MGT201 Final Term Solved Quizzes

MGT201 FINAL TERM SOLVED QUIZES

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Q1. Who determine the market price of a share of common stock?

1. The board of directors of the firm
2. The stock exchange on which the stock is listed
3. The president of the company
4. Individuals buying and selling the stock

Correct answer: Individuals buying and selling the stock

Q2. What should be the focal point of financial management in a firm?

1. The number and types of products or services provided by the firm
2. The minimization of the amount of taxes paid by the firm
3. The creation of value for shareholders
4. The dollars profits earned by the firm

Correct answer: The creation of value for shareholders

Q3. Which of the following would generally have unlimited liability?

1. A limited partner in a partnership
2. A shareholder in a corporation
3. The owner of a sole proprietorship
4. A member in a limited liability company (LLC)

Correct answer: The owner of a sole proprietorship

Q4. Which of the following is equal to the average tax rate?

1. Total tax liability divided by taxable income
2. Rate that will be paid on the next dollar of taxable income
3. Median marginal tax rate
4. Percentage increase in taxable income from the previous period

Correct answer: Total tax liability divided by taxable income

Q5. Felton Farm Supplies, Inc., has an 8 percent return on total assets of Rs.300,000 and a net profit margin of 5 percent. What are its sales? a. Rs.3, 750,000

1. Rs.480, 000
2. Rs.300, 000
3. Rs.1, 500,000

Correct answer: Rs.480, 000

Since ROI=8% on $300,000 of assets, then net profit is Rs.24,000 (8% × Rs.300,000). Using the net profit and given that the NPM=5%, sales equals Rs.480,000 (Rs.24,000 / 5%).

Q6. Which of the following would not improve the current ratio?

1. Borrow short term to finance additional fixed assets
2. Issue long-term debt to buy inventory
3. Sell common stock to reduce current liabilities
4. Sell fixed assets to reduce accounts payable

Correct answer: Borrow short term to finance additional fixed assets

Q7. With continuous compounding at 8 percent for 20 years, what is the approximate future value of a Rs.20,000 initial investment? a. Rs.52,000

1. Rs.93,219
2. Rs.99,061
3. Rs.915,240

Correct answer: Rs.99,061

Rs.20,000[ e(.08 × 20) ] = Rs.20,000(4.9530324) = Rs.99,061.

Q8. In 2 years you are to receive Rs.10,000. If the interest rate were to suddenly decrease, the present value of that future amount to you would __________. a. Fall

1. Rise
2. Remain unchanged
3. Incomplete information

Correct answer: Rise

Q9. Cash budgets are prepared from past:

1. Balance sheets
2. Income statements
3. Income tax and depreciation data
4. None of the given options

Correct answer: None of the given options

Q10. Which of the following is part of an examination of the sources and uses of funds?

1. A forecasting technique
2. A funds flow analysis
3. A ratio analysis
4. Calculations for preparing the balance sheet

Correct answer: A funds flow analysis

Q11. An annuity due is always worth _____ a comparable annuity.

1. Less than
2. More than
3. Equal to
4. Can not be found

Correct answer: More than

Q12. As interest rates go up, the present value of a stream of fixed cash flows _____.

1. Goes down
2. Goes up
3. Stays the same
4. Can not be found

Correct answer: Goes down

Q13. ABC company is expected to generate Rs.125 million per year over the next three years in free cash flow. Assuming a discount rate of 10%, what is the present value of that cash flow stream? a. Rs.375 million

1. Rs.338 million
2. Rs.311 million
3. Rs. 211 million

Correct answer: Rs.311 million

$311 million. The The cash flow stream would look like this: 125.00 x 0.9090 = 113.63; 125.00 x 0.8264 = 103.30; 125.00 x 0.7513 = 93.91. The sum of the three is $310.84, or $311 million.

Q14. If we were to increase ABC company cost of equity assumption, what would we expect to happen to the present value of all future cash flows? a. An increase

1. A decrease
2. No change
3. Incomplete information

Correct answer: A decrease

Q15. In proper capital budgeting analysis we evaluate incremental __________ cash flows.

1. Accounting
2. Operating
3. Before-tax
4. Financing

Correct answer: Operating

Q16. A capital budgeting technique through which discount rate equates the present value of the future net cash flows from an investment project with the project’s initial cash outflow is known as: a. Payback period

1. Internal rate of return
2. Net present value
3. Profitability index

Correct answer: Internal rate of return

Q17. Discounted cash flow methods provide a more objective basis for evaluating and selecting an investment project. These methods take into account: a. Magnitude of expected cash flows

1. Timing of expected cash flows
2. Both timing and magnitude of cash flows
3. None of the given options

Correct answer: Both timing and magnitude of cash flows

Q18. Which of the followings make the calculation of NPV difficult?

1. Estimated cash flows
2. Discount rate
3. Anticipated life of the business
4. All of the given options

Correct answer: All of the given options

Q19. From which of the following category would be the cash flow received from sales revenue and other income during the life of the project? a. Financing activity

1. Operating activity
2. Investing activity
3. All of the given options

Correct answer: Operating activity

Q20. Which of the following technique would be used for a project that has non –normal cash flows?

1. Multiple internal rate of return
2. Modified internal arte of return
3. Net present value
4. Internal rate of return

Correct answer: Multiple internal rate of return

Q1. Why net present value is the most important criteria for selecting the project in capital budgeting?

1. Because it has a direct link with the shareholders dividends maximization
2. Because it helps in quick judgment regarding the investment in real assets
3. Because we have a simple formula to calculate the cash flows
4. Because it has direct link with shareholders wealth maximization

Correct answer: Because it has direct link with shareholders wealth maximization