ACC501 – BUSINESS FINANCE (Session – 3 )
Student Name: ______________________________
Center Name/Code: ______________________________
Exam Date: Wednesday, July 11, 2007
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 True/False Questions, 3 Short
Questions and 3 Numerical Questions.
Question No. 1-10 are MCQs carrying 1 Mark each, Question No. 11-15 are True/False
Questions carrying 1 Mark each, Question No.16-18 are short questions carrying 5 Marks each
and Question No. 19-21 are numerical questions carrying 10 Marks each.
For each MCQ, read the choices available carefully and select the choice which you consider is the
You are required to show all the working of short questions as well as Numerical questions.
The use of calculator and financial tables is allowed.
The use of mobile phones in exam center is strictly prohibited.
A clock has been given in the exam software. Software will automatically be closed after 150
Remember do not spend too much time on any one MCQ. Since all MCQ’s carry equal marks, it is
important to manage your time and responses to test questions effectively.
This Examination is closed book, closed notes and closed neighbours.
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
Question 11 12 13 14 15 16 17 18 19 20
Question No: 1 ( Marks: 1 ) – Please choose one
The process of planning and managing a firm’s long-term investments is called :
Question No: 2 ( Marks: 1 ) – Please choose one
Return on Equity (ROE) = _________ x Total Assets Turnover x Equity Multiplier
Question No: 3 ( Marks: 1 ) – Please choose one
If a bank loans out Rs. 10,000 for 90 days at 8% simple interest, the Present Value (PV) will
Question No: 4 ( Marks: 1 ) – Please choose one
The ____________ is the rate where NPV (Net Present Value) equals to zero.
WACC (Weighted Average Cost of Capital)
► IRR (Internal Rate of Return)
MIRR (Modified Internal Rate of Return)
AAR (Average Accounting Return)
Question No: 5 ( Marks: 1 ) – Please choose one
______________ is adopted to permit minority participation.
Question No: 6 ( Marks: 1 ) – Please choose one
Which one of the following statements projects future years’ operations in a summarized
Cash Flow Statement
Pro Forma Financial Statement
None of the given options
Question No: 7 ( Marks: 1 ) – Please choose one
The direct and indirect costs associated with going bankrupt or experiencing financial
distress, are known as :
Direct Bankruptcy Costs
Indirect Bankruptcy Costs
Financial Distress Costs
All of the given options
Question No: 8 ( Marks: 1 ) – Please choose one
Suppose you bought 1,500 shares of a corporation at Rs. 25 each. After a year, you
received Rs. 3,000 (Rs. 2 per share) in dividends. The dividend yield will be :
Question No: 9 ( Marks: 1 ) – Please choose one
You earn a 7% real return. If the inflation rate is 5 percent, what is your nominal return ?
Question No: 10 ( Marks: 1 ) – Please choose one
The projected cash flows from a project are :
Years Cash flows
1 Rs. 100
2 Rs. 300
3 Rs. 600
4 Rs. 800
The project costs Rs. 1,000. What would be the payback period for the project ?
Question No: 11 ( Marks: 1 ) – Please choose one
Sole Proprietorship is a business created as a distinct legal entity owned by one or more
individuals or entities.
Question No: 12 ( Marks: 1 ) – Please choose one
The term discounting is associated with Future Value concept whereas the term
compounding is associated with Present Value concept.
Question No: 13 ( Marks: 1 ) – Please choose one
Constant Growth Stock is a share of common stock in a company with a constant rate of
Question No: 14 ( Marks: 1 ) – Please choose one
Portfolio is the group of assets (stocks and bonds) held by an investor.
Question No: 15 ( Marks: 1 ) – Please choose one
The difference between bank cash and book cash, representing the net effect of cheques in
the process of clearing is called float.
Question No: 16 ( Marks: 5 )
Following are given cash inflows of a project. Assume that all cash flows are received at
the end of the period.
Period Cash Flows
Calculate the future value of cash flows stream at the end of year 5 with a compound
annual interest rate of 10%.
Question No: 17 ( Marks: 5 )
Write down the statements for the followings:
a. NPV (Net Present Value) Rule
b. IRR (Internal Rate of Return) Rule
c. Payback Rule
d. PI (Profitability Index) Rule
e. AAR (Average Accounting Return) Rule
Question No: 18 ( Marks: 5 )
What do M&M Proposition I and Proposition II state ?
Question No: 19 ( Marks: 10 )
Mr. Jamil has Rs. 70,000 that he can deposit in savings accounts of any of three banks A, B
or C for a three years period. Bank A compounds interest on annual basis; Bank B
compounds interest semi-annually (twice each year); and Bank C compounds interest
quarterly (four times each year). All three banks have a stated annual interest rate of 12%.
1. How much Mr. Jamil will have in his account after three years if he deposits
his money in Bank A ?
2. How much He will have in his account after three years if he deposits his
money in Bank B ?
3. How much He will have in his account after three years if he deposits his
money in Bank C ?
4. On the basis of your findings in above parts, describe which bank should
Mr. Jamil deal with and why ?
Question No: 20 ( Marks: 10 )
SNT Company presently paid a dividend of Rs.1.5 per share and has a share price of
Rs.25. The dividends are expected to grow @ 15% forever. SNT Company has Rs.100
million in equity and Rs.75 million in debt in its total capital. The tax rate for the firm is
35% and the Cost of debt is 12%. Calculate the Weighted Average Cost of Capital
(WACC) for SNT Company?
Question No: 21 ( Marks: 10 )
Magi Inc. specializes in toys and receives all income from sales.
Quarters * 1 2 3 4 1 (next year)
Sales (Rs.) 500,000 600,000 650,000 800,000 550,000
* Each quarter consists of 3 months (90 days)
o Beginning receivables = Rs. 250,000
o Average Collection Period = 30 days
o Purchases = 50 % of next quarter’s sales
o Beginning payables = Rs. 125,000
o Accounts Payable Period is 45 days
o Wages, taxes and other expenses are 25% of sales
o Interest and dividend payments are Rs. 50,000
o A major capital expenditure of Rs. 200,000 is expected in the second quarter
You are just required to calculate the Cash Collections (Receipts) and Cash Disbursements
(Payments) for four Quarters.