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 MGT201 2010

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PostSubject: MGT201 2010   Fri May 28, 2010 10:07 pm

Question No: 1 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. Which of the following statements is correct for a sole proprietorship?

► The sole proprietor has limited liability

► The sole proprietor can easily dispose of their ownership position relative to a shareholder in a corporation

► The sole proprietorship can be created more quickly than a corporation

► The owner of a sole proprietorship faces double taxation unlike the partners in a partnership



Question No: 2 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. Which of the following market refers to the market for relatively long-term financial instruments?

► Secondary market

► Primary market

► Money market

► Capital market



Question No: 3 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. Felton Farm Supplies, Inc., has an 8 percent return on total assets of Rs.300,000 and a net profit margin of 5 percent. What are its sales?

► 750,0Rs.3, 750,000

► Rs.48Rs.480, 000

► Rs.30Rs.300, 000

► Rs.1, Rs.1, 500,000



Question No: 4 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. An investment proposal should be judged in whether or not it provides:

► A return equal to the return require by the investor

► A return more than required by investor

► A return less than required by investor

► A return equal to or more than required by investor



Question No: 5 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. A capital budgeting technique through which discount rate equates the present value of the future net cash flows from an investment project with the project's initial cash outflow is known as:

► Payback period

► Internal rate of return

► Net present value

► Profitability index



Question No: 6 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. A capital budgeting technique that is NOT considered as discounted cash flow method is:

► Payback period

► Internal rate of return

► Net present value

► Profitability index



Question No: 7 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. Why net present value is the most important criteria for selecting the project in capital budgeting?

► Because it has a direct link with the shareholders dividends maximization

► Because it has direct link with shareholders wealth maximization

► Because it helps in quick judgment regarding the investment in real assets

► Because we have a simple formula to calculate the cash flows



Question No: 8 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. You are selecting a project from a mix of projects, what would be your first selection in descending order to give yourself the best chance to add most to the firm value, when operating under a single-period capital-rationing constraint?

► Profitability index (PI)

► Net present value (NPV)

► Internal rate of return (IRR)

► Payback period (PBP)



Question No: 9 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. Bond is a type of Direct Claim Security whose value is NOT secured by __________.

► Tangible assets

► Intangible assets

► Fixed assets

► Real assets



Question No: 10 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. If a 7% coupon bond is trading for Rs. 975 it has a current yield of _________ percent.

► 7.00

► 6.53

► 8.53

► 7.18



Question No: 11 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. Which of the following is designated by the individual investor's optimal portfolio?

► The point of tangency with the opportunity set and the capital allocation line

► The point of highest reward to variability ratio in the opportunity set

► The point of tangency with the indifference curve and the capital allocation line

► The point of the highest reward to variability ratio in the indifference curve



Question No: 12 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. Assume that the expected returns of the portfolios are the same but their standard deviations are given in the options given below, which of the option represent the most risky portfolio according to standard deviation?

► 1.5%

► 2.0%

► 3.0%

► 4.0%



Question No: 13 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. Which of the following is a drawback of percentage of sales method?

► It is a rough approximation

► There is change in fixed asset during the forecasted period

► Lumpy assets are not taken into account

► All of the given options



Question No: 14 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. Which of the following need to be excluded while we calculate the incremental cash flows?


► Depreciation

► Sunk cost

► Opportunity cost

► Non-cash item



Question No: 15 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. Which of the following is NOT an example of a financial intermediary?

► Wisconsin S&L, a savings and loan association

► Strong Capital Appreciation, a mutual fund

► Microsoft Corporation, a software firm

► College Credit, a credit union



Question No: 16 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. An 8% coupon Treasury note pays interest on May 30 and November 30 and is traded for settlement on August 15. What is the accrued interest on Rs. 100,000 face value of this note?

► Rs. 491.80

► Rs. 800.00

► Rs. 983.61

► Rs. 1,661.20



Question No: 17 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. A preferred stock will pay a dividend of Rs. 3.50 in the upcoming year, and every year thereafter, i.e., dividends are not expected to grow. You require a return of 11% on this stock. Use the constant growth model to calculate the intrinsic value of this preferred stock.

► Rs. 0.39

► Rs. 0.56

► Rs. 31.82

► Rs. 56.25



Question No: 18 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. Information that goes into __________ can be used to prepare __________.

► A forecast balance sheet; a forecast income statement

► Forecast financial statements; a cash budget

► Cash budget; forecast financial statements

► A forecast income statement; a cash budget



Question No: 19 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. What is the present value of Rs.8,000 to be paid at the end of three years if the interest rate is 11% compounded annually?

► Rs.5,850

► Rs.4,872

► Rs.6,725

► Rs.1,842



Question No: 20 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. “Do not compare apples with oranges” is the concept in:

► Discounting and Net present value

► Risk & return

► Insurance management

► Time value of money



Question No: 21 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. Which of the following is NOT the interest rate used for discounting calculation?

► Benchmark interest rate

► Effective interest rate

► Periodic interest rate

► Nominal interest rate



Question No: 22 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. Which of the following is the formula to calculate the future value of perpetuity?

► Constant cash flows × interest rate

► Constant cash flows / interest rate

► Constant cash flows + Constant cash flows × interest rate

► Constant cash flows - Constant cash flows/ interest rate



Question No: 23 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. Which of the following interest rate keeps on moving and changing on daily basis?

► Book value

► Market value

► Salvage value

► Face value



Question No: 24 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. From which of the following formula we can calculate coupon rate?

► Coupon receipt / market value

► Coupon receipt / present value

► Coupon receipt / salvage value

► Coupon receipt / book value



Question No: 25 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. Value of “g” in the formula of constant growth rate can be calculated from which of the following formula?

► g = plowback ratio × ROE

► g = plowback ratio × ROA

► g = payout ratio + ROE

► g = payout ratio + ROA



Question No: 26 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. In Gordon's formula (rCE = DIV1 / Po + g), rCE is considered as __________ and “g” is considered as __________.

► Dividend yield, operating expenses

► Dividend yield, operating income

► Dividend yield, capital loss

► Dividend yield, capital gain



Question No: 27 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. To calculate the annual rate of return for an investment, we require which of the following(s)?

► The income created

► The gain or loss in value

► The original value at the beginning of the year

► All of the given options



Question No: 28 ( Marks: 1 ) - Please choose one

Your browser may not support display of this image. This is an example of which of the following?

Real estate prices fell across the board because the market was glutted with surplus pre-owned homes for sale.

► Economic risk

► Industry risk

► Company risk

► Market risk



Question No: 29 ( Marks: 3 )

Your browser may not support display of this image. Briefly explain what call provision is and in which case companies use this option.



Question No: 30 ( Marks: 3 )

Your browser may not support display of this image. There are two stocks in the portfolio of Mr. N, Stock A and Stock B. the information of this portfolio is as follows:

Common stock Expected rate of return Standard deviation
Stock A 15% 10%
Stock B 20% 15%

Calculate the expected rate of return on this portfolio assuming that Stock A consists of 75% of the total funds invested in the stocks and the remainder in Stock B.



Question No: 31 ( Marks: 5 )

Your browser may not support display of this image.

(a) What is correlation of coefficient?

(b) What are efficient portfolios?



Question No: 32 ( Marks: 5 )

Your browser may not support display of this image. Suppose you approach a bank for getting loan. And the bank offers to lend you Rs.1, 000,000 and you sign a bond paper. The bank asks you to issue a bond in their favor on the following terms required by the bank: Par Value = Rs 1, 000,000, Maturity = 3 years

Coupon Rate = 15% p.a, Security = Machinery

You are required to calculate the cash flow of the bank which you will pay every month as well as the present value of this option.


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PostSubject: Re: MGT201 2010   Sun May 30, 2010 2:33 pm

Question
No: 1 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] Among the pairs given
below select a(n) example of a principal and a(n) example of an agent
respectively.



► Shareholder; manager





► Manager; owner





► Accountant; bondholder





► Shareholder; bondholder








Question
No: 2 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] Which group of ratios
measures a firm's ability to meet short-term obligations?



► Liquidity ratios



Debt ratios




Coverage ratios




Profitability ratios






Question
No: 3 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] Which of the following
would be considered a cash-flow item from an "investing" 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









Question
No: 4 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] All of the following influence capital
budgeting cash flows
EXCEPT __________.






► Choice of depreciation method
for tax purposes




► Economic length of the project




► Projected sales (revenues) for
the project




► Sunk costs of the project






Question
No: 5 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] An investment proposal
should be judged in whether or not it provides:




► A return equal to the return require by the investor




► A return more than required by investor




► A return less than required by investor




► A return equal to or more than required by investor






Question
No: 6 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] Which of the following
technique would be used for a project that has non-normal cash flows?







► Internal rate of return







► Multiple internal rate of return







► Modified internal rate of return







► Net present value









Question
No: 7 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] Which of the following
statements is correct in distinguishing between serial bonds and sinking-fund
bonds?










► Serial bonds mature at a variety of dates, but sinking-fund bonds
mature at a single date




► Serial bonds provide for the deliberate retirement of bonds prior to
maturity, but sinking-fund bonds do not provide for the deliberate retirement
of bonds prior to maturity




► Serial bonds do not provide for the deliberate retirement of bonds
prior to maturity, but sinking-fund bonds do provide for the deliberate
retirement of bonds prior to maturity




► None of the above are correct
since a serial bond is identical to a sinking fund bond






Question
No: 8 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] The value of a bond is
directly derived from which of the following?






► Cash flows





► Coupon receipts






Par recovery at maturity






► All of the given options








Question
No: 9 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] Which of the following
affects the price of the bond?






► Market interest rate


► Required rate of return


► Interest rate risk


► All of the given options





Question
No: 10 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] If all things equal, when diversification
is most effective?




Securities'
returns are positively correlated



► Securities' returns are uncorrelated


► Securities' returns are high


► Securities' returns are negatively
correlated






Question
No: 11 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] You wish to earn a return of 12% on each
of two stocks, A and B. Each of the
stocks is expected to pay a dividend of Rs. 2 in the upcoming year. The expected growth rate of dividends is 9%
for stock A and 10% for stock B. The intrinsic value of stock A:









Will
be greater than the intrinsic value of stock B



Will
be the same as the intrinsic value of stock B



Will
be less than the intrinsic value of stock B



None
of the given options






Question
No: 12 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] In the dividend discount model, which of
the following is (are)
NOT incorporated into the discount rate?








Real
risk-free rate



Risk
premium for stocks



Return
on assets



Expected
inflation rate






Question
No: 13 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] Which of the
following is
NOT a major cause of
systematic risk.






► A worldwide recession


► A world war


► World energy supply


► Company management change





Question
No: 14 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] Which of the following
term may be defined as incidental cash flows that arise because of the effect
of new project on the running business?





















► Sunk cost


► Opportunity cost


► Externalities


► Contingencies





Question
No: 15 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] A preferred stock will pay a dividend of
Rs. 2.75 in the upcoming year, and every year thereafter, i.e., dividends are
not expected to grow. You require a
return of 10% on this stock. Use the
constant growth model to calculate the intrinsic value of this preferred stock.



Rs.
0.275



Rs.
27.50



Rs.
31.82



Rs.
56.25






Question
No: 16 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] What is the present
value of Rs.1,000 to be paid at the end of 5 years if the interest rate is 8%
compounded annually?




► Rs.680.58




► Rs.1,462.23




► Rs.322.69




► Rs.401.98






Question
No: 17 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] What is the present
value of Rs.53,000 to be paid at the end of 15 years if the interest rate is 9%
compounded annually?




► Rs.25,300




► Rs.34,122




► Rs.14,549




► Rs.11,989






Question
No: 18 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] The objective of
________ is to maximize the shareholder’s wealth.



► Financial economics


► Financial management


► Financial accounting


► Financial engineering





Question
No: 19 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] Which of the following
accounting equation is accurate?



► Assets +Equity = Liabilities +
Expenses



► Assets + Expenses = Liabilities
+Expenses + Revenue



► Assets + Liabilities = Equity +
Expenses + Revenue



► Assets + Revenue + Liabilities =
Equity






Question
No: 20 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] Through which of the
following formula desired growth rate can be calculated?



► Return on equity × (1- payout ratio)


► Return on equity / (1- payout ratio)


► Return on equity + (1+ payout ratio)


► Return on equity - (1/ payout ratio)





Question
No: 21 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] Which of the following
is a type of annuity in which no time span is involved?



► Ordinary annuity


► Annuity due


► Perpetuity


► None of the given options





Question
No: 22 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] Which of the following
is not a type of problem in capital rationing?



► Size difference of projects


► Timing difference of projects



► Different lives of different projects



► Different cash flow streams





Question
No: 23 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] Market price of a share
will be determined from __________.



► Supply of share only


► Demand of share only


► Price of share of Benchmark Company


► From demand and supply in the market





Question
No: 24 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] Which of the following
is called hybrid equity as it is the combination of both equity and debt
factor?



► Common stocks


► Preferred stocks


► Bonds & securities


► All of the given options





Question
No: 25 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] Which of the following
can be used as measure of return?



► Forecasted selling price


► Forecasted purchase price


► Forecasted dividend


► Forecasted time span of project





Question
No: 26 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] Which of the following
formula could be used to calculate expected rate of return ?



► Po / Po × P1


► P1 + Po / Po


► P1 – Po / Po


► Po – P1 / Po





Question
No: 27 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] Finance consists of
which of the following area(s)?



► Money and capital market


► Investment


► Financial management


► All of the given options





Question
No: 28 ( Marks: 1 ) - Please choose one



[You must be registered and logged in to see this image.] A proposal is accepted
if payback period falls within the time period of 3 years. According to the
given criteria, which of the following project is most suitable to accept?





Payback period

Project A

1.66

Project B

2.66

Project C

3.66






► Project A




► Project B




► Project C




► Project A & B






Question
No: 29 ( Marks: 3 )



[You must be registered and logged in to see this image.] Define interest rate
risk and investment risk.









Question
No: 30 ( Marks: 3 )



[You must be registered and logged in to see this image.] A stock is expected to
pay a dividend of Rs.0.75 at the end of the year. The required rate of return is ks = 10.5%,
and the expected constant growth rate is g = 6.4%. What is the stock's current price?






Question
No: 31 ( Marks: 5 )



[You must be registered and logged in to see this image.] There are some risks
(Unique Risk) that we can diversify but some of the risks (Market risks) are
not diversifiable. Explain both types of risk.






Question
No: 32 ( Marks: 5 )



[You must be registered and logged in to see this image.] Hammad Inc. is
considering two alternative, mutually exclusive projects. Both projects require
an initial investment of Rs. 10,000 and are typical, average-risk projects for
the firm. Project A has an expected life of 2 years with after-tax cash inflow
of Rs. 6,000 and Rs. 8,000 at the end of year 1 and 2, respectively.



Project B has an expected life of 4 years
with after-tax cash inflow of Rs. 4,000 at the end of each of next 4 years. The
firm’s cost of capital is 10 percent.



If the projects cannot
be repeated, which project will be selected, and what is the net present value?


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