MCQOPTIONS
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MCQOPTIONS
This section includes 53 Mcqs, each offering curated multiple-choice questions to sharpen your Financial Management/Financial Markets knowledge and support exam preparation. Choose a topic below to get started.
| 1. |
The capital budgeting decisions are analyzed with the help of weighted average and for this purpose |
| A. | component cost is used |
| B. | common stock value is used |
| C. | cost of capital is used |
| D. | asset valuation is used |
| Answer» D. asset valuation is used | |
| 2. |
The rate of required return by debt holders is used for the estimation of |
| A. | cost of debt |
| B. | cost of equity |
| C. | cost of internal capital |
| D. | cost of reserve assets |
| Answer» B. cost of equity | |
| 3. |
In the pure play method, a company can calculate its own cost of capital with the help of averaging an |
| A. | other company capital policy |
| B. | other company beta |
| C. | other company cost |
| D. | other division cost |
| Answer» C. other company cost | |
| 4. |
The cost of equity which is raised by reinvesting earnings internally must be higher than the |
| A. | cost of initial offering |
| B. | cost of new common equity |
| C. | cost of preferred equity |
| D. | cost of floatation |
| Answer» C. cost of preferred equity | |
| 5. |
The type of variability in which a project contributes in the return of company is considered as |
| A. | variable risk |
| B. | within firm risk |
| C. | corporate risk |
| D. | both b and c |
| Answer» E. | |
| 6. |
The risk free rate is subtracted from expected market return is considered as |
| A. | country risk |
| B. | diversifiable risk |
| C. | equity risk premium |
| D. | market risk premium |
| Answer» D. market risk premium | |
| 7. |
A formula of after-tax component cost of debt is |
| A. | interest rate-tax savings |
| B. | marginal tax-required return |
| C. | interest rate + tax savings |
| D. | borrowing cost + embedded cost |
| Answer» B. marginal tax-required return | |
| 8. |
The dividend per share is $15 and sell it for $120 and floatation cost is $3.0 then the component cost of preferred stock will be |
| A. | 12.82 times |
| B. | 0.1282 times |
| C. | 0.1282 |
| D. | 12.82 |
| Answer» D. 12.82 | |
| 9. |
If the future return on common stock is 19% and the rate on T-bonds is 11% then the current market risk premium will be |
| A. | 30 |
| B. | 0.3 |
| C. | 0.08 |
| D. | 8 |
| Answer» D. 8 | |
| 10. |
The special situation in which large projects are financed by with and securities claims on project's cash flow is classified as |
| A. | claimed securities |
| B. | project financing |
| C. | stock financing |
| D. | interest cost |
| Answer» C. stock financing | |
| 11. |
The type of cost which is used to raise common equity by reinvesting internal earnings is classified as |
| A. | cost of mortgage |
| B. | cost of common equity |
| C. | cost of stocks |
| D. | cost of reserve assets |
| Answer» C. cost of stocks | |
| 12. |
In weighted average cost of capital, the cost of capital which is risk adjusted and developed for each category of |
| A. | long-term projects |
| B. | industry [industrial] projects |
| C. | divisional projects |
| D. | short-term projects |
| Answer» C. divisional projects | |
| 13. |
The cost which is used to calculate weighted average cost of capital is classified as |
| A. | weighted cost of capital |
| B. | component cost of preferred stock |
| C. | transaction cost of preferred stock |
| D. | financing of preferred stock |
| Answer» C. transaction cost of preferred stock | |
| 14. |
In weighted average cost of capital, the capital components are the funds that are usually offered by |
| A. | stock market |
| B. | investors |
| C. | capitalist |
| D. | exchange index |
| Answer» C. capitalist | |
| 15. |
If the retention rate is 0.68 then the payout rate will be |
| A. | 0.0147 |
| B. | 1.68 |
| C. | 0.32 |
| D. | 0.68 |
| Answer» D. 0.68 | |
| 16. |
In retention growth model, the payout ratio is subtracted from one to calculate |
| A. | present value ratio |
| B. | future value ratio |
| C. | retention ratio |
| D. | growth ratio |
| Answer» D. growth ratio | |
| 17. |
The historical growth rates, analysis forecasts and retention growth model are the approaches to estimate |
| A. | present value of gain |
| B. | growth rate |
| C. | growth gain |
| D. | discounted gain |
| Answer» C. growth gain | |
| 18. |
The cost of common stock is 15% and the bond yield is 10.5% then the bond risk premium will be |
| A. | 0.0143 |
| B. | 70 |
| C. | 0.255 |
| D. | 0.045 |
| Answer» E. | |
| 19. |
In weighted average cost of capital, the rising in interest rate leads to |
| A. | increase in cost of debt |
| B. | increase the capital structure |
| C. | decrease in cost of debt |
| D. | decrease the capital structure |
| Answer» B. increase the capital structure | |
| 20. |
The bond risk premium is 3% and the bond yield is 10.2% then the cost of common stock will be |
| A. | 0.034 |
| B. | 0.132 |
| C. | 0.072 |
| D. | 0.306 |
| Answer» C. 0.072 | |
| 21. |
The stock selling price is $65, expected dividend is $20 and cost of common stock is 42% then expected growth rate will be |
| A. | 0.1123 times |
| B. | 0.1123 |
| C. | 11.23 times |
| D. | 11.23 |
| Answer» C. 11.23 times | |
| 22. |
In retention growth model, the percent of net income firms usually pay out as shareholders dividends, is classified as |
| A. | payout ratio |
| B. | payback ratio |
| C. | growth retention ratio |
| D. | present value of ratio |
| Answer» B. payback ratio | |
| 23. |
The cost of new debt or marginal debt is also classified as |
| A. | historical rate |
| B. | embedded rate |
| C. | marginal rate |
| D. | both a and b |
| Answer» E. | |
| 24. |
An interest rate which is paid by the firm as soon as it issues the debt is classified as pre-tax |
| A. | term structure |
| B. | market premium |
| C. | risk premium |
| D. | cost of debt |
| Answer» E. | |
| 25. |
The beta which is estimated as regression slope coefficient is classified as |
| A. | historical beta |
| B. | market beta |
| C. | coefficient beta |
| D. | riskier beta |
| Answer» B. market beta | |
| 26. |
The forecast by analysts, retention growth model and historical growth rates are the methods used for an |
| A. | estimate future growth |
| B. | estimate option future value |
| C. | estimate option present value |
| D. | estimate growth ratio |
| Answer» B. estimate option future value | |
| 27. |
The premium which is considered as difference of expected return on common stock and current yield on Treasury bonds is called |
| A. | current risk premium |
| B. | past risk premium |
| C. | beta premium |
| D. | expected premium |
| Answer» B. past risk premium | |
| 28. |
The bond yield is 12% and the bond risk premium is 4.5% then the cost of common stock would be |
| A. | 0.375 |
| B. | 0.075 |
| C. | 0.155 |
| D. | 2.67 times |
| Answer» D. 2.67 times | |
| 29. |
A type of beta which incorporates about company such as changes in capital structure is classified as |
| A. | industry beta |
| B. | market beta |
| C. | subtracted beta |
| D. | fundamental beta |
| Answer» E. | |
| 30. |
The dividend per share is $18 and sell it for $122 and floatation cost is $4 then the component cost of preferred stock will be |
| A. | 0.1525 |
| B. | 0.1525 times |
| C. | 15.25 |
| D. | 0.001525 |
| Answer» B. 0.1525 times | |
| 31. |
The stock selling price is $45, an expected dividend is $10 and an expected growth rate is 8% then cost of common stock would be |
| A. | 55 |
| B. | 58 |
| C. | 53 |
| D. | 0.3022 |
| Answer» E. | |
| 32. |
In weighted average capital, the capital structure weights estimation does not rely on the value of |
| A. | investors equity |
| B. | market value of equity |
| C. | book value of equity |
| D. | stock equity |
| Answer» D. stock equity | |
| 33. |
The interest rates, tax rates and market risk premium are the factors which an/a |
| A. | industry cannot control |
| B. | industry cannot control |
| C. | firm must control |
| D. | firm cannot control |
| Answer» E. | |
| 34. |
The preferred dividend is divided by preferred stock price multiply by (1-floatation cost) is used to calculate |
| A. | transaction cost of preferred stock |
| B. | financing of preferred stock |
| C. | weighted cost of capital |
| D. | component cost of preferred stock |
| Answer» E. | |
| 35. |
The stock selling price is $35, expected dividend is $5 and expected growth rate is 8% then cost of common stock would be |
| A. | 40 |
| B. | 0.2229 |
| C. | 0.1428 |
| D. | 80 |
| Answer» C. 0.1428 | |
| 36. |
The retention ratio is 0.55 and the return on equity is 12.5% then the growth retention model would be |
| A. | 0.1195 |
| B. | 0.06875 |
| C. | 0.1305 |
| D. | 0.2272 |
| Answer» C. 0.1305 | |
| 37. |
For each component of capital, a required rate of return is considered as |
| A. | component cost |
| B. | evaluating cost |
| C. | asset cost |
| D. | asset depreciation value |
| Answer» B. evaluating cost | |
| 38. |
If the payout ratio is 0.45 then the retention ratio will be |
| A. | 0.55 |
| B. | 1.45 |
| C. | 1.82 |
| D. | 0.45 |
| Answer» B. 1.45 | |
| 39. |
The variability for the expected returns for projects is classified as |
| A. | expected risk |
| B. | stand-alone risk |
| C. | variable risk |
| D. | returning risk |
| Answer» C. variable risk | |
| 40. |
The cost of common stock is 16% and the bond yield is 9% then the bond risk premium would be |
| A. | 0.07 |
| B. | 7 |
| C. | 0.0178 |
| D. | 0.25 |
| Answer» B. 7 | |
| 41. |
The interest rate is 12% and the tax savings (1-0.40) then the after-tax component cost of debt will be |
| A. | 0.072 |
| B. | 7.2 times |
| C. | 17.14 times |
| D. | 17.14 |
| Answer» B. 7.2 times | |
| 42. |
If the future return on common stock is 14% and the rate on T-bonds is 5% then the current market risk premium will be |
| A. | 0.19 |
| B. | 0.09 |
| C. | 9 |
| D. | 19 |
| Answer» C. 9 | |
| 43. |
The cost of capital is equal to required return rate on equity in the case if investors are only |
| A. | valuation manager |
| B. | common stockholders |
| C. | asset seller |
| D. | equity dealer |
| Answer» C. asset seller | |
| 44. |
The bond risk premium is added in to bond yield to calculate |
| A. | cost of American option |
| B. | cost of European option |
| C. | cost of common stock |
| D. | cost of preferred stock |
| Answer» D. cost of preferred stock | |
| 45. |
The method in which company finds other companies considered in same line of business to evaluate divisions is classified as |
| A. | pure play method |
| B. | same play method |
| C. | division line method |
| D. | single product method |
| Answer» B. same play method | |
| 46. |
The method uses for an estimation of cost of equity is classified as |
| A. | market cash flow |
| B. | future cash flow method |
| C. | discounted cash flow method |
| D. | present cash flow method |
| Answer» D. present cash flow method | |
| 47. |
An attempt to make correction by adjusting historical beta to make it closer to an average beta is classified as |
| A. | adjusted stock |
| B. | adjusted beta |
| C. | adjusted coefficient |
| D. | adjusted risk |
| Answer» C. adjusted coefficient | |
| 48. |
The retention ratio is 0.60 and the return on equity is 15.5% then the growth retention model would be |
| A. | 0.149 |
| B. | 0.2584 |
| C. | 0.161 |
| D. | 0.093 |
| Answer» E. | |
| 49. |
In weighted average cost of capital, a company can affect its capital cost through |
| A. | policy of capital structure |
| B. | policy of dividends |
| C. | policy of investment |
| D. | all of the above |
| Answer» E. | |
| 50. |
A risk associated with the project and the way considered by well diversified stockholder is classified as |
| A. | expected risk |
| B. | beta risk |
| C. | industry risk |
| D. | returning risk |
| Answer» C. industry risk | |