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Business finance

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Question No: 1

The overall (weighted average) cost of capital is composed of a weighted average of :
a)The cost of common equity and the cost of debt
b)The cost of common equity and the cost of preferred stock
c)The cost of preferred stock and the cost of debt
d)The cost of common equity, the cost of preferred stock, and the cost of debt

Question No: 2
Which of the following is a characteristic of preferred stock?
a)These stocks have not stated liquidating value
b)Dividends on these stocks can be cumulative
c)These stocks hold credit ratings quite different from bonds
d)These stocks have not any kind of priority over common stocks

Question No: 3
Mr. A, as a financial consultant, has prepared a feasibility report of a project for XYZ Company that the company is planning to undertake. He has suggested that the project is feasible. The consultancy fee paid to Mr. A will be considered as:
a)Sunk cost
b)Opportunity cost
c)Both sunk cost and opportunity cost
d)Neither sunk cost nor opportunity cost
Question No: 4
One would be indifferent between taking and not taking the investment when:
a)NPV is greater than Zero
b)NPV is equal to Zero
c)NPV is less than Zero
d)All of the given options
Question No: 5
Which of the following is a measure of accounting profit relative to book value?
a)Net Present Value
b)Profitability Index
c)Internal Rate of Return
d)Average Accounting Return
Question No: 6
Which of the following M&M propositions states that it is completely irrelevant how a firm chooses to arrange its finances ?
a)1st proposition
b)2nd proposition
c)3rd proposition
d)None of the given options

Question No: 7
According to 2nd M&M proposition, cost of equity does NOT depend upon which of the following ?
a)The required return of firm s assets
b)The firm s cost of debt
c)The firm s stockholders
d)The firm s debt-equity ratio

Question No: 8
Mr. Sami has bought 50 shares of a corporation one year ago at Rs. 20 per share.Over the last year, you received a dividend of Rs. 2 per share. At the end of theyear, the stock sells for Rs. 25. If Mr. Sami sells the stock at the end of the year,what will be his total cash inflow ?
Rs. 100
Rs. 250
Rs. 1,000
Rs. 1,350

Question No: 9
While performing the feasibility analysis for a project, an operating cash flow of Rs. 250,000 has been calculated. Net working capital has increased by Rs. 50,000.There was no capital spending during the year. What will be the total cash flow for the project?
Rs. 170,000
Rs. 200,000
Rs. 215,000
Rs. 230,000

Question No: 10
Autos & computers are included in which of the following MACRS property class?
None of the given options

Question No: 11
The next dividend for a company is Rs. 5 per share. The stock current price is Rs. 50 per share. What will be the cost of capital if the dividends are estimated to grow steadily at 5%?

Question No: 12
Trade credit is more likely to be granted if:
a)The selling firm has a cost advantage over other lenders
b)The selling firm can engage in price discrimination
c)The selling firm can obtain favorable tax treatment
d)All of the given options

Question No: 13
Which one of the following motives refers to the need for holding cash to satisfy normal disbursement and collection activities associated with a firm s ongoing operations?
a)Speculative motive
b)Transaction motive
c)Precautionary motive
d)Personal motive

Question No: 14
What would be the standard deviation of returns for an investment that has a variance of 0.008 ?

Question No: 15
Which of the following statement is INCORRECT regarding financial leverage ?
a)Financial leverage can dramatically alter the payoffs to the shareholders.
b)Financial leverage refers to the extent to which a firm relies on the debt.
c)Financial leverage must affect the overall cost of capital in any condition.
d)Financial leverage may not affect the overall cost of capital.

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