MIDTERM EXAMINATION
Spring 2014
ACC501 - Business Finance
Question No: 1 ( Marks: 1 ) - Please choose one
Which of the following is the acronym for GAAP?
► General Accounting Assessment Principles
► Generally Accepted Accounting Principles
► General Accepted Assessment Principles
► Generally Applied Accountability Principles
Question No: 2 ( Marks: 1 ) - Please choose one
Between the two identical bonds having different maturity periods, the price of the ________ bond will change more than that of ________ bond.
► Long-term; short-term
► Short-term; long-term
► Higher-coupon; lower-coupon
► None of the given options
Question No: 3 ( Marks: 1 ) - Please choose one
The long-term rating of “AAA” by PACRA denotes:
► Lowest expectation of credit risk
► Very low expectation of credit risk
► Low expectation of credit risk
► Highest expectation of credit risk
Question No: 4 ( Marks: 1 ) - Please choose one
If a firm is allowed to miss a coupon payment on a bond in a year in which it reports an operating loss, the bond is most likely a(n) _______ bond.
► Income
► Zero coupon
► Floating-rate
► Convertible
Question No: 5 ( Marks: 1 ) - Please choose one
Which of the following is a non-cash item and does not represent a cash flow?
► Tax
► Deferred tax
► Account Receivables
► All of the given options
Question No: 6 ( Marks: 1 ) - Please choose one
Ali, a fresh graduate, decides to go for a business. He wants a business that requires least capital and one time tax payment. Which of the following type of business is best suited to his requirement ?
► Sole proprietor
► Corporation
► Partnership
► Non-government organization
Question No: 7 ( Marks: 1 ) - Please choose one
While calculating operating cash flow, which of the following item is subtracted from EBIT (earning before interest and taxes) ?
► Taxes
► Interest paid
► Depreciation
► Interest received
Question No: 8 ( Marks: 1 ) - Please choose one
Which of the following interpretation BEST describes a company having current ratio of 0.5 ?
► The company has the ability to meet its short-term obligations.
► The current assets of the company are more than the current liabilities.
► The company has less than a rupee in its current assets for paying each rupee of current liability.
► None of the given options
Question No: 9 ( Marks: 1 ) - Please choose one
Which of the following set of ratios is NOT included in the traditional classification of financial ratios?
► Liquidity Ratios
► Prosperity Ratios
► Profitability Ratios
► Financial Leverage Ratios
Question No: 10 ( Marks: 1 ) - Please choose one
Umar and Umair are planning to run a business by sharing their capital. Both have agreed to share profits and losses of the business according to the ratio of their investment. Which of the following type of business entity is being employed by them ?
► Sole-proprietorship
► Partnership
► Corporation
► None of the given options
Question No: 11 ( Marks: 1 ) - Please choose one
Which of the following is NOT a profitability ratio ?
► Profit Margin
► Total Assets Turnover
► Return on Assets
► Return on Equity
Question No: 12 ( Marks: 1 ) - Please choose one
XYZ Corporation has an ROE (Return on Equity) of 15% and a debt-equity ratio of 0.45. What will be the ROA (Return on Assets) for the firm?
► 10.34%
► 11.27%
► 12.04%
► 13.91%
Question No: 13 ( Marks: 1 ) - Please choose one
ROA (Return on Assets) and ROE (Return on Equity) have been calculated as 12% and 16% respectively for M&M Company. What will be the debt-equity ratio of the company ?
► 0.28
► 0.33
► 0.41
► 0.45
Question No: 14 ( Marks: 1 ) - Please choose one
Mr. Ahmad is planning to save Rs. 10,000 with a bank at an interest rate of 9%. What will be the worth of his amount after 5 years if the bank offers simple interest?
► Rs. 15,386
► Rs. 16,000
► Rs. 10,900
► Rs. 14,500
Question No: 15 ( Marks: 1 ) - Please choose one
Mr. Ahmad is planning to save Rs. 10,000 with a bank at an interest rate of 9%. What will be the worth of his amount after 5 years if the interest is compounded semi-annually ?
► Rs. 15,000
► Rs. 15,386
► Rs. 15,529
► Rs. 15,605
Question No: 16 ( Marks: 1 ) - Please choose one
Which of the following is CORRECT regarding the present value discount factor?
► It is equal to zero when discount rate is zero
► It increases as the time period increases
► It decreases as the discount rate increases
► It is always greater than 1.0
Question No: 17 ( Marks: 1 ) - Please choose one
Which of the following term refers to the length of time for which debt remains outstanding with some unpaid balance?
► Coupon
► Principal
► Payment
► Maturity
Question No: 18 ( Marks: 1 ) - Please choose one
Which of the following type of return refers to the inflation-adjusted rate of return on your money?
► Nominal return
► Real return
► Inflation return
► None of the given option
Question No: 19 ( Marks: 3 )
Abid is 23 years old and he has just started his career. He wants to secure his future and wishes to have Rs. 3,000,000 by the time he turned to 50 years. Calculate the amount he should invest today if he can earn 17% on his money.
Answer
Question No: 20 ( Marks: 3 )
What is the difference between real rate and nominal rate?
Answer
Question No: 21 ( Marks: 5 )
A company has net income of Rs. 2,640,000, interest paid of Rs. 500,000, and depreciation of Rs. 1,050,000. The corporate tax rate is 34%. Calculate Interest Coverage Ratio and Cash Coverage Ratio?
Answer
Question No: 22 ( Marks: 5 )
ABC Company has a ROA of 8 percent, a dividend payout ratio of 30 percent, an equity multiplier of 1.5, and a profit margin of 5 percent. What is the firm’s maximum sustainable rate of growth?
Answer
Question No: 23 ( Marks: 5 )
What do you mean by protective covenant? Describe its classifications with examples.
Answer