MGT201 Mix Quiz 2011

MGT201 Mix Quiz 2011


What should be used to calculate the proportional amount of equity financing employed by a firm? Select correct option:

The common stock equity account on the firm's balance sheet

The sum of common stock and preferred stock on the balance sheet

The book value of the firm

The current market price per share of common stock times the number of Shares Outstanding









What is the long-run objective of financial management? Select correct option:

Maximize earnings per share

Maximize the value of the firm's common stock

Maximize return on investment

Maximize market share









are analysts who use information concerning the current and prospective profitability of firms to assess the firm's fair market value.

Select correct option: Credit analysts Fundamental analysts Systems analysts Technical analysts









Total Marks: 1

Which of the followings expressed the proposition that the value of the firm is independent of its capital structure?

Select correct option:

The Capital Asset Pricing Model

M&M Proposition I M&M Proposition II The Law of One Price









The statement of cash flows reports a firm's cash flows segregated into which of the following categorical order?

Select correct option:

Operating, investing, and financing Investing, operating, and financing Financing, operating and investing Financing, investing, and operating









A project that tells us the number of years required to recover our initial cash investment based on the project’s expected cash flows is:

Select correct option:

Pay back period

Internal rate of return





Net present value

Profitability index









Which of the following would generally have unlimited liability? Select correct option:

A limited partner in a partnership



A shareholder in a corporation



The owner of a sole proprietorship



A member in a limited liability company (LLC)









If 2 stocks move in the same direction together then what will be the correlation coefficient?

Select correct option:



0



1.0



-1.0



1.5





which of the following needs to be excluded while we calculate the incremental cash flows? Select correct option:

Depreciation Sunk cost Opportunity cost Non-cash item









If risk and return combination of any stock is above the SML, what does it mean? Select correct option:

It is offering lower rate of return as compared to the efficient stock

It is offering higher rate of return as compared to the efficient stock

Its rate of return is zero as compared to the efficient stock

It is offering rate of return equal to the efficient stock









Which of the following techniques would be used for a project that has non–normal cash flows? Select correct option:






Internal rate of return

Multiple internal rate of return Modified internal rate of return Net present value









Which of the following is NOT a cash outflow for the firm? Select correct option:

Depreciation Dividends Interest

Taxes







Which of the following statements is correct for a firm that currently has total costs of carrying and ordering inventory that is 50% higher than total carrying costs?

Select correct option:

Current order size is greater than optimal

Current order size is less than optimal

Per unit carrying costs are too high

The optimal order size is currently being used









When a firm needs guaranteed, short-term funds available for a variety purposes, the bank loan will likely be a .

Select correct option:

Compensating balance arrangement

Revolving credit agreement

Transaction loan

Line of credit











Which if the following is (are) true? I. The dividend growth model holds if, at some point in time, the dividend growth rate exceeds the stock’s required return. II. A decrease in the dividend growth rate will increase a stock’s market value, all else the same. III. An increase in the required return on a stock will decrease its market value, all else the same



I, II, and III not sure

I only

III only

II and III only







An implicit cost of adding debt to the capital structure is that it: Select correct option:

Adds interest expense to the operating statement

Increases the required return on equity Reduces the expected return on assets Decreases the firm's beta













hich of the following statements regarding covariance is correct? Select correct option:

Covariance always lies in the range -1 to +1

Covariance, because it involves a squared value, must always be a positive number (or zero) Low covariances among returns for different securities leads to high portfolio risk Covariances can take on positive, negative, or zero values







Which of the following is not a form of short-term, spontaneous credit? Select correct option:

Accrued wages Trade credit Commercial paper Accrued taxes









Which of the following has the same meaning as the working capital to financial analyst? Select correct option:

Total assets

Fixed assets

Current assets

Current assets minus current liabilities










Above the breakeven EBIT, increased financial leverage will

Assume there are no taxes

Select correct option: Increase Decrease

Either increase or decrease

None of the given options




EPS, all else the same.









Which of the following is NOT an example of hybrid equity

Select correct option: Convertible Bonds Convertible Debenture Common shares Preferred shares








If we invest in many securities which are overall risk for your investment.

Select correct option: Comparable Correlated

Highly correlated

Negatively correlated




to each other then it is possible to reduce








The objective of financial management is to maximize

Select correct option: Stakeholders Shareholders Bondholders Directors




wealth.










A company whose stock is selling at a P/E ratio greater than the P/E ratio of a market index most

likely has.

Select correct option:

An anticipated earnings growth rate which is less than that of the average firm

A dividend yield which is less than that of the average firm Less predictable earnings growth than that of the average firm Greater cyclicality of earnings growth than that of the average firm









The stock in your portfolio was selling for Rs.40 per share yesterday, but has today declared a three for two split. Which of the following statements seems to be true?

Select correct option:

There will be two-thirds as many shares outstanding, and they will sell for Rs.60.00 each There will be four times as many shares outstanding, and they will sell for Rs.160.00 each There will be 50 percent more shares outstanding and they will sell for Rs.26.67 each





There will be one-and-one-half times as many shares outstanding, and they will sell for

Rs.60.00 each









Under the idealized conditions of MM, which statement is correct when a firm issues new stock in order to pay a cash dividend on existing shares?



Select correct option:

The new shares are worth less than the old shares

The old shares drop in value to equal the new price

The value of the firm is reduced by the amount of the dividend

The value of the firm is unaffected



is the variability of return on stocks or portfolios not explained by general market movements. It is avoidable through diversification.

Select correct option: Systematic risk Standard deviation Unsystematic risk Coefficient of variation



When taxes are considered, the value of a levered firm equals the value of the_ . Select correct option:

Unlevered firm

Unlevered firm plus the value of the debt

Unlevered firm plus the present value of the tax shield

Unlevered firm plus the value of the debt plus the value of the tax shield









Which of the following would be consistent with an aggressive approach to financing working capital?

Select correct option:

Financing short-term needs with short-term funds

Financing permanent inventory buildup with long-term debt

Financing seasonal needs with short-term funds

Financing some long-term needs with short-term funds









Which of the following is the maximum amount of debt (and other fixed-charge financing) that a firm can adequately service?

Select correct option:

Debt capacity

Debt-service burden





Adequacy capacity

Fixed-charge burden









Which of the following terms best applies to the short-term interest rate charged by banks to large, creditworthy customers?

Select correct option:

Discount basis interest rate

Long-term bond rate

Prime rate

Fed funds rate












According to




, the firm's cost of equity increases with greater debt financing, but the




WACC remains unchanged. Select correct option:

M&M Proposition I with taxes M&M Proposition I without taxes M&M Proposition II without taxes M&M Proposition II with taxes









Which of the following is the cash required during a specific period to meet interest expenses and principal payments?

Select correct option: Debt capacity

Debt-service burden Adequacy capacity Fixed-charge burden









What are two major areas of capital budgeting? Select correct option:

Net present value, profitability index

Net present value; internal rate of return

Net present value; payback period

Pay back period; profitability index









A statistical measure of the variability of a distribution around its mean is referred to as

.





Select correct option:









Probability distribution Expected return Standard deviation Coefficient of variation