'Judicious use of leverage' is suggested by:
1.Net Income Approach
2.Net Operating Income Approach
3.Traditional Approach
4.All of the above
A bond issue should be refunded when:
1.bondholders desire the return of their funds
2.it is too expensive to issue additional common stock
3.interest rates drop and you believe they will increase again
4.the existing bonds contain no call provision
A firm has Capital of 10,00,000; Sales of 5,00,000; Gross Profit of. 2,00,000 and Expenses of. 1,00,000. What is the Net Profit Ratio?
1.20%
2.50%
3.10%
4.40%
A firm has EBIT of. 50,000. Market value of debt is. 80,000 and overall capitalization rate is 20%. Market value of firm under NOI Approach is:
1.2,50,000
2.1,70,000
3.30,000
4.1,30,000
A firm with a tax loss carryforward:
1.is able to reduce their taxes for previous years
2.provides a tax motive and a cash flow opportunity for an acquiring firm
3.allows tax payments to be carried forward to the next year
4.is not a good merger target because they are unprofitable
A series of consecutive cash flows of equal amounts is known as:
1.a present value
2.a compound sum
3.a present sum
4.an annuity
All income not paid out to creditors or preferred shareholders:
1.is paid out as common stock dividends
2.is paid out as common stock dividends
3.automatically belongs to common shareholders
4.is subject to a higher federal income tax rate
All of the following are key dates associated with the declaration of a dividend except:
1.the ex-dividend date
2.the holder of record date
3.the payment date
4.the dividend receipt date
Cost of Equity Share Capital is more than cost of debt because:
1.Face value of debentures is more than face value of shares
2.Equity shares have higher risk than debt
3.Equity shares are easily saleable
4.All of the three above
Cost of Redeemable Preference Share Capital is:
1.Rate of Dividend
2.After Tax Rate of Dividend
3.Discount Rate that equates PV of inflows and out-flows relating to capital
4.None of the above
Debt Financing is a cheaper source of finance because of:
1.Time Value of Money
2.Rate of Interest
3.Tax-deductibility of Interest
4.Dividends not Payable to lenders
Financial Leverage arises because of:
1.Fixed cost of production
2.Variable Cost
3.Interest Cost
4.None of the above
FL is zero if:
1.EBIT = Interest
2.EBIT = Zero
3.EBIT = Fixed Cost
4.EBIT = Pref. Dividend
Higher OL is related to the use of higher:
1.Debt
2.Equity
3.Fixed Cost
4.Variable cost
If a firm repurchases it own stock:
1.in theory, the action is equivalent to paying cash dividends
2.the price of the stock is lowered into a more popular trading range
3.shareholders benefit less than with a stock split
4.shareholders benefit less than with a stock dividend
If there is no inflation during a period, then the Money Cashflow would be equal to:
1.Present Value
2.Real Cash flow
3.Real Cash flow + Present Value
4.Real Cash flow - Present Value
In capital budgeting, the term Capital Rationing implies:
1.That no retained earnings available
2.That limited funds are available for investment
3.That no external funds can be raised
4.That no fresh investment is required in current year
In case of Net Income Approach, when the debt proportion is increased, the cost of debt:
1.Increases
2.Decreases
3.Constant
4.None of the above
Indifference Level of EBIT is one at which:
1.EPS is zero
2.EPS is Minimum
3.EPS is highest
4.None of these
Marginal cost of capital is the cost of:
1.Additional Sales
2.Additional Funds
3.Additional Interests
4.None of the above
Money Discount Rate if equal to:
1.(1 + Inflation Rate) (1 + Real Rate)-1
2.(1 + Inflation Rate) 4- (1 + Real Rate)-1
3.(1 + Real Rate) 4- (1 + Inflation Rate)-1
4.(1 + Real Rate) + (1 + Inflation Rate)-1
Operating leverage works when:
1.Sales Increases
2.Sales Decreases
3.Both (a) and (b)
4.None of (a) and (b)
Perhaps the biggest change of all in the investment industry has been:
1.the consolidation of financial resources among a few large firms
2.the acquisition of retail brokerage firms
3.the increase in bond underwriting
4.the increasing generalization of investment firms
Preferred stock may be justified in that it:
1.expands the capital base without diluting common equity
2.it is lower cost source of financing than debt
3.dividends are tax-deductible
4.really has no justification
Return on Investment may be improved by:
1.Increasing Turnover
2.Reducing Expenses
3.Increasing Capital Utilization
4.All of the above
Rights, warrants and convertible securities behave like call options but are different from call options because:
1.they do not trade in a financial market
2.they are used by the firm to raise money
3.they do not trade at a speculative premium
4.they are less risky
The appropriate objective of an enterprise is;
1.Maximisation of sale
2.Maximisation of owners wealth
3.Maximisation of profits.
4.None of these
The cash purchase of another company may best be viewed as:
1.a necessary growth strategy
2.a capital budgeting problem
3.a cash budgeting problem
4.an undesirable alternative
The document containing all of the legal details of the bond is:
1.the debenture
2.the indenture
3.the bond agreement
4.the debt agreement
The main factor influencing foreign exchange rates is:
1.the supply and demand relationship
2.domestic policies
3.foreign government policies
4.banking activities
The market required rate of return depends on:
1.the present value of future cash flows
2.the market's perceived level of risk associated with the individual security
3.the yield to maturity
4.the valuation of the financial asset
The portfolio effect analyzes:
1.the return on the portfolio
2.the risk of the portfolio
3.the impact of a given investment on the overall risk level
4.none of the above are correct
The speculative premium of a warrant is equal to
1.warrant price-intrinsic value
2.intrinsic value-warrant price
3.(Market Value of Common Stock-Warrant Option Price) X Number of Shares per warrant
4.the minimum value
The two most important measures of risk are:
1.the variance and standard deviation
2.the expected value and standard deviation
3.the arithmetic mean and variance
4.the arithmetic mean and standard deviation
The yield to maturity on a bond:
1.is determined by government regulations
2.equates principal and interest payments to the price of the bond
3.is constant with varying maturities
4.tends to move inversely with share prices
To an investor, the most desirable compounding period is:
1.Annually
2.semi-annually
3.monthly
4.daily
Under a leveraged buy-out scenario, all of the following are true except:
1.a public firm is taken private
2.cash is borrowed to finance the purchase
3.equity is usually sold to pay off the debt
4.a corporate restructuring normally follows
Walter’s Model suggests for 100% DP Ratio when
1.ke = r
2.ke < r
3.ke > r
4.ke = 0
Which of the following argues that the value of levered firm is higher than that of the unlevered firm?
1.Net Income Approach
2.Net Operating Income Approach
3.MM Model with taxes
4.Both (a) and (c)
Which of the following does not effect cash flows proposal?
1.Salvage Value
2.Depreciation Amount
3.Tax Rate Change
4.Method of Project Financing
Which of the following helps analysing return to equity Shareholders?
1.Return on Assets
2.Earnings Per Share
3.Net Profit Ratio
4.Return on Investment
Which of the following is a risk factor in capital budgeting?
1.Industry specific risk factors
2.Competition risk factors
3.Project specific risk factors
4.All of the above
Which of the following is not a relevant factor m EPS Analysis of capital structure?
1.Rate of Interest on Debt
2.Tax Rate
3.Amount of Preference Share Capital
4.Dividend paid last year
Which of the following is not applied in capital budgeting?
1.Cash flows be calculated in incremental terms
2.All costs and benefits are measured on cash basis
3.All accrued costs and revenues be incorporated
4.All benefits are measured on after-tax basis
Which of the following is not true for MM Model?
1.Share price goes up if dividend is paid
2.Share price goes down if dividend is not paid
3.Market value is unaffected by Dividend policy
4.All of the above
Which of the following is not used in Capital Budgeting?
1.Time Value of Money
2.Sensitivity Analysis
3.Net Assets Method
4.cash flows.
Which of the following sources of funds has an Implicit Cost of Capital?
1.Equity Share Capital
2.Preference Share Capital
3.Debentures
4.Retained earnings
Which of the following statements about securities markets is incorrect:
1.they aid in the allocation of capital
2.they provide liquidity to investors
3.securities are initially placed in the secondary market
4.the keep prices competitive among alternative security investments
Which of the following statements is correct:
1.Dividend amounts are first determined, and the residual retained
2.In achieving the highest overall return, dividends are irrelevant
3.Most shareholders prefer retained earnings over dividends
4.There is conclusive proof that investors prefer dividends over retained earnings
With respect to corporate bonds, all of the following are true except:
1.the market for corporate bonds dwarfs the market for stock
2.the percentage of bond financing is affected by common share prices
3.interest rate levels are less significant than common share prices
4.corporate bond markets are dominated in size by the stock market