6. Different stakeholders possess different powers and interests. How should stakeholders with high interest and high power be treated? A. Keep them informed about all major happenings B. Devote negligible effort C. Invest maximum effort D. No extra effort needed 7. Risk as it relates to working capital means that there is jeopardy to the firm for not maintaining sufficient current assets to.. A. Meets its cash obligation as they occur and take advantage of prompt payment discounts. B. Support the proper level of sales and fake prompt payment discounts C. Maintain current and acid test ratios at or above industry norms D. Meet its cash obligations as they occur and support the proper level of sales 8. To a financial analysts; working capital means the same thing as A. Total assets B. Fixed assets C. Current assets D. Current asset minus currents liability 9. The purchasing power of money depends upon the A. Price level B. Demand level C. Supply level D. Distribution level 10. According to marketability feature, bonds which are attached to stock warrants have A. Decreased floatation B. Increased floatation C. Increased marketability D. Decreased marketability Use the extract below to answer questions 11 and 12 Your firm is considering building a new office complex. Your firm already owns land suitable for the new complex. The current book value of the land is $100,000. However a commercial real estate agent has informed you that an outside buyer is interested in purchasing this land and would be willing to pay $650,000 for it. When calculating the net present value (NPV) of your new office complex ignoring taxes, 11. The appropriate incremental cashflow for the use of this land is A. $650,000 B. $550,000 C. $750.00 D. 100,000 12. What general deductions can be made from the following financial decision? A. Market value of an asset is always greater than the book value B. Opportunity cost of using an asset is equal to its market values C. Book value of an asset is always discarded in making financial decisions. D. The book value of an asset is greater than its market value 13. Which of the following costs would you consider when making capital budgeting decisions? A. Sunk cost B. Opportunity cost C. Interest expense D. Fixed overhead cost 14. Which of the following formula would correctly calculate net working capital? A. Cash + inventory + receivable + payables B. Cash + inventory + receivables payables C. Cash + inventory receivables + payables D. Cash inventory +receivables + payables 15. Bond holder can make profit by returning bonds and exchanging with other securities if market value with conversion value A. Exceed non-convertible value B. Exceed collateral value C. Exceed mortgage value D. Exceed market value of bond 16. Which of these activities does not exclusively come within the scope of corporate financial decision making? A. How much should be invested B. How much is to be allocated to the marketing budget? C. Which type of finance should be chosen D. How much finance should raised 17. Asymmetric information occur because A. One party to a financial transaction has more information than another B. Stock market prices on the internet lag real time prices by up to fifteen minutes C. Not all investors understand company accounts and balance sheets D. Not all shareholders are able to attend company annual general meetings. 18. Which of the following is not a fundamental concept in corporate financial management? A. Net present value B. The relationship between risk and return C. The business cycle D. Double entry book keeping 19. Which of the following is a legitimate reason why firm value maximization is preferred to profit maximization as the ideal goal for the firm? A. Value takes account of both profit and cashflow B. Value or discounted cashflow is less ambiguous than profit C. Value taken account of depreciation D. Profit is concerned with the longer term. 20. What does the general principal of disclosure and transparency mean? A. The company is oblige to reveal all holding companies, strategic alliances and joint ventures to the government B. The company is obliged to reveal all investment plans to employees C. The company is obliged to reveal all information in a timely manner which could have a significant effect on shareholder welfare. D. The company is obliged to lodge audited accounts with companies house. A bond is represented by the following information Use this information to answer questions 21 to 25. $1000 (X) 5yrs 10% (Y) (Z) 21. What does X, Y and Z represent? X Y Z A. Face Value coupon rate maturity B. Coupon rate maturity par value C. Par value maturity yield to maturity D. Face value maturity coupon rate 22. What is the coupon payment of this bond? A. $ 1200 B. $11200 C. $1020 D. $120 23. How much will the holder of this bond receive in the 3rd year? A. $ 1200 B. $11200 C. $1020 D. $120 24. How much will the holder of the bond receive in the 5th year? A. $ 1200 B. $1120 C. $1020 D. $120 25. If the prevailing market interest rate is 12% then it can be concluded that the bond is sold at A. Premium B. Par C. Discount D. Maximum 26. Businesses maintain cash balances in order to take advantage of unanticipated business opportunities that may come along from time to time. This motive is A. Precautionary B. Transactionary C. Speculative D. Aggressive 27. In corporate financial management, there is a positive trade off between risk and A. Working capital B. Total asset C. Fixed asset D. Return 28. The process of selling and buying of stocks and bonds is classified as A. S-trade B. B-trade C. E trade D. Stock trade A project requires an initial outlay of $500,000 to achieve all its objectives. Shareholders require a return of 12% on their investment. The cashflows from the project for the next five (5) years are presented in the table below. Use it to answer the questions 29 to 35 Year Cash flows Discount value Present value 1 250,000 0.893 Q29 2 Q30 Q31 79700 3 Q32 0.712 85440 4 300,000 Q33 190800 5 320,000 0.567 Q34 29. A. 225000 B. 223250 C. 703243 D. 191800 30. A. 90,000 B. 100,000 C. 150,000 D. 350,000 31. A. 0.743 B. 0.797 C. 0.713 D. 0.543 32. A. 250,000 B. 300,000 C. 120,000 D. 343,000 33. A. 0.543 B. 0.636 C. 0.793 D. 0.715 34. A. 190813 B. 181577 C. 760767 D. 190800 35. What is the Net Present Value (NPV) of the project? A. 193,434 B. 760,767 C. 260,767 D. 243,184 A. 3.113 B. 3.106 C. 2.565 D. 2.535 36. If 18% is the interest rate of a monthly compounded security. Calculate the periodic interest rate. A. 18% B. 21.6% C. 1.5% D. 30% 37. The minimum amount a bank keeps in a non-interest checking account equal to the specific percentage of an amount borrowed is called A. Minimum balance B. Compensating balance C. Cash balance D. Bank overdraft 38. Which of the following illustrate the Altmans Linear Discriminant model? A. Z = 1.3X1 + 1.4 X2 + 3.3 X3 + 0.6X4 + 1.5X5 B. Z = 1. 2 X1 + 1.4 X2 + 3.3 X3 - 0.6X4 + 1.0X5 C. Z = 1. 2 X1 + 1.4 X2 - 3.3 X3 + 0.6X4 + 1.0X5 D. Z = 1. 2 X1 + 1.4 X2 + 3.3 X3 + 0.6X4 + 1.0X5 39. Based on your answer above compute the z-score if X1 = 0.0714 X2 = 0.0314 X3=0.20 X4 = 2.67 X5 = 0.7143 A. 3.113 B. 3.106 C. 2.565 D. 2.535 40. If the above Z-score is for business XYZ in applying for a loan, which of the following conclusion(s) can be drawn. A. XYZ is not credit worthy B. XYZ is credit worthy C. XYZ has a high default risk D. XYZ is in the grey zone. 41. An exchange rate which entails delivery of trade currency within two business days is known as A. Forward rate B. Future rate C. Spot rate D. Bid rate 42. A type of financial security which has linked payoff to another issued security is classified as A. Linked security B. Derivative security C. Payable security D. Non-issuing security 43. Which of the following statements is /are true about euro clear A. Responsible for stocks and bonds for customers B. Deactivates the secondary market and activates the primary market C. Provides useful information to all traders about outstanding uses for sale D. Provides primary mentorship to tenant companies 44. An increase in a firms financial leverage will A. Increase the variability in earnings per share B. Reduce the operating risk of the firm C. Increase the value of the firm in a non-MM world D. Increase the Weighted Average Cost of Capital (WACC) 45. Financial risk refers to the A. Risk of owning equity securities B. Risk faced by equity holders when debt is used C. General business risk of the firm D. Possibly that interest rates will increase 46. Annuity is defined as A. Equal cashflows at equal intervals of time at a specific period B. Equal cashflows at equal intervals of time forever C. Unequal cashflows at equal intervals of time at a specific period D. Unequal cashflows at equal intervals of time forever 47. An investor will receive $5,000 and $10,000 after one and two years from today respectively. If the interest rate during this period is 10% then what is the present value of this cashflow A. $12,000 B. $12,450 C. $12,810 D. $13,705 48. Orchestra Inc. is considering an investment that will cost $80,000 and has a useful life of 4years. During the first 2years, the net-increments after-tax cashflows are $25,000 per year and for the last two years they are $20,000 per year. What is the payback period for this investment? A. 3.2years B. 3.5years C. 4years D. 6years 49. Which of the following statements is incorrect regarding a normal project? A. If the NPV of a project is greater than 0, then its PI will exceed 1 B. If the IRR of a project is 8% its NPV using a discount rate K, greater than 8% will be less than 0 C. If the PI of a project equals 1, then the projects initial cash out flow equals the PV of its cashflows D. If the IRR of a project is greater than the discount rate K, then its PI will be greater than 1 50. A business raises a share capital of $50,000 and a bank loan of $20,000. If stockholders require 11.5% on the investment and the bank charges 8.45% on the loan. Calculate the WACC of the business if the tax rate is 17.5% A. 10% B. 10.21% C. 10.8% D. 10.6% 51. Explain Cost of Capital 52. Explain how risk influences how a firm chooses finance 53. Intuitively explain the rationale behind the acceptance of a project with NPV of zero ( 54. Consider a project with the following Cashflows Year Cashflow 0 -10,000 1 4000 2 4000 3 4000 4 4000 If the appropriate discount rate for this project is 15% compute the Net Present Value of the project and intuitively explain the answer. 55. Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Project C/F C/F C/F C/F C/F C/F C/F C/F C/F Alpha -79 20 25 30 35 40 N/A N/A 15% Beta -80 25 25 25 25 25 25 25 16% Assume that projects Alpha and Beta are mutually exclusive which one would you choose and why? 56. A company has total assets valued at $70,000. It has current liabilities total of $28,000 and long term liabilities of $32,000. Its fixed assets are valued at $42,500 and the company currently has stock worth $15,000. Its gross profit is recorded as 27% which indicates an increase compared to the previous year. Using this information, calculate i. The current ratio ii. The quick ratio iii. What do the figures obtained in I and II tell about the company 57. Cashflow projects A I with their NPVs Project Investment NPV A 135,000 6,000 B 200,000 30,000 C 125,000 20,000 D 150,000 2,000 E 175,000 10,000 F 75,000 10,000 G 80,000 9,000 H 200,000 20,000 I 50,000 4,000 Assuming that your capital is constrained so that you only have $600.000 available to invest in projects above, which project (s) should you invest in and in what order? Use profitability index in for your ranking PI = NPV INVESTMENT 58. a. Explain the term financial planning b. Briefly discuss the importance of effective financial planning in an organization c. Discuss the steps involved in the financial planning process. 59. It costs Okukuseku Company 20 in labor, 10 in electricity and 15 is printing materials to produce a text book which sells for 90 each. Straight line depreciation is used to apportion the cost of the fixed tangible asset over its 5 year useful economic life. The original cost of the asset 20,000 and has a scrap value of 5000. Other fixed costs that go into producing a text book amount to 1500. The total revenue for the accounting period is 13,400. Calculate i. The total fixed cost for the account period ii. The product breakeven level iii. Break even sales level iv. The margin of safety as a percentage of sale v. If the selling price is decreased by 15% calculate the new product breakdown level 60. If a firm needs $100 million to finance it new project and the floatation cost is expected to be 5.5% i. How much should the firm raise by selling price securities? ii. How much is the flotation costs? C. An investor invests $100 and receives the following returns from the portfolio Year Returns (%) 1 3 2 5 3 8 4 -1 5 10 i. Calculate the arithmetic and geometric mean return of the portfolio ii. Which of these two average methods is better in estimating average return of investment? Why? iii. Differentiate between equity participation and matching fund.