Q1- P&G, pays $5 dividend per year, and the board of directors has no
plans to change the dividend. The firm’s investors require a 20%
return on investment. What should be the market price of the firm’s
stock?
$25
$30
$35
$20
Market price = Dividend per share / Required return on investment
Market price = $5 / 0.2 = $25
Q2- The principle that allows us to treat each project as a stand-alone
firm when we perform an NPV analysis, is known as:
stand-alone principle
Independent Principle
NPV principle
None of these
Q3- Costs that do not vary directly with the number of units sold is
termed as:
Fixed cost
Variable cost
Sunk cost
Predictable cost
Q4- Dividend Yield is:
stock’s annual dividend divided by its current price
Stock's total dividend of the year
The total equity shares
None of these
Q5- In the constant growth dividend model:
g must be less than R
g must be greater than R
g must be equal to R
g and R can take any value independently
Q6- Projects for which acceptance of one precludes acceptance of the
other are termed as,
mutually exclusive projects
contingent projects
independent projects
None of these
Q7- When a fi rm has all the money it needs to invest in all the capital
projects that meet its capital selection criteria, the fi rm is said to be
operating without a:
Funding constraint
capital constraint
scarcity
capital rationing
Q8- A tax system in which the marginal tax rate at low levels of
income is lower than the marginal tax rate at high levels of income is:
Progressive Tax System
Regressive tax system
Add on tax system
Marginal tax System
Q9- A specific location on the floor of a stock exchange at which
auctions for a particular security take place is called as:
Post
Window
Floor
Desk
Q10- Which is not one of the five general rules for incremental Cash
Flow Calculations:
Exclude the impact of the project on cash flows of other product lines
Include cash flows only
Include all opportunity costs
Ignore sunk costs
Q11- Kingston, Inc. has evaluated a project that will cost the company
$250,000. The project will provide the following cash flow:
Project
Year
$80,750
1
93,450
2
40,235
3
145, 655
4
Will the project be chosen if the company’s payback criterion is three
years?
No, the project will not be chosen if the company’s payback criterion is three
years.
The payback period is the amount of time it takes for a project to generate
enough cash flow to cover its initial investment. In this case, the payback period is
3.5 years. This is because the project generates $80,750 in cash flow in year 1,
$93,450 in cash flow in year 2, $40,235 in cash flow in year 3, and $655,145 in
cash flow in year 4. The total cash flow generated in the first three years is
$214,435, which is less than the initial investment of $250,000. Therefore, the
project will not be chosen if the company’s payback criterion is three years.