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Take Test: MBOF912D-Financial

Management-Jan 20-Assignment2
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Test Information

Instructions

Description MBOF912D-Financial Management-Assignment-2

Instructions Center for Continuing Education - UPES
MBOF912D-Financial Management

Assignment 2

Total Questions: 56
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 1.

Attempts
Force This Test can be saved and resumed later.
Completion

Question 1

1. If a firm needs to borrow $100,000, at 8% interest, to finance working capital needs

and a 20% compensating is required, then the firm should borrow $125000.

True

False
1 points  

Question 2

1. ___________ refers to meeting the needs of the present without compromising the
ability of future generations to meet their own needs

Corporate Social Responsibility (CSR)

Sustainability
Convergence
Green Economics

1 points  

Question 3

1. In MM model, personal leverage and corporate leverage are considered as perfect

substitute.

True

False

1 points  

Question 4

1. _____________ is the point at which firm profit is equal to zero.

breakeven
operating breakeven
financial leverage
combined breakeven

1 points  

Question 5

1. Common stock that has no growth in dividends is valued as if it were a bond.

True
 False

1 points  

Question 6

1. 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 7

1. Same considerations are applicable to short-term sources as well as long-term sources

of funds.

True

False

1 points  

Question 8

1. There is a difference of opinion on relationship between dividend payment and value

of the firm.

True

False

1 points  

Question 9
 1. Which of the following is not true for MM Model?

Share price goes up if dividend is paid ,

Share price goes down if dividend is not paid
Market value is unaffected by Dividend policy
All of the above

1 points  

Question 10

1. 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 11

1. Select the incorrect statement. The:

SML uses beta as the measure of risk.

SML is a relationship between expected return and risk for efficient portfolios
only.
beta for a stock measures its contribution to the risk of the market portfolio.
larger the beta for a security, the larger its equilibrium expected return.

1 points  

Question 12

1. The risk that the value of a bond will fall when market interest rates rise is called
interest-rate risk.

True

False
1 points  

Question 13

1. The amount of current assets that varies with seasonal requirements is referred to as
gross working capital.

True

False

1 points  

Question 14

1. There are no transaction costs is one of the assumptions of the CAPM.

True

False

1 points  

Question 15

1. Baumol's model attempts at optimization of cash bal¬ance.

True

False

1 points  

Question 16

1. The Capital Asset Pricing Model:

has serious flaws because of its complexity.

measures relevant risk of a security and shows the relationship between risk and
expected return.
 was developed by Markowitz in the 1930s.
discounts almost all of the Markowitz portfolio theory

1 points  

Question 17

1. Nominal dollars refer to the amount of purchasing power.

True

False

1 points  

Question 18

1. Dividend is compulsorily payable to preference share¬holders.

True

False

1 points  

Question 19

1. The amount of current assets that varies with seasonal requirements is referred to as
__________ working capital.

permanent
temporary
net
gross

1 points  

Question 20

1. A change in the company's capital structure will change the amount of taxes paid but
will not change the WACC.
 True

False

1 points  

Question 21

1. Deferral period refers to the credit period allowed by:

Creditors
Debtors
Bank holders
Shareholders

1 points  

Question 22

1. In capital budgeting, the financial manager tries to identify investment opportunities

that will increase the value of the firm.

True

False

1 points  

Question 23

1. Limited Liability Partnership is NOT considered a hybrid organization?

True

False

1 points  

Question 24
 1. Compounding is the process of accumulating interest in an investment over time to
earn more interest.

True

False

1 points  

Question 25

1. Individuals and households frequently purchase capital market securities through

financial institutions such as mutual funds.

True

False

1 points  

Question 26

1. For a profitable firm, an increase in the marginal tax rate increases the cost of debt.

True

False

1 points  

Question 27

1. The appropriate manner of adjusting for inflationary effects is to discount nominal

cash flows with real interest rates.

True
 False

1 points  

Question 28

1. Beta is a abstract measure of risk.

True

False

1 points  

Question 29

1. Kannan Committee suggested for full discretion banks for determining borrowing
limits of borrowers.

True

False

1 points  

Question 30

1. Risk, as it relates to working capital, means that there is jeopardy to the firm for not
maintaining sufficient current assets to meet its cash obligations as they occur and
take advantage of prompt payment discounts.

True

False

1 points  

Question 31
 1. Compound interest pays interest for each time period on the original investment plus
the accumulated interest.

True

False

1 points  

Question 32

1. Capital expenditures are not considered in cash budget.

True

False

1 points  

Question 33

1. Which of the following statements is correct?

If the NPV of a project is greater than 0, its PI will equal 0

If the IRR of a project is 0%, its NPV, using a discount rate, k, greater than 0,
will be 0
If the PI of a project is less than 1, its NPV should be less than 0
If the IRR of a project is greater than the discount rate, k, its PI will be less than
1 and its NPV will be greater than 0

4 points  

Question 34

1. Assume the total expense for your current year in college equals $20,000.
Approximately how much would your parents have needed to invest 21 years ago in
an account paying 8% compounded annually to cover this amount?

$952
$1,600
$1,728
 $3,973

4 points  

Question 35

1. Which of the following provides the greatest annual yield?

16% compounded quarterly

15.2% compounded monthly
15.2% compounded daily
cannot be determined

4 points  

Question 36

1. You are planning to retire in twenty years. You'll live ten years after retirement. You
want to be able to draw out of your savings at the rate of $10,000 per year. How much
would you have to pay in equal annual deposits until retirement to meet your
objectives? Assume interest remains at 9%.

$1,154
$2,254
$1,254
$3,254

4 points  

Question 37

1. How much will a firm need in cash flow before tax and interest to satisfy debt holders
and equity holders if: the tax rate is 40%, there is $10 million in common stock
requiring a 12% return, and $6 million in bonds requiring an 8% return?

$1,392,000
$1,488,000
$2,480,000
$2,800,000

5 points  

Question 38
 1. What is the pretax cost of debt for a firm in the 35% tax bracket that has a 10% after-
tax cost of debt?

0.0585
0.1215
0.1538
0.2571

5 points  

Question 39

1. What is the WACC for a firm with 50% debt and 50% equity that pays 12% on its
debt, 20% on its equity, and has a 40% tax rate?

0.096
0.12
0.136
0.16

5 points  

Question 40

1. With continuous compounding at 10 percent for 30 years, the future value of an initial
investment of $2,000 is closest to

$34,898
40171
$1,64,500
$3,28,282

5 points  

Question 41

1. To sell an old bond when rates have risen, the holder will have to discount the bond
until the yield to the buyer is the same as the market rate.

True
 False

2 points  

Question 42

1. Increase in interest rates will increase the required rate of return.

True

False

2 points  

Question 43

1. If interest expenses for a firm rise, we know that firm has taken on more
______________.

financial leverage
operating leverage
fixed assets
none of the above

2 points  

Question 44

1. Which of the following is related to Receivables Management?

Cash Budget
Economic Order Quantity
Ageing schedule
All of the above

2 points  

Question 45

1. Financial breakeven level occurs when EBIT is zero.

 True

False

2 points  

Question 46

1. A financial guarantee ensures that the lender (bond purchaser) will be paid both
principal and interest in the event the issuer defaults.

True

False

2 points  

Question 47

1. If the sales of the firm are Rs. 60,00,000 and the average debtors are Rs. 15,00,000
then the receivables turnover is

4 times
0.25
4
0.25 times

2 points  

Question 48

1. Return of a portfolio is average return of all elements.

True

False

2 points  
Question 49

1. Economic Value added was developed to promote

Sales maximizing behavior in corporate mangers

Risk minimizing behavior in corporate mangers
Value maximizing behavior in corporate mangers
All of the above

2 points  

Question 50

1. Delinquency cost refers to bad debt losses to the firm.

True

False

2 points  

Question 51

1. The APT was developed in 1976 by Ross.

True

False

2 points  

Question 52

1. In cash management, expected surplus cash, if any, is not considered at all.

True

False
2 points  

Question 53

1. Most of the time, the interest rate on Treasury notes is below that on money market
securities because of their low default risk.

True

False

2 points  

Question 54

1. Non-public and small companies may not fall under GAAP.

True

False

2 points  

Question 55

1. Marginal cost of capital is the cost of :

Additional Sales
Additional Funds
Additional Interests
None of the above

2 points  

Question 56

1. If we ignore taxes, the overall cost of capital will stay constant as the fractions of debt
and equity change.

True
 False

2 points  

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