MGT201 Solved MCQs with References by Shifa

A company whose stock is selling at a P/E ratio greater than the P/E ratio of a market index most likely has _________.

An anticipated earnings growth rate which is less than that of the average firm

A dividend yield which is less than that of the average firm

Less predictable earnings growth than that of the average firm Greater cyclicality of earnings growth than that of the average firm

Which of the following is called the tax savings of the firm derived from the deductibility of interest expense?

Interest tax shield

Depreciable basis Financing umbrella Current yield

The reduction in income taxes that results from the tax-deductibility of interest payments.

Tax benefits derived from creative structuring of a financing arrangement. For example, usingloan capital instead of equity capital because interest paid on the loans is generally tax deductible whereas the dividend paid on equity is not

Upon which of the following a firm's degree of operating leverage (DOL) depends primarily?

Sales variability Level of fixed operating costs

Closeness to its operating break-even point

Debt-to-equity ratio

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

Magnitude of expected cash flows

Timing of expected cash flows

Both timing and magnitude of cash flows

Ref It discounts the cash flow to take into the account the time value of money. Reference

Expected Portfolio Return = ___________.

rP * = xA rA + xB rB

rP * = xA rA - xB rB rP * = xA rA / xB rB rP * = xA rA * xB rB

What is the most important criteria in capital budgeting?

If stock is a part of totally diversified portfolio then its company risk must be equal to:

1. 5

-1

For most firms, P/E ratios and risk_________.

Will be directly related

Will have an inverse relationship

Will be unrelated None of the above.

Which of the following is the cash required during a specific period to meet interest expenses and principal payments?

Debt capacity

Debt-service burden

Adequacy capacity Fixed-charge burden

Which of the following stipulate a relationship between expected return and risk?

APT stipulates CAPM stipulates

Both CAPM and APT stipulate

Neither CAPM nor APT stipulate

Which of the following factors might affect stock returns?

Business cycle

Interest rate fluctuations

Inflation rates

All of the above

If all things equal, when diversification is most effective?

Which of the followings expressed the proposition that the value of the firm is independent of its capital structure?

The Capital Asset Pricing Model

M&M Proposition I

M&M Proposition II

The Law of One Price