FIN622 Final Term Solved Quizzes Mega File

1. Diversification eliminates unique risk. But there is some risk that diversification can not eliminates. This is called as:

1. Market Risk

2. Systematic Risk
3. Unsystematic Risk
4. All of the given options
5. _____________ arises due to internal factors.
6. Hard Rationing

2. Soft Rationing

3. Single period rationing
4. All of the given options
5. _____________ is a technique which indicates how much a project’s NPV will change in response to a given change in an input variable, other things held constant.
6. Break Even Analysis
7. Degree of Operating Leverage

3. Sensitivity analysis

4. Scenario analysis

Q1. Which of the following is advance tool of Project Evaluation?

1. Net Present value NPV
2. Internal Rate of Return IRR
3. Pay Back Period Method

4. Sensitivity analysis

1. In case of more than one project, the project with ______ NPV can be undertaken.
2. Low
3. Higher
4. Moderate
5. zero

For the statement of cash flows, which of the following is considered a cash flow item from investing activities? A) Cash inflow from borrowing

B) Cash outflow to acquire fixed assets

C) Cash outflow to government for taxes D) Cash inflow from dividend income

2. Expected changes in capital expenditures and firm dividend policy during the next

year are both likely to influence ________.

A) Cash receipts of the firm

B) Cash disbursements of the firm

C) Earned (receipts) from Treasury bills held by the firm D) Disbursements to holders of the firm's 10-year, 8% fixed rate bonds

Q3. The key to the accuracy of the cash budget is:

1. The sales forecast.
2. The expenses forecast.
3. The inventory control method used.
4. The seasonality of cash flows.

Correct answer: The sales forecast.

4. When working capital management is discussed, ________ and ________ tend to be

thought of as forms of spontaneous financing.

A) Short-term debt, cash

B) Accounts payable, accruals

C) Accounts payable, short-term debt D) Accruals, cash

Q5. Short-term financing is riskier than long-term financing because:

1. Short-term interest rates fluctuate; long-term rates do not.
2. Short-term debt must be refunded more frequently than long-term debt.
3. Short-term interest rates are usually higher than long-term interest rates.
4. The amount of money that can be raised by short-term borrowing is much less than

Correct answer: Short-term debt must be refunded more frequently than long-term debt.

the amount that can be raised long-term.

Q6. Which of the following describes the hedging approach to financing?

1. Maturity dates of financing instruments are staggered so that they mature in a steady,

predictable fashion. B) Each asset is offset with a financing instrument of the same approximate maturity. C) Each asset is offset with a put or call. D) The firm takes out insurance to protect itself against uneven cash flows.

7. When the firm considers working capital management, the trade off between risk and

return is affected by all of the following except

A) The pattern of cash borrowing needs of the firm. B) The difference between long-term and short-term interest rates. C) The ratio of cash to marketable securities. D) The debt maturity schedule.

Q8. Firms with more certain cash flow patterns can operate with:

1. A higher level of accounts receivable to inventories.
2. A lower proportion of long-term to short-term debt.
3. A lower proportion of liquid to total assets.
4. A higher proportion of liquid to total assets.

Correct answer: A lower proportion of liquid to total assets.

Q9. An increase in the firm's receivable turnover ratio means that ________.

1. It has initiated more liberal credit terms with no increase in sales
2. It is collecting credit sales more quickly than before
3. Cash sales have decreased
4. Inventories have increased

Correct answer: It is collecting credit sales more quickly than before

Q10. The largest single source of short-term financing for businesses collectively is

1. Commercial paper.
2. Trade credit.
3. Bank loans.
4. Trade acceptances.

Correct answer: Trade credit.