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Saturday, November 24, 2012

Cost and Management Quiz no 3


Question # 2 of 15 ( Start time: 04:23:14 PM ) Total Marks: 1
A worker is paid Rs. 0.50 per unit and he produces 18 units in 7 hours. Keeping in view the piece rate system, the total wages of the worker would be:
Select correct option:
18 x 7 x 0.50 = Rs. 63
18 x 0.50 = Rs. 9
18 x 7 = Rs. 126
7 x 0.5 = Rs. 3.5

vumba2009.blogspot.com

Question # 3 of 15 ( Start time: 04:24:07 PM ) Total Marks: 1
Which of the following is sales force payroll incentive?
Select correct option:
Commission (see page # 88)
Shift allowance
Over time payment
Bonus


Question # 5 of 15 ( Start time: 04:26:23 PM ) Total Marks: 1
Examples of industries that would use process costing include all of the following EXCEPT:
Select correct option:
Beverages
Food
Hospitality (see page # 131)
Petroleum



Question # 6 of 15 ( Start time: 04:27:33 PM ) Total Marks: 1
Under/Over applied FOH cost can be adjusted in which of the following:
Select correct option:
Entire Production
Cost of Good sold
Net Profit
All of given options

(not 100% sure, but I think option # 4 "All of the given options" is correct)



Question # 7 of 15 ( Start time: 04:28:03 PM ) Total Marks: 1
The Inventory Turn over ration is 5 times and numbers of days in a year is 365.Inventory holding period in days would be
Select correct option:
100 days
73 days
50 days
10 days

Inventory holding period = no. of days in a year/inventory turnover ratio
Question # 8 of 15 ( Start time: 04:28:45 PM ) Total Marks: 1
A method by which the good used are priced out at average cost is known as:
Select correct option:
BCVO
AVCO
c.FIFO
LIFO

(this method is known as weighted average ... and in the above option i think option # 2 "AVCO" should be correct, but anyways verify it... coz it is not LIFO and FIFO.. n i don't know what does BCVO stand for, so AVCO seems most appropriate...


Question # 9 of 15 ( Start time: 04:29:36 PM ) Total Marks: 1
Which of the following is an example of Statutory deductions:
Select correct option:
Deduction as Income Tax (see page # 75)
Deduction as social security
Subscriptions to a trade union
None of the given


Question # 10 of 15 ( Start time: 04:30:05 PM ) Total Marks: 1
The difference over the period of time between actual and applied FOH will usually be minimal when the predetermined overhead rate is based on:
Select correct option:
Normal capacity
Designed capacity
Direct Labor hours
Machine hours


Question # 11 of 15 ( Start time: 04:31:02 PM ) Total Marks: 1
A method by which the first goods to be received are said to be the first to by sold
Select correct option:
LIFO
AVCO
FIFO
WASH



Question # 12 of 15 ( Start time: 04:31:52 PM ) Total Marks: 1
While transporting petrol, a little quantity will be evaporated; such kind of loss is termed as:
Select correct option:
Normal Loss
Abnormal Loss
It is incremental loss
It can not be abnormal loss

(Option # 1 "Normal Loss" should be correct, but again i'm not 100% sure, kindly verify it please)

vumba2009.blogspot.com

Question # 13 of 15 ( Start time: 04:32:24 PM ) Total Marks: 1
All of the following are terms used to denote Factory Overheads EXCEPT:
Select correct option:
Factory burden
Factory expenses
Manufacturing overhead
Conversion costs



Question # 14 of 15 ( Start time: 04:33:24 PM ) Total Marks: 1
Annual requirement is 7800 units; consumption per week is 150 units. Unit price Rs 5, order cost Rs 10 per order. Carrying cost Rs 1 per unit and lead time is 3 week, The Economic order quantity would be:
Select correct option:
395 units
300 units
250 units
150 units


Question # 15 of 15 ( Start time: 04:34:46 PM ) Total Marks: 1
The journal entry of purchse of stock under periodic inventory system would be?
Select correct option:
Inventory to Cash
Cash to Purchases
Purchses to Inventory
None of the given options

(I selected option # 4 "None of the given options"... I'm not 100% sure)

vumba2009.blogspot.com



Mid term past old papers MGT201 Session 2


MIDTERM  EXAMINATION
MGT201- Financial Management (Session - 2)
Question No: 1    ( Marks: 1 )    - Please choose one
 Why companies invest in projects with negative NPV?
       ► Because there is hidden value in each project
       ► Because they have chance of rapid growth
       ► Because they have invested a lot
       ► All of the given options                                                                            
Question No: 2    ( Marks: 1 )    - Please choose one
 Mutually exclusive means that you can invest in _________ project(s) and having chosen ______ you cannot choose another.
       ► One; one
       ► Two; two
       ► Two; one
       ► Three; one
   
Question No: 3    ( Marks: 1 )    - Please choose one
 The weighted average of possible returns, with the weights being the probabilities of occurrence is referred to as __________.
       ►  A probability distribution
       ►  The expected return
       ►  The standard deviation
       ►  Coefficient of variation
Question No: 4    ( Marks: 1 )    - Please choose one
 A set of possible values that a random variable can assume and their associated probabilities of occurrence are referred to as __________
       ►  Probability distribution
       ►  The expected return
       ►  The standard deviation
       ►  Coefficient of variation
Question No: 5    ( Marks: 1 )    - Please choose one
 The present value of growth opportunities (PVGO) is equal to
I)             The difference between a stock's price and its no-growth value per share
II)           The stock's price
III)        Zero if its return on equity equals the discount rate
IV)        The net present value of favorable investment opportunities

       ► I and IV
       ► II and IV
       ► I, III, and IV
       ► II, III, and IV
   
Question No: 6    ( Marks: 1 )    - Please choose one
 Which of the following is CORRECT, if a firm has a required rate of return equal to the ROE?
►The firm can increase market price and P/E by retaining more earnings
►The firm can increase market price and P/E by increasing the growth rate
►The amount of earnings retained by the firm does not affect market price or the P/E
►None of the given options  
Question No: 7    ( Marks: 1 )    - Please choose one
 Which of the following would tend to reduce a firm's P/E ratio?
►The firm significantly decreases financial leverage
►The firm increases return on equity for the long term
►The level of inflation is expected to increase to double-digit levels
►The rate of return on Treasury bills decreases
Question No: 8    ( Marks: 1 )    - Please choose one
 A company whose stock is selling at a P/E ratio greater than the P/E ratio of a market index, most likely has _________.
►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  
Question No: 9    ( Marks: 1 )    - Please choose one
 In the dividend discount model, which of the following is (are) NOT incorporated into the discount rate?
►Real risk-free rate
►Risk premium for stocks
►Return on assets
►Expected inflation rate   
Question No: 10    ( Marks: 1 )    - Please choose one
 The market capitalization rate on the stock of Steel Company is 12%.  The expected ROE is 13% and the expected EPS are Rs. 3.60.  If the firm's plowback ratio is 50%, what will be the P/E ratio?
►7.69
►8.33
►9.09
►11.11  
Question No: 11    ( Marks: 1 )    - Please choose one
 How dividend yield on a stock is similar to the current yield on a bond?
►Both represent how much each security’s price will increase in a year
►Both represent the security’s annual income divided by its price
►Both are an accurate representation of the total annual return an investor can expect to earn by owning the security
►Both incorporate the par value in their calculation  
Question No: 12    ( Marks: 1 )    - Please choose one
 Low Tech Company has an expected ROE of 10%.  The dividend growth rate will be ________ if the firm follows a policy of paying 40% of earnings in the form of dividends.
►6.0%
►4.8%
►7.2%
►3.0%   
Question No: 13    ( Marks: 1 )    - Please choose one
 The value of direct claim security is derived from which of the following?
       ► Fundamental analysis
       ► Underlying real asset
       ► Supply and demand of securities in the market
       ► All of the given options
Question No: 14    ( Marks: 1 )    - Please choose one
 Which of the following value of the shares changes with investor’s perception about the company’s future and supply and demand situation?
       ► Par value
       ► Market value
       ► Intrinsic value
       ► Face value  
Question No: 15    ( Marks: 1 )    - Please choose one
 How efficient portfolios of "N" risky securities are formed?
       ► These are formed with the securities that have the highest rates of return regardless of their standard deviations
       ► They have the highest risk and rates of return and the highest standard deviations
       ► They are selected from those securities with the lowest standard deviations regardless of their returns
       ► They have the highest rates of return for a given level of risk
Question No: 16    ( Marks: 1 )    - Please choose one
 When a bond will sell at a discount?
       The coupon rate is greater than the current yield and the current yield is greater than yield to maturity
       ► The coupon rate is greater than yield to maturity
       ► The coupon rate is less than the current yield and the current yield is greater than the yield to maturity
       ► The coupon rate is less than the current yield and the current yield is less than yield to maturity
Question No: 17    ( Marks: 1 )    - Please choose one
 Which of the following is a characteristic of a coupon bond?
       ► Pays interest on a regular basis (typically every six months)
       ► Does not pay interest on a regular basis but pays a lump sum at maturity
       ► Can always be converted into a specific number of shares of common stock in the issuing company
       ► Always sells at par
Question No: 18    ( Marks: 1 )    - Please choose one
 A coupon bond pays annual interest, has a par value of Rs.1,000, matures in 4 years, has a coupon rate of 10%, and has a yield to maturity of 12%.  What is the current yield on this bond?
       ► 10.65%
       ► 10.45%
       ► 10.95%
       ► 10.52%  
Question No: 19    ( Marks: 1 )    - Please choose one
 If a 7% coupon bond is trading for Rs. 975 it has a current yield of _________ percent.
       ► 7.00
       ► 6.53
       ► 8.53
       7.18
Question No: 20    ( Marks: 1 )    - Please choose one
 Interest rate risk for long term bonds is more than the interest rate risk for short term bonds provided the _________ for the bonds is similar.
       ► Interest rate risk
       ► Market rate
       ► Coupon rate
       ► Inflation rate
Question No: 21    ( Marks: 1 )    - Please choose one
 When market is offering lower rate of return than the bond, the bond becomes valuable, with respect to the given scenario which of the following is correct?
       ► Market interest rate < coupon interest rate, market value of bond is > par value
       ► Market interest rate > coupon interest rate, market value of bond is > par value
       ► Market interest rate < coupon interest rate, market value of bond is < par value
       ► Market interest rate = coupon interest rate, market value of bond is > par value
Question No: 22    ( Marks: 1 )    - Please choose one
 Which of the following affects the price of the bond?
       ► Market interest rate
       ► Required rate of return
       ► Interest rate risk
       ► All of the given options
Question No: 23    ( Marks: 1 )    - Please choose one
 Bond is a type of Direct Claim Security whose value is NOT secured by __________.
       ► Tangible assets
       ► Intangible assets
       ► Fixed assets
       ► Real assets
Question No: 24    ( Marks: 1 )    - Please choose one
  __________ is a long-term, unsecured debt instrument with a lower claim on assets and income than other classes of debt.
       ► A subordinated debenture
       ►  A debenture
       ►  A junk bond
       ►  An income bond
Question No: 25    ( Marks: 1 )    - Please choose one
 A 12% coupon rate, Rs.1,000 par bond currently trades at 90 one year after issuance. Which of the following is the most likely call price?
       ► Rs. 87
       ► Rs. 90
       ► Rs. 102
       ► Rs. 112
Question No: 26    ( Marks: 1 )    - Please choose one
 Which of the following is a legal agreement between the corporation issuing bonds and the bondholders that establish the terms of the bond issue?
       ►  Indenture
       ►  Debenture
       ►  Bond
       ►  Bond trustee
Question No: 27    ( Marks: 1 )    - Please choose one
 Companies and individuals running different types of businesses have to make the choices of the asset according to which of the following?
       ► Life span of the project
       ► Validity of the project
       ► Cost of the capital
       ► Return on asset
Question No: 28    ( Marks: 1 )    - Please choose one
 Which of the following technique would be used for a project that has non-normal cash flows?
       ► Internal rate of return
       ► Multiple internal rate of return
       ► Modified internal rate of return
       ► Net present value
Question No: 29    ( Marks: 1 )    - Please choose one
 Why net present value is the most important criteria for selecting the project in capital budgeting?
       ► Because it has a direct link with the shareholders dividends maximization
       ► Because it has direct link with shareholders wealth maximization
       ► Because it helps in quick judgment regarding the investment in real assets
       ► Because we have a simple formula to calculate the cash flows
Question No: 30    ( Marks: 1 )    - Please choose one
 From which of the following category would be the cash flow received from sales revenue and other income during the life of the project?
       ► Cash flow from financing activity
       ► Cash flow from operating activity
       ► Cash flow from investing activity
       ► All of the given options
Question No: 31    ( Marks: 1 )    - Please choose one
 An investment proposal should be judged in whether or not it provides:
       ► A return equal to the return require by the investor
       ► A return more than required by investor
       ► A return less than required by investor
       ► A return equal to or more than required by investor
Question No: 32    ( Marks: 1 )    - Please choose one
 ABC Co. will earn Rs. 350 million in cash flow in four years from now. Assuming an 8.5% weighted average cost of capital, what is that cash flow worth today?
       ► Rs.253 million  
       ► Rs.323 million 
       ► Rs.380 million
       ► Rs.180 million   
Question No: 33    ( Marks: 1 )    - Please choose one
 An 8-year annuity due has a future value of Rs.1,000.  If the interest rate is 5 percent, the amount of each annuity payment is closest to which of the following?
       ► Rs.109.39
       ► Rs.147.36
       ► Rs.154.73
       ► Rs.99.74   
Question No: 34    ( Marks: 1 )    - Please choose one
 As interest rates go up, the present value of a stream of fixed cash flows _____.
       ► Goes down
       ► Goes up
       ► Stays the same
       ► Can not be found
Question No: 35    ( Marks: 1 )    - Please choose one
 An annuity due is always worth _____ a comparable annuity.
       ► Less than
       ► More than
       ►  Equal to
       ► Can not be found
Question No: 36    ( Marks: 1 )    - Please choose one
 What is the present value of an annuity that pays 100 per year for 10 years if the required rate of return is 7%?
       ► Rs.1000
       ► Rs.702.40
       ► Rs.545.45
       ► Rs.13,816 
Question No: 37    ( Marks: 1 )    - Please choose one
 Which of the following would be considered a cash-flow item from a "financing" activity?
       ►  A cash outflow to the government for taxes
       ►  A cash outflow to repurchase the firm's own common stock
       ►  A cash outflow to lenders as interest
       ►  A cash outflow to purchase bonds issued by another company
Question No: 38    ( Marks: 1 )    - Please choose one
 Which group of ratios relates profits to sales and investment?
       ► Liquidity ratios
       ► Debt ratios
       ► Coverage ratios
       ► Profitability ratios
Question No: 39    ( Marks: 1 )    - Please choose one
 Which of the following statements is the least likely to be correct?
       ► A firm that has a high degree of business risk is less likely to want to incur financial risk
       There exists little or no negotiation with suppliers of capital regarding the financing needs of the firm
       ► Financial ratios are relevant for making internal comparisons
       ► It is important to make external comparisons or financial ratios
Question No: 40    ( Marks: 1 )    - Please choose one
  Which of the following statement (in general) is correct?
       ► A low receivables turnover is desirable
       ► The lower the total debt-to-equity ratio, the lower the financial risk for a firm
       ►  An increase in net profit margin with no change in sales or assets means a weaker ROI
       ► The higher the tax rate for a firm, the lower the interest coverage ratio
Question No: 41    ( Marks: 10 )
 You are a financial analyst for the Hittle Company. The director of capital budgeting has asked you to analyze two proposed capital investments Project X and Project Y. Each project has a cost of Rs. 10,000 and the cost of capital for both projects is 12%. The projects’ expected cash flows are as follows:


Year
Expected net cash flows
Project X
Project Y
0
(10,000)
(10,000)
1
6,500
3,500
2
3,000
3,500
3
3,000
3,500
4
1,000
3,500

i.        Calculate each project’s payback, net present value (NPV), internal rate of return (IRR), and profitability index (PI).
ii.      Which project or projects should be accepted if they are independent?
iii.    Which project should be accepted if they are mutually exclusive?

ANSWER:
1.                  Payback: PROJECT X: Cost of project = Rs. 10,000
            Payback period is the time required by the project to recover its costs.
            Year 1 the project will recover Rs. 6,500
             Year 2 the project will recover Rs 3000
             Year 3 project will recover the remaining Rs. 500 in 1st month of 3rd yr.                                           So payback period for Project X is 2 yrs and 1 month.

PROJECT Y:  Cost of project= Rs 10,000
 Year 1  project will recover Rs 3,500
 Year 2 project will recover Rs 3,500
 Year 3 project will recover remaining Rs 3000 in approximately 11 months of 3rd yr.
So payback period of project Y is 2 yrs and 11 months.
2. Net Present Value:
Project X: Initial investment, I0 = Rs 10,000
                  Cash flow in yr 1, CF1 = Rs 6500
                  Cash flow in yr 2, CF2 = Rs 3000
                  Cash flow in yr 3, CF3 = Rs 3000
                  Cash flow in yr 4, CF­4 = Rs 1000
                  Discount rate, I = 12 %
                  No. of yrs, n = 4
NPV = - I0 +  CF1/(1+i)n + CF2/(1+i)n + CF3/(1+i) n + CF4/(1+i) n

             = -10,000 + 6500/(1.12) + 3000/(1.12)2+ 3000/(1.12)3+ 1000/(1.12)4

         =  Rs 966
Project Y: Initial investment, I0 = Rs 10,000
                  Cash flow in yr 1, CF1 = Rs 3500
                  Cash flow in yr 2, CF2 = Rs 3500
                  Cash flow in yr 3, CF3 = Rs 3500
                  Cash flow in yr 4, CF­4 = Rs 3500
                  Discount rate, I = 12 %
                  No. of yrs, n = 4
NPV = - I0 +  CF1/(1+i)n + CF2/(1+i)n + CF3/(1+i) n + CF4/(1+i) n

             = -10,000 + 3500/(1.12) + 3500/(1.12)2+ 3500/(1.12)3+ 3500/(1.12)4
         =  Rs 631
  1. IRR:  Project X: Put NPV = 0
    NPV = - 10000 +  6500/(1+i) + 3000(1+i)2+ 3000(1+i) 3+ 1000/(1+i) 4
  1. Profitability Index:
Project X: PI= Sum(CFt/(1+i)t)/Io
                      = 10,966/10000 = 1.096
Project Y : PI= Sum(CFt/(1+i)t)/Io
                        = 10631/10000 = 1.0631
Result: Since NPV and PI of project X are higher than that of project Y so Project X will be accepted..

                



MGT201 old paper spring 2010


08MIDTERM  EXAMINATION
Spring 2010
MGT201- Financial Management (Session - 2

Question No: 4    ( Marks: 1 )    - Please choose on
Which of the following investment alternatives would provide the greatest future value for your investment?
       ►  10% compounded daily (360 days)    
         10.5% compounded annually
         10.25% compounded quarterly
         Incomplete information
Question No: 6    ( Marks: 1 )    - Please choose one
A 5-year ordinary annuity has a present value of Rs.1,000.  If the interest rate is 8 percent, the amount of each annuity payment is closest to which of the following?
       ► Rs.250.44
       Rs.231.91
       Rs.181.62
       Rs.184.08
Question No: 7    ( Marks: 1 )    - Please choose one
The basic capital budgeting principles involved in determining relevant after-tax incremental operating cash flows require us to __________.
       Include sunk costs, but ignore opportunity costs
       ► Include opportunity costs, but ignore sunk costs
       Ignore both opportunity costs and sunk costs
       Include both opportunity and sunk costs
Question No: 8    ( Marks: 1 )    - Please choose one
Which of the following technique would be used for a project that has non-normal cash flows?
       Internal rate of return
       ► Multiple internal rate of return
       Modified internal rate of return
       Net present value
 Question No: 9    ( Marks: 1 )    - Please choose one
When coupon bonds are issued, they are typically sold at which of the following value?
       Below par
       Above par value
       ► At or near par value
       At a value unrelated to par
Question No: 10    ( Marks: 1 )    - Please choose one
Which of the following has NO effect when the financial health (cash flows and income) of the company changes with time?
       Market value
       Price of the share
       ► Par value
       None of the given options
Reference:
As the financial health (cash flows and income) of the company changes with time, the Market
Value (or Price) of the Share changes (even though it’s Par Value is fixed).
Question No: 11    ( Marks: 1 )    - Please choose one
The value of dividend is derived from which of the following?
       ► Cash flow streams
       Capital gain /loss
       Difference between buying & selling price
       All of the given options
Question No: 12    ( Marks: 1 )    - Please choose one
Which of 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
       I only
       III only
       ► II and III only
Question No: 13    ( Marks: 1 )    - Please choose one
Diversification can reduce risk by spreading your money across many different _______.
        ►Investments
        ►Markets       
        ►Industries       
        ►All of the given options
Question No: 14    ( Marks: 1 )    - Please choose one
Assume that the expected returns of the portfolios are the same but their standard deviations are given in the options given below, which of the option represent the most risky portfolio according to standard deviation?
►1.5%        
►2.0%        
►3.0%        
►4.0%
Question No: 15    ( Marks: 1 )    - Please choose one
When bonds are issued, under which of the following category the value of the bond appears?
►Equity
►Fixed assets
►Short term loan
                ►Long term loan
Question No: 16    ( Marks: 1 )    - Please choose one
_________ means expanding the number of investments which cover different kinds of stocks.
►Diversification
►Standard deviation       
►Variance       
►Covariance       
Question No: 17    ( Marks: 1 )    - Please choose one
What is the present value of Rs.8,000 to be paid at the end of three years if the interest rate is 11% compounded annually?
                ►Rs.5,850 
►Rs.4,872        
                ►Rs.6,725       
                ►Rs.1,842        
Question No: 18    ( Marks: 1 )    - Please choose one
By summing up the discounted cash flows we can calculate which of the following?
►Liquidation value        
►Intrinsic value
►Book value        
                ►Market value
Question No: 19    ( Marks: 1 )    - Please choose one
Which of the following accounting equation is accurate?
       ► Assets +Equity = Liabilities + Expenses
       ► Assets + Expenses = Liabilities +Expenses + Revenue
       ► Assets + Liabilities = Equity + Expenses + Revenue
       ► Assets + Revenue + Liabilities = Equity
Question No: 20    ( Marks: 1 )    - Please choose one
Which of the following equation can represent income statement in best way?
Profit – Expenses = sales revenue
                ►Sales revenue – Expenses = Profit
Assets + Liabilities= Equity
Sales revenue + Equity = Assets   
Question No: 21    ( Marks: 1 )    - Please choose one
Which of the following is a type of annuity in which no time span is involved?
►Ordinary annuity        
                ►Annuity due
►Perpetuity
►None of the given options
Question No: 22    ( Marks: 1 )    - Please choose one
All of the following are the examples of annuity EXCEPT:
►Mortgage payment        
►Insurance premium       
►Monthly rental payments
                ►Fixed coupon payments
Question No: 23    ( Marks: 1 )    - Please choose one
_________ is the value of bond, which we expect the bond to be.
                ►Fair value
►Book value        
►Market value       
►Maturity value       
   
Question No: 24    ( Marks: 1 )    - Please choose one
YTM is equal to which of the following formula?
►Capital gain + market price
►Present value + interest yield
►Market price + interest yield
                ►Interest yield + capital gain yield
Question No: 25    ( Marks: 1 )    - Please choose one
If there is an increase in a firm’s expected growth rate then it will cause its required rate of return to______.
►Increase
                ►Decrease            
                ►Fluctuate more than before
                ►Possibly increase, decrease, or remain constant
Question No: 26    ( Marks: 1 )    - Please choose one
Which of the following formula could be used to calculate expected rate of return <r>?
       ► Po / Po × P1
       ► P1 + Po / Po
       ► P1 – Po / Po
       ► Po – P1 / Po
Question No: 27    ( Marks: 1 )    - Please choose one
This is an example of which of the following concept?
ABC Corporation’s stock price has fallen because it was not able to meet its production deadlines.
►Market risk       
►Company specific risk                   
►Industry risk        
►Economic risk   
Question No: 28    ( Marks: 1 )    - Please choose one
A proposal is accepted if payback period falls within the time period of 3 years. According to the given criteria, which of the following project is most suitable to accept?

Payback period
Project A
1.66
Project B
2.66
Project C
3.66

       ► Project A
       ► Project B
       ► Project C
       ► Project A & B
Question No: 29    ( Marks: 3 )
By applying Common Life Approach calculate the NPV of the following projects:

Projects           Initial outflow             Inflow Yr 1                  Inflow Yr 2
A                     100                              200                              -
B                      200                              200                              200

Solution:
Project A
NPV=-100+(200-100)/1.1)+200/(1.1)2 = 156
Project B
NPV =-200+200/1.1+200/(1.1)2 = 147
Question No: 30    ( Marks: 3 )
There are two stocks in the portfolio of Mr. N, Stock A and Stock B. the information of this portfolio is as follows:
Common stock
Expected rate of return
Standard deviation
Stock A
15%
10%
Stock B
20%
15%
Calculate the expected rate of return on this portfolio assuming that Stock A consists of 75% of the total funds invested in the stocks and the remainder in Stock B.
Solution:
Apply formula on page 93 of handouts
={(75/100)2(10/100)2+(25/100)2(15/100)2+2((75/100)(25/100)(10/100)(15/100)(.6)}(.5)
=  {(0.5625)(0.01)+(.0625)(0.0225)+2((.75)(.25)(.1)(.15)(.6))}(.5)
=(0.010406)*.5
=0.005203*100
=0.520313%
Question No: 32    ( Marks: 5 )
Hammad Inc. is considering two alternative, mutually exclusive projects. Both projects require an initial investment of Rs. 10,000 and are typical, average-risk projects for the firm. Project A has an expected life of 2 years with after-tax cash inflow of Rs. 6,000 and Rs. 8,000 at the end of year 1 and 2, respectively.
Project B has an expected life of 4 years with after-tax cash inflow of Rs. 4,000 at the end of each of next 4 years. The firm’s cost of capital is 10 percent.
If the projects cannot be repeated, which project will be selected, and what is the net present value?
Solution:
Net Present Value:
Project A: Initial investment, I0 = Rs 10,000
                  Cash flow in yr 1, CF1 = Rs 6000
                  Cash flow in yr 2, CF2 = Rs 8000
                  Discount rate, I = 10 %
                  No. of yrs, n = 4
NPV = - I0 +  CF1/(1+i)n + CF2/(1+i)n + CF3/(1+i) n + CF4/(1+i) n
             = -10,000 + 6000/(1.10) + 8000/(1.12)2
         =  -10,000 + 5454.54 + 6611.57
                = - 10,000 +12066.11
                = 2066.11
Project B: Initial investment, I0 = Rs 10,000
                  Cash flow in yr 1, CF1 = Rs 4000
                  Cash flow in yr 2, CF2 = Rs 4000
                  Cash flow in yr 3, CF3 = Rs 4000
                  Cash flow in yr 4, CF­4 = Rs 4000
                  Discount rate, I = 10 %
                  No. of yrs, n = 4
NPV = - I0 +  CF1/(1+i)n + CF2/(1+i)n + CF3/(1+i) n + CF4/(1+i) n
             = -10,000 + 4000/(1.10) + 4000/(1.10)2+ 4000/(1.10)3+ 4000/(1.10)4
         =  -10,000 + 3636.36 + 3305.8 + 3005.25 + 2732.053
         = -10,000 + 12679.463
         = 2679.463
='� :1sa0� 0� '>  4507.88
Again on 10%, project B is better tha project A.
e pres� c1vl0� 0� tream of fixed cash flows _____.
_ Goes down
_Goes up
_Stays the same
_Can not be found
Reference:
For Example
PV=FV/(1+i)^n
PV=1000/(1+.08)^5
PV=680.58
PV=FV/(1+i)^n
PV=1000/(1+.09)^5
PV=650
Question No: 35 ( Marks: 1 ) - Please choose one
An annuity due is always worth _____ a comparable annuity.
_ Less than
_ More than
_ Equal to
_Can not be found
(It's worth (1+i) times the value of the ordinary annuity with the same terms
Annuity due means you get the money at the beginning of the period, rather than the end, hence the times 1+i value is considered.
Question No: 36 ( Marks: 1 ) - Please choose one
What is the present value of an annuity that pays 100 per year for 10 years if the required rate of return is 7%?
_ Rs.1000
_ Rs.702.40
_ Rs.545.45
_ Rs.13,816
Working
PV = PMT * (1+i)^-n -1/i
Putting the values in formula:
PV=100{1-(1+.07)-10/.07}
=100{1-(1.07)-10/.07}
=100{1-.5083/.07}
=100(0.4916/.07)
=100(7.024)
= Rs.702.40
Question No: 37 ( Marks: 1 ) - Please choose one
Which of the following would be considered a cash-flow item from a "financing" activity?
_ A cash outflow to the government for taxes
_ A cash outflow to repurchase the firm's own common stock
_ A cash outflow to lenders as interest
_ A cash outflow to purchase bonds issued by another company
Question No: 38 ( Marks: 1 ) - Please choose one
Which group of ratios relates profits to sales and investment?
_ Liquidity ratios
_ Debt ratios
_ Coverage ratios
_ Profitability ratios
Question No: 39 ( Marks: 1 ) - Please choose one
Which of the following statements is the least likely to be correct?
_A firm that has a high degree of business risk is less likely to want to incur financial risk
_ There exists little or no negotiation with suppliers of capital regarding the financing needs of the firm
_Financial ratios are relevant for making internal comparisons
_It is important to make external comparisons or financial ratios
Question No: 40 ( Marks: 1 ) - Please choose one
Which of the following statement (in general) is correct?
_ A low receivables turnover is desirable
_The lower the total debt-to-equity ratio, the lower the financial risk for a firm
_ An increase in net profit margin with no change in sales or assets means a weaker
ROI
_The higher the tax rate for a firm, the lower the interest coverage ratio
(low or declining accounts receivable turnover ratio indicates a collection problem, part of which may be due to bad debts. A low receivables turnover ratio means that the business should reexamine its credit policies to ensure the timely collection of imparted credit, which will help in earning interest for the firm.)
Question No: 1 ( Marks: 1 ) - Please choose one
Among the pairs given below select a(n) example of a principal and a(n) example of an agent respectively.
_ Shareholder; manager
_ Manager; owner
_ Accountant; bondholder
_ Shareholder; bondholder

                         

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