Sunday, August 23, 2009

ACC501 MCQs Subjective

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What will be the payback period of a Rs.70,000 investment with the following cash inflows?


Cash flows


Rs. 15,000


Rs. 20,000


Rs. 25,000


Rs. 15,000


Rs. 5,000

3.57 years

3.67 years

4.57 years

4.67 years

Question No: 12 ( Marks: 1 ) - Please choose one

Which of the following is the required return on a firm's debt by its creditors?

Cost of Equity

Cost of Debt

Cost of Preferred Stock

Cost of Capital

Question No: 13 ( Marks: 1 ) - Please choose one

Which one of the followings is the overall required return the firm must earn on its existing assets to maintain the value of the stock?

AAR (Average Accounting Return)

IRR (Internal Rate of Return)

MIRR (Modified Internal Rate of Return)

WACC (Weighted Average Cost of Capital)

Question No: 14 ( Marks: 1 ) - Please choose one

The costs to store and finance the assets are known as:

Carrying Costs

Shortage Costs

Manufacturing Costs

None of the given options

Question No: 15 ( Marks: 1 ) - Please choose one

The minimum level of inventory that a firm keeps on hand is called:

Common stock

Safety Stock

Preferred Stock

Dangerous Stock

Question No: 16 ( Marks: 1 ) - Please choose one

Realization Principle is one of the basic principles of GAAP.



Question No: 17 ( Marks: 1 ) - Please choose one

Whenever the word Dividend is used, it always refers to a long-term loan.



Question No: 18 ( Marks: 1 ) - Please choose one

A preferred dividend is exactly like interest on bond.



Question No: 19 ( Marks: 1 ) - Please choose one

By IRR rule, take a project when its IRR exceeds the required return.



Question No: 20 ( Marks: 1 ) - Please choose one

Diversification is the group of assets such as stocks and bonds held by investor.



Question No: 21 ( Marks: 1 )

___________________ is a special case of Annuity, where the stream of cash flows continues forever.

Question No: 22 ( Marks: 1 )

________________ is the value of a present amount at a certain date in the future based on a determined rate of return.

Question No: 23 ( Marks: 1 )

The amount of time required for an investment to generate cash flows sufficient to recover its initial cost is called its ____________________.

Question No: 24 ( Marks: 1 )

__________________ refers to the extent to which a firm relies on its debt.

Question No: 25 ( Marks: 1 )

The difference between the return on a risky investment and that on a risk free investment is called ____________________.

Question No: 26 ( Marks: 3 )

What is the difference between Flexible Policy and Restrictive Policy regarding size of investment in current assets while making short-term financial policy?

Question No: 27 ( Marks: 3 )

Differentiate between Systematic Risk and Unsystematic Risk. Which of them can be eliminated by diversification?

Question No: 28 ( Marks: 3 )

Suppose common stocks of a company are currently selling for Rs.30 per share. Stock market analysts estimated a dividend of Rs.2 per share for the next year and it is expected that the dividend will grow by 10% more or less indefinitely. What return does this stock offer?

Question No: 29 ( Marks: 3 )

A bank is offering 12% interest rate compounded quarterly on its saving account. What would be the Effective Annual Rate (EAR) ?

Question No: 30 ( Marks: 3 )

“An investment is acceptable if the IRR exceeds the required return. It should be rejected otherwise.” Explain.

Question No: 31 ( Marks: 10 )

Sumi Inc. has outstanding Rs.1, 000- face –value bond with a 16 percent coupon rate and 6 years remaining until final maturity. Interest payments are made quarterly. What would be the value of this bond if your nominal annual required rate of return is : (i) 13 %, (ii) 19 %.

Question No: 32 ( Marks: 10 )

S&T Company just paid a dividend of Rs.2 per share and has a share price of Rs.30. The dividends are expected to grow @ 10% forever. S&T Company has Rs.75 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 8%. What will be the Weighted Average Cost of Capital (WACC) for S&T Company ?


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