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Quiz 11
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Q.1
A project whose cash flows are more than capital invested for rate of return then net present value will be
positive
independent
negative
zero
Q.2
In mutually exclusive projects, project which is selected for comparison with others must have
higher net present value
lower net present value
zero net present value
all of above
Q.3
Relationship between Economic Value Added (EVA) and Net Present Value (NPV) is considered as
valued relationship
economic relationship
direct relationship
inverse relationship
Q.4
If retention rate is 0.68 then payout rate will be
1.47
1.68
0.32
0.68
Q.5
Cost of common stock is 15% and bond yield is 10.5% then bond risk premium will be
1.43%
8.50%
25.50%
4.50%
Q.6
Cost of equity which is raised by reinvesting earnings internally must be higher than the
cost of initial offering
cost of new common equity
cost of preferred equity
cost of floatation
Q.7
Dividend per share is Rs 15 and sell it for Rs 120 and floatation cost is Rs 3.0 then component cost of preferred stock will be
12.82 times
0.1282 times
12.82%
Rs 12.82
Q.8
In independent projects evaluation, results of internal rate of return and net present value lead to
cash flow decision
cost decision
same decisions
different decisions
Q.9
An interest rate which is paid by firm as soon as it issues debt is classified as pre-tax
term structure
market premium
risk premium
cost of debt
Q.10
Beta which is estimated as regression slope coefficient is classified as
historical beta
market beta
coefficient beta
risky beta
Q.11
Capital budgeting decisions are analyzed with help of weighted average and for this purpose
component cost is used
common stock value is used
cost of capital is used
asset valuation is used
Q.12
An uncovered cost at start of year is Rs 200, full cash flow during recovery year is Rs 400 and prior years to full recovery is 3 then payback would be
5 years
3.5 years
4 years
4.5 years
Q.13
In capital budgeting, positive net present value results in
negative economic value added
positive economic value added
zero economic value added
percent economic value added
Q.14
In pure play method, a company can calculate its own cost of capital with help of averaging an
other company capital policy
other company beta
other company cost
other division cost
Q.15
Type of cost which is used to raise common equity by reinvesting internal earnings is classified as
cost of mortgage
cost of common equity
cost of stocks
cost of reserve assets
Q.16
If future return on common stock is 19% and rate on T-bonds is 11% then current market risk premium will be
Rs 30.00
30.00%
8.00%
Rs 8.00
Q.17
In weighted average cost of capital, capital components are funds that usually offer by
stock market
investors
capitalist
exchange index
Q.18
Cost which is used to calculate weighted average cost of capital is classified as
weighted cost of capital
component cost of preferred stock
transaction cost of preferred stock
financing of preferred stock
Q.19
Special situation in which large projects are financed by with and securities claims on project's cash flow is classified as
claimed securities
project financing
stock financing
interest cost
Q.20
Forecast by analysts, retention growth model and historical growth rates are methods used for an
estimate future growth
estimate option future value
estimate option present value
estimate growth ratio
Q.21
Premium which is considered as difference of expected return on common stock and current yield on Treasury bonds is called
current risk premium
past risk premium
beta premium
expected premium
Q.22
A formula of after-tax component cost of debt is
interest rate-tax savings
marginal tax-required return
interest rate + tax savings
borrowing cost + embedded cost
Q.23
Historical growth rates, analysis forecasts and retention growth model are approaches to estimate
present value of gain
growth rate
growth gain
discounted gain
Q.24
A risk associated with project and way considered by well diversified stockholder is classified as
expected risk
beta risk
industry risk
returning risk
Q.25
Cost of common stock is 13% and bond risk premium is 5% then bond yield would be
20.00%
2.60%
8.00%
18.00%
Q.26
Method in which company finds other companies considered in same line of business to evaluate divisions is classified as
pure play method
same play method
division line method
single product method
Q.27
Bond risk premium is added in to bond yield to calculate the
cost of American option
cost of European option
cost of common stock
cost of preferred stock
Q.28
Cost of capital is equal to required return rate on equity in case if investors are only
valuation manager
common stockholders
asset seller
equity dealer
Q.29
Interest rate is 12% and tax savings (1-0.40) then after-tax component cost of debt will be
7.20%
7.40%
17.14%
17.24%
Q.30
Retention ratio is 0.60 and return on equity is 15.5% then growth retention model would be
14.90%
25.84%
16.10%
9.30%
Q.31
In uneven cash flow, 'IRR' is an abbreviation of an
internal rate of return
international rate of return
intrinsic rate of return
investment return rate
Q.32
A company who issues bonds or stocks in result raised funds which finally
increases liabilities
increases equity
increases cash
decreases cash
Q.33
During planning period, a marginal cost for raising a new debt is classified as
debt cost
relevant cost
borrowing cost
embedded cost
Q.34
Risk free rate is subtracted from expected market return is considered as
country risk
diversifiable risk
equity risk premium
market risk premium
Q.35
Type of variability in which a project contributes in return of company is considered as
variable risk
within firm risk
corporate risk
Both B and C
Q.36
Rate of required return by debt holders is used for estimation the
cost of debt
cost of equity
cost of internal capital
cost of reserve assets
Q.37
In weighted average cost of capital, cost of capital which is risk adjusted and developed for each category of
long-term projects
industry [industrial] projects
divisional projects
short-term projects
Q.38
In retention growth model, payout ratio is subtracted from one to calculate
present value ratio
future value ratio
retention ratio
growth ratio
Q.39
Variability for expected returns for projects is classified as
expected risk
stand-alone risk
variable risk
returning risk
Q.40
Cost of common stock is 16% and bond yield is 9% then bond risk premium would be
7.00%
9.00%
1.78%
25.00%
Q.41
Future value of annuity FVA(due) is, if deposited value is Rs 100 and earn 5% every year of total three years will be
Rs 99.49
Rs 318.25
Rs 315.25
Rs 331.01
Q.42
Total common equity Rs 996,000,000 and shares outstanding 50,000,000 then book value per share would be
Rs 0.05
Rs 15.00
Rs 19.92
Rs 14.00
Q.43
Total amount of depreciation charged on long term assets is classified as
accumulated depreciation
depleted depreciation
accumulated appreciation
accumulated appreciation schedule
Q.44
Finance company providing loans at 3% with five compounding periods per year, nominal annual rate is classified as
15.00%
0.60%
10.00%
1.67%
Q.45
Values of assets purchased or liabilities recorded as recorded by bookkeepers are considered as
appreciated values
depreciated values
market values
book values
Q.46
A stock which is hybrid and works as a cross between debt and common stock is considered as
hybrid stock
common liabilities
debt liabilities
preferred stock
Q.47
If deposited money Rs 10,000 in bank pays interest 10% annually, an amount after five years will be
Rs 16,105.14
Rs 16,110.14
Rs 16,115.14
Rs 16,505.14
Q.48
Student loans, mortgages and car loans are examples of
lump sum amount
deferred annuity
annuity due
payment fixed series
Q.49
An annuity with an extended life is classified as
extended life
perpetuity
deferred perpetuity
due perpetuity
Q.50
Stock selling price is Rs 45, an expected dividend is Rs 10 and an expected growth rate is 8% then cost of common stock would be
55.00%
35.00%
30.00%
30.22%
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