Government College University, Faisalabad.

Final Semester Examination – Fall 2017-18

(OBJECTIVE)
Student’s Name: Course Title: Financial Management
Registration No. Course Code: Fin-501
Programme / Section: BBA Department: Business Administration
Semester: 7th Exam. Date: 08-1-2018
Total Marks: 10 Time Allowed: 20 Minutes
Instructor: Fiza Amjad
Attempt all questions. Choose the best option according to the given statement. All Question Carry Equal Points
1. Degree of operating leverage can be computed by
a) % change in Operating Income/% change in sales
b) % Sales/% Profit
c) Sales/Cost of Production
d) Sales/Fixed Cost
2. Which formula may be used for 'EPS'?
a) Net Profit/100 x Share Capital
b) Dividend/Net Profit x 100
c) Net Income - Dividend on Preferred Stock/Average outstanding Shares
d) Net Profit/Sales
3. Degree of Financial leverage is
a) Profit/Sales x Capital
b) Percentages change in EPS or EBIT/percentage changes in EBIT - Interest
c) Sales/Fixed Assets
d) EBIT/100 x Sales
4. Capital budgeting techniques are
a) Sales Planning b) Production process and style c) Fixed Assets d) Current Assets
5. A project's profitability index is equal to the ratio of the _______ of a project's future cash flows to the
project's ______.
a) present value; initial cash outlay
b) net present value; initial cash outlay
c) present value; depreciable basis
d) net present value; depreciable basis
6. Generally, a project is considered acceptable if its net present value is:
a) negative or zero b) negative or positive c) positive or zero d) negative
7. The current worth of a sum of money to be received at a future date is called:
a) real value b) future value c) present value d) salvage value
8. The difference between the present value of cash inflows and the present value of cash outflows
associated with a project is known as:
a) net present value of the project
b) net future value of the project
c) net historical value of the project
d) net salvage value of the project
9. If present value of total cash outflow is $15,000 and present value of total cash inflow is $14,000, what is
the net present value of the project?
a) $1,000 b) -$1,000 c) 0 d) 2,000
10. If present value of cash outflow is equal to present value of cash inflow, the net present value will be:
a) Positive b) negative c) zero d) Infinite
 Government college University Faisalabad
Final Semester Examination – Fall 2017-18
Subjective

Student’s Name: Course Title: Financial Management

Registration No. Course Code: Fin-501
Programme / Section: BBA Department: Business Administration
Semester: 7th Exam. Date: 08-1-2018
Total Marks: 20 Time Allowed: 100 Minutes
Instructor: Fiza Amjad

All question carried equal marks.

Q.2 The Andrea S. Fault Seismometer Company is an all-equity-financed firm. It earns monthly, after
taxes, $24,000 on sales of $880,000. The tax rate of the company is 40 percent. The company’s only
product, “The Desktop Seismometer,” sells for $200, of which $150 is a variable cost.
a. What is the company’s monthly fixed operating cost?
b. What is the monthly operating break-even point in units? In dollars.?
c. Compute and plot the degree of operating leverage (DOL) versus quantity produced and sold for the
following possible monthly sales levels: 4,000 units; 4,400 units; 4,800 units; 5,200 units; 5,600 units;
and 6,000 units.
d. What does the graph that you drew (see Part (c)) – and especially the company’s DOL at its current
sales figure – tell you about the sensitivity of the company are operating profit to changes in sales?

Q.1 Lobers, Inc., has two investment proposals, which have the following characteristics:

Project 1 Project 1
Time Cash Cash inflow Cash outflow Cash Inflow
outflow
0 13000 ---- 15000 ----
1 5000 5000
2 4000 5000
3 3000 8000
4 2000 6000

For each project, compute its payback period, its net present value, IRR and its profitability index using a
discount rate of 12 percent.

Q.3 (a) why do companies with high growth rates tend to have low dividend-payout ratios and companies
with low growth rates tend to have high dividend-payout ratios?
(b) Define a stock dividend and a stock split. What is the impact of each on share value?