ACC501 Mid Term Preparation File
ACC501 Mid Term Preparation File
ACC501 Mid Term Preparation File
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Jiya Omer
1. The difference between the return on a risky investment and that on a risk-
free investment.
A. Risk Return
C. Risk Factor
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B. Maximize the return
C. A & B (Correct)
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
C. 10,000
D. 7,000
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A. 8.50 %
B. 6.25%
D. 6.67%
A. 20%
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
C. Capital market
D. Money market
D. Return on investment
3. The statement of cash flows helps users to assess and identify all of the following except:
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B. The company's ability to pay debts, interest and dividends.
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 . (Correct)
B. Rise
C. Remain unchanged
5. If the interest rate is 18% compounded quarterly, what would be the 8-year discount factor?
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?
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?
B. b.Rs.240 million
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C. c.Rs.275 million
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%
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
Incase if debt is not taken then tax would be= 500000*.32 = 160000
= 64000
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
c. Rs.68
d. Rs.74
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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 (Correct)
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% (Correct)
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
c. 240 votes
d. 300 votes
5. ________ is the market in which already issued securities are traded among investors.
a. Primary market
c. Financial market
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d. Capital market
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
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 (Correct)
9. Fee paid to the consultant for evaluating the project is an example of ______________.
a. Opportunity cost
c. Decremented cost
10. If the sales of the AB corporation is Rs.20, 000,000 where as its cost is
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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
b. Taxable
c. Highly liquid
a. -1
b. 0
c. 1 (Correct)
1. The average time between purchasing or acquiring inventory and receiving cash proceeds from its
sale is called --------------.
b) Cash Cycle
c) Receivable period
d) Inventory period
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2. Which of the following does not affect cash cycle of a company?
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
c) 103,000
d) 50,000
8. --------------- is an incentive offered by a seller to encourage a buyer to pay within a stipulated time.
b) Quantity discount
c) Float discount
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.
b) 33.34%
c) 0%
d) 60%
Suppose you can earn a 7.2 percent interest rate per year. According to the rule
of 72, it will take approximately ___________ years to double your money.
5.00
7.20
100.0
Rahim Corporation has a cash coverage ratio of 7 times. It’s earning before interest and tax is Rs.900 million. It has total
assets of Rs.3 billion. The company has a policy of charging 5 % annual depreciation. By using the above information, what
would be the interest expense for the year?
90 million
120 million
140 million
(150000000+900000000)/7150 million
Lets Tulips Corporation has return on assets for the year is 14 % .The Corporation has a policy to retain 40 percent of their
income. Then the Corporations internal growth rate would be
___________.
5.246 %
5.754 %
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5.932 %
6.589 %
If the interest rate is 24 % compounded quarterly, what would be the 5-year discount factor?
3.10585
3.20714 (Correct)
3.50152
3.80153
The bonds are classified as ___________ if the maturity of the bond is less than 10 years when issued.
Debentures
____________ is a kind of bond that allows the holder to force the issuer to buy the bond back at a stated price.
Convertible bond
? Borrowing
? Lending
? Pooling of risks
? Treasury bonds
? Municipal bonds
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? Corporate bonds
? Personal bonds
You are expecting to receive Rs.5000 in 3 years. If the interest rate increases, the
? Fall (Correct)
? Rise
? remain unchanged
? Investor relationships
? Cash management
Sara is interested in purchasing Tom's factory. Since Sara is a poor negotiator, she hires Maria to negotiate a purchase
price. Identify the parties to this transaction from the given options, according to agency theory:
A firm is having difficulty in controlling its operating expenses. Which ratio category in given options will most directly
reflect this problem?
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? Liquidity
? Profitability (Correct)
? Market value
? Turnover
? financing decision
? liquidity decision
? debt financing
Suppose a Corporation has a taxable income of Rs.50000 and the tax amount
Rs.30000 x 5% = Rs.1500
Rs.4000
Total tax amount is Rs.4000. Average tax rate is Rs.4000 / 50000 = 8.0%. Marginal tax
? 39%
? 34%
? 15% (Correct)
? 25%
In context of inflation and returns, the relationship between real and nominal returns is described by:
? Ricardo Effect
? Robbins Effect
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? Fredrick Effect
The Ratios showing the ability of a firm to pay its bills in short-run are called:
? Leverage Ratios
? Profitability Ratios
Evaluating the size, timing and risk of future cash flows is the essence of :
? Capital Structure
? Inventory Control
? 0.38 times
? 0.58 times
? 0.98 times
________________ involves the sale of used securities from one investor to another.
? Primary Market
? Tertiary Market
SNT Corporation paid Rs. 28,900 as tax in 2006. If the tax rate was 34%, what was the taxable income of the corporation
during 2006?
? Rs. 90,000
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? Rs. 85,000 28900/0.34 85000 (Correct)
? Rs. 65,000
? Rs. 77,000
______________ pays no coupon at all and is offered at a price that is much lower than its stated value.
? Government Bond
Which of the following statement provides a financial summary of the firm’s operating results during a specified period.
? Balance Sheet
Depreciation expense does not reflect a cash outflow but still shown as an expense on the income statement to serve as a:
? Cash inflow
? Cash outflow
? Interest Shield
Investors demand extra yield on a taxable bond as a compensation for the unfavorable tax treatment, known as:
? Inflation premium
If you invest Rs. 150 in a bank on an interest rate of 14%. How much will you have in your account after 5 years ?
? Rs. 78
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? Rs.163
? Rs. 207
A series of constant, or level, cash flows that occur at the end of each period for some fixed number of periods is called
Perpetuity.
? True
? False (Correct)
A dollar in hand today is worth more than a dollar promised at some time in future.
? True (Correct)
? False
? False
While making Common Size Statements, Balance sheet items are shown as a percentage of total liabilities.
? False
Present value of all the cash inflows can be calculated by compounding each cash flow separately.
? True
? False (Correct)
2. The present value of a sum of Rs. 100 to be received in the future will be:
3. You want to buy an ordinary annuity that will pay you Rs. 3,000 a year for the
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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
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
A. Compounding quarterly
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 (Correct)
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
C. Rs. 2,082
D. Rs. 2,420
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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
B. Income Bonds
C. Put Bonds
9. Long-term bonds have _________ risk of loss resulting from changes in interest
A. Less
B. Zero
C. More (Correct)
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% (Correct)
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a. Time interest earned (Correct)
b. Cash coverage ratio
c. Profit margin ratio
d. None of the given option
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. Increase
b. Decrease (Correct)
c. Remain unchanged
d. None of the given option
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 (Correct)
d. 0.98 times
1) 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 (Correct)
2) 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 % 18/1.45 (Correct)
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?
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a. Rs.150 millions
b. Rs.250 millions
c. Rs.350 millions 0.3=150/N.IN.I=500million *.70=350 (Correct)
d. Rs.500 millions
3) 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% I.G.R= ROA*b/(1-ROA)*b (Correct)
c. 16.29%
d. 18.92%
4) 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 % ROE x b (Correct)
(1 – ROE) x b
a. 35 %
b. 29%
c. 45%
5) 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
d. Rs.281.415 millions
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e. Return on assets ratio
f. Retention ratio (Correct)
g. Leverage ratio
h. Profit margin
6. 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
d. All of the given options (Correct)
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a. PV of 1 factor for 10% (Correct)
b. PV of 1 factor for 12%
c. Both have the same effect
d. It cannot be determined
8. 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 (Correct)
d. 7.57 years
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4. _________are short-term, temporary investments that can be readily converted into cash.
a. marketable securities
b. Cash equivalents
c. Treasury bills
d. All of the given options (Correct)
5. The Cash flow statement records your_________ and expenditure at the end of the 'forecast' period.
Ratios look at the relationships between individual values and relate them to how a company:
7. __________is concerned with the relationship between the long terms liabilities that a business has and its capital
employed.
a. Gearing (Correct)
b. Acid test ratio
c. Working capital management
d. All of the given options
8. ____________give a picture of a company's ability to generate cash flow and pay it financial obligations:
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a. Management ratios
b. Working capital ratios
c. Net profit margin ratios
d. Solvency Ratios (Correct)
9. Balance sheet items expressed as percentage of:
a. Net sales
b. Total revenue
c. Total assets (Correct)
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:
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$ 61,250
TOTAL TAX IS $61,250.
AVERAGE TAX RATE IS $61,250 / 200,000 = 30.625%. MARGINAL TAX RATE WILL BE:
A. 39% (CORRECT)
b. 34%
c. 15%
d. 25%
6. Which one of the given options is generally considered the most liquid asset?
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. (Correct)
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
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b. capital (Correct)
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 (Correct)
d. Social responsibility
10. Which of the expenses in given options is not a cash outflow for the firm?
a. Depreciation (Correct)
b. Dividends
c. Interest payments
d. Taxes
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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 (Correct)
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 (Correct)
b. annuity due
c. multiple cash flows
d. perpetuity
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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% (CORRECT)
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 (Correct)
b. $9000
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