MGT201 Midterm Solved MCQs

MIDTERM EXAMINATION Fall 2009 MGT201Financial Management (Session - 4)

Q1. Among the pairs given below select a(n) example of a principal and a(n) example of an agent respectively. (1 marks)

1. Shareholder; manager
2. Manager; owner
3. Accountant; bondholder
4. Shareholder; bondholder

Correct answer: Shareholder; manager

Q2. What should be the focal point of financial management in a firm? (1 marks)

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 financial market is referred to the market for short-term government and corporate debt securities? (1 marks)

1. Money market
2. Capital market
3. Primary market
4. Secondary market

Correct answer: Money market

Reference: Page 7

Money Markets

Money market generally is a market where there is buying and selling of short term liquid debt instruments. (Short term means one year or less). Liquid means something which is easily en-cashable; an instrument that can be easily exchanged for cash. Following financial instruments are traded in money markets

Q4. Which of the following would generally have unlimited liability? (1 marks)

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

Q5. Which of the following is a major disadvantage of the corporate form of organization? (1 marks)

1. Double taxation of dividends
2. Inability of the firm to raise large sums of additional
3. Limited liability of shareholders
4. Limited life of the corporate form

Correct answer: Double taxation of dividends

Reference:

Q6. Which of the following statement is most accurate? (1 marks)

1. Coverage ratios also shed light on the "liquidity" of current ratios
2. Receivable- and inventory-based activity ratios also shed light on the "liquidity" of current assets
3. Receivable- and inventory-based activity ratios also shed light on the firm's use of financial leverage
4. Liquidity ratios also shed light on the firm's use of financial leverage Reference:

Correct answer: Receivable- and inventory-based activity ratios also shed light on the "liquidity" of current assets

Q10. Question No: 7 ( Marks: 1 ) - Please choose one

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 __________.

1. Incomplete information
2. Fall
3. Rise
4. Remain unchanged

Correct answer: Rise

Q8. You are going to invest Rs.12,500 into a certificate of deposit (CD) at a 6% annual rate (compounded annually) with a maturity of 30 months. How much money will you receive when the CD matures? (1 marks)

1. Rs.14,491
2. Rs.14,518
3. Incomplete information
4. Rs.14,460

Correct answer: Rs.14,460

Reference: FV = PV* (1+i)^n FV = 12500(1.06)^2.5 FV= 14460 Where 30 months divided by 12 we get 2.5 years

Q9. Which of the following would be considered a cash-flow item from a "financing" activity? (1 marks)

1. A cash outflow to the government for taxes
2. A cash outflow to repurchase the firm's own common stock
3. A cash outflow to lenders as interest
4. A cash outflow to purchase bonds issued by another company

Correct answer: A cash outflow to repurchase the firm's own common stock

Q10. In estimating "after-tax incremental operating cash flows" for a project, you should include all of the following EXCEPT __________. (1 marks)

1. Changes in costs due to a general appreciation in those costs
2. The amount (net of taxes) that we could realize from selling a currently unused building of ours that we intend to use for our project
3. Changes in working capital resulting from the project, net of spontaneous changes in current liabilities
4. Costs that have previously been incurred that are unrecoverable

Correct answer: Costs that have previously been incurred that are unrecoverable

Reference:

Q4. Question No: 11 ( Marks: 1 ) - Please choose one

1. Include sunk costs, but ignore opportunity costs
2. Include opportunity costs, but ignore sunk costs
3. Ignore both opportunity costs and sunk costs
4. Include both opportunity and sunk costs

Correct answer: Include opportunity costs, but ignore sunk costs

Reference: