► Changes determine whether borrowing must occur
Question No: 23 ( Marks: 1 ) - Please choose one
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: 24 ( Marks: 1 ) - Please choose one
In which of the following rate fluctuations can convert a good investment decision into a bad one.
► Inflation rate
► Interest rate
► Poverty rate
► Currency rates
Question No: 25 ( Marks: 1 ) - Please choose one
In a market where the SML (Security Market Line) has steep slope, most of the investors are:
► Risk lover
► Risk averse
► Gamblers
► None of the given options
Question No: 26 ( Marks: 1 ) - Please choose one
In term of diversification, the efficient portfolios must lie on which of the following?
► Capital market line
► Money market line
► Security market line
► None of the given options
Question No: 27 ( Marks: 1 ) - Please choose one
Which of the following is the reason that a single overall cost of capital is often used to evaluate projects?
► It acknowledges that most new investment projects offer about the same expected return
► It is the only way to measure a firm's required return
► It acknowledges that most new investment projects have about the same degree of risk
► It avoids the problem of computing the required rate of return for each investment proposal
Question No: 28 ( Marks: 1 ) - Please choose one
Which of the following is also called the opportunity cost of capital?
► Assumed rate of return
► Internal rate of return
► Required rate of return
► Expected rate of return
Question No: 29 ( Marks: 1 ) - Please choose one
What would be the major threat to a company when it is purely debt financed?
► Investors can interfere in the management of the company
► It has to pay fixed amount of interest
► Investors becomes the owners of the company
► It has to pay dividends
Question No: 30 ( Marks: 1 ) - Please choose one
According to Traditionalist Theory, when an un-leveraged firm takes on more and more debt, which of the following phenomenon is observed?
► Cost of Capital increases, reaches a minimum point, and then falls
► Cost of Capital decreases, reaches a minimum point, and then rises
► Cost of Capital increases, reaches a maximum point, and then rises
► None of the given options
Question No: 31 ( Marks: 1 ) - Please choose one
Company ABC offers its stockholders 10 % stock dividends and Mr. S is one of its stockholders being the owner of 250 stocks. How many shares Mr. S has after availing the stock dividend?
► 25
► 50
► 275
► 250
Question No: 32 ( Marks: 1 ) - Please choose one
Which of the following can be defined as “additional risk faced by common stockholders if firms take debt.”?
► Unsystematic risk
► Systematic risk
► Business risk
► Financial risk
Question No: 33 ( Marks: 1 ) - Please choose one
Which of the following is NOT a current asset investment policy in practice?
► Fat Cat
► Pay Back Period
► Moderate Policy
► Lean & Mean
Question No: 34 ( Marks: 1 ) - Please choose one
Which of the following industries is considered as capital intensive?
► Pharmaceutical industry
► Textile industry
► Information technology
► Automobile industry
Question No: 35 ( Marks: 1 ) - Please choose one
Leveraged capital structure is suitable for which kind of companies?
► For co-operative societies
► For large companies who are earning high volume of sales revenue
► For medium companies whose sales are average
► For small companies whose sales are low
Question No: 36 ( Marks: 1 ) - Please choose one
Company C sells its customers on the term 3/15, net 30 bases. What does it mean?
► 3% discount for customers who pay within 30 days
► 3% discount for customers who pay within 15 days
► 15% discount for customers who pay within 30 days
► None of the given options
Question No: 37 ( Marks: 1 ) - Please choose one
What is the average collection period of the firm if it makes 50% of sales on 40 day credit and 50% on 50 day credit?
► 40 days
► 45 days
► 50 days
► 90 days
Question No: 38 ( Marks: 1 ) - Please choose one
If a firm wants to use short-term bank loan to finance its temporary current assets and even to buy some of its permanent current inventory, then which of the following policy it is going to adopt?
► Moderate working capital policy
► Conservative working capital policy
► Aggressive working capital policy
► Any of the given policy
Question No: 39 ( Marks: 1 ) - Please choose one
In calculations regarding lease, net advantage of leasing is the difference between which of the following?
► Present value of net cash flows and present value of cost of leasing
► Present value of cost of owning the asset and present value of cost of leasing
► Present value of cost of owning the asset and present value of net cash flows
► None of the given options
Question No: 40 ( Marks: 1 ) - Please choose one
Under efficient market, the effect of debt on WACC can be represented with the help of which of the following?
► Straight line
► U shaped curve
► Concave
► Time to time fluctuation
Question No: 41 ( Marks: 1 ) - Please choose one
Which of the following statements is true about business risk?
► The financial risk of a firm decreases when it takes on a risky project
► The financial risk of a firm increases when it takes on more equity
► The business risk of a firm increases when it takes on a risky project
► The business risk of a firm increases when it takes on more debt
Question No: 42 ( Marks: 1 ) - Please choose one
Which of the following refers to taking over a company and then selling its parts at a profit as the sum of target company’s parts is worth less than the worth of those individual parts.
► Cherry picking
► Divestiture
► Spin-off
► Asset stripping
Question No: 43 ( Marks: 1 ) - Please choose one
Which one of the following is correct for the forward exchange rate?
► It is an agreed price at which two currencies are exchanged immediately
► It is an agreed price at which two currencies will be exchanged at some future date
► It is an agreed price at which two currencies will be exchanged on a specific future date and location
► It is an agreed price at which two currencies are exchanged at specific location immediately
Question No: 44 ( Marks: 1 ) - Please choose one
Calculate the Forward Rate for Rupee if the interest on 1 Year Maturity in Pakistan is 10% and in Australia is 6% and the current spot rate is Rs.76/ AUD.
► Rs. 6 per AUD
► Rs. 76 per AUD
► Rs. 79 per AUD
► Rs. 456 per AUD
Question No: 45 ( Marks: 1 ) - Please choose one
How much a hand bag costs you in Kuwaiti Dinar (KWD) if its price in Pakistan Rupee is Rs. 1770; keeping in mind the spot rate of Rs. 1 is 295 KWD?
► 0.167 KWD
► 6 KWD
► 295 KWD
► 522150 KWD
Question No: 46 ( Marks: 1 ) - Please choose one
Which of the following document is not prepared while making a financial plan?
► Cash budget
► Pro-forma balance sheet
► Pro-forma income statement
► Cash flow statement
Question No: 47 ( Marks: 1 ) - Please choose one
Which of the following describes a set of projects where only one project can be selected?
► Mutually exclusive projects
► Supplementary projects
► Complementary projects
► Independent projects
Question No: 48 ( Marks: 1 ) - Please choose one
For finite investment in preferred stock the valuation formula will be:
► Po = DIV1 / rPE
► Po = Interest yield +dividend yield
► Po = DIV1 / (1+rPE) t + Pn / (1+rPE) t
► Po × Pn / (1+rPE) t = DIV1 / (1+rPE) t
Question No: 49 ( Marks: 3 )
What are the effects of leverage on WAAC?
Question No: 50 ( Marks: 3 )
Management Buyouts is a form of buyouts. Explain this term in your own words.
Question No: 51 ( Marks: 5 )
Company XYZ wants to issue more Common Stock of Face Value Rs 12. Next Year the Dividend is expected to be Rs. 3 per share assuming a Dividend Growth Rate of 10% pa.
The Lawyer’s fee and Stock Brokers’ Commissions will cost Rs 1 per share. Investors are confident about Company ABC so the Common Share is floated at a Market Price of Rs 18 (i.e. Premium of Rs 6).
If the Capital Structure of Company ABC is entirely Common Equity, then what is the Company’s WACC? Use New Stock Issuance Approach to calculate the results.
Question No: 52 ( Marks: 5 )
What is the purpose of residual dividend model and what is the procedure to be followed while using this model?
Question No: 53 ( Marks: 5 )
Differentiate forward market and future market.
