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Take Test: MBOF912D-Financial

Management-Jan 20-Assignment1
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Test Information

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 1.
Attempts
Force This Test can be saved and resumed later.
Completion

Question 1

1. Which of the following does not affect cash cycle of a company?

Inventory period
Accounts receivable period
Accounts payable turnover
None of the above
3 points  

Question 2

1. A high price/earnings ratio usually indicates that a firm is a:

value stock
growth stock
convertible security
constant security

3 points  

Question 3

1. In deciding the optimal level of current assets for the firm, management is confronted
with __________.

a trade-off between profitability and risk

a trade-off between liquidity and risk
a trade-off between equity and debt
a trade-off between short-term versus long-term borrowing

3 points  

Question 4

1. Which of the following appearing in the balance sheet generates tax advantage and
hence affects the c, structure decision ?

Reserves and Surplus

Long-term debt
Preference Share Capital
Equity Share Capital

3 points  

Question 5

1. Concentration banking

increases idle balances

moves excess funds from a concentration bank to regional banks
 is less important during periods of rising interest rates
improves control over corporate cash

2 points  

Question 6

1. Which of the following is not true for capital budgeting?

Sunk costs are ignored

Opportunity costs are excluded
Incremental cash flows are considered
Relevant cash flows are considered

2 points  

Question 7

1. Dividend on Pref. shares is a factor of operating leverage.

True

False

2 points  

Question 8

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

True

False

2 points  

Question 9

1. The beta for a treasury stock is one.

 True

False

2 points  

Question 10

1. The market price of a share of common stock is determined by the stock exchange on
which the stock is listed.

True

False

2 points  

Question 11

1. The SML can be used to analyze the relationship between risk and required return for
all assets.

True

False

2 points  

Question 12

1. The Excel function for Present value is PV (rate, nper, pmt, FV).

True

False

2 points  
Question 13

1. The future value of an annuity is more than each annuity payment.

True

False

2 points  

Question 14

1. Allowing the managers to have as many perks as they request is an example of

aligning managers' personal interests with those of the owners.

True

False

2 points  

Question 15

1. Which of the following refers to the risk associated with interest rate uncertainty?

Default risk premium

Sovereign Risk Premium
Market risk premium
Maturity risk premium

2 points  

Question 16

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 17

1. MM Model of Dividend irrelevance uses arbitrage between

Dividend and Bonus

Dividend and Capital Issue
Profit and Investment
None of the above

2 points  

Question 18

1. Advantage(s) of the APT is/are:

that the model provides specific guidance concerning the determination of the
risk premiums on the factor portfolios.
that the model does not require a specific benchmark market portfolio.
that risk need not be considered.
A and B.

2 points  

Question 19

1. How much will accumulate in an account with an initial deposit of $100, and which
earns 10% interest compounded quarterly for three years?

$107.69
$133.10
$134.49
$313.84

4 points  

Question 20

1. You are considering the purchase of two different insurance annuities. Annuity A will
pay you $16,000 at the beginning of each year for 8 years. Annuity B will pay you
 $12,000 at the end of each year for 12 years. Assuming your money is worth 7%, and
each costs you $75,000 today, which would you prefer?

$102228 and $95312

$103228 and $93312
$102228 and $93312
$103228 and $93312

4 points  

Question 21

1. How much is added to a firm's weighted average cost of capital for 45% debt
financing with a required rate of return of 10% and a tax rate of 35%?

0.0129
0.0293
0.035
0.045

4 points  

Question 22

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 23

1. Project costing Rs. 8,00,000 and a life of 5 years is expected to bring cash inflows of
Rs.2,00,000 p.a. What is the payback period?

5 years
4 years
3 years
None of the above
4 points  

Question 24

1. Preference dividend is not a factor of indifference level of EBIT.

True

False

1 points  

Question 25

1. 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 26

1. Strict adherence to the maturity matching approach to financing would call for all
current assets to be financed solely with current liabilities.

True

False

1 points  

Question 27

1. Trade credit is a long term source of lending.

True
 False

1 points  

Question 28

1. A formal, legal commitment to extend credit up to some maximum amount over a

stated period of time is known as Line of credit.

True

False

1 points  

Question 29

1. CML and SML have same shape and convey same ideas.

True

False

1 points  

Question 30

1. Most preferred stock has dividends that are cumulative.

True

False

1 points  

Question 31

1. Gordon’s Model of dividend relevance is same as No-growth Model of equity

valuation.
 True

False

1 points  

Question 32

1. Long term financing

consists of long term borrowing exclusively

includes both debt and equity
is made up of commercial paper
consists of selling new issues of common stock exclusively

1 points  

Question 33

1. To financial analysts, working capital means the same thing as current assets.

True

False

1 points  

Question 34

1. The more frequent the compounding, the less a person will earn on a savings account.

True

False

1 points  

Question 35
 1. A(n)_______ would be an example of a principal, while a(n)________ would be an
example of an agent

shareholder; manager
manager; owner
accountant; bondholder
shareholder; bondholder

1 points  

Question 36

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 37

1. Treasury bonds are subject to interest rate risk but are free of default risk.

True

False

1 points  

Question 38

1. Gordon's Model of dividend relevance is same as

No-growth Model of equity valuation

Constant growth Model of equity valuation
Price-Earnings Ratio
Inverse of Price Earnings Ratio
1 points  

Question 39

1. The NI approach, the k0 falls as the degree of leverage is increased.

True

False

1 points  

Question 40

1. There is no difference of opinion on the relationship between capital structure and

value of the firm.

True

False

1 points  

Question 41

1. The trade terms 2/15, net 30 indicate that a 2% discount is offered if payment is made
within 15 days.

True

False

1 points  

Question 42

1. Financial statements are an important source of information to shareholders and

stakeholders.
 True

False

1 points  

Question 43

1. While cash must be available to pay bills as they become due within a firm, financial
managers try to keep balances low because cash held in checking accounts earns little,
if any, interest. In the interim, cash might be held in:

buildings and equipment

inventory
an on-site vault
marketable securities

1 points  

Question 44

1. The market value of a bond is the amount that the issuer must pay at maturity.

True

False

1 points  

Question 45

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

True

False

1 points  
Question 46

1. Projects that have a zero NPV when calculated at the WACC will provide sufficient
returns to all stakeholders.

True

False

1 points  

Question 47

1. The __________ is not a market anomaly.

size effect
January effect
Day-of-the-week effect
accounting changes effect

1 points  

Question 48

1. 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 49

1. The firms that typically pay out dividends are those that have no long term debt.

True
 False

1 points  

Question 50

1. A conventional revolving credit agreement allows a firm:

to borrow a fixed amount for the entire commitment period

to borrow for a short-period with a right to renew the loan during the
commitment period
to possibly include a provision to convert the credit agreement into a term
loancontract at maturity
to do all of the above

1 points  

Question 51

1. Stock of finished goods should be as high as possible so that no customer is denied

the sale.

True

False

1 points  

Question 52

1. Which of the following should be reduced to minimum by a firm?

Receipt of Float
Payment Float
Concentration Banking
All of the above

1 points  

Question 53

1. Cost of Capital may be defined :

 Weighted Average cost of all debts
Rate of Return expected by Equity Shareholders
Average IRR of the projects of the firm
Minimum Rate of Return that the firm should earn

1 points  

Question 54

1. With the addition of risk-free borrowing and lending, the old Markowitz efficient
frontier is dominated by a new efficient frontier.

True

False

1 points  

Question 55

1. Risk-aversion of an investor can be measured by portfolio return.

True

False

1 points  

Question 56

1. With the introduction of risk-free borrowing and lending, the new efficient frontier
will be an arc that is higher than the old Markowitz arc representing the efficient
frontier.

True

False

1 points  
Question 57

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 58

1. In Capital Budgeting Decisions, a single cost of capital is used because :

Required Rate of Return is same for all projects.

It avoids calculation of Required Rate for different projects
Both (a) and (b)
None of the above

1 points  

Question 59

1. At optimal capital structure, the k0 of the firm is highest.

True

False

1 points  

Question 60

1. This sub-area of finance helps facilitate the capital flows between investors and
companies.

investments
financial management
treasury management
 financial institutions and markets

1 points  

Question 61

1. BV of an equity share is the best measure of valuation.

True

False

1 points  

Question 62

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 63

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

True

False

1 points  

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