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Thread: FIN622 fall 2010 final term quiz preparation for exam 13-01-2011

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    Icon14 FIN622 fall 2010 final term quiz preparation for exam 13-01-2011

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    Question # 8 of 20 ( Start time: 07:50:13 PM ) Total Marks: 1
    Which of the following methods would be most suitable for calculating the return on stocks of a non-listed company?
    Select correct option:

    Dividend Growth model
    Capital Asset Pricing Model
    Security Market Line
    Characteristics line

    When faced with mutually exclusive options, which project should be accepted under the 'Payback Method'?

    Please find the attachment for this paper.
    ► The one with the longest payback period
    ► The one with the shortest Payback period
    ► It doesn’t matter because the payback method is not theoretically correct
    ► None of the given

    Which of the following is a major limitation of an income based method of share valuation in Mergers & Aquisitions? Select correct option:

    Future growth assumptions
    Estimation of future cash flows
    Future cash flow valuation
    Future cash flow discounting

    what about this???
    Which one of the following will precede “FEEDBACK” in the financial planning process?
    ► Choosing a strategy
    ► Implementation of the plan
    ► Comparing budgeted and actual results
    ► Taking corrective measures

    The Control Process:
    When plans are finalized and put to action or implemented, then the actual performance is compared with the budgeted numbers. The difference between the actual and budgeted numbers is called variance. This variance is investigated as to know the real causes of the difference. The investigation leads to initiate the corrective action and to adjust the budget of future periods. The investigation result is known as feedback.
    There are three types of feedback emerging from investigation of variance.
    1. Change The Strategy or Course of Action – If something went wrong with strategy, the course of action is fine tuned or changed to ensure future actual results conform to original plan. For example, if sales was less than the budgeted and variance investigation revealed that sales force could not be motivated then some incentives and bonuses can be offered to motivate the sales force. The future period budgets will be adjusted for the proposed incentive expenses.
    2. Do Nothing – if the results are in line with the planned, no action is required.
    3. Change The Plan – Targets or plan itself is revised rather than changing strategy. For example the targeted profit is scaled down.

    Question # 13 of 20 ( Start time: 10:37:08 PM ) Total Marks: 1
    Inventory between various stages of production is known as:
    Select correct option:

    Work in Process inventory
    Finished goods inventory
    Balanced goods inventory
    Raw materials inventory

    Different Types of Inventory

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    Inventory of materials occurs at various stages and departments of an organization. A manufacturing organization holds inventory of raw materials and consumables required for production. It also holds inventory of semi-finished goods at various stages in the plant with various departments. Finished goods inventory is held at plant, FG Stores, distribution centers etc. Further both raw materials and finished goods those that are in transit at various locations also form a part of inventory depending upon who owns the inventory at the particular juncture. Finished goods inventory is held by the organization at various stocking points or with dealers and stockiest until it reaches the market and end customers.

    Besides Raw materials and finished goods, organizations also hold inventories of spare parts to service the products. Defective products, defective parts and scrap also forms a part of inventory as long as these items are inventoried in the books of the company and have economic value.

    Work in Process inventory

    Raw material is 1st stage in manufacturing the material once taken from store to manufacturing department and processed is no more raw material. . and he is talking about various stages of production and raw material is not between the stages its the 1st and beginning stage. .in all further stages inventory is called work in process inventory till finished goods. . .

    Production Inventory Management and Work-in-Process

    Work-in-process is unfinished goods or products that are between raw materials and finished goods. Raw materials that are currently being used somewhere in the production process would qualify. The actual value of inventory can vary depending on what stage the unfinished product is at. For this reason putting a value on work-in-process inventory is much more difficult than the valuation of raw materials

    Question No: 34 ( Marks: 1 ) - Please choose one
    Financial data for three firms is presented below. Each differs only with respect to philosophy on an aggressive vs. a conservative approach to current asset management.
    Sales Rs.2,000,000 Rs.2,000,000 Rs.2,000,000
    EBIT 200,000 200,000 200,000
    Current Assets 600,000 500,000 400,000
    Fixed Assets 500,000 500,000 500,000
    Total Assets 1,100,000 1,000,000 900,000

    What will be the rate for the firm with the most aggressive philosophy?
    ► 18.2 percent
    ► 33.3 percent
    ► 25.5 percent
    ► 22.2 percent

    1. A firm collects 70 percent of its credit sales in 30 days, 20 percent in 60 days, and 10 percent in 90 days. The average collection period is:

    A) 33 days.
    B) 56 days.
    C) 47 days.
    D) 42 days.

    2. A more aggressive financing policy by a firm would lead to ________
    profitability and ________ risk.
    A) higher, lower
    B) higher, higher
    C) lower, higher
    D) lower, lower

    3. Financial data for three firms is presented below. Each differs only with
    respect to philosophy on an aggressive vs. a conservative approach to
    current asset management .

    Sales $2,000,000 $2,000,000 $2,000,000
    EBIT 200,000 200,000 200,000
    Current Assets 600,000 500,000 400,000
    Fixed Assets 500,000 500,000 500,000
    Total Assets 1,100,000 1,000,000 900,000

    The firm with the least aggressive philosophy has an asset turnover of
    A) 3.33-to-1.
    B) 2.22-to-1.
    C) 5.00-to-1.
    D) 1.82-to-1.

    4. Temporary working capital
    A) Varies with seasonal requirements.
    B) is the constant component of working capital.
    C) excludes inventories.
    D) should be financed with bonds or common stock.

    5. Which of the following would be consistent with a more aggressive (i.e., a
    high risk-profitability) approach to financing working capital?

    A) Financing permanent inventory buildup with long-term funds.
    B) Financing seasonal needs with short-term funds.
    C) Financing short-term needs with short-term funds.
    D) Financing some long-term needs with short-term funds

    6. When the firm considers working capital management, the trade off between
    risk and return is affected by all of the following except
    A) The pattern of cash borrowing needs of the firm.
    B) The difference between long-term and short-term interest rates.
    C) The ratio of cash to marketable securities.
    D) The debt maturity schedule.

    7. A good cash management system involves properly managing
    A) Collections, disbursements, cash balances, and capital investment.
    B) Collections, disbursements, cash balances, and marketable securities investment.
    C) Only collections, disbursements, and cash balances.
    D) Only collections and disbursements.

    8. The International Co. is holding cash as a buffer in case of an unexpected
    need with operations. This is an example of the ________ motive for holding
    A) Precautionary
    B) Speculative
    C) Transactions
    D) Capital needs

    10. A leveraged buyout
    A) is an ownership transfer financed largely by debt.
    B) is facilitated by rising interest rates.
    C) usually involves a labor-intensive business.
    D) results in a publicly held corporation.

    _____________ arises due to internal factors.
    Hard Rationing
    Soft Rationing
    Single period rationing
    All of the given options

    _____________ is a technique which indicates how much a project's NPV will
    change in response to a given change in an input variable, other things held
    Break Even Analysis
    Degree of Operating Leverage
    Sensitivity analysis
    Scenario analysis

    Which of the following is advance tool of Project Evaluation?
    Net Present value NPV
    Internal Rate of Return IRR
    Pay Back Period Method
    Sensitivity analysis

    In case of more than one project, the project with ______ NPV can be undertaken.

    1. Which of the following statements is TRUE regarding Profitability Index?
    a. It ignores time value of money
    b. It ignores return on investment
    c. It ignores future cash flows
    d. It ignores the scale of investment

    2. Which of the following terms refers to the process of systematic investigation of
    the effects on estimates or outcomes of changes in data or parameter inputs or
    assumptions to evaluate a capital project?
    a. Sensitivity Analysis
    b. Fundamental Analysis
    c. Technical Analysis
    d. Trend Analysis

    3. Holding everything else constant, increasing fixed costs ________ the firm's
    break-even point.
    a. Decreases
    b. Increases
    c. Increases the covariance of
    d. Does not affect

    5. If sensitivity analysis concludes that the largest impact on profits would come
    from changes in the sales level, then which of the following recommendations
    should be considered?
    a. Fixed costs should be traded for variable costs
    b. Variable costs should be traded for fixed costs
    c. The project should not be undertaken
    d. Additional marketing analysis may be beneficial before proceeding

    7. Which of the following may be a major reason for hard capital rationing?
    a. Dilution of earning per share (EPS)
    b. High interest rate
    c. High interest expense
    d. Company own policies

    9. Which of the following is a major limitation of Linear Programming Technique of
    capital projects selection?
    a. Time value of money is not considered
    b. Ignores the relative size of the Investment
    c. Project cash flows are ignored
    d. Project profitability is ignored

    11. What is the main purpose of constructing a portfolio of financial assets?
    a. To maximize risk and minimize the return
    b. To maximize the return and minimize the risk
    c. To minimize the risk and minimize the return
    d. To minimize the return and minimize the risk

    14. Which of the following is known as market portfolio?
    a. A portfolio consists of all risk free securities available in the market
    b. A portfolio consists of all securities available in the market
    c. A portfolio consists of securities of the same industry
    d. A portfolio consists of all aggressive securities available in the market

    17. In which of the following conditions a stock is said to be overvalued?
    a. If the stock has market value less than the expected value
    b. If the stock has market value equal to the expect value
    c. If the stock has market value more than the expected value
    d. If the stock has market value less than its intrinsic value

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