumulative voting rule Mr.Kareem would cast
a. 150 votes
b. 210 votes
c. 240 votes
d. 300 votes
a. Primary market
b. Secondary market
c. Financial market
d. Capital market
6. Suppose Mehran Corporation is dealing in the Automobile industry. Based on projected costs and sales, it expects that the
cash flows over the 3-year life of the project will be Rs.5, 000,000 in first year, Rs.7, 000,000 in the next year and Rs.8,
000,000 in the last year. This project would cost about Rs. 10,000,000.The net present value of the project would be ________,
if discount rate is assumed to be 25%.
a. Rs.2, 576, 000
b. Rs.3, 576, 000
c. Rs.1, 576, 000
d. Rs.4, 576, 000

Year Cash Flows
04 Rs.500,000
05 Rs.800,000
06 Rs.600,000
a. 1.50 years
b. 2.00 years
c. 2.33 years
d. 3.00 years
8. Suppose Z Corporation, has the present value of its future cash flows is Rs.450, 000 and the project has a cost of Rs.300,
000, then the profitability index would be ________________.
a. 0.667
b. 1
c. 1.25
d. 1.50
a. Opportunity cost
b. Sunk cost
c. Decremental cost
Rs.12, 000,000 during the same period. Assume the annual tax rate is 37%.Its annual depreciation is Rs.5, 000, 000.The
operating cash flow of the organization would be _______________.
a. Rs. 3,810,000
b. Rs. 4,810,000
c. Rs. 5,190,000
d. Rs. 6,890,000

a. Default free
b. Taxable
c. Highly liquid
12. The difference between an investment’s market value and its cost is called the __________ of the investment.
b. Economic value
c. Book value
d. Future value
a. Higher
b. Lower
c. Constant
b. Straight voting
c. Proxy voting

a. Chairman
c. Shareholders
d. Stakeholders
16. Based on ________ the investment is accepted if the _____ exceeds the required return. It should be rejected otherwise.
b. Payback period
a. -1
b. 0
c. 1

a. Book value
b. Intrinsic value
c. Cost
d. Market value
20. It is not unusual for a project to have side or spillover effects both good and bad. This phenomenon is called:
a. Erosion
b. Piracy
c. Cannibalism
1. The average time between purchasing or acquiring inventory and receiving cash proceeds from its sale is called -
-------------.
a) Operating Cycle
b) Cash Cycle
d) Inventory period
e) Inventory period
f) Accounts receivable period
g) Accounts payable turnover
h) None of the given option
21. Mr.Munir purchased goods of Rs.100,000 on June01, 2006 from Zeeshan and brothers on credit terms of 3/10,
net 30. On June 09 Mr. Munir decided to make payment to Zeeshan and brothers. How much he would pay to
Zeeshan and brothers.
e) 100,000
f) 97,000
g) 103,000
h) 50,000
22. A firm has cash cycle of 100 days. It has an inventory turnover of 5 and receivable turnover of 2. What would be
its accounts payable turn over?
e) 3.347 approximately
f) 5.347 approximately
g) 2.347 approximately
h) 6.253 approximately
23. During the financial year 2005-2006 ended on June 30, the cash cycle of Climax company was 150 days, and its
payable turnover was 5. What was the operating cycle of the company during 2005-2006?
e) 234 days
f) 223 days
g) 245 days
h) 230 days
e) Bank loan
f) Commercial papers
g) Trade credit
h) None of the given options.
e) Short-term assets financed with long-term liabilities.
f) Permanent working capital financed with long-term liabilities.
g) Short-term assets financed with equity.
h) All assets financed with a 50 percent equity, 50 percent long-term debt mixture
e) Cash discount
f) Quantity discount
g) Float discount
h) All of the given options
27. If a firm has a net float less than zero, then which of the following statements is true about the firm.
e) The firm’s disbursement float is less than its collection float.
f) The firm’s collection float is equal to zero.
g) The firm’s collection float is less than its disbursement float.
h) None of the given options.
e) An example of "moderate risk -- moderate (potential) profitability" asset financing.
f) An example of "low risk -- low (potential) profitability" asset financing.
g) An example of "high risk -- high (potential) profitability" asset financing.
h) An example of the "hedging approach" to financing

11. Suppose Flatiron Corporation has a debt-to- equity ratio of 2/3. You are analyzing the capital structure of this
Corporation. Base on debt-to- equity ratio of the corporation, how much portion of the capital structure is financed
through equity.
a) 66.67%
b) 33.34%
c) 0%
d) 60%
12. Suppose the common stocks of Bonanza Corporation have book value of $29 per share. The market price of these
common stocks is $69.50 per share. The corporation paid $5.396 per share in dividend last year and analysts estimate
that this dividend will grow at a rate of 6% through the next three years. Using the dividend growth model, estimated
cost of equity of Bonanza corporation would be
a) 11.15%
b) 16.13%
c) 15.80%
d) 13.14%
13. Which statement is true about the relationship between weighted average cost of capital and value of a firm in the eyes
of investors?
14. ---------------- refers to the extent to which fixed-income securities (debt and preferred stock) are used in a firm's capital
structure.
a) Financial risk
b) Portfolio risk
c) Operating risk
d) Market risk
15. Let’s imagine that Sony Corporation currently uses no-debt financing, it has decided to go for capital restructuring. As
result it would incorporate $ 1 billion of debt at 6.6% p.a in its capital structure. Sony Corporation has 30 million
Shares outstanding and the price per share is $ 125. If the restructuring is expected to increase EPS, what would be the
a) $202,200,000
b) $247,500,000
c) $283,500,000
d) $321,250,000
16. A corporation has WACC of 13.5 %( excluding taxes). The current borrowing rate in the market is 9.25%.If the
corporation has a target capital structure of 65% equity (there is no preferred stock in the capital structure of the
corporation) and 35% debt, what would be the cost of equity of this corporation?
a) 13.5%
b) 17.75%
c) 15.79%
d) 17.13%
17. Suppose Dux Corporation has current assets of $44 Million. Cash is 25% of the total current assets. After one year the
cash item increase by 12%.This increase in cash item is a
a) Source of cash
b) Use of cash
18. During 2005 a merchandize sales company had cash sales of $56.25 million, which were 15% of the total sales. During
this period accounts receivables of the company were13% of total sales. What was the average collection period of the
a) 62 days
b) 18 days
c) 56 days
d) 19 days
19. Suppose that Pearson Corporation has a capital structure which consists of both equity and debt. It had issued two
million worth of bonds at 6.5 % p.a. The tax rate is 40%. Its EBIT is one million. The present value of tax shield for
Pearson corporation would be
a) Rs.1,000,000
b) Rs.1,200,000
c) Rs800,000
d) Rs.1,400,000

Q. Sunk cost
R. Opportunity cost
S. Financing cost
T. All of the given options
Q. 13.07 %
R. 15.67 %
S. 16.00 %
T. 18.80 %
Q. Portfolio
R. Diversification
S. Stock Bundle
T. None of the given options
Q. Net Present Value (NPV)

R. Profitability Index (PI)
S. Average Accounting Return (AAR)
T. Internal Rate of Return (IRR)
portfolio will be:
Q. 37.5 %
R. 47.5 %
S. 62.5 %
T. 72.5 %
Q. Systematic Risk
R. Market Risk
S. Non-diversifiable Risk
T. All of the given options
Q. Systematic Risk
R. Unsystematic Risk
S. A & B
T. None of the given options
S. 2.6 Years
T. 3.1 Years
U. 3.6 Years
V. 4.1 Years
P. Dividend Price Model

W. Dividend Growth Model
Q. Dividend Policy Model
R. All of the given options
P. Most widely used

X. Ideal to rank the mutually exclusive investments
Q. Easily communicated and understood
R. Can be estimated even without knowing the discount rate

U. Ordinary Annuity
V. Perpetuity
W. Dividend
X. Interest
U. 15.00 %
V. 15.34 %
W. 15.87 %
X. 16.42 %
U. loan; receiver
V. dividend; issuer
W. dividend, receiver
X. loan; issuer
U. More
V. Less
W. Same
X. All of the given options.
U. 30 %
V. 50 %
W. 70 %
X. 90 %
U. Increase Profit Margin

V. Increase Total Assets Turnover
W. Sell new shares
X. All of the given options.
discount rate.
U. Present Value
V. Future Value
W. Capital Gain
X. Net Profit
Y. Rs. 319.45
Z. Rs. 390.75
AA. Rs. 419.45
BB. Rs. 463.75
S. Time to maturity
T. Coupon rate
U. A and B
V. None of the given options
S. 8 %
T. 10 %
U. 12 %
V. 14 %

A. 100 Votes
B. 200 Votes
C. 300 Votes
D. 400 Votes
A. Rs. 30
B. Rs. 40
C. Rs. 50
D. Rs. 60
A. Rs. 30000
B. Rs. 40,500
C. Rs. 50,000
D. Rs. 60,000

process?
A. 22.85 %
B. 25.16 %
C. 30.52 %
D. 34.29 %
A. 0.30
B. 0.40
C. 0.60
D. 0.75


B. Equal to Rs. 100
closest to:
A. Rs. 29,454
B. Rs. 34,325
C. Rs. 39,272
D. Rs. 49,023

true?
A. Rs. 1,556
B. Rs. 1,712
C. Rs. 2,082
D. Rs. 2,420
B. Income Bonds
C. Put Bonds
A. Less
B. Zero
C. More
A. 6.639%
B. 8.251%
C. 10.00%
D. 11.43%

Which of the following set of ratios is used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a
specific period of time
Which one of the following costs refers to an outlay that has already occurred and hence is not affected by the decision under consideration ?
Sunk
Opportunity

2) If you want to evaluate the performance of an organization, which one of the following ratios will be helpful to
you in evaluating the performance of an organization?

3) Imran Corporation is a firm dealing in hardware industry. It sold 5000 units of its product to Mr. Younas for a
sum of Rs.150, 000 whose cost was Rs.160, 000.What would be the effect of this transaction on current ratio of
the company if the current ratio was 0.80 before this transaction?
a. Increase
b. Decrease
c. Remain unchanged
4) Mehran Corporation is dealing in furniture industry. It has an equity multiplier of 1.78 times. The debt to equity
ratio would be _________________?
a. 0.38 times
b. 0.58 times
c. 0.78 times
d. 0.98 times
5) What would be the level of EBIT if Imran Corporation uses both debt as well as equity financing in its capital
structure, it has a cash coverage ratio of 7.5 times, annual interest expense is Rs.1 million and annual
depreciation is Rs.3 million?
a. Rs. 2.5 million

b. Rs. 3 million
c. Rs. 3.5 million
d. Rs.4.5 million
6) Suppose, Neumann Corporation has a debt to equity ratio of 0.45 times. Its return on equity is 18%.The return
on assets would be _______________.
a. 9.414 %
b. 10.414 %
c. 11.412 %
d. 12.414 %
7) Suppose, Ilyas Corporation is one of the dominant firms in electronics equipment industry. Its policy is very
clear about dealing with stackholders. It pays out 30% of its income in the form of dividend. If it pays a total
sum of Rs.150 millions as a dividend, then what would be the amount transferred to the retained earning
a. Rs.150 millions
b. Rs.250 millions
c. Rs.350 millions
d. Rs.500 millions
8) Sian Corporation is one of the largest firms in the electronics industry covering 70% of the market share. During
the current year its performance is analysed by judging the various indicators. It has return on assets of 12.5%
and retention ratio is 3/5. What would be the internal growth rate of the Sian Corporation?
a. 12.29%
b. 14.29%
c. 16.29%
d. 18.92%
9) What would be the sustainable growth rate if the Corporation has a Return on equity (ROE) of 20% and a
retention ratio of 4/6?
a. 25 %
b. 35 %
c. 29%
d. 45%
10) Rehan Corporation is dealing in agriculture products. Its annual gross sales are Rs.1975 millions. Out of which
34% are on cash basis. Their past collection experiences show that it has an average collection period of 76 days.
What would be the balance of accounts receivable at the end of the year?


b. Retention ratio
c. Leverage ratio
d. Profit margin


a. (1+r) t
b. (1-r) t
c. 1/ (1+r) t
d. 1/ (1+r) 1/t


a. The firm grows
a. Future amount
b. Present value
c. Interest rate

9. If we deposit Rs. 5,000 toady in an account paying 10%, how long does it take to grow to Rs. 10,000?
a. 5.27 years
b. 6.27 years
c. 7.2 7 years
d. 7.57 years
a. Rs. 116.64
b. Rs. 111.64
c. Rs. 164.64
d. Rs. 164.61

Total marks: 10

d. Both a & c
b. Assets increased
d. Cash withdrawn
3. Generally, changes made in cash, accounts receivable, depreciation, inventory and accounts payable are reflected
in:

b. Cash equivalents
c. Treasury bills

b. Un earned income

c. Both a & b

b. Leverage ratio
c. Turnover ratio
8. __________is concerned with the relationship between the long terms liabilities that a business has and its capital
employed.
a. Gearing
b. Acid test ratio
9. ____________give a picture of a company's ability to generate cash flow and pay it financial obligations:
d. Solvency Ratios
a. Net sales
b. Total revenue
c. Total assets
1. Ann is interested in purchasing Ted's factory. Since Ann is a poor negotiator, she hires Mary to negotiate a
purchase price. Identify the parties to this transaction from the given options, keeping in view the agency
theory:

a. Trading in a given auction exchange takes place at a single site on the floor of the exchange.
c. Listing.
3. Suppose a Corporation has a taxable income of $200,000 and the tax amount is as given in the calculations:
$ 50,000 x 15% = $ 7,500
($ 75,000 – 50,000) x 25% = 6,250
($ 100,000 – 75,000) x 34% = 8,500
($ 200,000 – 100,000) x 39% = 39,000
$ 61,250
a. 39%
b. 34%
c. 15%
d. 25%
4. A document that includes corporation’s name, intended life, business purpose and number of shares and is
necessary to form a corporation is known as:
a. Charter
b. Set of bylaws
5. According to the accounting profession, which of the given options would be considered a cash-flow item
from an "investing" activity in a cash flow statement?
b. inventory
c. net fixed assets
7. Which of the given options is an advantage of a corporation that is not an advantage as a limited partner in
a partnership?
c. Double taxation.
8. In finance we refer to the market for relatively long-term financial instruments as the __________ market.
a. money
b. capital
c. primary
d. secondary
9. __________ is concerned with the branch of economics relating the behavior of principals and their agents.
c. Agency theory
a. Depreciation
b. Dividends
d. Taxes
d. a balance sheet
2. Ammar is running a company ‘Ammar & Co’. He has asked you to comment on company’s ability to pay its
bills over the short run without undue stress. For this purpose you will study which category of ratios of the
company?
b. Liquidity ratios
c. Debt ratios
d. Turnover ratios
e. 0
f. 0.2
g. 0.1
h. At least one
b. Liquidity Ratios
c. Debt Ratios
a. comparison
b. identification
c. calculation
d. liability
7. A series of constant cash flows that occur at the end of each period for some fixed number of periods is
.
b. annuity due
d. perpetuity
8. Suppose the total cost of a college education will be $50,000 in 12 years for a child. The Parents have $5,000
to invest today. What rate of interest must they earn on investment to cover the cost of child’s education?
a. 21.15%
b. 12%
c. 18%
d. 30%
a. $9,806.56
b. $9000
c. $10000
d. $9500
10. Suppose, you deposited an amount of Rs.1000 in Habib Bank at the start of year 2006. How much interest
amount will you have at the end of the year if the bank pays simple interest @10% p.a.?
a. Rs.100
b. Rs.10
c. Rs.90
d. Rs.1000

position?
Y. Income Statement
Z. Balance Sheet
AA. Cash Flow Statement
BB. Owner's Equity Statement
another?
Y. Primary Market
Z. Secondary Market
AA. Tertiary Market
BB. None of the given options
Y. Liquidity
Z. Financial Leverage
AA. Profitability
BB. Market Value
Y. Planning Process
Z. Capital Structure
AA. Capital Budgeting
BB. Managing Process By
EXAMINATION
Question No: 1
The accounting definition of income
Y. 6.37 % is:
Z. 8.37 % ►Income = Current Assets
AA. 15.7 %
►Income = Fixed Assets -
BB. 12.5 %
►Income = Revenues
99 per share at the end of year. Income Statement reported a net income of Rs. ►Income = Revenues - Expenses
385,000. The Price Earning Ratio for S&T Company will be: pg 17
Y. 8 times Question No: 2
Z. 9 times What would

be the capital
AA. 10 times spending for
BB. 11 times an
organization
8. While making Common-Size statement, Balance Sheet items are shown as a who has
percentage of : purchased
fixed assets
CC. Total Assets of Rs.
200,000 and
DD. Total Liabilities sold fixed
EE. Total Capital assets of Rs.
45,000?
FF.Net Profit
9. A business, created as a distinct legal entity owned by one or more individuals ►Rs. 245,000
►Rs. 200,000
W. Sole Proprietorship
►Rs.1 55 , 0 0 0
X. Partnership
►Rs. 45,000
Y. Corporation
Z. None of the given options 200000-
45000=155000
Question No: 3
W. Inventory Selected
X. Accounts Payable informati
on from
Y. Accounts Receivable SNT
Compan
Z. Depreciation y's
accounti
ng records is as follows:
o Proceeds from issuance of preferred shares Rs. 20,000
o Cash dividends paid Rs. 8,000


SNT Company has a current ratio of 3:2. Current Liabilities reported by

the company are Rs. 30,000 . What would be the Net Working Capital
for the
company?
►Rs. 45,000
►Rs. 15,000
► ( R s . 4 5 ,0 0 0 )
►( Rs. 15,000)
►Sell common stock to reduce current
liabilities ►Sell fixed assets to reduce accounts
payable

Which of the following are incorporated into the calculation of the Du -

Pont Identity?
Equity Multiplier
IV. Profit Margin

Which of the following is a special case of annuity, where the stream of cash
flows continues forever?
►Special Annuity
►Ordinary Annuity
►Annuity Due
►Perpetuity
Which of the following is an unsecured bond for which no specific pledge

of property is made?
►Mortgage
►Debenture
►Collateral
►Note Payable
property is made
Which of the following type of return refers to the percentage change in

the amount of money you have?
►Nominal return
►Real return
►Inflation return

of money you have.
►Low; higher
►High; lower
►High; higher

vice versa.
Which of the following is the extra yield that investors dem and on a taxable
bond as a compensation for the unfavorable tax treatment?
treatment, known as
taxability premium

among investors ?
►Primary Market
►Tertiary Market

Secondary Market
investors
Place the following items in the proper order of completion regarding the
capital budgeting process.
Evaluate projects.

.uk/wps/grader
An investment w ill be ___________ if the IRR doesn’t exceed s the required

return and ___________ otherwise.


Finding Net Present Value comes under which type of capital budgeting
criteria
?
►Payback Criteria


►Sunk
►Opportunity
►Fixed
►Variable

Mr. A, as a financial consultant, has prepared a feasibility report of a project

for XYZ Company that the company is planning to undertake. He has
considered as:
►Sunk cost
►Opportunity cost
The current price of SNT stock is Rs. 50. Dividends are expected to grow at
7 percent indefinitely and the most current dividend was Rs. 1.00. What is the
►9.00 percent
►9.14 percent
►9.33 percent
►10.65 percent
►The right to vote on stockholder matters of great importance
Which one of the following typically applies to preferred stock but not
to common stock?
►Dividend yield
►Voting rights

You must own which of the following to vote against a merger proposal
from another corporation?
►Preferred share
►A debenture
►Common stock
Which of the following strategy belongs to flexible policy regarding size

of investments in current assets ?
►To maintain less short-term debt and more long-term
debt ►To maintain more short-term debt and less long-term
debt

•Flexible policy
•Flexible policy
If policies
current assets ?
►To maintain a high ratio of current assets to
sales
►To maintain a low ratio of current assets to
sales
►Rs. 4,000
►+ Rs. 2,000
►Rs. 2,000
►+ Rs. 4,000

►Stock Bundle
►Portfolio

Which of the following is referred as the ratio of the standard deviation

of a distribution to the mean of that distribution ?

The MC Inc. purchased a share of common stock exactly one year ago for
Rs. 45.
During the past year the common stock paid an annual dividend of Rs. 2.40.
The
earned?
►5.3%
►194.2%
►83.11%
►94.2%
Over
year, the stock sells for Rs. 25. As per given information, what will be his
►10 %
►20 %
►35 %
►45 %

►Rs. 85,000
►Rs. 165,000
►Rs. 285,000
►Rs. 365,000
Operating cash
flow - change in
NWC - Capital
spending
225000-(-40000)-
100000=165000
total market value of the company s debt are calculated as Rs. 150 million.
►37.50%
►50.00%
►62.50%
►70.00%
250+150=400
250/400=0.625
0.625*100=62.5 is equity and
100-62.5=37.5 is debt
if tax rate is 34%?
►3.00%
►4.62%
►5.20%
►8.00%
RD x (1
- TC).
7%X(1-
0.34)=4
.62
►Carrying costs
►Restocking costs

run
goodwill
•A trade-off
inventory levels
fixed costs (F) = Rs. 30 and carrying costs (CC) = Rs. 5 ?
►65 units
►69 units
►89 units
►95 units
EOQ = (2T x F
/ CC)1/2
2*400=800
800*30=24000
24000/5=4800
4800^0.5=69.28
►The required rate of return on the company's
stock ►The yield to maturity on the bond

A firm has 3 million in comm on stock, 1 million in preferred stock and 2

million in debt. What is the percentage of firm s financing that is debt ?
►20%
►33%
►40%
►67%
The book value of a system is Rs. 50,350 at the end of year 3 of its life. What will
be the
total after-tax cash flow from sale if we sell this system for Rs. 30,000 at this time?
(Tax rate is 34%)
►Rs. 20,350
►Rs. 30,919
►Rs. 36,919
►Rs. 80,350
50350-30000=20350x34%=6919
30000+6919=36919
0.2829 ?
►0.0800
►0.0892
►0.5319

Which of the following is the difference between current assets and
current? Liabilities?
►Surplus Asset
►Short-term Ratio
►Working Capital
►Current Ratio
►Corporation
►Total Assets

A company's ability to meet long-term obligations can be estimated byusing
►Liquidity Ratio
►Solvency Ratios
pg 34


each period for some fixed number of periods?
►Ordinary annuity
►Annuity due
►Perpetuity
number of
Annuity
A portion of profits, which a company distributes among its shareholders,

is known as:
►Dividends
►Capital Gain
►nterest
What amount a borrower would pay at the end of fourth year with a 4 -year,
►Rs. 360
►Rs. 2,000
►Rs. 3,000
►Rs. 3,360
A company issues bonds with a Rs. 1,000 face value. What is the coupon rate
►3 percent
►6 percent
►9 percent
►12 percent
Given two bonds identical but for maturity, the price of the longer-term bond
will change _ _ _ _ _ _ _ _ that of the shorter-term bond, for a given change in
market interest rates.
►More than
►Lessthan
►Equal to

III. Repay the original amount borrowed (principal)
►I and II
►I and III pg
77
►II and IV
►I, III, and IV
►Repayment
►Seniority
►Call provision
policy is to continue indefinitely, what will be the value of a share of stock at a
►Rs. 30
►Rs. 45
►Rs. 60
►Rs. 75
9/0.12=75

among investors ?
Primary Market
Secondary Market
Tertiary Market
An investment should be accepted if the net present value is __________

and rejected if it is ________.
Positive; positive
Positive; negative
Negative; negative
Negative; positive
have a useful life of 4 years. During the first 2 years, the net incremental
3.2 Years
3.5 Years
4.0 Years
greater than 1

Which of the following set of cash flows represent the change in the firm s
total cash flow that occurs as direct result of accepting the project ?
Relevant Cash Flows

Negative Cash Flows
Which of the following is NOT a problem while determining incremental

cash flows?
Merchandize cost
Sunk cost
Opportunity cost
___________ Cost refers to the cash flows that could be generated from an asset
the firm already owns provided it is not used for the project in question.
Sunk
Opportunity
Fixed
Variable

of :

pg
146
Dividends on these stocks can be

cumulative pg100


XYZ Company that the company is planning to undertake. He has

considered as:
Sunk cost
Opportunity cost
Neither sunk cost nor opportunity
cost
Net Present Value
Profitability Index

AAR

1st proposition
2nd proposition
3rd proposition
According to 2nd M&M proposition, cost of equity does NOT depend

upon which of the following ?
Which of the following risk is associated with the unique circumstances

of a particular company ?
Financial Risk
Business Risk found

on internet
Functional Risk

Systematic Risk
Unsystematic Risk
Diversifiable Risk
Asset-specific risk
•Systematic Risk
Rise in Inflation

140
The expected return

Over the last year, you received a dividend of Rs. 2 per share. At the end of the
year, the stock sells for Rs. 25. If Mr. Sami sells the stock at the end of the year,
Rs. 100
Rs. 250
Rs. 1,000
Rs. 1,350
50*20=1000
50*25=1250
1250-1000=250
250,000 has been calculated . Net working capital has increased by Rs. 50,000.
There was no capital spending during the year. What w ill be the total cash flow
for the project?
Rs. 170,000
Rs. 200,000
Rs. 215,000
Rs. 230,000
2050000-
(+50000)
200000
class?
3-year
5-year
7-year

50 per share. What w ill be the cost of capital if the dividend s are estimated to
12.88%
13.07%
14.22%
15.00% pg
142
The selling firm has a cost advantage over other
lenders


•Excess capacity
Rs. 1,000
Rs. 1,940
Rs. 2,000
Rs. 2,100
Shortage or Restocking costs with inventory

levels
Rise
Decline
Remain unaffected

inventory levels
Which one of the following motives refers to the need for holding cash to
satisfy norm al disbursement and collection activities associated with a
firm s ongoing Operations?
Speculative motive
Transaction motive
Personal motive
opportunities,
activities
ongoing operations.

Variance of 0.008?
0.08944
0.09101
0.09487
0.10521
A firm has 3 million in common stock, 1 million in preferred stock and 2

million in debt. What is the that is debt ?
20%
33%
40%
67%
shareholders. Financial leverage refers to the extent to which a firm
relies on the debt.
Financial leverage must affect the overall cost of capital in

any condition. pg 149

agent?
Management Conflict
Interest Conflict
Agency Problem

The Agency Problem
Agency relationship
Agency problem
costs
Which of the following term refers to the ease and quickness with which assets can be
converted to cash?
Analysis
Structuring
Budgeting
Liquidity pg 14
Raw material
Direct labor
balance sheet?
Equity multiplier
Inventory turnover
Receivable turnover
Return on equity

How much must be deposited at 8% each of the next 20 years to have Rs.
10,296.44?
Rs. 225
Rs. 341
Rs. 410
Rs. 452
In order to compare different investment opportunities (each with the same risk) with
interest rates reported in different manners you should:
earns 8.75 percent com pounded annually and second is the savings account B, which earns
8.50 percent com pounded monthly. Which account

Debt provides the voting rights to the bondholders. pg

78
M&M Proposition

Fisher s Effect
BCG Matrix
Investors dem and a higher yield as compensation to the risk of possible default. This
Taxability premium
In which type of voting, each shareholder is entitled one vote per share times the
number of directors to be elected?
Straight Voting
Statutory Voting
Cumulative Voting
In which of the following procedure of voting for a company's directors, each

Straight Voting
Proportional Voting
Cumulative Voting
Simple Price
Bid Price
Strike Price pg 100
Complex Price
Suppose the initial investment for a project is Rs. 160,000 and the cash flows are Rs.
2.6 Years
3.1 Years
3.6 Years
4.1 Years
The XYZ Corporation is considering an investment that will cost Rs. 80,000 and have a
useful life of 4 years. During the first 2 years, the net incremental after-tax cash
3.2 Years
3.5 Years
4.0 Years
invested ?

119

hand?
Relevant Cash Flows
Negative Cash Flows
___________ Cost is an outlay that has already occurred and hence is not affected by the
decision under consideration.
Sunk
Opportunity
Fixed
Variable

of :

1.20 and Rs. 1.30 respectively. This pattern is expected to continue into the future. This is
an example of a company pay a dividend that grows:
At a constant rate

Return?

worng questions

1st proposition
2nd proposition
3rd proposition

13.00%
15.23%
18.33%
20.98%
25%/75%==0.33
16%+(16%-9%)x0.33
0.16+(0.16-0.09)x0.33
0.16+0.0231=18.31%

Increasing equity
accounts ?
Cash Cycle
Operating Cycle
Current Cycle

receivables ?
Inventory period
Collection period

Rs. 4,000
+ Rs. 2,000
Rs. 2,000
+ Rs. 4,000
portfolio. Stock A has an expected return of 25% and stock B has an expected
18.27%
21.84%
22.50%
25.13%

Investment?
One of the responsibilities of the financial manager is to assess the value of the
proposed investment

During the past year the common stock paid an annual dividend of Rs. 2.40. The firm sold
the stock today for Rs. 80. What is the rate of return the firm has earned?
5.3%
194.2%
83.11%
94.2%
Rs. 70,000
Rs. 230,000
Rs. 330,000
Rs. 470,000
receivable are decreased by Rs. 70,000?
Rs. 70,000
RS 230000
Rs. 370,000
correct
Rs. 470,000
300000-
70000=230000
Su p pose a firm borrow s Rs. 800,000 at 7%. What w ill be the total interest bill p er year if
tax rate is 34% ?
Rs. 19,040
Rs. 36,960
Rs. 56,000
Rs. 800,000
800000*7%=56000
56000*34%=19040
Which one of the following motives refers to the need for holding cash as a safety
Speculative motive
Transaction motive
Personal motive
•Precautionary
margin to act as a
financial reserve
Suppose market value exceed s book value by Rs. 225,000. What w ill be the aftertax
proceeds if there is a tax rate of 34 percent?
Rs. 105,600
Rs. 148,500
Rs. 191,000
Rs. 225,000
225000*34%=765,00
225000-765000=148500
Question No: 39
Su p pose you have bou ght 100 shares of a corporation one year ago at Rs. 18 per share.
Over the last year, you have received a d ivid end of Rs. 2 p er share. At the end of the year, the
stock sells for Rs. 27. As p er given inform ation, w hat w ill be
15
%
25
%
35
%
50
%
(27-18)/18=0.5%
vehicle is w orth 25% of the p u rchase price now and it is being sold at this
Rs. 14,875
Rs. 112,500
Rs. 337,500
Rs. 230,000


Fall Semester 2006


into cash.
b. Cash equivalents
c. Treasury bills
12
Fall Semester 2006

b. Un earned income
how a company:

c. Both a & b

b. Leverage ratio
c. Turnover ratio
a. Gearing
b. Acid test ratio
13
Fall Semester 2006

d. Solvency Ratios
a. Net sales
b. Total revenue
c. Total assets
QUIZ # 01
Total
Marks
ACC501 - BUSINESS FINANCE 10
SOLUTION

E. Total Assets
G. Net Profit
H. Gross Profit
position?
E. Income Statement
F. Balance Sheet
G. Cash Flow Statement
14
Fall Semester 2006
another?
E. Primary Market
F. Secondary Market
G. Tertiary Market
E. Liquidity
G. Profitability
H. Market Value
E. Planning Process
H. Managing Process
E. 6.37 %
F. 8.37 %
G. 15.7 %
H. 12.5 %
7. S&T Company have 35 thousands shares outstanding and the stock sold for Rs. 99
per share at the end of year. Income Statement reported a net income of Rs. 385,000.
The Price Earning Ratio for S&T Company will be:
E. 8 times
F. 9 times
G. 10 times
H. 11 times
percentage of :
E. Total Assets
15
Fall Semester 2006
G. Total Capital
H. Net Profit
9. A business, created as a distinct legal entity owned by one or more individuals or
entities, is known as:
F. Partnership
G. Corporation
E. Inventory
F. Accounts Payable
H. Depreciation
QUIZ # 02 (Solution)
Total
Marks
Instructions:
Friday, Apr. 20, 2007 - - - Before 12’O Clock Midnight •
Quiz includes Lecture # 11 to Lecture # 18 of your course.
• You can choose the right option by Highlighting, Making Bold or Changing Color.
• Cheating will harm you only & not to anyone else as copied quiz gets no credit.
16
Fall Semester 2006
I. Ordinary Annuity
J. Perpetuity
K. Dividend
L. Interest
I. 15.00 %
J. 15.34 %
K. 15.87 %
L. 16.42 %
I. loan; receiver
J. dividend; issuer
L. loan; issuer
I. More
J. Less
K. Same
5. If SNT Corporation pays out 30% of net income to its shareholders as dividends. What would
be the Retention Ratio for SNT Corporation?
I. 30 %
J. 50 %
K. 70 %
L. 90 %
K. Sell new shares
discount rate.
17
Fall Semester 2006
I. Present Value
J. Future Value
K. Capital Gain
L. Net Profit
I. Rs. 319.45
J. Rs. 390.75
K. Rs. 419.45
L. Rs. 463.75
I. Time to maturity
J. Coupon rate
K. A and B
I. 8 %
J. 10 %
K. 12 %
L. 14 %
QUIZ # 03 (SOLUTION)
Total
Marks
Instructions:
Wednesday, June 13, 2007 - - - Before 12’O Clock Midnight •
Quiz includes Lecture # 23 to Lecture # 35 of your course.
• You can choose the right option by Highlighting, Making Bold or Changing Color.
• Cheating will harm you only & not to anyone else as copied quiz gets no credit.
18
Fall Semester 2006
M. Sunk cost
N. Opportunity cost
O. Financing cost
2. SNT company paid a dividend of Rs. 5 per share last year. The stock’s current price is Rs. 50
per share. Assuming that the dividends are estimated to grow steadily at 8% per year, the
cost of the capital for SNT company will be?
M. 13.07 %
N. 15.67 %
O. 16.00 %
P. 18.80 %
M. Portfolio
N. Diversification
O. Stock Bundle
portfolio will be:
M. 37.5 %
N. 47.5 %
O. 62.5 %
P. 72.5 %
M. Systematic Risk
19
Fall Semester 2006
N. Market Risk
M. Systematic Risk
O. A & B
8. Suppose the initial investment for a project is Rs. 160,000 and the cash flows are Rs. 40,000
in the first year and Rs. 90,000 in the second and Rs. 50,000 in the third. The project will have
a payback period of:
M. 2.6 Years
N. 3.1 Years
O. 3.6 Years
P. 4.1 Years
M. Dividend Price Model
Q. Dividend Growth Model
O. All of the given options
M. Most widely used
R. Ideal to rank the mutually exclusive investments
N. Easily communicated and understood
O. Can be estimated even without knowing the discount rate

A. 100 Votes
B. 200 Votes
C. 300 Votes
D. 400 Votes
A. Rs. 30
B. Rs. 40
C. Rs. 50
D. Rs. 60
A. Rs. 30000
B. Rs. 40,500
C. Rs. 50,000
D. Rs. 60,000

process?

Case I: Mr. A, as a financial consultant, has prepared a feasibility report for a project for ABC Company
that the company is planning to undertake. He has suggested that the project is feasible.
Case II: Mr. A, as a financial consultant, has prepared a feasibility report of a project for XYZ Company that
the company is planning to undertake. He hassuggested that the project is not feasible.
8. Suppose you buy some stock for Rs. 35 per share. At the end of the year, the price is Rs. 43 per share.
During the year, you get a Rs. 4 dividend per share. What will be the total percentage return?
A. 22.85 %
B. 25.16 %
C. 30.52 %
D. 34.29 %
A. 0.30
B. 0.40
C. 0.60
D. 0.75
10. Which of the following set of cash flows represents the change in the firm’s total cash flow that occurs
as direct result of accepting the project?


B. Equal to Rs. 100
closest to:
A. Rs. 29,454
B. Rs. 34,325
C. Rs. 39,272
D. Rs. 49,023

true?
A. Rs. 1,556
B. Rs. 1,712
C. Rs. 2,082
D. Rs. 2,420
B. Income Bonds
C. Put Bonds

A. Less
B. Zero
C. More
A. 6.639%
B. 8.251%
C. 10.00%
D. 11.43%

e. Time interest earned

f. Cash coverage ratio
g. Profit margin ratio
h. None of the given option
12) If you want to evaluate the performance of an organization, which one of the following ratios will be helpful to
you in evaluating the performance of an organization?
e. Return on short as well as long term investments

f. Return on equity and return on debt
g. Return on equity and profit margin
h. All of the given options
13) Imran Corporation is a firm dealing in hardware industry. It sold 5000 units of its product to Mr. Younas for a
sum of Rs.150, 000 whose cost was Rs.160, 000.What would be the effect of this transaction on current ratio of
the company if the current ratio was 0.80 before this transaction?
e. Increase
f. Decrease
g. Remain unchanged
h. None of the given option
14) Mehran Corporation is dealing in furniture industry. It has an equity multiplier of 1.78 times. The debt to equity
ratio would be _________________?
e. 0.38 times
f. 0.58 times
g. 0.78 times
h. 0.98 times
15) What would be the level of EBIT if Imran Corporation uses both debt as well as equity financing in its capital
structure, it has a cash coverage ratio of 7.5 times, annual interest expense is Rs.1 million and annual
depreciation is Rs.3 million?
e. Rs. 2.5 million

f. Rs. 3 million
g. Rs. 3.5 million
h. Rs.4.5 million
16) Suppose, Neumann Corporation has a debt to equity ratio of 0.45 times. Its return on equity is 18%.The return
on assets would be _______________.
e. 9.414 %
f. 10.414 %
g. 11.412 %
h. 12.414 %
17) Suppose, Ilyas Corporation is one of the dominant firms in electronics equipment industry. Its policy is very
clear about dealing with stackholders. It pays out 30% of its income in the form of dividend. If it pays a total
sum of Rs.150 millions as a dividend, then what would be the amount transferred to the retained earning
e. Rs.150 millions
f. Rs.250 millions
g. Rs.350 millions
h. Rs.500 millions
18) Sian Corporation is one of the largest firms in the electronics industry covering 70% of the market share. During
the current year its performance is analysed by judging the various indicators. It has return on assets of 12.5%
and retention ratio is 3/5. What would be the internal growth rate of the Sian Corporation?
e. 12.29%
f. 14.29%
g. 16.29%
h. 18.92%
19) What would be the sustainable growth rate if the Corporation has a Return on equity (ROE) of 20% and a
retention ratio of 4/6?
e. 25 %
f. 35 %
g. 29%
h. 45%
20) Rehan Corporation is dealing in agriculture products. Its annual gross sales are Rs.1975 millions. Out of which
34% are on cash basis. Their past collection experiences show that it has an average collection period of 76 days.
What would be the balance of accounts receivable at the end of the year?

b. Retention ratio
c. Leverage ratio
d. Profit margin

a. (1+r) t
b. (1-r) t
c. 1/ (1+r) t
d. 1/ (1+r) 1/t


a. The firm grows
a. Future amount
b. Present value
c. Interest rate

19. If we deposit Rs. 5,000 toady in an account paying 10%, how long does it take to grow to Rs.
10,000?
a. 5.27 years
b. 6.27 years
c. 7.2 7 years
d. 7.57 years
a. Rs. 116.64
b. Rs. 111.64
c. Rs. 164.64
d. Rs. 164.61


d. Both a & c
b. Assets increased
d. Cash withdrawn
are reflected in:

b. Cash equivalents
c. Treasury bills

Fall Semester 2006
1
_____________________.
organization?
a. Increase
b. Decrease
c. Remain unchanged
_________________?
a. 0.38 times
b. 0.58 times
c. 0.78 times
d. 0.98 times
Fall Semester 2006
2
million?
a. Rs. 2.5 million
b. Rs. 3 million
c. Rs. 3.5 million
d. Rs.4.5 million
a. 9.414 %
b. 10.414 %
c. 11.412 %
d. 12.414 %
a. Rs.150 millions
b. Rs.250 millions
c. Rs.350 millions
d. Rs.500 millions
Corporation?
a. 12.29%
b. 14.29%
c. 16.29%
d. 18.92%
Fall Semester 2006
3
a. 25 %
b. 35 %
c. 29%
d. 45%
A. Secondary market
B. Primary market
C. Capital market
D. Money market

following except:

A. Fall
B. Rise
C. Remain unchanged
discount factor?
A. 1.42215
B. 2.75886
C. 3.75886
D. 4.08998
A. Compounded daily
B. b.Rs.240 million
C. c.Rs.275 million
D. d.Rs.290 million

A. 6.12 times
B. 7.11 times
C. 8.11 times
D. 9.11 times
rates of return?
A. 20.00%
B. 20.50%
C. 21.00%
D. 21.99%
firm?
A. Rs.60, 000
B. Rs.64, 000
C. Rs.72, 000
D. Rs.74, 000

investment.
A. Risk Return
B. Risk Premium

Fall Semester 2006
6
C. Risk Factor
A. Portfolio
C. Budget
A. Less
B. More
C. Same
A. Systematic Risk
C. Portfolio Risk
D. Total Risk
C. A & B
A. Systematic Risk
Fall Semester 2006
7
C. Total Risk
D. Portfolio Risk
A. 10,500
B. 7,500
C. 10,000
D. 7,000
A. 8.50 %
B. 6.25%
C. 8.00%
D. 6.67%
A. 20%
B. 28%
C. 32%
D. 35%
Total marks: 10
the:
Fall Semester 2006
8
b. Retention ratio
c. Leverage ratio
d. Profit margin
a. (1+r) t
b. (1-r) t
c. 1/ (1+r) t
d. 1/ (1+r) 1/t
a. The firm grows
you know:
a. Future amount
b. Present value
c. Interest rate
Rs. 10,000?
a. 5.27 years
b. 6.27 years
c. 7.2 7 years
d. 7.57 years
Fall Semester 2006
9
a. Rs. 116.64
b. Rs. 111.64
c. Rs. 164.64
d. Rs. 164.61
a. Rs.60
b. Rs.64
c. Rs.68
d. Rs.74
2. MT Corporation has a previous year dividend of Rs.14 per share where as investors require a 17% return
on the similar stocks .The Company’s dividend grows by 7%. The price per share in this case would
be__________.
a. Rs.149.8
b. Rs.184.9
c. Rs.198.4
d. Rs.229.9
share and it is expected to grow 14% more or less indefinitely. What would be the return does this stock
offer you if this is correct?
a. 17%
b. 27%
c. 37%
d. 47%
a. 150 votes
o Purchase of property, plant and equipment
o Cash received from the issuance of stock or equity in the business.
o Purchases of stock or other securities (other than cash equivalents)
o Both a & c
o Capital is raised
o Assets increased
o Liabilities decreased
o Cash withdrawn
are reflected in:

into cash.
b. Cash equivalents
c. Treasury bills
b. Un earned income
c. Both a & b

b. Leverage ratio
c. Turnover ratio
8. __________is concerned with the relationship between the long terms liabilities that a business has and
its capital employed.
a. Gearing
b. Acid test ratio
. ____________give a picture of a company's ability to generate cash flow and

d. Solvency Ratios

a. Net sales
b. Total revenue
c. Total assets
SOLUTION
E. Total Assets
G. Net Profit
H. Gross Profit
position?
E. Income Statement
F. Balance Sheet
G. Cash Flow Statement
Total
Marks
10
Fall Semester 2006
15
another?
E. Primary Market
F. Secondary Market
G. Tertiary Market
E. Liquidity
G. Profitability
H. Market Value
E. Planning Process
H. Managing Process
E. 6.37 %
F. 8.37 %
G. 15.7 %
H. 12.5 %
E. 8 times
F. 9 times
G. 10 times
H. 11 times

percentage of :
E. Total Assets
G. Total Capital
H. Net Profit

F. Partnership
G. Corporation
E. Inventory
F. Accounts Payable
H. Depreciation
..
Total
Marks
10
I. Ordinary Annuity
J. Perpetuity
K. Dividend
L. Interest
I. 15.00 %
J. 15.34 %
K. 15.87 %
L. 16.42 %
I. loan; receiver
J. dividend; issuer
L. loan; issuer
I. More
J. Less
K. Same
I. 30 %
J. 50 %
K. 70 %
L. 90 %
K. Sell new shares
7. ____________ is the current value of the future cash flow discounted at an appropriate discount rate.
I. Present Value
J. Future Value
K. Capital Gain
L. Net Profit
8. SUMI Inc. has outstanding bonds having a face value of Rs. 500. The promised annual coupon is Rs. 50. The bonds
mature in 30 years and the market’s required rate on similar bonds is 12% p. a. What would be the present value of each
bond?
I. Rs. 319.45
J. Rs. 390.75
K. Rs. 419.45
L. Rs. 463.75

I. Time to maturity
J. Coupon rate
K. A and B
I. 8 %
J. 10 %
K. 12 %
L. 14 %
1. _______________ refers to the most valuable alternative that is given up if a particular investment is undertaken.
M. Sunk cost
N. Opportunity cost
O. Financing cost
2. SNT company paid a dividend of Rs. 5 per share last year. The stock’s current price is Rs. 50 per share. Assuming that the
dividends are estimated to grow steadily at 8% per year, the cost of the capital for SNT company will be?
M. 13.07 %
N. 15.67 %
O. 16.00 %
P. 18.80 %
M. Portfolio
N. Diversification
O. Stock Bundle
5. If we have Rs. 150 in asset A and Rs. 250 in asset B, then the percentage of asset B in the portfolio will be:
M. 37.5 %
N. 47.5 %
O. 62.5 %
P. 72.5 %

M. Systematic Risk
Fall Semester 2006
20
N. Market Risk

M. Systematic Risk
O. A & B
M. 2.6 Years
N. 3.1 Years
O. 3.6 Years
P. 4.1 Years
M. Dividend Price Model
Q. Dividend Growth Model
O. All of the given options

M. Most widely used
R. Ideal to rank the mutually exclusive investments
N. Easily communicated and understood
O. Can be estimated even without knowing the discount rate

b. Un earned income

c. Both a & b

b. Leverage ratio
c. Turnover ratio
18. __________is concerned with the relationship between the long terms liabilities that a business has and its capital
employed.
a. Gearing
b. Acid test ratio
19. ____________give a picture of a company's ability to generate cash flow and pay it financial obligations:
d. Solvency Ratios
a. Net sales
b. Total revenue
c. Total assets

1. Ann is interested in purchasing Ted's factory. Since Ann is a poor negotiator, she hires Mary to negotiate a
purchase price. Identify the parties to this transaction from the given options, keeping in view the agency
theory:
e. Ann is the principal and Mary is the agent.
f. Mary is the principal and Ann is the agent.
g. Ted is the agent and Ann is the principal.
h. Mary is the principal and Ted is the agent.

e. Trading in a given auction exchange takes place at a single site on the floor of the exchange.
f. Transaction prices of shares are communicated almost immediately to the public.
g. Listing.
h. All of the given options (a, b and c). http://www.vustudents.net
3. Suppose a Corporation has a taxable income of $200,000 and the tax amount is as given in the calculations:
$ 50,000 x 15% = $ 7,500
($ 75,000 – 50,000) x 25% = 6,250
($ 100,000 – 75,000) x 34% = 8,500
($ 200,000 – 100,000) x 39% = 39,000
Total tax is $61,250
i. 39%
j. 34%
k. 15%
l. 25%
4. A document that includes corporation’s name, intended life, business purpose and number of shares and is
necessary to form a corporation is known as:
e. Charter
f. Set of bylaws
g. Regulations paper
h. None of the given options
5. According to the accounting profession, which of the given options would be considered a cash-flow item
from an "investing" activity in a cash flow statement?
e. Cash outflow to the government for taxes.
f. Cash outflow to shareholders as dividends.
g. Cash outflow to lenders as interest.
h. Cash outflow to purchase bonds issued by another company
e.accounts receivable
f. inventory
g. net fixed assets
h. intangible assets
7. Which of the given options is an advantage of a corporation that is not an advantage as a limited partner in
a partnership?
e. Limited liability.
f. Easy transfer of ownership position.
g. Double taxation.
h. All of the options are advantages that the corporation has over the limited partner.
8. In finance we refer to the market for relatively long-term financial instruments as the __________ market.
e. money
f. capital
g. primary
h. secondary
9. __________ is concerned with the branch of economics relating the behavior of principals and their agents.
e. Financial management
f. Profit maximization
g. Agency theory
h. Social responsibility
e. Depreciation
f. Dividends
g. Interest payments
h. Taxes
http://www.vustudents.net
e. a common-size statement
f. an income statement
g. a cash flow statement
h. a balance sheet
2. Ammar is running a company ‘Ammar & Co’. He has asked you to comment on company’s ability to pay its
bills over the short run without undue stress. For this purpose you will study which category of ratios of the
company?
e. Profitability Ratios
f. Liquidity ratios
g. Debt ratios
h. Turnover ratios
m. 0.2
n. 0.1
o. At least one

e. Times Interest Earned (TIE) Ratios
f. Liquidity Ratios
g. Debt Ratios
h. Asset Management Ratios

e. operating efficiency (as measured by profit margin)
f. asset use efficiency (as measured by total assets turnover)
g. financial Leverage (as measured by equity multiplier)
h. all of the given options (a, b and c)

• comparison
• identification
• calculation
• liability
• 7. A series of constant cash flows that occur at the end of each period for some fixed number of periods is
.
• an ordinary annuity
• annuity due
• multiple cash flows
• perpetuity
• 8. Suppose the total cost of a college education will be $50,000 in 12 years for a child. The Parents have $5,000 to
invest today. What rate of interest must they earn on investment to cover the cost of child’s education?
• 21.15%
• 12%
• 18%
• 30%
• 9. If the bank loans out $10,000 for 90 days at 8% simple interest, the PV is:
• $9,806.56
• $9000
• $10000
• $9500
• Suppose, you deposited an amount of Rs.1000 in Habib Bank at the start of year 2006. How much
interest amount will you have at the end of the year if the bank pays simple interest @10% p.a.?
• Rs.100
• Rs.10
• Rs.90
• Rs.1000

• 1. ________________ is considered as bottom line in Income Statement?

• Total Assets
• Total Liabilities
• Net Profit
• Gross Profit
• 2. ____________ can be considered as a snapshot of a company's financial position?
• Income Statement
• Balance Sheet
• Cash Flow Statement
• Owner's Equity Statement
• 3. ______________ involves the sale of used securities from one investor to
another? http://www.vustudents.net
• Primary Market
• Secondary Market
• Tertiary Market
• None of the given options
• 4. _______________ Ratios shows a firm's ability to pay its bills in short term?
• Liquidity
• Financial Leverage
• Profitability
• Market Value
• 5. The process of planning and managing a firm's long-term investments is called:
• Planning Process
• Capital Structure
• Capital Budgeting
• Managing Process
• 6. Income statement for Sumi Inc. shows the net income of Rs. 363,000 whereas the
total sales are Rs. 2,311,000. The profit margin for the Sumi Inc. will be:
• 6.37 %
• 8.37 %
• 15.7 %
• 12.5 %
• 7. S&T Company have 35 thousands shares outstanding and the stock sold for Rs. 99
per share at the end of year. Income Statement reported a net income of Rs. 385,000.
The Price Earning Ratio for S&T Company will be:
• 8 times
• 9 times
• 10 times
• 11 times
• 8. While making Common-Size statement, Balance Sheet items are shown as a
percentage of :
• Total Assets
• Total Liabilities
• Total Capital
• Net Profit
• 9. A business, created as a distinct legal entity owned by one or more individuals or
entities, is known as:
• Sole Proprietorship
• Partnership
• Corporation
• None of the given options
• 10. Which one of these is considered as a non-cash item?
• Inventory
• Accounts Payable
• Accounts Receivable
• Depreciation

Total Marks: 10
Upload date of Quiz 03 Solution: June 23, 2006
MCQs with the most appropriate choices:

1. Suppose PTCL Corporation Ltd. next dividend will be $12 per share. Investors require 18% return on the
similar stocks. PTCL Corporation’s dividend grows by 7% every year. What is the value of PTCL stock
today?
a. $119.085
b. $133.333
c. $109.091
d. $106.063
2. Al-Saeed Corporation stock is currently selling for $60 per share. The next dividend is $9 per share and
it is expected to grow by 12% more or less indefinitely. What return does this stock offer to you?
a. 15%
b. 25%
c. 27%
d. 17%
3. Consider Merry Corporation that has 500 shareholders and is going to elect its eight directors. If you
hold 19 shares, how many votes under cumulative voting system you may cast for the appointment of
directors for Merry Corporation?
a. 115 votes
b. 130 votes
c. 152 votes
d. 165 votes
4. Shareholders sometimes have the right to share proportionately in any new stock sold by the company.
This right of shareholder is called ________________.
a. Preference right
b. Cumulative right
c. Preemptive right
5. National Bank of Pakistan has newly issued five hundred thousand shares to the general public. You
applied for 500 shares with National Bank of Pakistan. Suppose you receive acknowledgement letter
from National Bank of Pakistan that you have been allotted 500 shares. Now you are interesting to sell
these shares to Aslam. The market in which first transaction of shares took place is a:
a. Secondary market
b. Treasury market
c. Primary market
d. Special market
6. A company is making an investment in a project whose net present value is

-$5000. This investment decision will have ___________affect on share value.
a. Positive
b. Negative
c. no
7. Which option shows shortcomings that relate to payback period method?

a. It considers the risk differences
b. Time value of money is considered
c. It provides an objective basis for a particular number for the cutoff period
d. Biased against long term projects i.e. research and development and new projects
8. If two projects A and B are mutually exclusive projects then it means

a. We have to select both projects at a time
b. The selection of A project prevent the selection of B project
c. The selection of B project prevent the selection of A project
d. Both options b and c are true
8. Which of the following expenses is not a tax deductible expense?

a. Depreciation
b. Interest expense
c. Dividend paid
d. Selling expense
9. A firm's investment decision is also called the:

a. financing decision
b. capital budgeting decision
c. liquidity decision
d. debt financing
10. The Projected cash flows from a proposed investment are:
Year Cash Flow
1 $100
2 200
The project costs $500. What is the 3 500 payback period for this investment?
a. 2.4 years
b. 5 years
c. 3 years
d. 2 years
Capital Structuring
Capital Rationing
Capital Budgeting
3. Which of the following refers to the cash flows that result from the firm’s day-to-day activities of producing and
selling?

Float
Collar
Limit
Surplus




Current Ratio
Acid-test Ratio
Cash Ratio
Sole-proprietorship
Partnership
Corporation
20%; 80%
37%; 63%
63%; 37%
80%; 20%
Carrying costs
Shortage costs
Storing costs
financing costs
12. Depreciation is computed for each year by multiplying the cost of the asset by
a fixed percentage.
b. Annual depreciation remains constant every year even by using different rates.
c. The expected salvage value and the actual expected economic life are not explicitly considered in calculation of
depreciation.

Sole-proprietorship
Partnership
Corporation


5.00 percent
7.00 percent
8.45 percent
10.0 percent
Liquidity Ratios
Market Value Ratios

Revenue
Expenses
Depreciation



7.00 percent
7.12 percent
7.19 percent
7.23 percent
Sole-proprietorship
General Partnership
Limited Partnership
Corporation
Systematic Risk
Diversifiable Risk
Unsystematic Risk

Systematic Risk
Market Risk
Unsystematic Risk
invested?
Profit Margin
Return on Assets
Return on Equity
Debt-Equity Ratio

Investments
Cost of debt

Diversifiable Risk
Market Risk
Residual Risk
Asset-specific Risk
70
120
200
280

Selling expense
Raw material
Direct labor
Selling expenses
General expenses
Profit Margin
Debt-equity ratio
Operating cash flow
Capital spending
Marketing Research
Product Pricing
sold?
Product cost
Period cost
collection period?
5 days
36 days
48 days
73 days
750000/150000=5
365/5=73days
Operating Leverage
Financial Leverage
Primary market
Secondary market
Tertiary market
Liquidity Ratios
Market Value Ratios
Income Statement
Balance Sheet
Cash Flow Statement
Operating activity
Investing activity
Financing activity
Current Ratio
Acid-test Ratio
Cash Ratio
Income Statement
Balance Sheet
Cash Flow Statement
Dividends
Retained Earnings
Capital Gain
date?
Income Statement
Balance Sheet
Cash Flow Statement
Dividends
Retained Earnings
Capital Gain

Current Ratio
Quick Ratio
Cash Coverage Ratio
Cash Ratio
22. Which of the following ratio gives an idea as to how efficient management is at using its assets to generate earnings?
Profit Margin
Return on Assets
Return on Equity
Financial policy
Dividend policy
Accountants
Financial Analysts
Auditors
Marketers
period of time?
Liquidity Ratios
Leverage Ratios
Market Value Ratios
Positive
Negative
zero
sole proprietorship
partnership
joint stock company
cooperative Society
Liquidity Ratios
Flows?
Depreciation
Interest
Rs. 105,600
Rs. 148,500
Rs. 165,000
Rs. 225,000
Solution=250000*34%=85000
250,000-85000=165000
issuing or selling:
Common Stocks
Preferred Stock
period of time?
Liquidity Ratios
Leverage Ratios
Market Value Ratios
Primary market
Secondary market
Tertiary market
Accountants
Auditors
Marketers
Revenue
Expenses
Depreciation
Rs. 100
Rs. 510
Rs. 1,000
Rs. 1,100
Solution:
=1000/10
=100
Net Present Value
Selling expense
Raw material
Direct labor
Financial Leverage
Operating activity
Investing activity
Financing activity
of Rs. 460,000.What would be the Current Ratio for the company if there is an
1.01
1.26
1.39
1.52
Solution= 700000/460000=1.52
Sole-proprietorship
Limited Partnerhsip
Corporation
Increase
Decrease
Remain unaffected
Become zero
continues forever?
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity
inventory?
Net loss
Net worth
Markup
Markdown
stated price?
Repayment
Seniority
Call provision
Income Statement
Balance Sheet
Cash Flow Statement
Sole-proprietorship
General Partnership
Limited Partnership
Corporation
Par value
Coupon value
issuing or selling:
Common Stocks
Preferred Stock
from taxes?
Inventory
Supplies
Machinery
Depreciation
59. A firm reports total liabilities of Rs. 300,000 and owner’s equity of Rs. 500,000.What
Rs. 300,000
Rs. 500,000
Rs. 800,000
Rs. 1100,000
sol
Sole-proprietorship
General Partnership
Limited Partnership
Corporation
sole proprietorship
partnership
joint stock company
none of the above
Surplus Asset
Short-term Ratio
Working Capital
Current Ratio
Rs. 14,186
Rs. 18,256
Rs. 22,697
Rs. 28,253
solution
40000*1/(1+0.12)^5=22697.07
Income Statement
Balance Sheet
Cash Flow Statement
Par value
Coupon value
issuer.
12 %
25 %
40 %
60 %
Solution
250000-150000/250000*100=40%
Positive
Negative
zero
Dividends
Retained Earnings
Capital Gain
Investments
Receivable Turnover
Return on Assets
Operating Leverage
Financial Leverage
b
8.42 years
10.51 years
15.75 years
18.78 years
6000(1+5%)^10.51=around 10,000
Financial policy
Dividend policy
date?
Income Statement
Balance Sheet
Cash Flow Statement
Armaan: b
Selling expenses
General expenses
Rs. 500
Rs. 752
Rs. 1,052
Rs. 1,100
4100-3000=1100
7.00 percent
7.12 percent
7.19 percent
7.23 percent
Income Statement?
Benchmarking 48
Standardizing
Comparison
Evaluation
Financial policy
Dividend policy
2% to 8%
4% to 25%
5% to 20%
10% to 50%
Management Conflict
Interest Conflict
Agency Problem
Ordinary annuity 63
Annuity due
Perpetuity
Investments
information?
Investments
4.30%
6.00%
10.70%
16.73%
solution
Net income=8%*75000=6000
Profit margin=6000/100000*100= 6%
investments?
Capital Structuring
Capital Rationing
Capital Budgeting
Current Ratio
Acid-test Ratio
Cash Ratio
Sole-proprietorship
Partnership
Corporation
20%; 80%
37%; 63%
63%; 37%
80%; 20%
I and II
I and III
II and IV
I, III, and IV
Rs. 6,302
Rs. 9,981
Rs. 14,800
Rs. 15,869

5.00 percent
7.00 percent
8.45 percent
10.0 percent
continues forever?
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity
The _______ debt a firm has (as a percentage of assets); the _______ is the
degree of financial leverage.
More; greater
• Which of following is(are) the non-cash item(s)?
o Depreciation
• Which of the following is the extra rate you would pay if you earn one more
dollar
marginal tax rate
Which of the following is NOT an investing cash flow?

Proceeds from the sale of a retired asset
Perpetuity
Which of the following represent(s) a loan made by the investors to the issuer?
Bond
Which one of the following statements is INCORRECT regarding a bond?
A bondholder has a part of ownership in the firm
A bond’s value will rise above its par value during its life if interest rate:
Goes up
When the market's required rate o f return for a particular bond is much higher
Premium
change _ _ _ _ _ _ _ _ that of the shorter -term b on d , for a given change in market
interest rates.
More than
Between t he two identical bonds having different coupon , the price of the
________ bond will change more than that of ________ bond.
Higher- coupon; lower-coupon
Which of the following term refer s to a contract between t h e b o n d issuer and

bondholders?
Bond indenture
Call provision
Which of the following long-term rating by PACRA denotes a high default risk?
CCC
Which one of the following statement s is IN CORRECT regarding floating-rate bond?
Holder of this type of bond has the right to redeem the note at par on the
coupon payment date after some specified period of time.
Which of the following is NOT dealt by a controller under the head of a CFO?
Data Processing

Which one of the following ratios indicates the return firm shareholders are earning?
Return on equity
Which one of the following is a CORRECT statement about the Price- Earning
Ratio?
A firm with high earning per share will also have a very high PE ratio.
A. 100 Votes
B. 200 Votes
C. 300 Votes
D. 400 Votes
A. Rs. 30
B. Rs. 40
C. Rs. 50
D. Rs. 60
A. Rs. 30000
B. Rs. 40,500
C. Rs. 50,000
D. Rs. 60,000
Virtual University of Pakistan
Total Marks
10
VIRTUALIANS.Com is a new name of VUPages.com
VIRTUALIANS.COM
WWW.VIRTUALIANS.COM
Quiz # 03( Solution ) – Spring 2008 Business Finance (ACC501)
process?
A. 22.85 %
B. 25.16 %
C. 30.52 %
D. 34.29 %
A. 0.30
B. 0.40
C. 0.60
D. 0.75
Select the correct answer from the given choices:
1. Dividend growth model assumes that basis of valuation of stock is on:
a. The current dividend
b. Growth of the dividend
c. Required rate of return
2. Dividend growth models tells us that if the growth rate g, is bigger than discount rate R, then
the present value of the dividends keeps on getting:
a. Smaller and smaller
b. Bigger and bigger
c. Constant
d. Non constant growth
3. When directors are elected through cumulative voting, this procedure is:
a. Adopted to permit minority participation
b. Adopted to select directors one at a time
c. Used by individual shareholders to distribute votes however they wish
d. Both a & c
4. There is more than one class of common stocks with equal and unequal voting rights; the
primary reason behind such stocks is concerned:
a. Behaviors of the investors
b. Availability of the shares
c. Control of the firm
d. Principle of classification of shares
5. Dividends received by individuals are considered ordinary income by tax authorities and are:
a. Fully taxable
b. Tax deductible
c. Fully exempt
Quiz 02 (ACC 501) Fall Semester 2007
6. An agent who buys or sells securities from a maintained inventory is a:
a. Jobber
b. Dealer
c. Broker
d. Customer
7. The investment is economically a break-even proposition when the NPV equal to:
a. Positive
b. Negative
c. Zero
8. ___________ is often proposed as a measure of performance of government or other non
profit investments.
a. NPV
b. IRR
c. Profitability index
d. Pay back period
9. When capital is scarce, it is sensible approach to allocate it to those projects with
highest_______.
a. Payback period
b. Internal rate of return
c. Net present value
d. Profitability index
10. ________ is a cost that has already been incurred and cannot be recouped and therefore
should not be considered in an investment decision.
a. Opportunity cost
b. Financing cost
c. Sunk cost
d. Variable cost
1 to 62mcqs =62 marks

63 to 65 subjective=3*3 =9marks
66to 69 subjective=5*4 =20marks
Total paper 91 marks
1.The time between sale of inventory and collection of receivable.

b operation cycle
c inventory period
d none of above
2. allow a bank to substitute its creditworthiness for the customer, for a fee is
called___________-
a open bank account

b commercial draft
c promisory note
3.Standard deviations for Investment A and Investment B are 25% and 12% respectively. This
indicates that :
4. find the average 2%,5%,6%,8%

a 5%
b 5.25 %
c 6%
d 8%
5 what is standard deviation of thise averages 2%,5%, 7%

6.As the dividend is always same for a zero growth stock, so the stock can also be viewed
as
7.Which of the following statement shows revenue, expense, and net worth as of a specific
date?
a balance sheet
b income statement
c cashflow
d none of above
8. which of the following character is not a systematic risk
market risk
interest risk
inflation risk
strike call in a company
director is
a 100
b150
c50
d25
Accepted; rejected
Accepted; accepted
Rejected; rejected
Rejected; accepted
Cost of debt
Mutually exclusive
Dependent
Independent
Correlated
14.Mr. Naveed has bought 100 shares of a corporation one year ago at Rs. 23 per share. Over
the last year, he received a dividend of Rs. 1.50 per share. At the end of the year, the stock sells
for Rs. 31. As per given information, what will be his total percentage return ?
10.63%
20.20%
35.12%
41.30%
investor ?
Stock Bundle
Portfolio
Capital Structure
million in the first year and Rs. 9 million in the second and Rs. 5 million in the third. The
2.6 Years
3.1 Years
3.7 Years
4.1 Years
a.68
b 18
c 80
d 118


level Furnishing audited financial statements periodically to the lender
Restricting selling or leasing assets wrong question option d is negative and
all is positive example
2. AST Company’s debt-to-total assets ratio is 0.45. What is its debt -to-
equity
ratio?
0.101
0.220
0.667
0.818
Reference:(1-0.45=0.55)
=0.45/0.55=0.818
3. What amount a borrower would pay at the end of fourth year with a 4-
year,
Rs. 1,360
Rs. 2,000
Rs. 5,625
Rs. 8,960
Reference: 8000*12/100=8960
4. What will be the price per share if there is a current dividend of Rs.
4.75,
Rs. 30.19
Rs. 43.52
Rs. 56.53
Rs. 71.25
4.75*(1+0.5/4.75-0.5)=71.25
5. A given rate is quoted as 9 percent APR, but the EAR is 9.38 percent.
What
Semiannually
Quarterly
Monthly
Daily
APR=9
M=30
(1+9/30)^30-1=9.38
6. Mr. Aslam owns 100 shares of a company and there are four directors
to be
elected. How much votes Mr. Aslam would have as per cumulative
voting
procedure?
100 votes
200 votes
300 votes
400 votes
7. SNT Corporation has policy of paying a Rs. 6 per share dividend every
year.
If this policy is to continue indefinitely, what will be the value of a share
of
Rs. 30
Rs. 40
Rs. 50
Rs. 60
8. Which of the following process can be defined as the process of

generating
Discounting
Compounding
Factorization
9. Which of the following is the amount of cash we would get if we actually

sell
an asset?
Market Value
Book Value
Intrinsic Value
10.
11. Which of the following financial statement shows both dollars

and
Balance Sheet
Income Statement
12. in which form of Business, owners have limited

libility.
sole proprietorship
partnership
joint stock company
none of the above
13. Suppose the initial investment for a project is Rs. 16 million and the
cash
flows are Rs. 4 million in the first year and Rs. 9 million in the second
and
2.6 Years
3.1 Years
3.7 Years
4.1 Years
14. Which of the following is NOT a shortcoming of Payback

Rule?


basis, it

Common Stocks
Preferred Stock
types of
bonds?
Government bonds 85
Zero coupon bonds
Floating-rate bonds
Euro bonds
17. When real rate is _____, all interest rates will tend to be
_____.
Low; higher
High; lower
High; higher pg 88
18. Which of the following statements is(are) CORRECT regarding a

bond?
A bond is an evidence of debt issued by a corporation or a governmental

body. A bond represents a loan made by investors to the issuer.
19. Between the two identical bonds having different coupon, the price of
the
20. As the dividend is always same for a zero growth stock, so the stock
can also
be viewed as:
Ordinary Annuity
Annuity Due
21. The coupon rate of a floating-rate bond is capped and upper and lower
rates
are called:
Float
Collar pg 86
Limit
Surplus


23. If the dividend for a share is growing at a steady rate then which of
the
D2 = D1 x (1 + g )
D2 = Do x ( 1 + g )2
D2 = Do x ( 1 + g )2
24. A project whose acceptance does not prevent or require the

acceptance of

independent project
dependent project
contingent project
NPV
Rs. 40,000
Rs. 55,000
Rs. 65,000
Rs. 72,000
Reference=600000*1.12=672000-600000=72000


27. If a firm is allowed to miss a coupon payment on a bond in a year in

which it
Income
Zero coupon
Floating-rate
Put
Positive
Negative pg 80
Neutral

30. Which of the following allows a company to repurchase part or all

of the
Repayment
Seniority
Call provision
31. Which of the following is NOT a quality of

IRR?
Most widely used
32. In which type of the market, previously issued securities are traded
among
investors?
Primary Market
Tertiary Market
33. A model which makes an assumption about the future growth of

dividends is
known as:
34. Which of the following represents the linear relation between Net
Present
criteria
Payback Period
36.
Which of the following is NOT included in discounted cash flow criteria
for capital budgeting decision?
Net Present Value
Profitability Index
37. Which of the following is an example of positive

covenant?
38. Which of the following is the most common capital budgeting

technique?
Payback Period
Net Present Value

Profitability Index
39. Which of the following measures the present value of an investment

per
dollar invested?
40. Which of the following is a measure of accounting profit relative to the

book
value?
Net Present Value
Profitability Index
41. Which one of the following typically applies to preferred stock but
not to
common stock?
Dividend yield
Voting rights
types of
bonds?
Zero coupon bonds
Floating-rate bonds
Euro bonds
43. Expectation of a ____ inflation rate will push long term interest rates
____
Lower; higher
Higher; lower
44. A company issues bonds with a Rs. 1,000 face value. What is the coupon
rate
3 percent
6 percent
9 percent
12 percent
60+60=120/1000=12%
45. The projected cash flows from a project are: Year 1: Rs. 100 Year 2:
Rs. 300
Year 3: Rs. 400 Year 4: Rs. 800 The Project cost is Rs. 800. What would
be
2.00 Years
2.67 Years
3.00 Years
3.67 Years
Project=800 paid in 1 year=100, 2nd year=300 and 3rd year=400 total 800 paid
in 3rd
year
In which of the following type of annuity, cash flows occur at the

beginning of each period?
Ordinary annuity
Annuity due pg 66
Perpetuity
46. Which of the following is NOT an important feature of treasury notes

and
bonds?
Default free
Taxable
Least liquid pg 90
Highly liquid

Expected inflation
Interest rate risk
47. Which of the following is the amount of time required for an

investment to
Yield to maturity
Maturity Period
m.q .z
48. In which type of the market, securities are originally sold to the
investors?
Primary Market
Secondary Market
Tertiary Market
49. A _________ is an agent who arranges security transactions among

investors.
Broker pg 100
Dealer
Member
Specialist
volatile
50. Which of the following is a characteristic of preferred
stock?
51. Which of the following type of bond pays no coupon at all and are
offered at
Government bonds
Floating-rate bonds
Euro bonds
52. An investment will be _________ if the IRR doesn’t exceeds the

required
Accepted; rejected
Accepted; accepted
Rejected; rejected
53. Which of the following comes under the head of accounting criteria
for
Payback Period
Net Present Value
Profitability Index
54. Which of the following is a series of constant cash flows that occur at the
end
Annuity due
Perpetuity
55. Which of the following term refers to the difference between the
present
56. One would be indifferent between taking and not taking the
investment
when:

57. Which one of the following terms refers to the risk arises for bond
owners
Fluctuations Risk
Real-Time Risk
Inflation Risk
58. All else equal, the market value of a corporate bond is always
inversely
related to its:
Time to maturity
Coupon rate
Yield to maturity

area of
finance?

60. Period costs include which of the

following?
Selling expense
Raw material
Direct labor
61. Product costs include which of the

following?
Selling expenses
General expenses
62. Financial policy is evaluated by which of the

following?
Profit Margin
Debt-equity ratio
63. Cash flow from assets involves which of the following

component(s)?
Operating cash flow

Capital spending
firm’s

65. Finance is vital for which of the following business activity

(activities)?
Marketing Research
Product Pricing
66. Which of the following costs are reported on the income statement as
the cost
of goods sold?
Product cost
Period cost
67. Standard Company had net sales of Rs. 750,000 over the past year.
During
that time, average receivables were Rs. 150,000. Assuming a 365-day
year,
5 days
36 days
48 days
73 days
750000/150000=5
365/5=73days
68. Which of the following terms refers to the use of debt

financing?
Operating Leverage
Financial Leverage
69. In which type of market, new securities are

traded?
Primary market
Secondary market
Tertiary market
70. Which of the following ratios are particularly interesting to short-

term
creditors?
Liquidity Ratios
Market Value Ratios
71. shows the sources from which cash has been generated and how it has
been
Income Statement
Balance Sheet
Cash Flow Statement
This
Operating activity
Investing activity
Financing activity

Current Ratio
Acid-test Ratio
Cash Ratio
74. of the following statement measures performance over a specific

period of
time?
Income Statement
Balance Sheet
Cash Flow Statement
75. Which of the following statement shows assets, liabilities, and net worth
as of
a specific date?
Income Statement
Balance Sheet
Cash Flow Statement
76. A portion of profits, which a company retains itself for further

expansion, is
known as:
Dividends
Retained Earnings
Capital Gain

Current Ratio
Quick Ratio
Cash Coverage Ratio
Cash Ratio
78. Which of the following ratio gives an idea as to how efficient

management is
Profit Margin
Return on Assets
Return on Equity



Financial policy
Dividend policy

Accountants
Financial Analysts
Auditors
Marketers
82. Which of the following set of ratios is used to assess a business's

ability to
Liquidity Ratios
Leverage Ratios
Market Value Ratios
83. A company having a current ratio of 1 will have __________ net

working
capital.
Positive
Negative
zero

sole proprietorship
partnership
joint stock company
cooperative Society
85. Which of the following ratios are intended to address the firm’s
financial
leverage?
Liquidity Ratios


87. Which of the following item(s) is(are) not included while

calculating
Depreciation
Interest
88. Suppose market value exceeds book value by Rs. 250,000. What will be
the
Rs. 105,600
Rs. 148,500
Rs. 165,000
Rs. 225,000
Solution=250000*34%=85000
250,000-85000=165000

basis, it

Common Stocks
Preferred Stock

Primary market
Secondary market
Tertiary market

Accountants
Auditors
Marketers

Revenue
Expenses
Depreciation
93. What will be the coupon value of a Rs. 1,000 face-value bond with a
10%
coupon rate?
Rs. 100
Rs. 510
Rs. 1,000
Rs. 1,100
Solution:
=1000/10
=100
criteria

Net Present Value

Selling expense
Raw material
Direct labor

97. According to Du Pont Identity, ROE is affected by which of the

following?
Financial Leverage

area of
finance?
This
Operating activity
Investing activity
Financing activity
100. Balance sheet for a company reports current assets of Rs. 700,000
and
current liabilities of Rs. 460,000. What would be the Current Ratio for
the
1.01
1.26
1.39
1.52
Solution= 700000/460000=1.52
Sole-proprietorship
Limited Partnerhsip
Corporation
Increase
Decrease
Remain unaffected
Become zero
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity

Net loss
Net worth
Markup
Markdown

Repayment
Seniority
Call provision
107. ____________ shows the sources from which cash has been
generated
Income Statement
Balance Sheet
Cash Flow Statement


regulated?
Sole-proprietorship
General Partnership
Limited Partnership
Corporation

Par value
Coupon value

discount?
Bond Price < Par Value and YTM > coupon
rate
Bond Price > Par Value and YTM > coupon
rate
Bond Price > Par Value and YTM < coupon
rate

Common Stocks
Preferred Stock

Inventory
Supplies
Machinery
Depreciation
Rs. 300,000
Rs. 500,000
Rs. 800,000
Rs. 1100,000
sol

Sole-proprietorship
General Partnership
Limited Partnership
Corporation

sole proprietorship
partnership
joint stock company
none of the above
CF from Assets = CF to Creditors - CF to
Stockholder
CF from Assets = CF to Stockholders - CF to
Creditors
as:
Surplus Asset
Short-term Ratio
Working Capital
Current Ratio
Rs. 14,186
Rs. 18,256
Rs. 22,697
Rs. 28,253
solution
40000*1/(1+0.12)^5=22697.07

Income Statement
Balance Sheet
Cash Flow Statement

Par value
Coupon value

bond
issuer.
Bond ratings represent an independent assessment of the credit-
worthiness of bonds.
Generally Applied Accountability
Principles General Accounting Assessment
Principles
information?
Evaluation of performance through profit margin and return on
equity Evaluation of credit standing of new customer
125. A firm has paid out Rs. 150,000 as dividends from its net income
of
12 %
25 %
40 %
60 %
Solution
250000-150000/250000*100=40%
Positive
Negative
zero

Dividends
Retained Earnings
Capital Gain

Investments
Management Ratios?

Receivable Turnover
Return on Assets
129. You just won a prize, you can either receive Rs. 1000 today or
Rs.
1,050 in one year. Which option do you prefer and why if you can
earn 5

Operating Leverage
Financial Leverage
b
131. You need Rs. 10,000 to buy a new television. If you have Rs. 6,000
to
invest at 5 percent compounded annually, how long will you have to
wait to
buy the television?
8.42 years
10.51 years
15.75 years
18.78 years
6000(1+5%)^10.51=around 10,000


level
Furnishing audited financial statements periodically to the
lender Maintaining any collateral or security in good condition

Financial policy
Dividend policy
Income Statement
Balance Sheet
Cash Flow Statement
Armaan: b

Selling expenses
General expenses
136. An account was opened with an investment of Rs. 3,000 ten years
ago.
The ending balance in the account is Rs. 4,100. If interest was
compounded,
Rs. 500
Rs. 752
Rs. 1,052
Rs. 1,100
4100-3000=1100

7.00 percent
7.12 percent
7.19 percent
7.23 percent

for comparison?
Benchmarking 48
Standardizing
Comparison
Evaluation

Financial policy
Dividend policy

2% to 8%
4% to 25%
5% to 20%
10% to 50%

Management Conflict
Interest Conflict
Agency Problem
143. Which of the following is a series of constant cash flows that

occur at
Ordinary annuity 63
Annuity due
Perpetuity
Investments



Investments
4.30%
6.00%
10.70%
16.73%
solution
Net income=8%*75000=6000
Profit margin=6000/100000*100= 6%

Capital Structuring
Capital Rationing
Capital Budgeting
149. Which of the following refers to the cash flows that result from
the

Current Ratio
Acid-test Ratio
Cash Ratio
Sole-proprietorship
Partnership
Corporation
20%; 80%
37%; 63%
63%; 37%
80%; 20%

bondholders III. Repay the original amount borrowed (principal) IV.
I and II
I and III
II and IV
I, III, and IV

Rs. 6,302
Rs. 9,981
Rs. 14,800
Rs. 15,869

157. The preferred stock of a company currently sells for Rs. 25 per
share.
5.00 percent
7.00 percent
8.45 percent
10.0 percent
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity
159. JJ Inc. has a 4 percent return on total assets of Rs. 500,000 and a
net
Rs. 150,000
Rs. 200,000
Rs. 250,000
Rs. 400,000
4 % = N.P / 500,000
4% * 500,000 = N.P
N.P = Rs. 20,000

5 % = 20,000 / Sales
5% * Sales = 20,000
Sales = 20,000 / 5%
Sales = 400,000
to zero?


if
Current Yield
Yield To Maturity
Coupon Yield
Capital Gains Yield
positive example
ratio?
0.101
0.220
0.667
0.818
Reference:(1-0.45=0.55)
=0.45/0.55=0.818
Rs. 1,360
Rs. 2,000
Rs. 5,625
Rs. 8,960
Reference: 8000*12/100=8960
Rs. 30.19
Rs. 43.52
Rs. 56.53
Rs. 71.25
4.75*(1+0.5/4.75-0.5)=71.25
Semiannually
Quarterly
Monthly
Daily
APR=9
M=30
(1+9/30)^30-1=9.38
procedure?
100 votes
200 votes
300 votes
400 votes
Rs. 30
Rs. 40
Rs. 50
Rs. 60
Discounting
Compounding
Factorization
an asset?
Market Value
Book Value
Intrinsic Value
10.
Balance Sheet
Income Statement
sole proprietorship
partnership
joint stock company
none of the above
2.6 Years
3.1 Years
3.7 Years
4.1 Years
Common Stocks
Preferred Stock
bonds?
Government bonds 85
Zero coupon bonds
Floating-rate bonds
Euro bonds
Low; higher
High; lower
High; higher pg 88
be viewed as:
Ordinary Annuity
Annuity Due
are called:
Float
Collar pg 86
Limit
Surplus
D2 = D1 x (1 + g )
D2 = Do x ( 1 + g )2
D2 = Do x ( 1 + g )2
independent project
dependent project
contingent project
Rs. 40,000
Rs. 55,000
Rs. 65,000
Rs. 72,000
Reference=600000*1.12=672000-600000=72000
Income
Zero coupon
Floating-rate
Put
Positive
Negative pg 80
Neutral
Repayment
Seniority
Call provision
Most widely used
investors?
Primary Market
Tertiary Market
known as:
Payback Period
36.
Net Present Value
Profitability Index
Payback Period
Net Present Value
Profitability Index
dollar invested?
value?
Net Present Value
Profitability Index
common stock?
Dividend yield
Voting rights
bonds?
Zero coupon bonds
Floating-rate bonds
Euro bonds
Lower; higher
Higher; lower
3 percent
6 percent
9 percent
12 percent
60+60=120/1000=12%
2.00 Years
2.67 Years
3.00 Years
3.67 Years
year
each period?
Ordinary annuity
Annuity due pg 66
Perpetuity
bonds?
Default free
Taxable
Least liquid pg 90
Highly liquid
Expected inflation
Interest rate risk
Yield to maturity
Maturity Period
m.q .z
Primary Market
Secondary Market
Tertiary Market
Broker pg 100
Dealer
Member
Specialist
volatile
Government bonds
Floating-rate bonds
Euro bonds
Accepted; rejected
Accepted; accepted
Rejected; rejected
Payback Period
Net Present Value
Profitability Index
Annuity due
Perpetuity
when:
Fluctuations Risk
Real-Time Risk
Inflation Risk
related to its:
Time to maturity
Coupon rate
Yield to maturity
finance?
Selling expense
Raw material
Direct labor
Selling expenses
General expenses
Profit Margin
Debt-equity ratio
Operating cash flow
Capital spending
Marketing Research
Product Pricing
of goods sold?
Product cost
Period cost
5 days
36 days
48 days
73 days
750000/150000=5
365/5=73days
Operating Leverage
Financial Leverage
Primary market
Secondary market
Tertiary market
creditors?
Liquidity Ratios
Market Value Ratios
Income Statement
Balance Sheet
Cash Flow Statement
Operating activity
Investing activity
Financing activity
Current Ratio
Acid-test Ratio
Cash Ratio
time?
Income Statement
Balance Sheet
Cash Flow Statement
a specific date?
Income Statement
Balance Sheet
Cash Flow Statement
known as:
Dividends
Retained Earnings
Capital Gain
Current Ratio
Quick Ratio
Cash Coverage Ratio
Cash Ratio
Profit Margin
Return on Assets
Return on Equity
Financial policy
Dividend policy
Accountants
Financial Analysts
Auditors
Marketers
Liquidity Ratios
Leverage Ratios
Market Value Ratios
capital.
Positive
Negative
zero
sole proprietorship
partnership
joint stock company
cooperative Society
leverage?
Liquidity Ratios
Depreciation
Interest
Rs. 105,600
Rs. 148,500
Rs. 165,000
Rs. 225,000
Solution=250000*34%=85000
250,000-85000=165000
Common Stocks
Preferred Stock
Primary market
Secondary market
Tertiary market
Accountants
Auditors
Marketers
Revenue
Expenses
Depreciation
coupon rate?
Rs. 100
Rs. 510
Rs. 1,000
Rs. 1,100
Solution:
=1000/10
=100
Net Present Value
Selling expense
Raw material
Direct labor
Financial Leverage
finance?
Operating activity
Investing activity
Financing activity
1.01
1.26
1.39
1.52
Solution= 700000/460000=1.52
Sole-proprietorship
Limited Partnerhsip
Corporation
Increase
Decrease
Remain unaffected
Become zero
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity
Net loss
Net worth
Markup
Markdown
Repayment
Seniority
Call provision
Income Statement
Balance Sheet
Cash Flow Statement
regulated?
Sole-proprietorship
General Partnership
Limited Partnership
Corporation
Par value
Coupon value
discount?
Common Stocks
Preferred Stock
Inventory
Supplies
Machinery
Depreciation
Rs. 300,000
Rs. 500,000
Rs. 800,000
Rs. 1100,000
sol
Sole-proprietorship
General Partnership
Limited Partnership
Corporation
sole proprietorship
partnership
joint stock company
none of the above
as:
Surplus Asset
Short-term Ratio
Working Capital
Current Ratio
Rs. 14,186
Rs. 18,256
Rs. 22,697
Rs. 28,253
solution
40000*1/(1+0.12)^5=22697.07
Income Statement
Balance Sheet
Cash Flow Statement
Par value
Coupon value
issuer.
bonds.
information?
12 %
25 %
40 %
60 %
Solution
250000-150000/250000*100=40%
correct option:
Positive
Negative
zero
Dividends
Retained Earnings
Capital Gain
Investments
Management Ratios?
Receivable Turnover
Return on Assets
Operating Leverage
Financial Leverage
b
buy the television?
8.42 years
10.51 years
15.75 years
18.78 years
6000(1+5%)^10.51=around 10,000
level
Financial policy
Dividend policy
Income Statement
Balance Sheet
Cash Flow Statement
Armaan: b
Selling expenses
General expenses
Rs. 500
Rs. 752
Rs. 1,052
Rs. 1,100
4100-3000=1100
7.00 percent
7.12 percent
7.19 percent
7.23 percent
for comparison?
Benchmarking 48
Standardizing
Comparison
Evaluation
Financial policy
Dividend policy
2% to 8%
4% to 25%
5% to 20%
10% to 50%
Management Conflict
Interest Conflict
Agency Problem
Ordinary annuity 63
Annuity due
Perpetuity
Investments
Investments
4.30%
6.00%
10.70%
16.73%
solution
Net income=8%*75000=6000
Profit margin=6000/100000*100= 6%
Capital Structuring
Capital Rationing
Capital Budgeting
Current Ratio
Acid-test Ratio
Cash Ratio
Sole-proprietorship
Partnership
Corporation
20%; 80%
37%; 63%
63%; 37%
80%; 20%
I and II
I and III
II and IV
I, III, and IV
Rs. 6,302
Rs. 9,981
Rs. 14,800
Rs. 15,869
5.00 percent
7.00 percent
8.45 percent
10.0 percent
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity
Rs. 150,000
Rs. 200,000
Rs. 250,000
Rs. 400,000
4 % = N.P / 500,000
4% * 500,000 = N.P
N.P = Rs. 20,000
5 % = 20,000 / Sales
5% * Sales = 20,000
Sales = 20,000 / 5%
Sales = 400,000
to zero?
Current Yield
Yield To Maturity
Coupon Yield
Capital Gains Yield
will:
Increase
Decrease
Remain unaffected
Become zero
will:
Increase
Decrease
Remain unaffected
Become zero
Date :4-jan-2011



issuing or selling:

Common Stocks
Preferred Stock
3. Treasury notes and bonds are examples of which of the following types of bonds?
Government bonds 85
Zero coupon bonds
Floating-rate bonds
Euro bonds
Low; higher
High; lower
High; higher pg 88

When a corporation wishes to borrow from public on a long term basis, it does so by issuing or
selling bonds.
6. Between the two identical bonds having different coupon, the price of the ________ bond
will change less than that of ________ bond.
7. As the dividend is always same for a zero growth stock, so the stock can also be viewed as:
Ordinary Annuity
Annuity Due
Float
Collar pg 86
Limit
Surplus


10. If the dividend for a share is growing at a steady rate then which of the following
formula(s) can be used to find the dividend in two periods?
D2 = D1 x (1 + g )
D2 = Do x ( 1 + g )2
D2 = Do x ( 1 + g )2
11. A project whose acceptance does not prevent or require the acceptance of one or more

independent project
dependent project
contingent project
12. A project has an initial investment of Rs. 600,000. What would be the NPV for the project
if it has a profitability index of 1.12?
Rs. 40,000
Rs. 55,000
Rs. 65,000
Rs. 72,000
Reference=600000*1.12=672000-600000=72000


14. If a firm is allowed to miss a coupon payment on a bond in a year in which it reports an
operating loss, the bond is most likely a(n) _______ bond.
Income
Zero coupon
Floating-rate
Put
Positive
Negative pg 80
Neutral

stated price?
Repayment
Seniority
Call provision

Most widely used
19. In which type of the market, previously issued securities are traded among investors?
Primary Market
Tertiary Market
21. Which of the following represents the linear relation between Net Present Value (NPV) and
Profitability Index (PI)?
Payback Period
23.
budgeting decision?
Net Present Value
Profitability Index

Payback Period
Net Present Value
Profitability Index
27. Which of the following is a measure of accounting profit relative to the book value?
Net Present Value
Profitability Index
28. Which one of the following typically applies to preferred stock but not to common stock?
Dividend yield
Voting rights
29. Treasury notes and bonds are examples of which of the following types of bonds?
Zero coupon bonds
Floating-rate bonds
Euro bonds
30. Expectation of a ____ inflation rate will push long term interest rates ____ than short term
rates reflected by an upward term structure.
Lower; higher
Higher; lower
31. A company issues bonds with a Rs. 1,000 face value. What is the coupon rate if the coupon
payments of Rs. 60 are paid every 6 months?
3 percent
6 percent
9 percent
12 percent
60+60=120/1000=12%
32. The projected cash flows from a project are: Year 1: Rs. 100 Year 2: Rs. 300 Year 3: Rs.
400 Year 4: Rs. 800 The Project cost is Rs. 800. What would be the payback period for the
project?
2.00 Years
2.67 Years
3.00 Years
3.67 Years
Project=800 paid in 1 year=100, 2nd year=300 and 3rd year=400 total 800 paid in 3rd year
In which of the following type of annuity, cash flows occur at the beginning of each period?
Ordinary annuity
Annuity due pg 66
Perpetuity
33. Which of the following is NOT an important feature of treasury notes and bonds?
Default free
Taxable
Least liquid pg 90
Highly liquid

Expected inflation
Interest rate risk
34. Which of the following is the amount of time required for an investment to generate cash
flows sufficient to recover its initial cost?
Yield to maturity
Maturity Period
m.q .z
Primary Market
Secondary Market
Tertiary Market

Broker pg 100
Dealer
Member
Specialist
m.c.z.e
38. In which of the following procedure of voting for a company's directors, each shareholder
is entitled to one vote per share?
Straight Voting
Proportional Voting
Cumulative Voting
39. When the market's required rate of return for a particular bond is much less than its
coupon rate, the bond is selling at:
Premium
Discount
Par
40. Which of the following type of bond pays no coupon at all and are offered at a price that is
much lower than its stated value?
Government bonds
Floating-rate bonds
Euro bonds
41. An investment will be _________ if the IRR doesn’t exceeds the required return and
Accepted; rejected
Accepted; accepted
Rejected; rejected
42. Which of the following comes under the head of accounting criteria for capital budgeting
decision?
Payback Period
Net Present Value
Profitability Index
43. Which of the following is a series of constant cash flows that occur at the end of each period
for some fixed number of periods?
Annuity due
Perpetuity
44. Which of the following term refers to the difference between the present value of cash
inflows and the present value of cash outflows?
46. Which one of the following terms refers to the risk arises for bond owners from fluctuating
interest rates?
Fluctuations Risk
Real-Time Risk
Inflation Risk
47. All else equal, the market value of a corporate bond is always inversely related to its:
Time to maturity
Coupon rate
Yield to maturity

Date :25-11-2010


Selling expense
Raw material
Direct labor

Selling expenses
General expenses

Profit Margin
Debt-equity ratio
Operating cash flow

Capital spending

Marketing Research
Product Pricing
55. Which of the following costs are reported on the income statement as the cost of goods sold?
Product cost
Period cost
collection period?
5 days
36 days
48 days
73 days
750000/150000=5
365/5=73days
Operating Leverage
Financial Leverage

Primary market
Secondary market
Tertiary market
Liquidity Ratios
Market Value Ratios
60. shows the sources from which cash has been generated and how it has been spent during a
period of time?
Income Statement
Balance Sheet
Cash Flow Statement
61. Standard Corporation sold fully depreciated equipment for Rs. 5,000. This transaction will
be reported on the cash flow statement as a(n):
Operating activity
Investing activity
Financing activity

Current Ratio
Acid-test Ratio
Cash Ratio
Income Statement
Balance Sheet
Cash Flow Statement
Dividends
Retained Earnings
Capital Gain
date?
Income Statement
Balance Sheet
Cash Flow Statement
Dividends
Retained Earnings
Capital Gain

Current Ratio
Quick Ratio
Cash Coverage Ratio
Cash Ratio
Profit Margin
Return on Assets
Return on Equity



Financial policy
Dividend policy

Accountants
Financial Analysts
Auditors
Marketers
73. Which of the following set of ratios is used to assess a business's ability to generate earnings
as compared to its expenses and other relevant costs incurred during a specific period of
time?
Liquidity Ratios
Leverage Ratios
Market Value Ratios
Positive
Negative
zero
sole proprietorship
partnership
joint stock company
cooperative Society
Liquidity Ratios


Flows?
Depreciation
Interest
Rs. 105,600
Rs. 148,500
Rs. 165,000
Rs. 225,000
Solution=250000*34%=85000
250,000-85000=165000
issuing or selling:

Common Stocks
Preferred Stock
81. Which of the following set of ratios is used to assess a business's ability to generate earnings
as compared to its expenses and other relevant costs incurred during a specific period of
time?
Liquidity Ratios
Leverage Ratios
Market Value Ratios

Primary market
Secondary market
Tertiary market

Accountants
Auditors
Marketers

Revenue
Expenses
Depreciation
Rs. 100
Rs. 510
Rs. 1,000
Rs. 1,100
Solution:
=1000/10
=100

Net Present Value

Selling expense
Raw material
Direct labor


Financial Leverage
91. Standard Corporation sold fully depreciated equipment for Rs. 5,000. This transaction will
be reported on the cash flow statement as a(n):
Operating activity
Investing activity
Financing activity
92. Balance sheet for a company reports current assets of Rs. 700,000 and current liabilities of
Rs. 460,000. What would be the Current Ratio for the company if there is an inventory
level of Rs. 120,000?
1.01
1.26
1.39
1.52
Solution= 700000/460000=1.52
Sole-proprietorship
Limited Partnerhsip
Corporation
Increase
Decrease
Remain unaffected
Become zero
continues forever?
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity
97. Which of the following refers to the difference between the sale price and cost of inventory?
Net loss
Net worth
Markup
Markdown
stated price?
Repayment
Seniority
Call provision
99. ____________ shows the sources from which cash has been generated and how it has been
Income Statement
Balance Sheet
Cash Flow Statement


Sole-proprietorship
General Partnership
Limited Partnership
Corporation

Par value
Coupon value
104. When a corporation wishes to borrow from public on a long-term basis, it does so
by issuing or selling:
Common Stocks
Preferred Stock
105. Which of the following item provides the important function of shielding part of
income from taxes?
Inventory
Supplies
Machinery
Depreciation
106. A firm reports total liabilities of Rs. 300,000 and owner’s equity of Rs. 500,000.
What would be the total worth of the firm’s assets?
Rs. 300,000
Rs. 500,000
Rs. 800,000
Rs. 1100,000
sol
Sole-proprietorship
General Partnership
Limited Partnership
Corporation
sole proprietorship
partnership
joint stock company
none of the above
Surplus Asset
Short-term Ratio
Working Capital
Current Ratio
Rs. 14,186
Rs. 18,256
Rs. 22,697
Rs. 28,253
solution
40000*1/(1+0.12)^5=22697.07
112. Which of the following statement is considered as the accountant’s snapshot of

firm’s accounting value as of a particular date?
Income Statement
Balance Sheet
Cash Flow Statement

Par value
Coupon value

Bond ratings are based solely on information acquired from sources other than the bond issuer. Bond
ratings represent an independent assessment of the credit-worthiness of bonds. None of the
given options

117. A firm has paid out Rs. 150,000 as dividends from its net income of Rs. 250,000.
What is the retention ratio for the firm?
12 %
25 %
40 %
60 %
Solution
250000-150000/250000*100=40%
correct option:
Positive
Negative
zero
118. A portion of profits, which a company distributes among its shareholders, is known
as:
Dividends
Retained Earnings
Capital Gain

Investments

Receivable Turnover
Return on Assets

Operating Leverage
Financial Leverage
b
123. You need Rs. 10,000 to buy a new television. If you have Rs. 6,000 to invest at 5
percent compounded annually, how long will you have to wait to buy the television?
8.42 years
10.51 years
15.75 years
18.78 years
6000(1+5%)^10.51=around 10,000


Financial policy
Dividend policy
126. Which of the following statement shows assets, liabilities, and net worth as of a
specific date?
Income Statement
Balance Sheet
Cash Flow Statement
Armaan: b

Selling expenses
General expenses
balance in the account is Rs. 4,100. If interest was compounded, how much compounded
interest was earned?
Rs. 500
Rs. 752
Rs. 1,052
Rs. 1,100
4100-3000=1100

7.00 percent
7.12 percent
7.19 percent
7.23 percent
130. Which of the following cash flow activities are reported in the Cash Flow Statement
and Income Statement?
131. Which of the following term refers to establish of a standard to follow for
comparison?
Benchmarking 48
Standardizing
Comparison
Evaluation

Financial policy
Dividend policy
2% to 8%
4% to 25%
5% to 20%
10% to 50%
Management Conflict
Interest Conflict
Agency Problem
Ordinary annuity 63
Annuity due
Perpetuity
Investments
information?


Investments
4.30%
6.00%
10.70%
16.73%
solution
0000*100= 6%
140. Which of the following is the process of planning and managing a firm’s long-
term investments?
Capital Structuring
Capital Rationing
Capital Budgeting
141. Which of the following refers to the cash flows that result from the firm’s day-to-
day activities of producing and selling?

Current Ratio
Acid-test Ratio
Cash Ratio
143. Mr. Y and Mr. Z are planning to share their capital to run a business. They are
going to employ which of the following type of business?
Sole-proprietorship
Partnership
Corporation
and B will be __ and __ respectively.
20%; 80%
37%; 63%
63%; 37%
80%; 20%
I and II
I and III
II and IV
I, III, and IV

Rs. 6,302
Rs. 9,981
Rs. 14,800
Rs. 15,869

5.00 percent
7.00 percent
8.45 percent
10.0 percent
continues forever?
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity
151. JJ Inc. has a 4 percent return on total assets of Rs. 500,000 and a net profit margin
of 5 percent. Total sales for JJ Inc. would be :
Rs. 150,000
Rs. 200,000
Rs. 250,000
Rs. 400,000
4 % = N.P / 500,000
4% * 500,000 = N.P
N.P = Rs. 20,000

5 % = 20,000 / Sales
5% * Sales = 20,000
Sales = 20,000 / 5%
Sales = 400,000
152. Which of the following rate makes the Net Present Value
(NPV) equal to zero?


if bought at its
current market price and held to maturity
Current Yield
Yield To Maturity
Coupon Yield
Capital Gains Yield
Increase
Decrease
1009
Remain unaffected
Become zero
Increase
Decrease
Remain unaffected
Become zero
Send

Date :25-11-2010
Selling expense
Raw material
Direct labor
Selling expenses
General expenses
1010
Profit Margin
Debt-equity ratio
Operating cash flow
Capital spending
Marketing Research
Product Pricing
8. Which of the following costs are reported on the income statement as the cost of
goods
sold?
Product cost
Period cost
collection period?
5 days
36 days
48 days
73 days
750000/150000=5
365/5=73days
Operating Leverage
Financial Leverage
1011
Primary market
Secondary market
Tertiary market
Liquidity Ratios
Market Value Ratios
Income Statement
Balance Sheet
Cash Flow Statement
transaction
Operating activity
Investing activity
Financing activity
Current Ratio
Acid-test Ratio
Cash Ratio
Income Statement
Balance Sheet
Cash Flow Statement
17. A portion of profits, which a company retains itself for further expansion, is known
as:
Dividends
Retained Earnings
Capital Gain
specific
date?
1012
Income Statement
Balance Sheet
Cash Flow Statement
20. A portion of profits, which a company retains itself for further expansion, is known
as:
Dividends
Retained Earnings
Capital Gain
Current Ratio
Quick Ratio
Cash Coverage Ratio
Cash Ratio
22. Which of the following ratio gives an idea as to how efficient management is at using
its
Profit Margin
Return on Assets
Return on Equity
Financial policy
Dividend policy
Accountants
Financial Analysts
Auditors
Marketers
period of time?
Liquidity Ratios
Leverage Ratios
Market Value Ratios
1013
Positive
Negative
zero
sole proprietorship
partnership
joint stock company
cooperative Society
Liquidity Ratios
Flows?
Depreciation
Interest
Rs. 105,600
Rs. 148,500
Rs. 165,000
Rs. 225,000
Solution=250000*34%=85000
250,000-85000=165000
issuing or selling:
Common Stocks
Preferred Stock
period of time?
Liquidity Ratios
1014
Leverage Ratios
Market Value Ratios
Primary market
Secondary market
Tertiary market
Accountants
Auditors
Marketers
Revenue
Expenses
Depreciation
38. What will be the coupon value of a Rs. 1,000 face-value bond with a 10% coupon
rate?
Rs. 100
Rs. 510
Rs. 1,000
Rs. 1,100
Solution:
=1000/10
=100
39. Which of the following comes under the head of discounted cash flow criteria for
capital
Net Present Value
Selling expense
Raw material
Direct labor
1015
Financial Leverage
transaction
Operating activity
Investing activity
Financing activity
45. Balance sheet for a company reports current assets of Rs. 700,000 and current
liabilities
of Rs. 460,000.What would be the Current Ratio for the company if there is an
1.01
1.26
1.39
1.52
Solution= 700000/460000=1.52
Sole-proprietorship
Limited Partnerhsip
Corporation
Increase
Decrease
Remain unaffected
Become zero
continues forever?
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity
1016
inventory?
Net loss
Net worth
Markup
Markdown
51. Which of the following allows a company to repurchase part or all of the bond issue
at a
stated price?
Repayment
Seniority
Call provision
Income Statement
Balance Sheet
Cash Flow Statement
Sole-proprietorship
General Partnership
Limited Partnership
Corporation
Par value
Coupon value
issuing or selling:
1017
Common Stocks
Preferred Stock
58. Which of the following item provides the important function of shielding part of
income
from taxes?
Inventory
Supplies
Machinery
Depreciation
59. A firm reports total liabilities of Rs. 300,000 and owner’s equity of Rs. 500,000.What
Rs. 300,000
Rs. 500,000
Rs. 800,000
Rs. 1100,000
sol
Sole-proprietorship
General Partnership
Limited Partnership
Corporation
sole proprietorship
partnership
joint stock company
none of the above
Surplus Asset
Short-term Ratio
Working Capital
Current Ratio
Rs. 14,186
Rs. 18,256
Rs. 22,697
1018
Rs. 28,253
solution
40000*1/(1+0.12)^5=22697.07
65. Which of the following statement is considered as the accountant’s snapshot of
firm’s
Income Statement
Balance Sheet
Cash Flow Statement
Par value
Coupon value
issuer.
70. A firm has paid out Rs. 150,000 as dividends from its net income of Rs. 250,000.
What is
12 %
25 %
40 %
60 %
Solution
250000-150000/250000*100=40%
Positive
Negative
zero
1019
71. A portion of profits, which a company distributes among its shareholders, is known
as:
Dividends
Retained Earnings
Capital Gain
Investments
Receivable Turnover
Return on Assets
Operating Leverage
Financial Leverage
b
76. You need Rs. 10,000 to buy a new television. If you have Rs. 6,000 to invest at 5
percent
8.42 years
10.51 years
15.75 years
18.78 years
6000(1+5%)^10.51=around 10,000
1020
Financial policy
Dividend policy
specific
date?
Income Statement
Balance Sheet
Cash Flow Statement
Armaan: b
Selling expenses
General expenses
Rs. 500
Rs. 752
Rs. 1,052
Rs. 1,100
4100-3000=1100
7.00 percent
7.12 percent
7.19 percent
7.23 percent
83. Which of the following cash flow activities are reported in the Cash Flow Statement
and
Income Statement?
84. Which of the following term refers to establish of a standard to follow for
comparison?
Benchmarking 48
Standardizing
Comparison
Evaluation
1021
Financial policy
Dividend policy
2% to 8%
4% to 25%
5% to 20%
10% to 50%
Management Conflict
Interest Conflict
Agency Problem
Ordinary annuity 63
Annuity due
Perpetuity
Investments
information?
Investments
4.30%
6.00%
10.70%
16.73%
solution
Net income=8%*75000=6000
1022
Profit margin=6000/100000*100= 6%
investments?
Capital Structuring
Capital Rationing
Capital Budgeting
Current Ratio
Acid-test Ratio
Cash Ratio
96. Mr. Y and Mr. Z are planning to share their capital to run a business. They are
going to
Sole-proprietorship
Partnership
Corporation
and
20%; 80%
37%; 63%
63%; 37%
80%; 20%
I and II
I and III
II and IV
I, III, and IV
1023
Rs. 6,302
Rs. 9,981
Rs. 14,800
Rs. 15,869
5.00 percent
7.00 percent
8.45 percent
10.0 percent
continues forever?
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity

positive example
ratio?
0.101
0.220
0.667
0.818
Reference:(1-0.45=0.55)
=0.45/0.55=0.818
1024
Rs. 1,360
Rs. 2,000
Rs. 5,625
Rs. 8,960
Reference: 8000*12/100=8960
Rs. 30.19
Rs. 43.52
Rs. 56.53
Rs. 71.25
4.75*(1+0.5/4.75-0.5)=71.25
Semiannually
Quarterly
Monthly
Daily
APR=9
M=30
(1+9/30)^30-1=9.38
procedure?
100 votes
200 votes
300 votes
400 votes
Rs. 30
Rs. 40
Rs. 50
Rs. 60
Discounting
Compounding
Factorization
an asset?
Market Value
Book Value
1025
Intrinsic Value
10.
Balance Sheet
Income Statement
sole proprietorship
partnership
joint stock company
none of the above
2.6 Years
3.1 Years
3.7 Years
4.1 Years
Common Stocks
Preferred Stock
bonds?
Government bonds 85
Zero coupon bonds
Floating-rate bonds
Euro bonds
Low; higher
High; lower
High; higher pg 88
1026
be viewed as:
Ordinary Annuity
Annuity Due
are called:
Float
Collar pg 86
Limit
Surplus
D2 = D1 x (1 + g )
D2 = Do x ( 1 + g )2
D2 = Do x ( 1 + g )2
independent project
dependent project
contingent project
Rs. 40,000
Rs. 55,000
Rs. 65,000
Rs. 72,000
Reference=600000*1.12=672000-600000=72000
1027
Income
Zero coupon
Floating-rate
Put
Positive
Negative pg 80
Neutral
Repayment
Seniority
Call provision
Most widely used
investors?
Primary Market
Tertiary Market
known as:
1028
Payback Period
36.
Net Present Value
Profitability Index
Payback Period
Net Present Value
Profitability Index
dollar invested?
value?
Net Present Value
Profitability Index
common stock?
Dividend yield
Voting rights
bonds?
Zero coupon bonds
Floating-rate bonds
Euro bonds
1029
Lower; higher
Higher; lower
3 percent
6 percent
9 percent
12 percent
60+60=120/1000=12%
2.00 Years
2.67 Years
3.00 Years
3.67 Years
year
each period?
Ordinary annuity
Annuity due pg 66
Perpetuity
bonds?
Default free
Taxable
Least liquid pg 90
Highly liquid
Expected inflation
Interest rate risk
Yield to maturity
Maturity Period
m.q .z
Primary Market
1030
Secondary Market
Tertiary Market
Broker pg 100
Dealer
Member
Specialist
volatile
Government bonds
Floating-rate bonds
Euro bonds
Accepted; rejected
Accepted; accepted
Rejected; rejected
Payback Period
Net Present Value
Profitability Index
Annuity due
Perpetuity
when:
1031
Fluctuations Risk
Real-Time Risk
Inflation Risk
related to its:
Time to maturity
Coupon rate
Yield to maturity
finance?
Selling expense
Raw material
Direct labor
Selling expenses
General expenses
Profit Margin
Debt-equity ratio
Operating cash flow
Capital spending
1032
Marketing Research
Product Pricing
of goods sold?
Product cost
Period cost
5 days
36 days
48 days
73 days
750000/150000=5
365/5=73days
Operating Leverage
Financial Leverage
Primary market
Secondary market
Tertiary market
creditors?
Liquidity Ratios
Market Value Ratios
Income Statement
Balance Sheet
Cash Flow Statement
Operating activity
Investing activity
Financing activity
1033
Current Ratio
Acid-test Ratio
Cash Ratio
time?
Income Statement
Balance Sheet
Cash Flow Statement
a specific date?
Income Statement
Balance Sheet
Cash Flow Statement
known as:
Dividends
Retained Earnings
Capital Gain
Current Ratio
Quick Ratio
Cash Coverage Ratio
Cash Ratio
Profit Margin
Return on Assets
Return on Equity
Financial policy
Dividend policy
Accountants
1034
Financial Analysts
Auditors
Marketers
Liquidity Ratios
Leverage Ratios
Market Value Ratios
capital.
Positive
Negative
zero
sole proprietorship
partnership
joint stock company
cooperative Society
leverage?
Liquidity Ratios
Depreciation
Interest
Rs. 105,600
Rs. 148,500
Rs. 165,000
Rs. 225,000
Solution=250000*34%=85000
250,000-85000=165000
1035
Common Stocks
Preferred Stock
Primary market
Secondary market
Tertiary market
Accountants
Auditors
Marketers
Revenue
Expenses
Depreciation
coupon rate?
Rs. 100
Rs. 510
Rs. 1,000
Rs. 1,100
Solution:
=1000/10
=100
Net Present Value
Selling expense
Raw material
Direct labor
1036
Financial Leverage
finance?
Operating activity
Investing activity
Financing activity
1.01
1.26
1.39
1.52
Solution= 700000/460000=1.52
Sole-proprietorship
Limited Partnerhsip
Corporation
Increase
Decrease
Remain unaffected
Become zero
Ordinary Annuity
Special Annuity
Annuity Due
Perpetuity
1037
Net loss
Net worth
Markup
Markdown
Repayment
Seniority
Call provision
Income Statement
Balance Sheet
Cash Flow Statement
regulated?
Sole-proprietorship
General Partnership
Limited Partnership
Corporation
Par value
Coupon value
discount?
Common Stocks
Preferred Stock
Inventory
1038
Supplies
Machinery
Depreciation
Rs. 300,000
Rs. 500,000
Rs. 800,000
Rs. 1100,000
sol
Sole-proprietorship
General Partnership
Limited Partnership
Corporation
sole proprietorship
partnership
joint stock company
none of the above
as:
Surplus Asset
Short-term Ratio
Working Capital
Current Ratio
Rs. 14,186
Rs. 18,256
Rs. 22,697
Rs. 28,253
solution
40000*1/(1+0.12)^5=22697.07
Income Statement
Balance Sheet
Cash Flow Statement
1039
Par value
Coupon value
issuer.
bonds.
information?
12 %
25 %
40 %
60 %
Solution
250000-150000/250000*100=40%
correct option:
Positive
Negative
zero
Dividends
Retained Earnings
Capital Gain
Investments
1040
Management Ratios?
Receivable Turnover
Return on Assets
Operating Leverage
Financial Leverage
b
buy the television?
8.42 years
10.51 years
15.75 years
18.78 years
6000(1+5%)^10.51=around 10,000
level
Financial policy
Dividend policy
Income Statement
Balance Sheet
Cash Flow Statement
Armaan: b
Selling expenses
1041
General expenses
Rs. 500
Rs. 752
Rs. 1,052
Rs. 1,100
4100-3000=1100
7.00 percent
7.12 percent
7.19 percent
7.23 percent
for comparison?
Benchmarking 48
Standardizing
Comparison
Evaluation
Financial policy
Dividend policy
2% to 8%
4% to 25%
5% to 20%
10% to 50%
Management Conflict
Interest Conflict
Agency Problem
1042
Ordinary annuity 63
Annuity due
Perpetuity
Investments
Investments
4.30%
6.00%
10.70%
16.73%
solution
Net income=8%*75000=6000
Profit margin=6000/100000*100= 6%
Capital Structuring
Capital Rationing
Capital Budgeting
Current Ratio
Acid-test Ratio
Cash Ratio
1043
Sole-proprietorship
Partnership
Corporation
20%; 80%
37%; 63%
63%; 37%
80%; 20%
I and II
I and III
II and IV
I, III, and IV
Rs. 6,302
Rs. 9,981
Rs. 14,800
Rs. 15,869
5.00 percent
7.00 percent
8.45 percent
10.0 percent
Ordinary Annuity
Special Annuity
1044
Annuity Due
Perpetuity
Rs. 150,000
Rs. 200,000
Rs. 250,000
Rs. 400,000
4 % = N.P / 500,000
4% * 500,000 = N.P
N.P = Rs. 20,000
5 % = 20,000 / Sales
5% * Sales = 20,000
Sales = 20,000 / 5%
Sales = 400,000
to zero?
Current Yield
Yield To Maturity
Coupon Yield
Capital Gains Yield
will:
Increase
Decrease
Remain unaffected
Become zero
will:
Increase
Decrease
Remain unaffected
Become zero
1045

ACC501 Mega File Solved

Uploaded by

Copyright:

Available Formats

ACC501 Mega File Solved

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

ACC501 Mega File Solved

Uploaded by

Copyright:

Available Formats

Almost 300 Solved MCQs of ACC501

Choose the Most Appropriate Answer among the given choices.

2. In financial statement analysis, shareholders focus will be on the:

A. Liquidity of the firm

A. The impact of buying and selling fixed assets.

a. Rs.2, 576, 000

7. The Projected cash flows from a proposed investment are

1. Treasury notes and bonds are:

5. The payment of the dividend is at the discretion of the:

8. Profitability index (PI) rule is to take an investment, if the index exceeds______:

9. Average Accounting Return is a measure of accounting profit relative to:

2. Which of the following does not affect cash cycle of a company?

6. Which of the following is the cheapest source of financing available to a firm?

10. Financing a long-lived asset with short-term financing would be

Note: Correct options have been highlighted.

Choose the Most Appropriate Answer among the given choices.

Choose the Most Appropriate Answer among the given choices.

Choose the Most Appropriate Answer among the given choices.

Select correct option:

Highlight the correct option:

1) The alternative name used for Interest Coverage Ratio is _____________________.

a. Time interest earned

a. Return on short as well as long term investments

a. Rs. 2.5 million

Choose and highlight the right option:

1. ROE in DuPont identity is affected by:

3. Which of the following does not change Current ratio of a business:

4. Present value factor is:

5. Depreciation expense is:

6. Internal growth rate tell how rapidly:

8. Which one of the present value factor is larger?

1. Investing activities include:

a. Purchase of property, plant and equipment

a. Cash from operations activities

a. Actual cash income

a. Has performed in the past

7. The current ratio is also known as:

a. Working capital ratio

10. Balance sheet items expressed as percentage of:

2. Which of the given options apply to auction markets?

$ 50,000 x 15% = $ 7,500

($ 75,000 – 50,000) x 25% = 6,250

($ 100,000 – 75,000) x 34% = 8,500

($ 200,000 – 100,000) x 39% = 39,000

Total tax is $61,250.

7. Which of the given options is an advantage of a corporation that is not an advantage as a

6. Benchmarking is used to establish a standard to follow for:

1. ________________ is considered as bottom line in Income Statement?

Operating Cash Flows

4. Which of the following is the acronym for GAAP?

Generally Applied Accountability Principles

5. Which of the following strategy belongs to restrictive policy regarding size of

To maintain a high ratio of current assets to sales

6. Quick Ratio is also known as:

12. Which of the following statement is CORRECT regarding compound interest?

It is the most basic form of calculating interest.

14. Time value of money is an important finance concept because:

It takes risk into account

NPV is greater than Zero

19. Which of the following is (are) a non-cash item(s) ?