FINALTERM EXAMINATION
Spring 2010
MGT201- Financial Management
Time: 90 min
Marks: 69
Question No: 1 ( Marks: 1 ) - Please choose one
How "Shareholder wealth" is represented in a firm?
► The amount of salary paid to its employees
► The market price per share of the firm's common stock
► The number of people employed in the firm
► The book value of the firm's assets less the book value of its liabilities
Question No: 2 ( Marks: 1 ) - Please choose one
In preparing a forecast balance sheet, it is likely that either cash or __________ will serve as a "plug figure" or balancing factor to ensure that assets equal liabilities plus shareholders' equity.
► Retained earnings
► Accounts receivable
► Shareholders' equity
► Notes payable (short-term borrowings)
Question No: 3 ( Marks: 1 ) - Please choose one
As interest rates go up, the present value of a stream of fixed cash flows _____.
► Goes down
► Goes up
► Stays the same
► Can not be found
Question No: 4 ( Marks: 1 ) - Please choose one
Mortgage bonds are secured by real property whose value is generally _______ than that of the value of the bonds issue?.
► Higher
► Lower
► Equal
► Higher or lower
Question No: 5 ( Marks: 1 ) - Please choose one
Which of the following is NOT the present value of the bond?
► Intrinsic value
► Market price
► Fair price
► Theoretical price
Question No: 6 ( Marks: 1 ) - Please choose one
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: 7 ( Marks: 1 ) - Please choose one
Which of the following value of the shares changes with investor’s perception about the company’s future and supply and demand situation?
► Par value
► Market value
► Intrinsic value
► Face value
Question No: 8 ( Marks: 1 ) - Please choose one
Which of the following factors might affect stock returns?
► The business cycle
► Interest rate fluctuations
► Inflation rates
► All of the above
Question No: 9 ( Marks: 1 ) - Please choose one
In which of the following approach you need to bring all the projects to the same length in time?
► MIRR approach
► Going concern approach
► Common life approach
► Equivalent annual approach
Question No: 10 ( Marks: 1 ) - Please choose one
What will happen to the expected return on a stock with a beta of 1.5 and a market risk premium of 9% if the Treasury bill yield increases from 3% to 5%?
► The expected return will increase by 2.0%
► The expected return will remain unchanged
► The expected return will increase by 1.0%
► The expected return will increase by 3.0%
Question No: 11 ( Marks: 1 ) - Please choose one
Which of the following is the beta for the market portfolio?
► 0.25
► -1.0
► 1.0
► 0.5
Question No: 12 ( Marks: 1 ) - Please choose one
If stock is a part of totally diversified portfolio then its company risk must be equal to:
► 0
► 0.5
► 1
► -1
Question No: 13 ( Marks: 1 ) - Please choose one
How can you limit company-specific risks?
► Invest in that company's bonds
► Invest in a variety of stocks
► Invest in securities that do well in a recession
► Invest in securities that do well in a boom
Question No: 14 ( Marks: 1 ) - Please choose one
If risk and return combination of any stock is above the SML, what does it mean?
► It is offering lower rate of return as compared to the efficient stock
► It is offering higher rate of return as compared to the efficient stock
► Its rate of return is zero as compared to the efficient stock
► It is offering rate of return equal to the efficient stock
Question No: 15 ( Marks: 1 ) - Please choose one
If we invest in many securities which are ________to each other then it is possible to reduce overall risk for your investment.
► Comparable
► Parallel
► Highly correlated
► Negatively correlated
Question No: 16 ( Marks: 1 ) - Please choose one
Why market values are often used in computing the weighted average cost of capital?
► This is the simplest way to do the calculation
► This is consistent with the goal of maximizing shareholder value
► This is required in the U.S. by the Securities and Exchange Commission
► None of the given options
Question No: 17 ( Marks: 1 ) - Please choose one
What does the law of conservation of value implies?
► The mix of senior and subordinated debt does not affect the value of the firm
► The mix of convertible and non-convertible debt does not affect the value of the firm
► The mix of common stock and preferred stock does not affect the value of the firm
► All of the given options
Question No: 18 ( Marks: 1 ) - Please choose one
Which of the following has the same meaning as the working capital to financial analyst?
► Total assets
► Fixed assets
► Current assets
► Current assets minus current liabilities
Question No: 19 ( Marks: 1 ) - Please choose one
How should a successful acquisition be evaluated in the long-run?
► The acquisition is successful if the acquirer is able to increase its earnings per share (EPS), relative to what it would have been without the acquisition.
► The acquisition is successful if the acquirer is able to reduce its debt-to-total asset ratio, and hence risk, relative to what it would have been without the acquisition.
► The acquisition is successful if the acquirer is able to diversify its asset base and reduce its overall risk.
► The acquisition is successful if the market price of the acquirer's stock increases over what it would have been without the acquisition.
Question No: 20 ( Marks: 1 ) - Please choose one
What would be the result when there is an increase in the number of shares outstanding by reducing the par value of stock?
► Stock split
► Stock dividend
► Extra dividend
► Regular dividend
Question No: 21 ( Marks: 1 ) - Please choose one
The __________ is the proportion of earnings that are paid to common shareholders in the form of a cash dividend.
► Retention rate
► 1 plus the retention rate
► Growth rate
► Dividend payout ratio
Question No: 22 ( Marks: 1 ) - Please choose one
Why are dividend changes and not the absolute level of dividends perceived to be more important to shareholders?
► Managers only change dividends under threatening conditions
► Dividend changes are thought to signal future expectations
► MM state that the absolute level of dividends is irrelevant
