Acc501 solved Midterm papers Spring 2012 written update
MIDTERM EXAMINATION
Spring 2009
ACC501- Business Finance (Session - 1)
Question No: 1 ( Marks: 1 ) - Please choose one
The _______ debt a firm has (as a percentage of assets); the _______ is the
degree of financial leverage.
More; greater
Less; greater
More; lower
None of the given options
Question No: 2 ( Marks: 1 ) - Please choose one
Which of following is(are) the non-cash item(s)?
Depreciation
Deferred Tax
Both depreciation and deferred tax
Neither depreciation nor deferred tax
Question No: 3 ( Marks: 1 ) - Please choose one
Which of the following is the extra rate you would pay if you earn one more
dollar?
None of the given options
Average Tax Rate
Marginal Tax Rate
Flat Tax Rate
Question No: 4 ( Marks: 1 ) - Please choose one
http://vudunya.comWhich of the following is NOT an investing cash flow?
Proceeds from the sale of a retired asset
Purchase of a delivery vehicle
Sale of machinery
Purchase of inventories
Question No: 5 ( Marks: 1 ) - Please choose one
The balance sheet reported a beginning balance of Rs. 23,000 in Accounts
Receivable and an ending balance of Rs. 16,000. The income statement reported
Sales Revenue of Rs. 230,000. Using this information, what will be the amount of
cash collected from customers?
Rs. 269,000
Rs. 253,000
Rs. 237,000
Rs. 230,000
Question No: 6 ( Marks: 1 ) - Please choose one
What would be the amount of current assets for a company which has a current
ratio of 4:1 and net working capital of Rs. 30,000?
Rs. 6,000
Rs. 10,000
Rs. 24,000
Rs. 40,000
Question No: 7 ( Marks: 1 ) - Please choose one
Which of the following is(are) TRUE regarding Du Pont Identity?
http://vudunya.com The decomposition of ROE is a convenient way of systematically
approaching the financial statements analysis
Du Pont identity tells you where to start looking for the reasons if ROE is
unsatisfactory by some measure.
The Du Pont identity tells us that ROE is affected by three things i.e.
operating efficiency, asset use efficiency and financial Leverage.
All of the given options
Question No: 8 ( Marks: 1 ) - Please choose one
The present value of a sum of Rs. 100 to be received in the future will be:
Less than Rs. 100
None of the given options
More than Rs. 100
Equal to Rs. 100
Question No: 9 ( Marks: 1 ) - Please choose one
You just won a prize, you can either receive Rs. 950 today or Rs. 1,000 in one
year. Which option do you prefer and why if you can earn 8 percent on your
money?
Rs. 950 because it has the higher future value
Rs. 950 because you receive it sooner
Rs. 1,000 because it is more than Rs. 950
Either because both options are of equal value
Question No: 10 ( Marks: 1 ) - Please choose one
Which one of the following is a correct formula to calculate present value of
annuity? PVt = P x ( 1 – Present value factor ) / r
PVt = P x ( 1 – Future value factor ) / r
PVt = P x ( Present value factor – 1 ) / r
PVt = P x ( Future value factor – 1 ) / r
Question No: 11 ( Marks: 1 ) - Please choose one
What will be the annual payment on a 6-year Rs. 14,000 loan that carries a 7%
interest rate?
Rs. 2,816
Rs. 2,937
Rs. 3,088
Rs. 3,277
Question No: 12 ( Marks: 1 ) - Please choose one
How much must be deposited at 15% each of the next 7 years to have Rs. 4,565?
Rs. 452.75
Rs. 570.50
Rs. 350.20
Rs. 412.50
Question No: 13 ( Marks: 1 ) - Please choose one
Which of the following is a special case of annuity, where the stream of cash flows
continues forever?
Special Annuity
Ordinary Annuity
Annuity Due Perpetuity
Question No: 14 ( Marks: 1 ) - Please choose one
Which of the following represent(s) a loan made by the investors to the issuer?
Bond
Common Stock
Preferred Stock
All of the given options
Question No: 15 ( Marks: 1 ) - Please choose one
Which one of the following statements is INCORRECT regarding a bond?
A bond is an evidence of debt issued by a corporation or a governmental
body.
A bondholder has a part of ownership in the firm.
A bond represents a loan made by investors to the issuer.
When a corporation wishes to borrow from public on a long term basis, it
does so by issuing or selling bonds.
Question No: 16 ( Marks: 1 ) - Please choose one
A bond’s value will rise above its par value during its life if interest rate:
Goes up
Goes down
Remains the same
There is no relation between value and interest rate
Question No: 17 ( Marks: 1 ) - Please choose oneWhen the market's required rate of return for a particular bond is much higher
than its coupon rate, the bond is selling at:
Premium
Discount
Par
Cannot be determined without more information
Question No: 18 ( Marks: 1 ) - Please choose one
Given two bonds identical but for maturity, the price of the longer-term bond will
change _ _ _ _ _ _ _ _ that of the shorter-term bond, for a given change in market
interest rates.
More than
Less than
Equal to
None of the given options
Question No: 19 ( Marks: 1 ) - Please choose one
Between the two identical bonds having different coupon, the price of the
________ bond will change more than that of ________ bond.
Higher-coupon; lower-coupon
Lower-coupon; higher-coupon
Short-term; long-term
None of the given options
Question No: 20 ( Marks: 1 ) - Please choose one
Which of the following term refers to a contract between the bond issuer and
bondholders? Bond debenture
Bond indenture
Bond contract
Bond yield
Question No: 21 ( Marks: 1 ) - Please choose one
Corporate bonds usually have a face value of Rs. 1,000 which is called:
Principal value
Coupon payments
Yield to maturity
Current yield
Question No: 22 ( Marks: 1 ) - Please choose one
Which of the following allows a company to repurchase part or all of the bond
issue at a stated price?
Repayment
Seniority
Call provision
Protective covenants
Question No: 23 ( Marks: 1 ) - Please choose one
Which of the following long-term rating by PACRA denotes a high default risk?
AAA
BBB CCC
CC
Question No: 24 ( Marks: 1 ) - Please choose one
Which one of the following statements is INCORRECT regarding floating-rate
bond?
Holder of this type of bond has the right to redeem the note at par on the
coupon payment date after some specified period of time.
Coupon rate has a floor and a ceiling i.e. coupon is subjected to a minimum
and a maximum.
An interesting type of floating rate bonds is an Inflation-linked bond.
Such bonds have coupons that need not be adjusted according to the rate of
inflation.
Question No: 25 ( Marks: 1 ) - Please choose one
When real rate is _____, all interest rates will tend to be _____.
Low; higher
High; lower
High; higher
None of the given options
Question No: 26 ( Marks: 1 ) - Please choose one
The portion of profit, which a company distributes among its shareholders, is
known as:
Dividends
Retained Earnings
Capital Gain
http://vudunya.com Interest Income
Question No: 27 ( Marks: 1 ) - Please choose one
Which of the following is NOT dealt by a controller under the head of a CFO?
Tax Management
Data Processing
Credit Management
Financial Accounting
Question No: 28 ( Marks: 1 ) - Please choose one
Product costs do NOT include which of the following?
Raw material
Direct labor
Manufacturing overhead
Administrative expenses
Question No: 29 ( Marks: 1 ) - Please choose one
Which one of the following ratios indicates the return firm shareholders are
earning?
Return on assets
Return on investment
Return on equity
Net profit margin
Question No: 30 ( Marks: 1 ) - Please choose one
Which one of the following is a CORRECT statement about the Price-Earning
A high PE ratio generally means a firm has little prospect for future.
A firm with high earning per share will also have a very high PE ratio.
Care must be taken in interpreting very high PE ratios since they can result
from a firm having very low earnings.
A firm with high earnings per share will also have a very high PE ratio.
Question No: 31 ( Marks: 5 )
What will be the real rate if:
(a) the nominal rate is 15% and the inflation rate is 6%
(b) the nominal rate is 12% and the inflation rate is 5%
Question No: 32 ( Marks: 10 )
Cash inflows of two projects A and B are given below. Assume that all cash flows
are received at the end of the period.
Perio
d
Project A Project B
1 Rs. 10,000 Rs. 5,000
2 Rs. 15,000 Rs. 12,000
3 Rs. 20,000 Rs. 25,000
4 Rs. 35,000 Rs. 30,000
5 Rs. 40,000 Rs. 35,000
Required :
(i) Calculate the Present Value of cash flow stream of project A if there is a
discount rate of 12%.
(ii) Compute the Future Value of cash flow stream of project B at the end of year
5 with a compound annual interest rate of 10%.
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