FIN622 FALL 2010
Question No: 1 ( Marks: 1 ) - Please choose one
Which of the following statements is TRUE regarding Profitability Index?
► It ignores time value of money
► It ignores future cash flows
► It ignores the scale of investment
► It ignores return on investment
Question No: 2 ( Marks: 1 ) - Please choose one
The employment of fixed costs associated with the actual production of goods or services is known as:
► Financial leverage
► Volume discounting
► Operating leverage
Question No: 3 ( Marks: 1 ) - Please choose one
Which of the following statements is CORRECT regarding the fundamental analysis?
► Fundamental analysts use only Economic indicators to evaluate a stock
► Fundamental analysts use only financial information to evaluate a company’s stocks
► Fundamental analysts use financial and non-financial information to evaluate a company’s stocks
► Fundamental analysts use only non-financial information to evaluate a company’s stocks
Question No: 4 ( Marks: 1 ) - Please choose one
ABC Corporation declared 10% dividend on its shares. A person purchased some shares of this corporation after the dividend was announced. If he is entitled to receive the declared dividend, his shares would be categorized as which of the following?
► Stock- Dividend
► Cash Dividend
Question No: 5 ( Marks: 1 ) - Please choose one
Which of the following firms would have the highest financial leverage?
► A firm having debt-to-equity ratio of 30:70
► A firm having debt-to-equity ratio of 40:60
► A firm having debt-to-equity ratio of 50:50
► A firm having debt-to-equity ratio of 60:40
Question No: 6 ( Marks: 1 ) - Please choose one
Which of the following types of bonds pays no annual interest to the holder, but is sold at discount below the par value?
► An original maturity bond
► A floating rate bond
► A fixed maturity date bond
► A zero coupon bond
Question No: 7 ( Marks: 1 ) - Please choose one
What will be the effect of reduction in the cost of capital on the accounting break-even level of revenues?
► It raises the break-even level
► It reduces the break-even level.
► It has no effect on the break-even level.
► This cannot be determined without knowing the length of the investment horizon.
Question No: 8 ( Marks: 1 ) - Please choose one
Which of the following risks increases as the debt level of a business increases?
► Financial risk
► Operating risk
► Business risk
► Investment risk
Which of the following is a transaction of a primary financial market?
► Initial Public Offering
► Buying Mutual Funds Certificates
► Selling old shares
► Buying Bonds issued in previous years
Question No: 10 (Marks: 1) - Please choose one
A firm had an interest expense of Rs.400,000 on its outstanding debt during the financial year 2006-2007. If the firm marginal tax rate is 40%, what was the total tax savings of the firm during the period 2006-2007?
► Rs.150, 000
► Rs.160, 000
► Rs.170, 000
► Rs.180, 000
Question No: 11 (Marks: 1) - Please choose one
Which of the following are the primary sources of capital to the firm?
► Net income, Retained earnings and Bank loans
► Bonds, Preferred stock and Common stock
► Operating profits, extraordinary gains and Dividends
► Amortization cash flow, Net income and Retained earnings
Question No: 12 (Marks: 1) - Please choose one
Which one of the following costs should be ignored while evaluating the financial viability of a project?
► Initial cost
► Equipment cost
► Cost of capital
► Sunk cost
Q 1.Why the weighted average cost of capital of levered firm is lesser than the un-levered firm? Briefly describe. Marks 3
Q 2.What is the difference between systematic and unsystematic risk? Marks 3
Q 3.Compare and contrast the Stable Dividend per share policy and Constant dividend payout policy. Marks 5
Q 4.How does the probability analysis evaluate the financial feasibility of a project? Marks 5