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Take Test: MBOF912D-Financial Management-Jul19-Assignment1

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Instructions
Description MBOF912D-Financial Management-Assignment-1

Instructions Center for Continuing Education - UPES

MBOF912D-Financial Management

Assignment 1

Total Questions: 63
Total Marks: 100

Assignment Information :

The examination will consist of only Objective type (multiple choice) questions
requiring candidates to Mouse-click their correct choice of alternatives against the
related question number. The questions would carry 1 to 5 marks each depending
on the difficulty level of the question as indicated in the table below:

Difficulty Level of Questions:

1 Mark - Direct, Memory based

2 Marks - Memory & Conceptual
3 Marks - Conceptual & Analytical
4 Marks - Analytical based on understanding of concepts
5 Marks - Application based on understanding of concepts

  The question paper will be for 100 marks and considering marks allotted to each
question, the total number of questions would be around 63.

  There will not be negative marking for wrong answers.

  In case candidate does not want to attempt the question he I she should not
mouse-click any option.

  The students are allowed to save the responses and come back later to resume,
complete and "Save and Submit" the assignment. However, if the Due Date has
expired, then the assignment will not be accessible and will be marked as zero. In
such cases, the student can re-attempt the assignment allocated after enrolling in
the subsequent Semester.

  Once submitted, that answer sheet cannot be retreieved for any editing. The
student has to initiate a new attempt (if allowed), if he has submitted the
assignment by mistake.

  The students are normally allowed 3 chances to attempt and submit the
assignment. The number of attempts availed is displayed under the "Test
Information".
   The Highest Grade of the 3 attempts shall be considered for grading.

  The assignments are auto evaluated, and hence no chance of re-evaluation/re-

totalling is allowed to the student.

-------

Multiple This Test allows 3 attempts. This is attempt number 2.

Attempts

Force This Test can be saved and resumed later.

Completion

qShow

Question Completion Status:

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Question 1

When determining a form of business organization, physical location of the business is not
considered.

True

False

2 points  

Question 2

Which of the following is not true?

Risk can never be reduced to zero

Diversification always reduces risk to zero

Diversification does not affect risk

None of the above

2 points  

Question 3

If the fixed cost of production is zero, which one of the following is correct?
 OL is zero

FL is zero

CL is zero

None of the above

2 points  

Question 4

If a company moves from a conservative working capital policy to an aggressive policy, it should
expect expected profitability to increase, whereas risk would decrease liquidity to decrease, whereas
expected profitability would increase.

True

False

2 points  

Question 5

Cost of stock out occurs whenever the firm has no stock of a particular item.

True

False

2 points  

Question 6

In deciding the optimal level of current assets for the firm, management is confronted with a trade-
off between profitability and risk.

True

False

2 points  

Question 7

Dividend is a part of retained earnings.

 True

False

2 points  

Question 8

Common stock that has no growth in dividends is valued as if it were:

preferred stock

a bond

an option

none of the above

2 points  

Question 9

Current assets of the typical manufacturing firm account for over half of its total assets.

True

False

2 points  

Question 10

CAPM stipulates a relationship between expected return and risk.

True

False

2 points  

Question 11

Municipal bonds that are issued to pay for essential public projects are exempt from federal
taxation.

True
 False

2 points  

Question 12

A type of accounts receivable financing where a firm uses its receivables as collateral is called
pledging.

True

False

2 points  

Question 13

In response to market expectations, the credit pence r j been increased from 45 days to 60 days. This
would result in

Decrease in Sales

Decrease in Debtors

Increase in Bad Debts

Increase in Average Collection Period

2 points  

Question 14

Registered bonds have now been largely replaced by bearer bonds, which do not have coupons.

True

False

2 points  

Question 15

Under COD terms, the seller extends credit to the buyer subject to bank approval.

True
 False

1 points  

Question 16

The component of the risk-adjusted discount rate that is derived from the risk of Treasury securities
is:

risk premium

cost of capital

call premium

risk-free rate

1 points  

Question 17

The premium to compensate an investor for the eroding effect of rising prices is called the risk
premium.

True

False

1 points  

Question 18

Dividend is compulsorily payable to preference share¬holders.

True

False

1 points  

Question 19

Two projects that are mutually exclusive are said to be independent.

True
 False

1 points  

Question 20

The decision function of financial management can be broken down into the__________decisions

financing and investment

investment, financing, and asset management

financing and dividend

capital budgeting, cash management, and credit management

1 points  

Question 21

Most preferred stock has dividends that are cumulative.

True

False

1 points  

Question 22

If you have $1000 and you plan to save it for 4 years with an interest rate of 10%, the future value of
your savings would be $1464.

True

False

1 points  

Question 23

The most restrictive policy for using inventory as collateral for short-term borrowing is called:

blanket inventory lien

warehousing inventory
 trust receipt

factoring

1 points  

Question 24

Not all cash a company generates will be returned to the investors. Which of the following will NOT
reduce the amount of capital returned to the investors?

retained earnings

taxes

dividends

None of these will reduce the amount of capital returned to the investors

1 points  

Question 25

Inventory is in the possession of a third party under which of the following methods?

Floating lien

Terminal warehouse receipts

Chattel mortgage

Trust receipts

1 points  

Question 26

The more frequent the compounding, the higher the future value, other things equal.

True

False

1 points  

Question 27

 
With the introduction of risk-free borrowing and lending, the new efficient frontier will be a straight
line.

True

False

1 points  

Question 28

Corporations may explicitly granting shares to managers.

True

False

1 points  

Question 29

Walter’s Model suggests that a firm can always increase the value of the share by

Increasing Dividend

Decreasing Dividend

Constant Dividend

None of the above

1 points  

Question 30

Credit Analysts examine a firm's financial strength for its debt holders.

True

False

1 points  

Question 31

In accounts receivable management, credit analysis is the process of determining the probability
that customers will not pay.
 True

False

1 points  

Question 32

In a diversified portfolio, a new security adds liquidity risk.

True

False

1 points  

Question 33

In order to find out cost of equity capital under CAPM, which of the following is not required:

Beta Factor

Market Rate of Return

Market Price of Equity Share

Risk-free Rate of Interest

1 points  

Question 34

If more than one value of return is expected, then expected return can be ascertained with the help
of probabilities.

True

False

1 points  

Question 35

In Traditional Approach, which one is correct?

ke rises constantly
 kd decreases constantly

k0 decreases constantly

None of the above

1 points  

Question 36

For corporations, maximizing the value of owner's equity can also be stated as

maximizing retained earnings

maximizing earnings per share

maximizing net income

maximizing the stock price.

1 points  

Question 37

The primary reason that individuals and firms choose to borrow long-term is to reduce the risk that
interest rates will _________ before they pay off their debt.

rise

fall

become more volatile

become more stable

1 points  

Question 38

If the interest rate is zero:

PV = FVn

PV = FVn

FV = PV

d. FV = PV/en
1 points  

Question 39

A firm becomes bankrupt when the value of its debt equals the value of its assets.

True

False

1 points  

Question 40

A capital lease:

is generally used by corporations more often than an operating lease

is placed on the balance sheet

is capitalized

all of the above

1 points  

Question 41

Walters model supports the view that dividend is relevant for value of the firm.

True

False

1 points  

Question 42

In developing the APT, Ross assumed that uncertainty in asset returns was a result of a commom
macroeconomic factor and firm specific factors.

True

False

1 points  
Question 43

As a general rule, the effective annual rate is more appropriate for financial decision making than is
the annual percentage rate.

True

False

1 points  

Question 44

Given a set future value, higher discount rate will contribute to a lower present value.

True

False

1 points  

Question 45

Efficient Frontier consists of a large number or 23 portfolios.

True

False

1 points  

Question 46

If the total risk of firm X is greater than that of firm Y, then the beta of firm X must be greater than
that of firm Y.

True

False

1 points  

Question 47

Unsecured loans are those:

 that do not have to be repaid for over one year

that appear to be too risky for most lenders to consider

given on the basis of the firm's credit standing and the lender's previous experience
with the firm

that are backed up by mortgaged assets

1 points  

Question 48

Proposed assets can be evaluated using the company cost of capital providing that the:

firm does not pay taxes.

firm is all equity financed.

cost of debt is less than the cost of equity.

new assets have the same risk as existing assets.

1 points  

Question 49

Which of the following is not true of cash budget?

Cash budget indicates timings of short-term borrowings

Cash budget is based on accrual concept

Cash budget is based on cash flow concept

Repayment of principal amount of law is shown in cash budget

1 points  

Question 50

In an efficient market, it is not necessary for a portfolio manager to attempt to maximize the
portfolio’s rate of return by superior market timing.

True

False
1 points  

Question 51

If a market is inefficient, as new information is received about a security there will be a lag in the
adjustment of the stock price.

True

False

1 points  

Question 52

If you have $20,000 in an account earning 8 percent annually, the constant amount withdrawn each
year would be $5008.76 and have nothing remaining at the end of 5 years.

True

False

1 points  

Question 53

Current Liabilities are those obligations which are generally to be discharged in:

1 month

1 year

1 week

1 day

1 points  

Question 54

EVA uses accounting information to

Declare dividend

Improve decisions
 Improve profitability

None of the above

1 points  

Question 55

For $1,000 you can purchase a 5-year ordinary annuity that will pay you a yearly payment of $263.80
for 5 years. The compound annual interest rate implied by this arrangement is closest to

0.08

0.09

0.1

0.11

4 points  

Question 56

How much would you pay for an investment which will be worth $16,000 in three years? Assume
interest is 5%.

$14,821

$13,821

$15,821

$12,821

4 points  

Question 57

How much would you have to put in the bank today at 5% to accumulate $1,000 by next year?

852

592

892

952
4 points  

Question 58

If you triple your money in 10 years, what interest rate did you earn?

10.6

10.5

11.6

12.6

4 points  

Question 59

Consider the one-factor APT. The variance of returns on the factor portfolio is 9%. The beta of a well-
diversified portfolio on the factor is 1.25. The variance of returns on the well-diversified portfolio is
approximately:

0.036

0.06

0.073

0.141

4 points  

Question 60

Select the correct statement regarding the market portfolio. It:

is readily and precisely observable.

should include all risky assets.

is the lowest point of tangency between the risk-free rate and the efficient frontier.

should be composed of stocks or bonds.

3 points  

Question 61

 
The most basic requirement for a firm's marketable securities.

Safety

Yield

Marketability

All of the above

3 points  

Question 62

In the Traditional Approach, which one of the following remains constant?

Cost of Equity

Cost of Debt

WACC

None of the above.

3 points  

Question 63

The present value of a single future sum:

increases as the number of discount periods increases.

is generally larger than the future sum

depends upon the number of discount periods

increases as the discount rate increases

3 points  

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