QUESTION 1

1. "Why is the after-tax cost of debt, rather than its before-tax cost, used to
calculate the weighted average cost of capital?"
For the benefit of investor
To minimize the WACC
Due to Tax Shield
None of the above

0.75 points   
QUESTION 2
1. Manager and owner are separate in
public limited company
partnership
sole proprietorship
None of the above

0.75 points   
QUESTION 3
1. "The market returns are 15%, 9% and 18% and Stock J returns are 20%, 5% and
12% . They have the probability distributions 0.3, 0.4 and 0.3 and expected returns are:
Market: 13.5% and Stock J: 11.6%. Standard deviation are: Market: 3.85% and Stock J:
6.22%. Calculate the coefficients of variation for the market and Stock J."
Market: 0.21 and Stock J: 0.54
Market: 0.29 and Stock J: 0.62
Market: 0.54 and Stock J: 0.29
Market: 0.29 and Stock J: 0.54

0.75 points   
QUESTION 4
1. Which of the following is not the responsibility of financial manager?
Making investment decisions
Making negotiations with newly hired staff for the minimum salary so that
organization s cost can be saved.
Managing short term cash needs
Maintaining investment portfolios.

0.75 points   
QUESTION 5
1. A business owned by a solitary individual who has unlimited liability for its debt is
called a: 
corporation.
 sole proprietorship.
general partnership.
limited partnership.

0.75 points   
QUESTION 6
1. Which one of the following is a capital structure decision? 
determining which one of two projects to accept
determining how to allocate investment funds to multiple projects
determining the amount of funds needed to finance customer purchases of a new
product
determining how much debt should be assumed to fund a project

0.75 points   
QUESTION 7
1. "A company s 6% coupon rate, semiannual payment, $1,000 par value bond that
matures in 30 years sells at a price of $515.16. The company s federal-plus-state tax
rate is 40%. What is the firm s after-tax component cost of debt for purposes of
calculating the WACC?"
8.50%
7.90%
7.20%
6.50%

0.75 points   
QUESTION 8
1. Which one of the following is a primary market transaction?
sale of currently outstanding stock by a dealer to an individual investor
sale of a new share of stock to an individual investor
stock ownership transfer from one shareholder to another shareholder
gift of stock from one shareholder to another shareholder

0.75 points   
QUESTION 9
1. "An investor has a three-stock portfolio with $25,000 invested in Dell, $50,000
invested in Ford, and $25,000 invested in Wal-Mart. Dell s beta is estimated to be 1.20,
Ford s beta is estimated to be 0.80, and Wal-Mart s beta is estimated to be 1.0. What is
the estimated beta of the investor s portfolio?"
0.8
0.95
1.1
 1.3

0.75 points   
QUESTION 10
1. "A company has outstanding long-term bonds with a face value of $1,000, a 10%
coupon rate, 25 years remaining until maturity, and a current market value of $1,214.82.
If it pays interest semiannually, and the company s tax rate is 40%, what is the after-tax
cost of debt?"
4.80%
4.50%
5.20%
3.50%

0.75 points   
QUESTION 11
1. Which one of the following business types is best suited to raising large amounts
of capital?
sole proprietorship
limited liability company
corporation
general partnership

0.75 points   
QUESTION 12
1. "Assume that the risk-free rate is 5% and that the market risk premium is 6%.
What is the required return on the market, on a stock with a beta of 1.0, and on a stock
with a beta of 1.2?"
11% and 12.2%
10.5% and 11.7%
11.25% and 10.7%
10.7% and 11.8%

0.75 points   
QUESTION 13
1. Which of the following have the right to share in the distribution of dividends
before common shareholders?
Bank
Preference Shareholders
Directors
General public
 0.75 points   
QUESTION 14
1. "Booher Book Stores has a beta of 0.8. The yield on a 3-month T-bill is 4% and
the yield on a 10-year T-bond is 6%. The market risk premium is 5.5%, and the return
on an average stock in the market last year was 15%. What is the estimated cost of
common equity using the CAPM?"
10.40%
10.80%
11.30%
11.70%

0.75 points   
QUESTION 15
1. "A company s preferred stock currently trades for $50 per share and pays a $3
annual dividend. If the company issues preferred stock, what is the cost of that stock?"
10%
8%
6%
5%

0.75 points   
QUESTION 16
1. The possibility of conflict of interest between the stockholders and management
of a firm is known as:
Management Problem
The Principal Problem
The Agency Problem
Corporate Misunderstanding

0.75 points   
QUESTION 17
1. Which type of business organization has all the respective rights and privileges of
a legal person? 
sole proprietorship
general partnership
limited partnership
corporation

0.75 points   
QUESTION 18
1. Which one of the following best describes the primary advantage of being a
limited partner instead of a general partner? 
active participation in the firm's activities
no potential financial loss
greater control over the business affairs of the partnership
maximum loss limited to the capital invested

0.75 points   
QUESTION 19
1. KIBOR stands for
Karachi international board of record
Korangi industrial board of record
Karachi inter bank offered rate
Karachi international bank offered rate

0.75 points   
QUESTION 20
1. Which of the following is not a security being traded in capital market?
Bonds
Common Stock
Treasury Bills
Preferred Stock