REPLACEMENT TEST - 2021 - Attempt Review

10/28/21, 9:34 PM REPLACEMENT TEST - 2021: Attempt review
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REPLACEMENT TEST - 2021
Started on Thursday, 28 October 2021, 7:00 PM

State Finished
Completed on Thursday, 28 October 2021, 9:30 PM
Time taken 2 hours 29 mins
Marks 38.00/60.00
Grade 63.33 out of 100.00
Question 1
Correct
Mark 1.00 out of 1.00
In financial analysis Leverage represents the influence of one over some other related
a. Variable relating to revenue; financial variable

b. Financial variable; non-financial variable
c. Non-financial variable; financial variable
d. Financial variable; financial variable 
The correct answer is: Financial variable; financial variable
Question 2
Correct
Which of the below statements is the shortcoming of the security market line approach?
a. It is easy to understand and use

b. Only applicable to companies currently paying dividends
c. The estimation of beta, which varies over time 
d. The absence of systematic risk in the market
The correct answer is: The estimation of beta, which varies over time
https://elearning.nust.na/elearn/mod/quiz/review.php?attempt=1418641&cmid=321699 1/18
Question 3
Correct
Which of the following is the method for determining the cost of equity?
a. Capital asset production model

b. Earnings per share
c. Capital asset pricing model 
d. Dividend Per Share
The correct answer is: Capital asset pricing model
Question 4
Correct
The long-run objective of financial management is to:
a. maximize market share.

b. maximize the value of the firm's common stock. 
c. maximize return on investment.
d. maximize earnings per share.
The correct answer is: maximize the value of the firm's common stock.
Question 5
Correct
M&Z has reported a return for its last financial year as 10.85%. The company has outstanding debt of $50 000 000, preference
shares of $15 000 000 and common equity valued at $70 000 000. The tax rate is 34%. It has paid $4 000 000 as an interest
expense on its debt. The preference shares paid a dividend of $150 000. The risk-free rate of return is 4%, while the return on the
Dow Jones Industrials is 11%, and the company’s beta is 1.3. Determine the cost of equity to 3 decimal places
Answer: 0.131 
Cost of equity = 4% + 1.3 * (11% – 4%) = 0.131 or 13.1%
The correct answer is: 0.131
Question 6
Correct
Dow Jones Industrials is 11%, and the company’s beta is 1.3. Determine the weight of equity to 3 decimal places
Answer: 0.519 
Weightage of equity = $70,000,000 ÷ $135,000,000 = 0.519 or 51.9%
Question 7
Correct
Which of the following is not a pattern of capital structure?
a. Equity shares and Preference shares

b. Equity shares, preference shares and debentures
c. Equity shares only
d. Equity shares and short-term borrowings 
The correct answer is: Equity shares and short-term borrowings
Question 8
Incorrect
Dow Jones Industrials is 11%, and the company’s beta is 1.3. Determine the Weighted Average Cost of Capital (WACC) to 4
decimal places
Answer: 0.0909 
Source Weight Cost WACC
Debt 0.37 0.0528 0.019536
Pref. shares 0.111 0.1 0.0111
Equity 0.519 0.131 0.067989
0.098625 = 0.0986 or 9.86%
Question 9
Correct
Which of the following statements is not true about cost of capital?
a. The cost of common stock is the return required on the stock by investors in the marketplace
b. Cost of capital it is the return that different types of funds suppliers have to be paid to get them to put and keep funds in the
company.
c. Cost of capital it is the cost of funds raised by the company
d. The cost of equity is the rate of return required by bondholders 
The correct answer is: The cost of equity is the rate of return required by bondholders
Question 10
Incorrect
Given the following financial statement data
In Millions
($)
Credit sales 25 000
Cost of goods sold 20 000
Accounts receivable 2 500
Inventory—Beginning 2 000
balance
Inventory—Ending 2 300
balance
Accounts payable 1 700
Compute the number of days of receivables
Answer: 36.5 
= $2 500/($25 000/365) = 36.5 = 37 days
The correct answer is: 37
Question 11
Correct
The cost of capital most appropriate for a firm operating in a number of sectors is the___
a. cost of equity plus cost of debt

b. weighted average cost of capital
c. divisional cost of capital 
d. cost of equity plus cost of debt plus cost of preference shares
The correct answer is: divisional cost of capital
Question 12
Correct
"Shareholder wealth" in a firm is represented by:
a. the book value of the firm's assets less the book value of its liabilities.
b. the market price per share of the firm's common stock. 
c. the amount of salary paid to its employees.
d. the number of people employed in the firm.
The correct answer is: the market price per share of the firm's common stock.
Question 13
Correct
There is no operating leverage if there is no ___________
a. Probability
b. Sales
c. Fixed cost 
d. EPS
The correct answer is: Fixed cost
Question 14
Correct
A loan of N$150 000 was granted to you by a commercial bank, bonded against your property at an interest rate of 16% per
annum compounded quarterly. According to the loan agreement you are required to pay off the loan in equal quarterly instalments
over a period of three years. Calculate the amount of quarterly payments to the nearest N$
Answer: 15983 
PV=PMT x PVIFA at 4% for 12 period

PMT = PV/ PVIFA at 4% for 12 periods
= N$150 000/9.3851 =N$15982.78 = 15983
Question 15
Correct
Which of the following is false?
a. The discount factor is the reciprocal of the compound factor.

b. The longer the time period, the smaller the present value, given a $100 future value and holding the interest rate constant.
c. The greater the interest rate, the greater the present value, given a $100 future value and holding the time period 
constant.
d. A future dollar is always less valuable than a dollar today if interest rates are positive.
The correct answer is: The greater the interest rate, the greater the present value, given a $100 future value and holding the time
period constant.
Question 16
Correct
Which of the following is not true about capital structure?
a. Capital structure and financial structure are different

b. Proportion of various types of securities is known as capital structure. 
c. Capital structure is also known as capitalisation
d. All of these
The correct answer is: Proportion of various types of securities is known as capital structure.
Question 17
Incorrect
Dow Jones Industrials is 11%, and the company’s beta is 1.3. Determine the total capital of the company
Answer: 9.86 
Total capital = $50 000 000 + $15 000 000 + $70 000 000 = $135 000 000
Question 18
Correct
over a period of three years. What is the total interest paid at the end of period two?
Answer: 11601 
= N$6000+N$5601 = N$11601
Question 19
Correct
Which of the following concepts is incorrect?
a. A perpetuity is considered a perpetual annuity.

b. An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments, discount rate 
and time period.
c. An ordinary annuity has payments at the end of each year.
d. An annuity due has payments at the beginning of each year.
The correct answer is: An ordinary annuity has a greater PV than an annuity due, if they both have the same periodic payments,
discount rate and time period.
Question 20
Correct
You need to N$10 000 in two years as down payment of your car. If you can earn 9% interest, how much to the nearest N$ do you
have to invest to make sure that you have the N$10 000 ready to pay for your car?
Answer: 8417 
PV = FV/ (1+r)n = N$10 000/(1+0.09)² = N$8416.80 = 8417
Question 21
Not answered
Marked out of 2.00
over a period of three years. Determine the principal of period one
Answer: 
Period Opening Payment Interest Principal Closing

balance 4% balance
1 150 000 15 983 6000 9 983 140 017
2 140 017 15 983 5601 10382 129 635
Question 22
Correct
The term Leverage in general refers to a ____________
a. Relationship between two interrelated variables. 

b. Relationship between sales and fixed cost.
c. Relationship between fixed cost and profit.
d. Relationship between two unrelated variables.
The correct answer is: Relationship between two interrelated variables.
Question 23
Incorrect
In Millions
($)
Credit sales 25 000
balance
balance
Compute the net operating cycle
Answer: 107 
= operating cycle - number of days of payables
= 77 − 31 = 46 days
Question 24
Incorrect
The real rate of interest reflects compensation for?
a. Present value 
b. Time value of money
c. Future value
d. None of these
The correct answer is: Time value of money
Question 25
Incorrect
Suppose you plan to contribute N$30 000 every year into a retirement account with the insurance company, the interest you will
earn is 8%. Interest on a similar retirement account with a commercial bank is 7%. If you retire in thirty years, how much will you
have?
Answer: 1132832.11 
Annuity future value factor = (Future value factor-1)/r
= (10.0627-1)/0.08 = 113.2832
The future value of the N$30 000 annuity = N$30 000 x 113.2832 = N$3 398 496
Question 26
Correct
Dow Jones Industrials is 11%, and the company’s beta is 1.3. Determine the cost of debt to 4 decimal places
Answer: 0.0528 
Cost of debt = $4,000,000*(1 – 34%) ÷ $50,000,000 = 0.0528 or 5.28%
Question 27
Correct
Dow Jones Industrials is 11%, and the company’s beta is 1.3. Determine the weight of preference share to 3 decimal places
Answer: 0.111 
Weightage of preference share = $15,000,000 ÷ $135,000,000 = 0.111 or 11.1%
Question 28
Not answered
Marked out of 2.00
over a period of three years. Determine the closing balance at the end of period two
Answer: 
Period Opening Payment Interest Principal Closing

balance 4% balance
1 150 000 15 983 6000 9 983 140 017
2 140 017 15 983 5601 10382 129 635
Question 29
Incorrect
In Millions
($)
Credit sales 25 000
balance
balance
Compute the number of days of inventory
Answer: 39 
= [($2 300 + $2 000)/2]/($20 000/365) = 39.238 = 40 days
Question 30
Correct
Dow Jones Industrials is 11%, and the company’s beta is 1.3. Determine the cost of preference share to 1 decimal place
Answer: 0.1 
Cost of preference share = $1,500,000 ÷ $15,000,000 = 0.1 or 10%
Question 31
Correct
In Millions
($)
Credit sales 25 000
balance
balance
Compute the number of days of payables
Answer: 31 
Purchases = $20 000 + $2 300 − $2 000 = $20 300
Number of days of payables = $1 700/($20 300/365) = 30.567 = 31 days
Question 32
Correct
Lucinda has a "certainty equivalent" to a risky gamble's expected value that is less than the gamble's expected value. Lucinda
shows
a. risk preference.
b. risk indifference.
c. risk aversion. 
d. a strange outlook on life.
The correct answer is: risk aversion.
Question 33
Correct
The term capital structure refers to the relationship between:
a. Current assets and current liabilities

b. Sum of all non-current assets
c. Debentures, preference share, and equity share capital 
The correct answer is: Debentures, preference share, and equity share capital
Question 34
Correct
Dow Jones Industrials is 11%, and the company’s beta is 1.3. Determine the weight of debt to 2 decimal places
Answer: 0.37 
Weightage of debt = $50,000,000 ÷ $135,000,000 = 0.370 or 37%
Question 35
Incorrect
In Millions
($)
Credit sales 25 000
balance
balance
Compute the operating cycle
Answer: 76 
= number of days of inventory + number of days of receivables
= 40 + 37 = 77 days
Question 36
Correct
Degree of _______ is the ratio of the percentage increase in earnings per share (EPS) to the percentage increase in earnings
before interest and taxes (EBIT).
a. Financial Leverage 
b. Combined Leverage
c. Operating Leverage
d. Working Capital Leverage
The correct answer is: Financial Leverage
Question 37
Incorrect
A statistical measure of the degree to which two variables (e.g., securities' returns) move together.
a. covariance
b. certainty equivalent
c. coefficient of variation
d. variance 
The correct answer is: covariance
Question 38
Correct
The true cost of debt is ______________
a. the cost of debt after tax because interest expense is part of operational cost
b. the cost of debt after tax because interest expense is irrelevant
c. the cost of debt after tax because interest expense increases the firm tax liability
d. the cost of debt after tax because interest expense is deductible expense for tax purpose 
The correct answer is: the cost of debt after tax because interest expense is deductible expense for tax purpose
Question 39
Correct
Which of the following is not commonly used measures of leverage in financial analysis?
a. Operating Leverage
b. Combined Leverage
c. Financial Leverage
d. Matrix Leverage 
The correct answer is: Matrix Leverage
◄ TEST 2S - 2021
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10/28/21, 9:34 PM REPLACEMENT TEST - 2021: Attempt review

Started on Thursday, 28 October 2021, 7:00 PM

Mark 1.00 out of 1.00

a. Variable relating to revenue; financial variable

The correct answer is: Financial variable; financial variable

Mark 1.00 out of 1.00

a. It is easy to understand and use

Mark 1.00 out of 1.00

a. Capital asset production model

The correct answer is: Capital asset pricing model

Mark 1.00 out of 1.00

The long-run objective of financial management is to:

a. maximize market share.

Mark 2.00 out of 2.00

Cost of equity = 4% + 1.3 * (11% – 4%) = 0.131 or 13.1%

The correct answer is: 0.131

Mark 2.00 out of 2.00

Weightage of equity = $70,000,000 ÷ $135,000,000 = 0.519 or 51.9%

The correct answer is: 0.519

Mark 1.00 out of 1.00

Which of the following is not a pattern of capital structure?

a. Equity shares and Preference shares

The correct answer is: Equity shares and short-term borrowings

Mark 0.00 out of 4.00

Source Weight Cost WACC

Debt 0.37 0.0528 0.019536

Pref. shares 0.111 0.1 0.0111

Equity 0.519 0.131 0.067989

0.098625 = 0.0986 or 9.86%

The correct answer is: 0.0986

Mark 1.00 out of 1.00

Which of the following statements is not true about cost of capital?

Mark 0.00 out of 2.00

Given the following financial statement data

Credit sales 25 000

Cost of goods sold 20 000

Accounts receivable 2 500

Accounts payable 1 700

Compute the number of days of receivables

= $2 500/($25 000/365) = 36.5 = 37 days

The correct answer is: 37

Mark 1.00 out of 1.00

a. cost of equity plus cost of debt

The correct answer is: divisional cost of capital

Mark 1.00 out of 1.00

"Shareholder wealth" in a firm is represented by:

Mark 1.00 out of 1.00

There is no operating leverage if there is no ___________

The correct answer is: Fixed cost

Mark 2.00 out of 2.00

PV=PMT x PVIFA at 4% for 12 period

= N$150 000/9.3851 =N$15982.78 = 15983

The correct answer is: 15983

Mark 1.00 out of 1.00

Which of the following is false?

a. The discount factor is the reciprocal of the compound factor.

Mark 1.00 out of 1.00

Which of the following is not true about capital structure?

a. Capital structure and financial structure are different

Mark 0.00 out of 2.00

The correct answer is: 135000000

Mark 2.00 out of 2.00