WorksheetsFinance DEPARTMENT
Total questions: 25
Worksheet time: 19mins
Profitability ratios measure:
the speed at which the firm is turning over its assets
the ability of the firm to earn an adequate return on sales, total assets, and invested capital
the firm's ability to pay off short term obligations as they are due
the debt position of the firm in light of its assets and earning power
Financial leverage:
reflects the firm's commitment to fixed, financial assets
has no impact on the earning of the firm
reflects the amount of debt used in the capital structure of the firm
primarily affects the left side of the balance sheet
The valuation of a financial asset is based on determining:
the present value of future cash flows
the current yield to maturity on long term corporate bonds
the capital budgeting process
what the corporation is paying to attract preferred shareholders
The spread may best be defined as:
the compensation due the lead underwriter
the total compensation for those participating in the distribution process
the price finally paid by the public for the shares
the proceeds from the distribution received by the firm
Preferred equity has all of the following characteristics except:
fixed dividends
the cumulative right to annual dividends
precedence over common stock dividends
residual claim to income
The indifference point identifies:
equality of impact on eps between two financing plans
equality of impact on EBIT between two financing plans
equality of impact on revenue between two financing plans
equality of impact on number of shares between two financing plans
Characteristics of pledging accounts receivable include all of the following, except:
the sale of receivables to a finance company
the lender stipulates which accounts are of sufficient quality
60-80% of the value of the acceptable collateral may be borrowed
the interest rate is normally well in excess of prime
Dividends may be considered relevant because:
they increase the investor's overall return
a higher return will be earned than with retained earnings
they are preferred by investors in higher tax brackets
they resolve uncertainty in the minds of investors
A call provision allows the firm to:
call the bond and common stock
redeem bonds prior to the call date
pay a discount 5-10% below par
redeem the bond prior to maturity
If management of an aggressive firm is apprehensive about economic conditions:
a highly leveraged approach should be maintained
a conservative approach should be implemented
the use of leverage should be tailored to the desired level of risk
the attitude of the firm has no impact
In the "real world," corporate bonds usually pay interest:
continuously
quarterly
semiannually
annually
All of the following are typically key roles of the investment dealer except:
underwriter
market maker
broker
advisor
to the firm
In capital budgeting, the term Capital Rationing implies:
That no retained earnings available
That limited funds are available for investment
That no external funds can be raised
That no fresh investment is required in current year
FL is zero if:
EBIT = Interest
EBIT = Zero
EBIT = Fixed Cost
EBIT= Pref. Dividend
Walter’s Model suggests for 100% DP Ratio when
ke = r
ke < r
ke > r
ke = 0
If A = Annual Requirement, O = Order Cost and C = Carrying Cost per unit per annum, then EOQ
(2AO/C) 2
2AO/C
2A÷OC
2AOC
In case of partially debt-financed firm, k0 is less
Kd
Ke
Both(a) and (b)
None of the above
Financial Leverage is calculated as:
EBIT÷ Contribution
EBIT÷ PBT
EBIT÷ Sales
EBIT÷ Variable Cost
Nominal Rate ÷ Inflation Rate
(1+ Inf. Rate) (1 + Money D Rate)-1
(1+ Money D Rate) + (1 + Inf. Rate)-1
(1+ Money D Rate) 4- (1 + Inf. Rate)-1
(1+ Money D Rate) - (1 + Inf. Rate)-1
Dividend irrelevance argument of MM Model is based on:
Issue of Debentures
Issue of Bonus Share
Arbitrage
Hedging
Which of the following statements is correct?
A Higher Receivable Turnover is not desirable
Interest Coverage Ratio depends upon Tax Rate
Increase in Net Profit Ratio means increase in Sales
Lower Debt-Equity Ratio means lower Financial Risk
Shares of face value of 10 are 80% paid up. The company declares a dividend of 50%. Amount of dividend per share is
5
4
80
50
In Current Ratio, Current Assets are compared with:
Current Profit
Current Liabilities
Fixed Assets
Equity Share Capital
Risk in Capital budgeting implies that the decision-maker knows ________________ of the cash flows.
Variability
Probability
Certainty
None of the above
EOQ is the quantity that minimizes
Total Ordering Cost
Total Inventory Cost
Total Interest Cost
Safety Stock Level
