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MGT201 Financial Management
Mid Term Examination – Spring 2006
Time Allowed: 90 Minutes
INSTRUCTIONS:
Please read the following instructions carefully before attempting any question:
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All questions are compulsory.
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This exam consists of 10 Multiple Choice Questions (MCQ’s), 5 Fill in the Blanks, 5 Short
Questions and 1 Descriptive Question.
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Question No.1-10 are MCQs carrying 1 Mark each, Question No.11-15 are fill in the blanks
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carrying 1 Mark each, Question No.16-20 are short questions carrying 3 Marks each and
Question No.21 is the numerical question carrying 10 Marks.
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You should try to complete MCQ’s in 10 - 15 minutes in order to avail 75 - 80 minutes for
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descriptive questions.
For each MCQ, read the choices available carefully and select the choice which you
consider is the most suitable, by clicking on the appropriate check box.
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Save your answer before proceeding to the next question.
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Do not click the “Finish button” while solving your paper. Once you clicked the “Finish”
button, you will not be able to access your paper again. Click it only at the end after
solving the whole paper, which will be an indication that you have submitted your
complete paper.
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You are required to show all the working of short questions as well as descriptive
question.
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The use of calculator and financial tables is allowed.
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A clock has been given in the exam software. Software will automatically be closed after
90 minutes.
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Remember do not spend too much time on any one MCQ. Since all MCQ’s carry equal
marks, it is important to manage your time and responses to test questions effectively.
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Failure to comply with the supervisor’s directions will result in your test being cancelled.
Please comply with supervisor’s directions to avoid any unpleasant event.
Question No. 1
Marks : 1
Financial management
Profit maximization
Agency theory
Social responsibility
Question No. 2
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__________ is concerned with the acquisition, financing and management of
assets with some overall goal in mind.
Marks : 1
The level of risk generally reduces as the size of the portfolio _________.
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Decreases
Increases
Remains unchanged
Non of the above
Question No. 3
Marks : 1
If the intrinsic value of a stock is greater than its market value, which of the given
options is a reasonable conclusion?
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The stock has a low level of risk.
The stock offers a high dividend payout ratio.
The market is undervaluing the stock.
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The market is overvaluing the stock
Marks : 1
Question No. 4
A market where new securities are bought and sold for the first time is called_________
Question No. 5
Marks : 1
Two projects A & B have payback periods of 4 years and 5 years respectively. Which of
these projects would be more attractive to an investor?
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Project A
Project B
Both the projects A&B
Non of the given options
Marks : 1
Question No. 6
Cost of goods sold increased relative to sales
Sales increased relative to expenses
Increase in tax rate
Dividends were decreased
Question No. 7
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The gross profit margin is unchanged, but the net profit margin declined over the same
period. This could be the result of:
Marks : 1
Net working capital is equal to _____________.
Question No. 8
Marks : 1
The variation in the market price of a security caused by changes in interest rate is
called ___________.
Question No. 9
Marks : 1
The ratios that relate profits to sales and investment are known as ____________
Question No. 10
Interest paid (earned) on both the original principal borrowed (lent) and
Marks : 1
previous interest earned on that principal amount is often referred to as
_________
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Present value
Simple interest
Future value
Compound interest
Question No. 11
Marks : 1
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Rs.2,908,000
Rs.3,270,000
Rs.3,380,000
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Rs.2,250,000
Question No. 12
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A company reported current liabilities of Rs.823,000 and long-term liabilities of
Rs.631,000.If the company had a Debt-Assets ratio of 0.50 : 1, the value of its total
Assets would be ________
Marks : 3
Question No. 13
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What do you mean by fair price of a share? Explain
Marks : 3
What would be the future value of an initial investment of $1000 after 5 years, if
compounded annually at 10%?
Question No. 14
Marks : 3
What does double taxation of corporate income mean? Explain.
Question No. 15
Marks : 3
Define systematic Risk. How can we reduce this Risk?
Question No. 16
Marks : 1
Bond prices move inversely to changes in __________
Question No. 17
Marks : 1
In 2 years, you are to receive $10,000. If the interest rate decreases, the
present value of that future amount to you would __________
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Fall
Rise
Remain unchanged
The correct answer cannot be determined without more information
Question No. 18
Marks : 10
Question No. 19
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A manufacturing concern is considering a new product line to supplement its range
line. It is anticipated that the new product line will involve cash investment of
Rs.700,000 at year 0 and Rs.1.0 million in year 1. After tax cash inflows of Rs.250,000
are expected in year 2, Rs.300,000 in year 3, Rs.350,000 in year 4, and Rs.400,000 each
year thereafter through year 10. Though the product line might be viable after year 10,
the company prefers to be conservative and end all calculations at that time. If the
required rate of return is 15%, what is the net present value of the project? Is the
project acceptable or not?
Marks : 1
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Intrinsic value
Market value
Liquidation value
Book value
Question No. 20
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In financial management, the value calculated by summing up the discounted future
cash flows is called __________.
Marks : 3
Define IRR (Internal rate of return). How would we analyze a project by using IRR
method?
Question No. 21
Marks : 1
When the market's required rate of return for a particular bond is much less than its
coupon rate, the bond is selling at
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A premium.
A discount.
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Cannot be determined without more information
Face value.
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