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INS 3007_ FINANCIAL MANAGEMENT

Total questions: 33

Worksheet time: 23mins

Name
Class
Date
1.

Which one of the following statements is correct concerning the payback period?

a)

An investment is acceptable if its calculated payback period is less than some pre-specified period of time.

b)

An investment should be accepted if the payback is positive and rejected if it is negative.

c)

An investment should be rejected if the payback is positive and accepted if it is negative.

d)

An investment is acceptable if its calculated payback period is greater than some pre-specified period of time.

2.
The _________ is the time period that elapses from the point when the firm makes the outlay to purchase raw materials on account to the point when payment is made to the supplier of the goods.
a)
cash conversion cycle
b)
average payment period
c)
average age of inventory
d)
average collection period
3.
 A firm can reduce its cash conversion cycle by
a)
increasing the average age of inventory.
b)
increasing the average collection period.
c)
increasing the average payment period
d)
decreasing the average payment period
4.
A(n) __________ in working capital represents a(n) __________.
a)
increase; cash inflow
b)
decrease; cash inflow
c)
decrease; cash outflow
d)
increase; equivalent annual cost  
5.
Standard deviation measures _____ risk while beta measures _____ risk. 
a)
systematic; unsystematic
b)
unsystematic; systematic
c)
total; unsystematic
d)
total; systematic
6.
Which one of the following represents the rate of return a firm must earn on its assets if it is to maintain the current value of its securities? 
a)
Cost of equity
b)
Internal rate of return
c)
Aftertax cost of debt
d)
Weighted average cost of capital
7.
The value of a bond is dependent upon the: 
a)
coupon rate and the current yield.

b)
current yield and the yield to maturity.


c)
coupon rate but neither the current yield nor the yield to maturity.

d)
coupon rate and the current yield.
8.
Suppose a firm has a $100 million in excess cash. It could:
a)
Invest the funds in projects with positive NPVs
b)
Pay high dividends to the shareholders
c)
Buy another firm
d)
All of them
9.
If the NPV of project A is + $120, and that of project B is -$40 and that of project C is + $40, what is the NPV of the combined project? 
a)
+$100
b)
+$180
c)
+$60
d)
+$120
10.
The net present value of a project depends upon: 
a)
project's cash flows and opportunity cost of capital
b)
Batmobile's gas condition
c)
Thor's tastes and preferences
d)
Alien attacks
11.
Given the following cash flows for project A: C0 = -1000, C1 = +600 ,C2 = +400, and C3 = +1500, calculate the payback period. 
a)
One year
b)
Two years
c)
Three years
d)
"There is no spoon."
12.
The payback rule ignores all cash flows after the cutoff date. 
a)
False.
b)
What about Superman?
c)
I think thats Batman.
d)
True.
13.
An asset's value determined by the present values of its future ....... .
a)
Cash flows.
b)
Competitors.
c)
No thats Batman
d)
Im BATMAN.
14.
What are some of the advantages of using the IRR method? 
a)
The main advantage of IRR is that it is easy to communicate.
b)
Basically there is no benefit for me.
c)
Don't know, you tell me?
d)
Advantages?
15.

Which one is disadvantages of SML

a)

Have to estimate the expected market risk

premium, which does vary over time

b)

Have to estimate beta, which also varies over

time

c)

We are using the past to predict the future,

which is not always reliable

d)

All above

16.

Which one is correct..

a)

Interest expense reduces our tax liability

b)

Dividends are not tax deductible, so there is no tax impact on the cost of equity

c)

All above

17.

Variance and standard deviation measure the volatility of returns

a)

True

b)

False

18.

A portfolio is…

a)

Weighted average of squared deviations

b)

A collection of assets

19.

Example of non-diversifiable risk or systematic risk:

a)

GDP

b)

Inflation

c)

Interest rates

d)

All above

20.

The cost of a resource that may be relevant to an investment decision even when no cash changes hand is called a (an):

a)

Sunk cost

b)

opportunity cost

c)

working capital

d)

historical cost

21.

The real interest rate is 3% and the inflation rate is 5%. What is the nominal interest rate?

a)

3%

b)

5%

c)

8%

d)

8.15%

22.

If the depreciation amount is $100,000 and the marginal tax rate is 35%, then the tax shield due to depreciation is:

a)

$35,000

b)

$100,000

c)

$65,000

d)

None of the above

23.

The cost that is incurred as a result of past, irrevocable decisions and is irrelevant to future decisions is called:

a)

Sunk cost

b)

Opportunity cost

c)

Incremental cost

d)

Reliable cost

24.
Finance functions are
a)
Planning for funds
b)
Raising of funds
c)
Allocation of Resources
d)
All of the above
25.
Which financial decision help a businessman in opening a new branch of its business. 
a)
Financing decision
b)
Dividend decision
c)
Investment decision
d)
None of the above
26.
A decision to acquire a new and modern plant to upgrade an old one is
a)
Investments decision
b)
Financing decision
c)
Dividend Decision
d)
Working Capital decision
27.
Other things remaining the same, an increase in the tax rate on corporate profit will 
a)
Make debt relatively cheaper
b)
Make debt relatively costlier
c)
No impact on cost of debt
d)
We can't say
28.
A fixed assets of business firm should be financed through : 
a)
Long term liability
b)
Short term Liability
c)
 A Mix of long term and short term liability 
d)
None of the above
29.
Current Assets are those assets which can be converted into cash within 
a)
One month
b)
3 months
c)
12 months 
d)
9 months
30.
Earning Per Share equals to : 
a)
Earning after tax / no. of debentures
b)
Earning after tax / no. of Preference shares 
c)
Earning after tax / no. of Equity shares
d)
None of the above
31.
EBIT refers to 
a)
Equity before interest and tax 
b)
Earning before investment and taxation
c)
Earning before interest and tax 
d)
None of the above
32.
Which of the following assets is not considered as current asset: 
a)
Stock
b)
Furniture 
c)
Cash
d)
Goodwill
33.
The objective of wealth maximization takes into account
a)
Amount of returns expected
b)
Timing of anticipated returns
c)
Risk associated with uncertainty of returns
d)
All of the above

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