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Objective Type Set
Online MCQ Assignment
Question Solution
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State whether the following statements are True or False :
Q1: Divestitures represent the sale of a part of a total undertaking.
Ans: True
Q2:  In a reverse merger a smaller company acquires a larger company.
Ans: True
Q3: Stock Dividends and Stock Splits may increase the stock price but not the value of the business.
Ans: True
Q4: Under discounted cash flow model of asset valuation, estimated cash flows during life of the asset are not required.
Ans: False
Q5: Buying the units of mutual funds is an indirect investment.
Ans: True
 
Fill in the blanks by using words/phrases given in the brackets :
Q1: In case of Deep Discount Bond, the issue price is _________ always the face value. (less than / more than)
Ans: less than
Q2: While valuing the leasehold land of a company, one  _________ subject it to amortization. (should/should not)
Ans: should
Q3: Market value per share is expected to be  _________  than the book value per share in case of profitable and growing firms. (higher/lower)
Ans: higher
Q4: The risk in holding a government bond is  _________  the risk associated with a debenture issued by a company. (more than/less than)
Ans: less than
Q5: The risk that the cash flows will not be delivered is called  _________  (liquidity risk/default risk)
Ans: default risk
Q6: A ratio between the market value of a company to the replacement value of its assets is known as  _________ Ratio (Market value to Book value/Market value to Replacement value/ Tobin’s Q/Price to  ook value).
Ans: Tobin’s Q
Q7: The cost of a patent should be amortised over the legal life or the useful life, whichever is  _________ (shorter/longer)
Ans: Shorter
Q8: In a debt for equity swap, a firm replacing equity with debt its leverage ratio. (increases/decreases)
Ans: Increases
Q9: Specific risk of a firm is also called as  _________ risk. (systematic/non-systematic)
Ans: non-systematic
Q10: Revaluation of assets is undertaken to attract investors by indicating to them  _________ value of the asset. (current/future)
Ans: current
 
In each of the questions given below one out of the four options is correct. Indicate the correct answer :
Q1: Estimated fair value of an asset is based on the ……………… value of operating cash flows.
(a) current
(b) discounted  [Ans]
(c) future
(d) none of these
 
Q2: A theory that explains why the total value from the combination resulted from a merger is greater than the sum of the value of the component companies operating independently is known as ……………… theory.
(a) hubris
(b) agency
(c) operating
(d) synergy  [Ans]
 
Q3: A firm’s current assets and current liabilities are 1600 and 1000 respectively. How much can it borrow on a short-term basis without reducing the current ratio below 1.25?
(a) Rs.1,000
(b) Rs.1,200
(c) Rs.1,400  [Ans]
(d) Rs.1,600
Q4: Identify which of the following is not a financial liability
(a) X Ltd. has 1 lakh Rs.10 ordinary shares issued  [Ans]
(b) X Ltd. has 1 lakh 8% Rs.10 redeemable preference shares issued
(c) X Ltd. has Rs.2,00,000 of 6% bonds issued
(d) Both (a) and (b)
 
Q5: RICO LTD has PAT of Rs.40.20 lakh with extra ordinary income of Rs.7.00 lakh. If the cost of capital is 20% and the applicable tax rate is 40% the value of Rico Ltd will be:
(a) Rs.250 lakh
(b) Rs.180 lakh  [Ans]
(c) Rs.150 lakh
(d) Insufficient information
(i) Zero coupon bonds have no coupon rate, hence no yield.
TRUE
FALSE[Ans]
(ii): Deferred Tax Liabilities are the liabilities towards payment of tax at some future point of time and hence, while calculating the Net Worth of a company, it should be deducted.
TRUE
FALSE[Ans]
(iii) Value gap is the difference between the synergy value and purchase price.
TRUE
FALSE[Ans]
(iv) Industrial groups are inherently less conservative than investors in allocating resources.
TRUE
FALSE[Ans]
(v) In a debt for equity swap, a firm replacing equity with debt decreases its leverage ratio.
TRUE
FALSE[Ans]
(i) Price/Earning (PE) Ratio of a company is____related to Dividend Payout Ratio
Positively[Ans]
Negatively
not
(ii) The stronger a brand of a company is____ its risk
lower is[Ans]
higher is
nothing can be said regarding
(iii) Intangible assets are treated as____assets
Fixed[Ans]
fictitious
(iv)____risk remains fixed irrespective of number of securities in portfolio
Systematic[Ans]
Unsystematic
(v) Seller of a futures contract incurs a loss when the future price____
Increases[Ans]
decreases
(vi) The____. (Tangible/ Intangible) Assets monitor is a management tool for organizations that wish to track and value their____assets
Tangible/ intangible
Intangible/Intangible[Ans]
(vii) Dividend yield is the dividend per share as a % of the_____value of the share
book
market value[Ans]
(viii) The dividend discount model is a specific case of____valuation.
bond
equity[Ans]
(ix) Super profit is the excess of future maintainable profit over…..expected profits
Normally[Ans]
abnormally
(x) DCF analysis requires the revenue and expenses of____
past
future[Ans]
(i) Which is not a, human – capital related intangible asset?
Trained workforce
Employment agreements
Union contracts
Design patent
(ii) A share, Y, currently sells for `50. It is expected that in one year it will either rise to `55 or decline to `45. The value of a European call, if the strike price of the underlying share is `48 and the risk free interest rate is 9% p.a. is
Rs.9.33
Rs.11.33
Rs.18.33
Rs.20.50
(iii) The beta
(â) of portfolio is equal to
The beta of the market portfolio
The arithmetic average of the individual security betas
The weighted average of the individual security betas
None of these
(iv) A company is having Book Value per share of `15 while the market value per share is `20. If a company has 20 crores number of shares and Book Debt of `100 crores, then its Enterprise Value will be
Rs.300 Crores
Rs.400 Crores
Rs.500 Crores
None of the above
(v) If the company has a P/E Ratio of 12 and a ROE of 13%, then its Market to Book Value Ratio will be
1.09
1.56
9.34
Nothing can be concluded as information available is insufficient