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Quiz 10
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Q.1
Which of the following is the expression for operating leverage?
Contribution/EBIT
EBT/Contribution
Contribution/EAT
Contribution/Quantity
Q.2
The material wealth of a society is equal to the sum of _________.
all financial assets
all real assets
all financial and real assets
all physical assets
Q.3
Present value of future cash flows is divided by an initial cost of project to calculate
negative index
exchange index
project index
profitability index
Q.4
If net present value is positive then profitability index will be
greater than two
equal to
less than one
greater than one
Q.5
Cash flows occurring with more than one change in sign of cash flow are classified as
non-normal cash flow
normal cash flow
normal costs
non-normal costs
Q.6
Degree of total leverage can be applied in measuring change in _________.
EBIT to a percentage change in quantity
EPS to a percentage change in EBIT
EPS to a percentage change in quantity
Quantity to a percentage change in EBIT
Q.7
Investors can normally afford to assume larger risks in the ____ phase of the life- cycle.
accumulation
consolidation
spending
gifting
Q.8
Sum of discounted cash flows is best defined as
technical equity
defined future value
project net present value
equity net present value
Q.9
Life that maximizes net present value of an asset is classified as
minimum life
present value life
economic life
transaction life
Q.10
Which of the following short term securities is inappropriate for an individual, desiring funds for financial emergencies?
treasury bills
certificates of deposit
financial futures
savings accounts
Q.11
Operating Leverage is the response of changes in __________
EBIT to the changes in sales
EPS to the changes in EBIT
Production to the changes in sales
None of the above
Q.12
_______ is example of financial intermediaries.
Commercial banks
Investment bank
Insurance companies
All of the above
Q.13
First step in calculation of net present value is to find out
present value of equity
future value of equity
present value cash flow
future value of cash flow
Q.14
Situation in which one project is accepted while rejecting another project in comparison is classified as
present value consent
mutually exclusive
mutual project
mutual consent
Q.15
The measure of business risk is __________.
operating leverage
financial leverage
total leverage
working capital leverage
Q.16
__________ is the most important investment decision because it determines the risk-return characteristics of the portfolio.
Hedging
Market timing
Performance measurement
Asset allocation
Q.17
The value of EBIT at which EPS is equal to zero is known as ____________.
Break-even point
Financial break-even point
Operating break-even point
Overall break-even point
Q.18
If two independent projects having hurdle rate then both projects should
be accepted
not be accepted
have capital acceptance
have return rate acceptance
Q.19
Walters model on dividend policy assumes that.
the firm offers an increasing amount of dividend per share at a given level of price per share
the firm has a finite life
the cost of capital of the firm is variable
equal to current assets plus current liabilities including bank borrowings
Q.20
Project whose cash flows are sufficient to repay capital invested for rate of return then net present value will be
negative
zero
positive
independent
Q.21
Present value of future cash flows is Rs 2000 and an initial cost is Rs 1100 then profitability index will be
55.00%
1.82
0.55
1.82%
Q.22
Cash outflows are costs of project and are represented by
negative numbers
positive numbers
hurdle number
relative number
Q.23
In capital budgeting, two projects who have cost of capital as 12% is classified as
hurdle rate
capital rate
return rate
budgeting rate
Q.24
Profitability index in capital budgeting is used for
negative projects
relative projects
evaluate projects
earned projects
Q.25
A point where profile of net present value crosses horizontal axis at plotted graph indicates project
costs
cash flows
internal rate of return
external rate of return
Q.26
Modified rate of return and modified internal rate of return with exceed cost of capital if net present value is
positive
negative
zero
one
Q.27
Payback period in which an expected cash flows are discounted with help of project cost of capital is classified as
discounted payback period
discounted rate of return
discounted cash flows
discounted project cost
Q.28
In alternative investments, constant cash flow stream is equal to initial cash flow stream in approach which is classified as
greater annual annuity method
equivalent annual annuity
lesser annual annuity method
zero annual annuity method
Q.29
Number of years forecasted to recover an original investment is classified as
payback period
forecasted period
original period
investment period
Q.30
In capital budgeting, term of bond which has great sensitivity to interest rates is
long-term bonds
short-term bonds
internal term bonds
external term bonds
Q.31
Process in which managers of company identify projects to add value is classified as
capital budgeting
cost budgeting
book value budgeting
equity budgeting
Q.32
In capital budgeting, number of non-normal cash flows have internal rate of returns are
one
multiple
accepted
non-accepted
Q.33
An internal rate of return in capital budgeting can be modified to make it representative of
relative outflow
relative inflow
relative cost
relative profitability
Q.34
Situation in which firm limits expenditures on capital is classified as
optimal rationing
capital rationing
marginal rationing
transaction rationing
Q.35
Other factors held constant, greater project liquidity is because of
less project return
greater project return
shorter payback period
greater payback period
Q.36
In calculation of internal rate of return, an assumption states that received cash flow from project must
be reinvested
not be reinvested
be earned
not be earned
Q.37
An uncovered cost at start of year is divided by full cash flow during recovery year then added in prior years to full recovery for calculating
original period
investment period
payback period
forecasted period
Q.38
In cash flow analysis, two projects are compared by using common life is classified as
transaction approach
replacement chain approach
common life approach
Both B and C
Q.39
Other factors held constant, but lesser project liquidity is because of
shorter payback period
greater payback period
less project return
greater project return
Q.40
In internal rate of returns, discount rate which forces net present values to become zero is classified as
positive rate of return
negative rate of return
external rate of return
internal rate of return
Q.41
Projects which are mutually exclusive but different on scale of production or time of completion then the
external return method
net present value of method
net future value method
internal return method
Q.42
Graph which is plotted for projected net present value and capital rates is called
net loss profile
net gain profile
net future value profile
net present value profile
Q.43
In capital budgeting, a negative net present value results in
zero economic value added
percent economic value added
negative economic value added
positive economic value added
Q.44
A discount rate which equals to present value of TV to project cost present value is classified as
negative internal rate of return
modified internal rate of return
existed internal rate of return
relative rate of return
Q.45
Initial cost is Rs 5000 and probability index is 3.2 then present value of cash flows is
Rs 8,200.00
Rs 16,000.00
Rs 10,000.00
Rs 1,562.50
Q.46
A project which have one series of cash inflows and results in one or more cash outflows is classified as
abnormal costs
normal cash flows
abnormal cash flow
normal costs
Q.47
In capital budgeting, an internal rate of return of project is classified as its
external rate of return
internal rate of return
positive rate of return
negative rate of return
Q.48
A modified internal rate of return is considered as present value of costs and is equal to
PV of hurdle rate
FV of hurdle rate
PV of terminal value
FV of terminal value
Q.49
Set of projects or set of investments usually maximize firm value is classified as
optimal capital budget
minimum capital budget
maximum capital budget
greater capital budget
Q.50
An uncovered cost at start of year is Rs 300, full cash flow during recovery year is Rs 650 and prior years to full recovery is 4 then payback would be
3.46 years
2.46 years
5.46 years
4.46 years
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