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MIDTERM PAPERS: Virtual University, VU, ACC501 BUSINESS FINANCE, All Past Years Midterm Papers

MIDTERM PAPERS: Virtual University, VU, ACC501 BUSINESS FINANCE, All Past Years Midterm Papers

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MIDTERM PAPERS: Virtual University, VU, ACC501 BUSINESS FINANCE, All Past Years Midterm Papers

ACC501 Business Finance Mid Term Examination – Spring 2005

ACC501 Business Finance
Mid Term Examination – Spring 2006
Time Allowed: 90 Minutes
Please read the following instructions carefully before attempting any
question:
• All questions are compulsory.
• This exam consists of 10 Multiple Choice Questions (MCQ’s), 5 Fill in the Blanks, 5Short
Questions and 1 Descriptive Question.
• You should try to complete MCQ’s in 10 – 15 minutes in order to avail 75 – 80 minutes for
the descriptive questions.
• For each MCQ, read the choices available carefully and select the choice which you
consider is the most suitable, by clicking on the appropriate circle.
• Save your answer before proceeding to the next question.
• Do not click the “Finish button” while solving your paper. Once you clicked the “Finish”
button, you will not be able to access your paper again. Click it only at the end after
attempting the whole paper, which will be an indication that you have submitted your
complete paper.
• You are required to show all the working of short questions as well as descriptive question
in your answers.
• The use of calculator and financial tables is allowed.
• A clock has been given in the exam software. Software will automatically be closed after
90 minutes.
• It is your responsibility to manage time and responses to test questions effectively.

• Failure to comply with the supervisor’s directions will result in your test being cancelled.
Please comply with supervisor’s directions to avoid any unpleasant event.
Question No. 1 Marks : 1
The _____________________ ratio is the same as the _______________________ ratio
except inventories and “other current assets” are dropped from the numerator.
Question No. 2 Marks : 1
The growth that can be financed without resorting to any external equity financing is
called the _______________
Question No. 3 Marks : 1
Financial institutions facilitate individuals and firms in:
Borrowing
Lending
pooling of risks
all of the given options
Question No. 4 Marks : 1
are issued by state and local governments.
Treasury bonds
Municipal bonds
Corporate bonds
Personal bonds
Question No. 5 Marks : 1
You are expecting to receive Rs.5000 in 3 years. If the interest rate increases, the
present value of that future amount to you would:
Fall
Rise
remain unchanged
cannot be determined without more information
Question No. 6 Marks : 1
is not the function of the treasurer:
Preparation of financial statements
Investor relationships
Cash management
Obtaining finances
Question No. 7 Marks : 1
Sara is interested in purchasing Tom’s factory. Since Sara is a poor negotiator, she
hires Maria to negotiate a purchase price. Identify the parties to this transaction from
the given options, according to agency theory:
Sara is the agent.
Maria is the principal.
Tom is the agent and Maria is the principal
Sara is the principal and Maria is the agent.
Question No. 8 Marks : 1
Purchasing new machinery for expanding production capacity by a corporation is
____________________
Question No. 9 Marks : 3
CVP Corporation has a policy of paying a $10 per share dividend every year. This
policy is to continue indefinitely. What is the value of a share of stock if the required
rate of return is 20%?
Question No. 10 Marks : 1
A constant stream of cash flows for a limited number of years coming at regular
intervals is called a (an) .
Question No. 11 Marks : 1
is not an advantage of separation of ownership and
management of corporations.

Corporations can exist forever.
Facilitate transfer of ownership without affecting the operations of the firm
Hire professional managers
Incur agency costs
Question No. 12 Marks : 10
Mr. Martin has $20,000 that he can deposit in savings accounts of any of three banks
for a three year period. Bank A compounds on an annual basis; Bank B compounds
interest twice each year; Bank C compounds interest each quarter. All three banks
have a stated annual interest rate of 4%.
Required:
a. What amount would Mr. Martin have at the end of 3rd year in each bank?
(Marks: 08)
b. On the basis of your findings in part a, describe which bank should Mr. Martin
deal with and why? (Marks: 02)
Question No. 13 Marks : 1
A firm is having difficulty in controlling its operating expenses. Which ratio category
in given options will most directly reflect this problem?
Liquidity
Profitability
Market value
Turnover
Question No. 14 Marks : 1
A firm’s investment decision is also called the:
financing decision
capital budgeting decision
liquidity decision
debt financing
Question No. 15 Marks : 3
Why would you prefer corporate form of organization over other forms of business
organizations? Discuss giving at least three arguments.
Question No. 16 Marks : 3
What is an agency relationship? Describe the reason that results in agency problem.
Question No. 17 Marks : 1
Suppose a Corporation has a taxable income of Rs.50000 and the tax amount
calculated is as given below:
Rs.30000 x 5% = Rs.1500
(Rs.40000 – 30000) x 10% = 1000
(Rs.50000 – 40000) x 15% = 1500
Rs.4000
Total tax amount is Rs.4000. Average tax rate is Rs.4000 / 50000 = 8.0%. Marginal tax
rate will be:
39%
34%
15%
25%
Question No. 18 Marks : 3
What do you understand by seniority in a bond indenture?
Question No. 19 Marks : 3
What are the three factors that affect Return on Equity, according to Du Pont Identity?
Question No. 20 Marks : 1
In context of inflation and returns, the relationship between real and nominal returns
is described by:
Fisher Effect
Ricardo Effect
Robbins Effect
Fredrick Effect
Question No. 21 Marks : 1
Debt securities issued by corporations are called .

ACC501 – BUSINESS FINANCE MIDTERM EXAMINATION FALL 2006

MIDTERM EXAMINATION
FALL 2006 Marks: 40
ACC501 – BUSINESS FINANCE (Session – 3 ) Time: 60min
StudentID/LoginID: ______________________________
Student Name: ______________________________
Center Name/Code: ______________________________
Exam Date: Wednesday, December 06, 2006
Please read the following instructions carefully before attempting any question:
• All questions are compulsory.
• This exam consists of 10Multiple Choice Questions (MCQ’s), 5Fill in the Blanks, 5
Short Questions and 1 Numerical Question.
• You should try to complete MCQ’s in 10 – 15 minutes in order to avail 75 – 80
minutes for the Numerical question.
• For each MCQ, read the choices available carefully and select the choice which you
consider is the most suitable, by clicking on the appropriate circle.
• Save your answer before proceeding to the next question.
• Do not click the “Finish button” while solving your paper. Once you clicked the
“Finish” button, you will not be able to access your paper again. Click it only at
the end af ter attempting the whole paper, which will be an indication that you
have submitted your complete paper.
• You are required to show all the working of short questions as well as numerical
question in your answers.
• The use of calculator and financial tables is allowed.

• A clock has been given in the exam software. Software will automatically be closed
after 90 minutes.
• It is your responsibility to manage time and responses to test questions effectively.
• Failure to comply with the supervisor’s directions will result in your test being
cancelled. Please comply with supervisor’s directions to avoid any unpleasant
event.
For Teacher’s use only
Question 1 2 3 4 5 6 7 8 9 10 Total
Marks
Question 11 12 13 14 15 16 17 18 19 20
Marks
Question 21
Marks
Question No: 1 ( Marks: 1 ) – Please choose one
A major disadvantage of the corporate form of organization is the ______________.
Inability of the firm to raise large sums of additional capital
Double taxation of dividends
Limited liability of shareholders
Limited life of the corporate firm
Question No: 2 ( Marks: 1 ) – Please choose one
Which one of the following current asset is not treated as a cash flow from operating activities?
Trade receivable

Cash and cash equivalent
Inventory
Short term investment
Question No: 3 ( Marks: 1 ) – Please choose one
Suppose you can earn a 7.2 percent interest rate per year. According to the rule of 72, it will take
approximately ___________ years to double your money.
5.00
7.20
10.00
100.0
Question No: 4 ( Marks: 1 ) – Please choose one
Rahim Corporation has a cash coverage ratio of 7 times. It’s earning before interest and tax is
Rs.900 million. It has total assets of Rs.3 billion. The company has a policy of charging 5 % annual
depreciation. By using the above information, what would be the interest expense for the year?
90 million
120 million
140 million
150 million
Question No: 5 ( Marks: 1 ) – Please choose one
Suppose ZM Corporation has a debt to equity ratio of 1.50 times. It has the return on assets of
14%. The return on equity would be ____________.
25%

30%
35%
40%
Question No: 6 ( Marks: 1 ) – Please choose one
Lets Tulips Corporation has return on assets for the year is 14 % .The Corporation has a policy to
retain 40 percent of their income. Then the Corporations internal growth rate would be
___________.
5.246 %
5.754 %
5.932 %
6.589 %
Question No: 7 ( Marks: 1 ) – Please choose one
If the interest rate is 24 % compounded quarterly, what would be the 5-year discount factor?
3.10585
3.20714
3.50152
3.80153
Question No: 8 ( Marks: 1 ) – Please choose one
Suppose you expect to receive Rs.3,000 per year forever. The opportunity rate is 12 %.The present
value of this would be ______________.

Rs.20,000
Rs.23,000
Rs.25,000
Rs.28,000
Question No: 9 ( Marks: 1 ) – Please choose one
The bonds are classified as ___________ if the maturity of the bond is less than 10 years when
issued.
Term finance certificate
Debentures
Notes
None of the given options
Question No: 10 ( Marks: 1 ) – Please choose one
____________ is a kind of bond that allows the holder to force the issuer to buy the bond back at a
stated price.
Convertible bond
Floating rate bond
Income bond
Put bond

Question No: 11 ( Marks: 1 )
A _____________ is responsible for managing cash and raising finances for the business.
Question No: 12 ( Marks: 1 )
Current ratio and quick ratio of a firm will be equal if its current assets do not contain
___________________.
Question No: 13 ( Marks: 1 )
Coupon rate has a floor and a ceiling. These upper and lower rates are also called
________________.
Question No: 14 ( Marks: 1 )
______________ is that part of the indenture or loan agreement that limits certain actions which a
company might wish to take during the term of the loan.
Question No: 15 ( Marks: 1 )
The relationship between the real and nominal returns is described by the ____________.
Question No: 16 ( Marks: 3 )
Discuss the significance of financial statements.
Question No: 17 ( Marks: 3 )
What is underwriting contract? Discuss in detail.
Question No: 18 ( Marks: 3 )
How much an investor has to invest a lump sum amount in order to have Rs.3 million in 20 years
from now if the rate of interest is 16 % compounded quarterly?
Question No: 19 ( Marks: 3 )
Draw a time line for the annuity due of Rs.900 for 6 years. Also, describe the relationship between
an ordinary annuity and annuity due with the help of equation.
Question No: 20 ( Marks: 3 )
Mr. Martin is considering the purchase of land for Rs.650, 000, which may be sold for Rs.850, 000
in 7 years. If the discount rate is 16% compounded quarterly, will this be a good investment?

Question No: 21 ( Marks: 10 )
Mr. Imran has Rs.150, 000 in cash that he can deposit in any of four savings accounts in four
different banks for a 7 year period. Bank A compounds interest on an annual basis; Bank B
compounds interest twice each year; Bank C compounds interest each quarter and Bank D
compounds interest on daily basis. All four banks have a stated annual interest rate of 12%.
Required:
a. What amount would Mr. Imran have at the end of 7 th year in each bank?
b. What effective annual interest rate would he earn in each of the four banks?
c. On the basis of your findings in a and b, which bank should Mr. Imran deal with? and
Why?

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