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Quiz 8
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Q.1
Price per ratio is divided by cash flow per share ratio which is used for calculating
dividend to stock ratio
sales to growth ratio
cash flow to price ratio
price to cash flow ratio
Q.2
Falling interest rate leads change to bondholder income which is
reduction in income
increment in income
matured income
frequent income
Q.3
Bonds issued by corporations and exposed to default risk are classified as
corporation bonds
default bonds
risk bonds
zero risk bonds
Q.4
An analysis and estimation of cash flows include
input data and key output
depreciation schedule
net salvage values
all of above
Q.5
Second mortgages pledged against bond's security are referred as
loan mortgages
medium mortgages
senior mortgages
junior mortgages
Q.6
Relevant cash flow which company expects when its will implement project is classified as
irrelevant cash flow
relevant cash flow
incremental cash flow
decrease cash flow
Q.7
Free cash flow is Rs 12000, an operating cash flow is Rs 4000, an investment outlay cash flow is Rs 5000 then salvage cash flow would be
-Rs 21,000.00
Rs 21,000.00
-Rs 3,000.00
Rs 3,000.00
Q.8
Real rate expected cash flows and nominal rate expected cash flows must be
accelerated
equal
different
inflated
Q.9
Double declining balance method and sum of years digits are included in
yearly method
single methods
double methods
accelerated methods
Q.10
Free cash flow is Rs 15000 and net investment in operating capital is Rs 9000 then net operating profit after taxes will be
Rs 24,000.00
Rs 6,000.00
-Rs 6,000.00
-Rs 24,000.00
Q.11
In cash flow estimation, depreciation is considered as
cash charge
noncash charge
cash flow discounts
net salvage discount
Q.12
An investment outlay cash flow is Rs 4000, operating cash flow is Rs 1000 and salvage cash flow is Rs 5000 then free cash flow would be
Rs 10,000.00
Rs 8,000.00
Rs 0.00
none of above
Q.13
Rate of return which is required to satisfy stockholders and debt holders is classified as
weighted average cost of interest
weighted average cost of capital
weighted average salvage value
mean cost of capital
Q.14
Net present value, profitability index, payback and discounted payback are methods to
evaluate cash flow
evaluate projects
evaluate budgeting
evaluate equity
Q.15
Required increasing in current assets and an increasing in current liabilities is subtracted to calculate
change in net working capital
change in current assets
change in current liabilities
change in depreciation
Q.16
Net investment in operating capital is Rs 5000 and net operating profit after taxes is Rs 8000 then free cash flow would be
Rs 13,000.00
-Rs 3,000.00
Rs 3,000.00
-Rs 13,000.00
Q.17
Situation in which new business reduces an existing business of firm is classified as
non-cannibalization effect
cannibalization effect
external effect
internal effect
Q.18
Treasury bonds are exposed to additional risks that are included
reinvestment risk
interest rate risk
investment risk
Both A and B
Q.19
If bond's call provision is practiced in first year of issuance then an additional payment is classified as
issuance provision
bond provision
call provision
First provision
Q.20
Long period of bond maturity leads to
more price change
stable prices
standing prices
mature prices
Q.21
Cash flows that should be considered for decision in hand are classified as
relevant cash flows
irrelevant cash flows
marginal cash flows
transaction cash flows
Q.22
Nominal interest rates and nominal cash flows are usually reflected the
inflation effects
opportunity effects
equity effects
debt effects
Q.23
Free cash flow is Rs 15000, operating cash flow is Rs 3000, investment outlay cash flow is Rs 5000 then salvage cash flow will be
Rs 17,000.00
-Rs 17,000.00
Rs 7,000.00
-Rs 7,000.00
Q.24
Net operating profit after taxes is Rs 4500, net investment in operating capital is Rs 8500 and then free cash flow would be
-Rs 4,000.00
Rs 4,000.00
-Rs 18,000.00
Rs 18,000.00
Q.25
Net investment in operating capital is subtracted from net operating profit after taxes to calculate
relevant inflows
free cash flow
relevant outflows
cash outlay
Q.26
Net investment in operating capital is Rs 7000 and net operating profit after taxes is Rs 11,000 then free cash flow will be
-Rs 18,000.00
Rs 18,000.00
-Rs 4,000.00
Rs 4,000.00
Q.27
Free cash flow is Rs 17000 and net investment in operating capital is Rs 10000 then net operating profit after taxes would be
Rs 7,000.00
Rs 27,000.00
-Rs 27,000.00
-Rs 7,000.00
Q.28
An investment outlay cash flow is Rs 2000, an operating cash flow is Rs 1500 and salvage cash flow is Rs 3000 then free cash flow would be
Rs 500.00
Rs 2,500.00
Rs 650.00
Rs 6,500.00
Q.29
Cash flows that could be generated from an owned asset by company but not use in project are classified as
occurred cost
mean cost
opportunity costs
weighted cost
Q.30
In capital budgeting, cost of capital is used as discount rate and is based on pre-determines
cost of inflation
cost of debt and equity
cost of opportunity
cost of transaction
Q.31
Economists consider effects of started project on other parts of company or on environment of company is called
externalities
foreign effects
weighted effects
opportunity effects
Q.32
In cash flow estimation and risk analysis, real rate will be equal to nominal rate if there is
no inflation
high inflation
no transactions
no acceleration
Q.33
In cash flow estimation, depreciation shelters company's income from
expansion
salvages
taxation
discounts
Q.34
Weighted average cost of debt, preferred stock and common equity is classified as
cost of salvage
cost of interest
cost of taxation
cost of capital
Q.35
Project which is started by firm for increasing sales is classified as
new expansion project
old expanded project
firm borrowing project
product line selection
Q.36
In large expansion programs, increased riskiness and floatation cost associated with project can cause
rise in marginal cost of capital
fall in marginal cost of capital
rise in transaction cost of capital
rise in transaction cost of capital
Q.37
Cash inflows are revenues of project and are represented by
hurdle number
relative number
negative numbers
positive numbers
Q.38
Mr. A is a daring portfolio manager. He wants to increase the return in his portfolio. He should choose stocks from_______________.
defensive industry
industry at a growth stage
industry in the maturity period
industry with more export potential
Q.39
Which of the following is not an assumption in Miller and Modigliani approach?
There are no corporate or personal income tax
Investors are assumed to be rational and behave accordingly
There is no corporate tax though there are personal income tax
Capital markets are perfect
Q.40
________________ factors lead to activity of stock market.
Money supply
Per capita income
Unemployment rate
Manufacturing and Trade
Q.41
Present value of future cash flows is Rs 4150 and an initial cost is Rs 1300 then profitability index will be
3.00%
3.19
0.31 times
Rs 5,450.00
Q.42
Project whose cash flows are less than capital invested for required rate of return then net present value will be
negative
zero
positive
independent
Q.43
Which of the following is / are assumption behind the realized yield approach?
The yield earned by investors has been, on average, in conformity with their expectations
The dividends will continue growing at a constant rate forever
The market price will continue growing at a constant rate forever
Both a and b
Q.44
A type of project whose cash flows would not depend on each other is classified as
project net gain
independent projects
dependent projects
net value projects
Q.45
Which of the following is not a feature of an optimal capital structure?
Safety
Flexibility
Control
Solvency
Q.46
While calculating weighted average cost of capital _________.
Preference shares are given more weight age
Cost of issue is considered
Tax factor is ignored
Risk factor is ignored
Q.47
One reason for the declining importance of pension funds is the_______________.
decrease in pension benefits for workers
downsizing of US companies
large number of conversions into self-directed plans
increasing number of federal regulations that restrict pension fund portfolios
Q.48
Under which of the following approaches cost of equity capital is assumed to be constant with the change in leverage?
Net income approach
Modigliani and Miller approach
Net operating income approach
Traditional approach
Q.49
Most financial advisors are registered with the Securities and Exchange Commission as_______________.
registered representatives
registered investor advisors
registered financial planners
registered securities consultants
Q.50
EBIT means _____________.
Operating Income
Operating Profit
Earnings before interest and tax
All of the above
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