FINC521

1. Interest yields for different maturity periods, plotted on a graph is known as________?
a) Yield Curve
b) Term structure of interest rates
c) Both of the above
d) None of the above

2. A company replaces an old machinery with salvage value of Rs. 100000 replaced by
a machinery costing Rs. 500000. The relevant cash flows for evaluation of this
project is_______?
a) 100000
b) 500000
c) 400000 [Purchase 500000 – Salvage Value 100000]
d) 600000

3. Sales of Zing Ltd. For 2016 was Rs 10000, COGS Rs 6000, Depreciation Rs 1000,
Interest Rs 800, Tax Rate 30%. Calculate the operating cashflows of Zing ltd for
2016.
a) Rs 4000
b) Rs 1540
c) Rs 2540
d) Rs 2200

4. In ABC classification of inventory, maximum attention has to be paid on_________

items?
a) A category
b) B category
c) C category
d) All of them

5. Brexit, Greece Crises, Chinese Crises, Sub-prime Crises are the examples of which
of the following?
a) Systematic risk
b) Unsystematic risk
c) Total risk
d) Specific risk

6. Cost of debt is______?

a) Coupon rate
b) YTM (1-tax rate)
c) YTM
d) YTM/Bond Price
 7. Cost of equity is always equal to or____________ than WACC.
a) Lower
b) Same
c) Higher
d) Fluctuating

8. For a firm, weight of equity & debt is 0.6 & 0.4 respectively and cost of equity is
15%, Cost of debt is 9%, tax rate is 30%. Calculate the WACC for the firm?
a) 0.126
b) 0.1152
c) 0.12
d) 0.084

9. If proportion of debt is increased in capital structure, overall cost of capital

will_______?
a) Decrease
b) Increase
c) Remain same
d) Fluctuate

10. When a proportion of reserves is distributed among shareholders as shares, it is

known as_____________?
a) Stock Dividend
b) Bonus Shares
c) Dividend
d) Both 1& 2

11. Which of the following is combined measure of risk & return?

a) Mean
b) HPR
c) Expected Return
d) Coefficient of variation

12. If the cost of capital of a project goes up then NPV will__________?

a) Decrease
b) Increase
c) Remain same
d) Fluctuate
13. Current year dividend of Sun Ltd is Rs 5 per share. Expected growth rate is 8% and
market capitalization rate is 10%. Calculate the intrinsic value of stock?
a) 5.4
b) 67.5
c) 54
d) 270 [Given, D0=5, g=8%, r=10% and D1= D0(1+g), Stock= D1/(r-g)]

14. When in the calculation of IRR, intermitant cashflows are reinvested at required rate
of return, the resultant rate is known as__________?
a) CIRR
b) MIRR
c) IRR
d) None of the above

15. The internal rate of return generated by a fixed income investment, if held till
maturity is known as
a) Current yield
b) YTM
c) Yield curve
d) Coupon rate

16. What will be the price of bond with face value Rs 1000 carrying a coupon of 10%
maturing in 3 years at 10% premium on par value? Present value factor and PVAF at
10% for 3 years is .7513 and 2.4869 respectively.
a) 1000
b) 826.43
c) 1075.12
d) 1348.69

17. Which of the following is not the function of investment banking?

a) New issue management
b) Private equity advisory
c) Venture capital fund advisory
d) Working capital management

18. If the credit period is increased for the customers of the company, operating cycle
will_________?
a) Reduce
b) Increase
c) Remain same
d) Unaffected
19. Which of the following is an example of unsystematic risk?
a) Interest rates fluctuations
b) Political Uncertainty
c) Increased steel prices
d) Global economic crises

20. Which of the following method is considered the best evaluation techniques for long-
term investment decisions?
a) NPV
b) IRR
c) Pay-Back period
d) Profitability Index

21. Stream of equal cashflows at regular interval starting at the beginning of the period
is known as?
a) Lumpsum Cash Flows
b) Annuity
c) Conventional Cash Flows
d) Annuity Due

22. If the annual rent expense goes up, the operating leverage will __________ and will
give rise to more than proportions change in____________?
a) Decrease, EPS
b) Decrease, EBIT
c) Increase, EPS
d) Increase, EBIT

23. Increased financial leverage gives rise to____________ volatile EPS?

a) More
b) Less
c) Non
d) None of the above

24. If the credit period is increased by the suppliers of the company, cash conversion
cycle will______________?
a) Reduce
b) Increase
c) Remain same
d) Unaffected
25. In how much time Rs 10 lacs can be approximately doubled, if invested at 8%
compounded annually?
a) 8 years
b) 9 years
c) 10 years
d) 12 years

26. If the face value of a bond is 100 and its redemption value is 110, bond is maturing
at_________?
a) 10% discount
b) 10% premium
c) At par
d) None of the above

27. For dairy Ltd Beta is 0.8, Nifty return= 15% and T-bill rate is 8%. What is the cost of
equity?
a) O.15
b) 0.08
c) 0.056
d) 0.07

28. Levered equity beta is________ than unlevered equity beta?

a) Less
b) Equal to
c) More
d) None of the above

29. Arun buys a stock at Rs 20 & sells at Rs 25 after 10 months. During this period, he
receives a dividend of Rs 5 on his investments. Calculate the Holding Period Return?
a) 0.25
b) 0.5
c) 0.2
d) 0.4

30. Why depreciation has to be added back in the calculation of cash-flow as it is

a______?
a) Manufacturing expense
b) Cash expense
c) Non-cash expense
d) Non-operating expense
31. Calculate the expected return with the help of following data: p=.3 r=30%, p=.4
r=16%, p=.3 r=8%
a) 17.8
b) 18
c) 5.8
d) 7.35

32. In Excel, in order to calculate the EMI for loan repayment, which function has to be
used?
a) PV
b) FV
c) NPV
d) PMT

33. Which of the following will result in Shareholder’s wealth maximization?

a) Optimum utilization of resources
b) Maximum utilization of resources
c) Leverage Minimization
d) Funding maximization

34. If credit sale is 100000, credit period is 30 days, calculate the average receivables?
a) 8219
b) 8333
c) 3333
d) 3288

35. Sheela needs Rs 100000 at the end of each year in the next 5 years. How much
amount she should invest now @ 10%? Present Value of annuity factor at 10% for 5
years is 3.7908.
a) 131898.28
b) 500000
c) 100000
d) 379080

36. For projects with different scales, which of the evaluation techniques should be
used?
a) NPV
b) IRR
c) Pay-Back Period
d) Profitability Index
37. If the coupon rate of a debenture is increased then its YTM will?
a) Decrease
b) Increase
c) Remain same
d) Fluctuate

38. Proportion of profit distributed among shareholders is known as__________?

a) Dividend rate
b) Dividend capitalization rate
c) Retention ratio
d) Pay-out ratio

39. A stock’s average return in last 3 years were 12% and standard deviation is 8%.
Calculate the coefficient of variation?
a) 1.5
b) 0.33
c) 0.67
d) 9.6

40. Cost of preference share is________?

a) Preference Dividend Rate
b) Pref Dividend/Pref. share market price
c) Both of the above
d) None of the above

41. 1/10,30 credit term means?

a) 1% discount
b) 0.1% discounts
c) 1% discount for payment with 10 days
d) 0.1% discount for payment within 30 days

42. Which of the following AAA debentures will have highest price if YTM is_____?
a) 0.07
b) 0.08
c) 0.075
d) 0.085

43. When interest rates on long term bonds are higher than short term bonds, yield
curve will be_________?
a) Upward slopping
b) Downward slopping
c) Flat
d) None of the above
44. In case of capital budgeting decisions, the projects in which choice of one
automatically excludes the another are known as________?
a) Dependend Projects
b) Independent projects
c) Mutually Exclusive Projects
d) Mutually Inclusive Projects

45. Dividend declared at 12% means that this %age will be applied on________?
a) Issue price
b) Market price
c) Face Value
d) Profits

46. Which of the following is ultimate objective of financial management?

a) Profit maximization
b) Shareholder’s wealth maximization
c) Leverage minimization
d) Funding maximization

47. Market interest rate is 9%. A bond with 10% coupon will sell ___________ par value?
a) Above
b) Below
c) At
d) None of the above

48. The rate at which present value of cash inflows becomes equal to Present value of
cash outflows is called_______?
a) Cut-off rate
b) Required date of return
c) Cost of capital
d) IRR

49. Stream of equal cashflows at regular interval is known as?

a) Lumpsum cash flows
b) Annuity
c) Conventional cash flows
d) Annuity due

50. Moon Ltd invests Rs 800000 in a paper manufacturing plant. This is expected to
generate Rs 150000 every year for next seven years. Cost of capital for the project
is 10%. PVAF for 7 years at 10% is 5.3349. Calculate the NPV of the project?
a) 800000
b) 800235
c) 235
d) -235
 51. ________method tells the period in which original investment in a project will be
recovered.
a) NPV
b) IRR
c) Pay-Back Period
d) Profitability Index

52. The risk which can be reduced by diversification is known as________?

a) Systematic Risk
b) Unsystematic Risk
c) Total Risk
d) Market Risk

53. Sheela needs Rs 500000 at the end of 5 years. How much amount she should invest
now @ 10%? Present Value of 1 Rs at 10% for 5 years is .6209.
a) 100000
b) 155225
c) 310450
d) 400000

54. The underlying assumption in IRR method is that all the intermitant cashflows are
reinvested at__________.
a) Cut-off rate
b) Required rate of return
c) Cost of capital
d) IRR

55. In which of following frequency of compounding, maturity value of investment will be

highest?
a) Annual
b) Quarterly
c) Monthly
d) Daily

56. Which of the following is not the method for calculation of cost of equity?
a) CAPM
b) Dividend Discount Model
c) YTM + Risk Premium
d) YTM
57. The relationship between security return and market return is shown by_____?
a) Rf
b) Rm
c) Rm-Rf
d) Beta

58. As per liquidity premium theory, interest rates on long term bonds will be________
than short term bonds?
a) Lower
b) Same
c) Higher
d) Fluctuating

59. Which of the following are the two components of Holding Period Return?
a) Beginning Value & Ending Value
b) Periodic Return & Ending Value
c) Periodic Return & Capital Appreciation
d) Beginning Value & Capital Appreciation

60. A liberal working capital policy will lead to______?

a) Low debtors
b) Low inventory
c) Low cost
d) High inventory

61. As per bird in hand theory, high dividend pay-out in __________to low pay-out?
a) Preferred
b) Not preferred
c) None of the above