ACC501 MCQs Subjective

For more papers please view www.vuhelp.com

What will be the payback period of a Rs.70,000 investment with the following cash inflows? Years Cash flows 1 Rs. 15,000 2 Rs. 20,000 3 Rs. 25,000 4 Rs. 15,000 5 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. ► True ► False

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

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

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

A preferred dividend is exactly like interest on bond. ► True ► False

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

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

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

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

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 ?

Contact vuhelps@gmail.com

Regards

Vuhelps