FIN622- Corporate Finance (Session – 2)
Question No: 1- Please choose one
In which one of the following markets the bonds of a Corporation shall be traded now
who were issued 10 years back?
All of the above
Question No: 2 – Please choose one
Following are amongst the three main areas of Finance EXCEPT:
Question No: 3 – – Please choose one
Which one of the following types of companies enjoys the ‘Limited Liability’?
A general partnership.
A sole proprietorship.
None of the given options.
Question No: 4 – – Please choose one
A company can improve (lower) its debt-to-total assets ratio by doing which of the
By increasing the amount of borrowings
By shifting short-term to long-term debt
By shifting long-term to short-term debt
By selling the common stock
Question No: 5 – – Please choose one
What are the earnings per share (EPS) for a company that earned Rs.100,000 last year in
after-tax profits, has 200,000 common shares outstanding, and Rs.1.2 million in retained
earnings at the year end?
*Earning Per Share (EPS):
= Net Income / Average Number of Common Shares Outstanding
Question No: 6 – – Please choose one
Which of the following refers to the value at which an asset is carried on a balance sheet?
Question No: 7 – – Please choose one
In 3 years you are to receive Rs.5,000. What will be the effect on the present value of that
future amount to you if the interest rates increase suddenly?
Can not be determined
Question No: 8 – – Please choose one
Which of the following change will occur if a bond’s yield-to-maturity increases, keeping
other factors constant?
Its price will rise
Its price will remain unchanged
Its price will fall.
Can not be determined
Question No: 9 – – Please choose one
A 30-year corporate bond issued in 1985 would now be traded in which of the
Primary capital market.
Primary money market.
Secondary money market.
Secondary capital market.
Question No: 10 – – Please choose one
When the market’s nominal annual required rate of return for a particular bond is
less than its coupon rate, the bond will be selling at which of the following?
At par value
At indeterminate price
Question No: 11 – – Please choose one
If the intrinsic value of a stock is greater than its market value, then which of the
following is a reasonable conclusion?
The stock has a low level of risk.
The stock offers a high dividend payout ratio.
The market is undervaluing the stock.
The market is overvaluing the stock.
Question No: 12 – – Please choose one
A person has invested some of its personal spare funds in the common stocks of a public
limited company. Which of the following would be the total return for this person on his
Dividend per share and market interest rate.
Dividend yield and capital gains yield.
Earning per share and dividend per share
Market interest rate and dividend yield.
Question No: 13 – – Please choose one
Which one of the following costs should be ignored, while evaluating the
financial viability of a project?
Cost of capital
Question No: 14 – – Please choose one
Which of the following statements best describes the term Market Correction?
Market Correction refers to the situation where equilibrium of supply & demand
of shares occurs in the market
Market correction refers to the situation where shares’ intrinsic values becomes equal to
Market Correction refers to the situation when there is a boom in the economy
Market Correction refers to the situation where inflation rate is above the market interest
Question No: 15 – – Please choose one
Which of the following statements is Correct regarding the fundamental analysis?
Fundamental analysts use only Economic indicators to evaluate a stock
Fundamental analysts use only financial information to evaluate a company’s stocks
Fundamental analysts use financial and non -financial information to evaluate a
Fundamental analysts use only non -financial information to evaluate a company’s stocks
Question No: 16 – – Please choose one
Since the capital budgeting techniques use cash flows instead of accounting flows,
therefore, the financial manager must add back which one of the following to the
The cost of fixed assets
The cost of accounts payable
Question No: 17 – – Please choose one
According to the reinvestment rate assumption, which method of capital budgeting
assumes that the cash flows are reinvested at the project’s rate of return?
Net present value
Internal rate of return
None of the given options
Question No: 18 – – Please choose one
What is the Net Present Value (NPV) of a project that costs $100,000 and returns
$45,000 annually for three years if the opportunity cost of capital is 14%?
NPV = – I0 + CF1/(1+i)n + CF2/(1+i)n + CF3/(1+i) n
= -100000 + 45000/(1.14) + 45000/(1.14)2+ 45000/(1.14)3
= -100000 + 39474 + 34626 + 30374
Question No: 19 – – Please choose one
Market demand allowed a company, to raise its price by 20% to $60. What is
the new level of break-even revenues if fixed charges including depreciation are
$1 million and variable costs were 70% of the old price?
Question No: 20 – – Please choose one
Which of the following best illustrates the problem imposed by capital rationing?
Accepting projects with the highest NPVs first
Accepting projects with the highest IRRs first
Bypassing projects that have positive NPVs
Bypassing projects that have positive IRRs
Question No: 21 – – Please choose one
Which of the following is determined by variance of an investment’s returns?
Volatility of the rates of return.
Probability of a negative return.
Historic return over long periods.
Average value of the investment.
Question No: 22 – – Please choose one
Which one of the following terms refers to the variability of return on stocks or
portfolios, associated with changes in return on the market as a whole?
Company specific risk
Question No: 23 – – Please choose one
Suppose a stock is selling today fo r Rs.40 per share. At the end of the year, it pays a
dividend of Rs.2.00 per share and sells for Rs.44.00. what is the rate of return on this
Total Return = Dividends + Capital Gains
= D1 + (P1 – P0) / P0
= 2 + (44 – 40) / 40
= 2 + 4 / 40
= 6/40= 0.15*100
Question No: 24 – – Please choose one
Suppose a stock is selling today fo r Rs.60 per share. At the end of the year, it
pays a dividend of Rs.2.00 per share and sells for Rs.66.00. what is the capital gain yield
on the stock?
Capital Gain Yield = ( Pn -Po) / Po)
Capital Gain Yield = ( 66 -60) / 60)
Capital Gain Yield = 6/60 = 0.1*100
Capital Gain Yield = 10%
Question No: 25 – – Please choose one
If the common stocks of a company have beta value less than 1, then such stocks refer
to which of the following?
Question No: 26 – – Please choose one
Which of the following statements applies to capital asset pricing model?
It tells us about the changes in the stock market index
It tells us about specific risk of a security
It tells us about specific risk of a portfolio
It tells us that how risk is rewarded in the market
Question No: 27 – – Please choose one
Which of the following is included in the cost of capital of a firm?
Cost of sales
Cost of retained earnings
Question No: 28 – – Please choose one
Suppose a firm has weighted average cost of capital (WACC) of 15% based
market values of Debt and equity. Which of the following is the suitable
discount rate to
be used by the firm to evaluate financial viability of its investment projects?
Question No: 29 – – Please choose one
Which of the following best define the term ‘Capital Structure’?
The proportion of debt and equity capital used by a firm
The proportion of long-term liabilities used by a firm
The proportion of equity used by a firm
The proportion of short-term bank loan used by a firm
Question No: 30 – – Please choose one
In which of the following dividend policies, the amount of dividend is
Constant payout ratio policy
Hybrid dividend policy
Residual dividend policy
Stable dividend policy