vu fin622 Final Term - Quiz No.4
vu fin622 Corporate Finance Quiz
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Question 2: Which of the following would be a consequence of a high Inventory Turnover Ratio?
Low level of inventory and frequent stock-outs
Seasonal elements peculiar to the business
Efficient inventory management
Any of the given option
Question 3: Which of the following is the main source of income for the buyer of a zerocoupon bond?
Price appreciation
A rate of return equal to zero over the life of the bond
Variable dividends instead of a fixed interest payment annually
All interest payments in one lump sum at maturity
Question 4: For a firm with a Degree of Operating Leverage of 3.5, an increase in sales of 6% will:
Increase pre-tax profits by 3.5%
Decrease pre-tax profits by 3.5%.
Increase pre-tax profits by 21.0%.
Increase pre-tax profits by 1.71%.
Question 5: Your firm is considering two mutually exclusive projects, code-named A and B, that would each require an initial cash outflow of $10,000. They would generate the following incremental, after-tax, operating cash flows:
If the firms required rate of return is 14 percent, which would you select?
| Project A | Project B | |
| Year 1 | $5,000 | $3,000 |
| Year 2 | 4,000 | 4,000 |
| Year 3 | 3,000 | 6,000 |
If the firms required rate of return is 14 percent, which would you select?
Neither project because neither adds value to the firm.
Project A because it has the higher net present value.
Project B because it has the higher internal rate of return.
Project A because it has the shorter payback period.
Question 6: Which of the following would be an example of an MBO?
Management of a firm-A purchases majority shares from the shareholders
Management of a firm-A acquires majority shares in another firm-B
Management sale out some assets of the firm
Management buy some new plants and machinery
Question 7: Which of the following is measured by Beta ( ) of a security.
Systematic risk of the security
Unsystematic risk of the security
Market risk premium of the security
Expected return of the security
Question 8: When the firm considers working capital management, the trade off between risk and return is NOT affected by which of the following?
The pattern of cash borrowing needs of the firm.
The difference between long-term and short-term interest rates.
The ratio of cash to marketable securities.
The debt maturity schedule.
Question 10: Present value of Rs.5, 000 received at the end of 5 years, discounted at 10 percent, is closest to:
Rs.3, 105.
Rs.823.
Rs.620.
Rs.3, 403.
