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MGT201 Final 2010 Paper shared by kamran Haider

FINALTERM  EXAMINATION
Spring 2010
MGT201- Financial Management
Shared by Kamran Haider

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Time: 90 min
M - 69

MGT201 Financial Management - Question No: 1    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 2    ( M - 1 )    .

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)

MGT201 Financial Management - Question No: 3    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 4    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 5    ( M - 1 )    .

Which of the following is NOT the present value of the bond?

► Intrinsic value

► Market price

► Fair price

► Theoretical price

MGT201 Financial Management - Question No: 6    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 7    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 8    ( M - 1 )    .

Which of the following factors might affect stock returns?

► The business cycle

► Interest rate fluctuations

► Inflation rates

► All of the above

MGT201 Financial Management - Question No: 9    ( M - 1 )    .

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

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MGT201 Financial Management - Question No: 10    ( M - 1 )    .

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%


MGT201 Financial Management - Question No: 11    ( M - 1 )    .

Which of the following is the beta for the market portfolio?

► 0.25

► -1.0

► 1.0

► 0.5

MGT201 Financial Management - Question No: 12    ( M - 1 )    .

If stock is a part of totally diversified portfolio then its company risk must be equal to:

► 0

► 0.5

► 1

► -1

MGT201 Financial Management - Question No: 13    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 14    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 15    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 16    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 17    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 18    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 19    ( M - 1 )    .

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.

MGT201 Financial Management - Question No: 20    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 21    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 22    ( M - 1 )    .

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

► Changes determine whether borrowing must occur

MGT201 Financial Management - Question No: 23    ( M - 1 )    .

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

formula

kp = Dp / Po(1-f)

kp = cost of preference share

Dp = annual dividend

Po =share price

f = flotation cost


MGT201 Financial Management - Question No: 24    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 25    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 26    ( M - 1 )    .

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

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MGT201 Financial Management - Question No: 27    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 28    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 29    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 30    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 31    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 32    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 33    ( M - 1 )    .

Which of the following is NOT a current asset investment policy in practice?

► Fat Cat

► Pay Back Period

► Moderate Policy

► Lean & Mean

MGT201 Financial Management - Question No: 34    ( M - 1 )    .

Which of the following industries is considered as capital intensive?

► Pharmaceutical industry

► Textile industry

► Information technology

► Automobile industry

MGT201 Financial Management - Question No: 35    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 36    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 37    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 38    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 39    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 40    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 41    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 42    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 43    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 44    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 45    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 46    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 47    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 48    ( M - 1 )    .

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

MGT201 Financial Management - Question No: 49    ( M - 3 )

What are the effects of leverage on WAAC?


MGT201 Financial Management - Question No: 50    ( M - 3 )

Management Buyouts is a form of buyouts. Explain this term in your own words.

MGT201 Financial Management - Question No: 51    ( M - 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.

MGT201 Financial Management - Question No: 52    ( M - 5 )

What is the purpose of residual dividend model and what is the procedure to be followed while using this model?

MGT201 Financial Management - Question No: 53    ( M - 5 )

Differentiate forward market and future market.

 


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