Mid Term Subjective Questions from Past Papers of
Business Finance ACC501
Q No 1 Marks: 5
Cash Flows for a project are given below:
| Period | Cash Flows |
| 1 | Rs.8,000 |
| 2 | Rs.12,000 |
| 3 | Rs.20,000 |
| 4 | Rs.35,000 |
| 5 | Rs.40,000 |
Compute the Future Value of cash flow stream of project at the end of year 5 with a compound annual interest rate 14%.
Q No 2 Marks: 5
Explain the difference between Simple Interest & Compound Interest with the help of example.
Q No 3 Marks: 5
A company has total annual sales (25% on cash basis) of Rs.3,000,000 and a gross profit margin of 20 %. Its current assets are Rs. 500,000; current liabilities are Rs. 340,000; inventories are Rs. 260,000; and cash is Rs. 60,000.
Calculate:
(a) How much average inventory should be carried if management wants the inventory turnover to be 5 times? and
(b) How rapidly (in how many days) must accounts receivable be collected if management wants to have an average of Rs.240,000 invested in receivables? (Assume a 365-day year.)
Q No 4 Marks: 5
ST manufacturing company is offering the following bonds for issue. Calculate the value of each bond.
|
Bond |
Par Value (Rs.) |
Coupon Rate (%) |
Years to Maturity (Years) |
Req. Stated Return (%) |
| A | ||||
|
1,000 |
7 |
12 |
8 |
|
| B | ||||
|
500 |
12 |
15 |
10 |
|
| C | ||||
|
100 |
16 |
20 |
12 |
Note :
>> In case of Bond A, interest payments are made annually
>> In case of Bond B, interest payments are made semi-annually
>> In case of Bond C, interest payments are made quarterly
Q No 5 Marks: 3
Discuss the significance of financial statements.
Q No 6 Marks: 3
What is underwriting contract? Discuss in detail.
Q No 7 Marks: 3
How much an investor has to invest a lump sum amount in order to have Rs.3 million in 20 years from now if the rate of interest is 16 % compounded quarterly?
Q No 8 Marks: 3
Mr. Martin is considering the purchase of land for Rs.650, 000, which may be sold for Rs.850, 000 in 7 years. If the discount rate is 16% compounded quarterly, will this be a good investment?
Q No 9 Marks: 3
Mr. Imran has Rs.150, 000 in cash that he can deposit in any of four savings accounts in four different banks for a 7 year period. Bank A compounds interest on an annual basis; Bank B compounds interest twice each year; Bank C compounds interest each quarter and Bank D compounds interest on daily basis. All four banks have a stated annual interest rate of 12%.
Required:
- What amount would Mr. Imran have at the end of 7th year in each bank?
- What effective annual interest rate would be earned in each of the four banks?
- On the basis of your findings in a and b, which bank should Mr. Imran deal with? And why?
Q No 10 Marks: 10
Mr. Martin has $20,000 that he can deposit in savings accounts of any of three banks for a three year period. Bank A compounds on an annual basis; Bank B compounds interest twice each year; Bank C compounds interest each quarter. All three banks have a stated annual interest rate of 4%.
Required:
a. What amount would Mr. Martin have at the end of 3rd year in each bank?
(Marks: 08)
b. On the basis of your findings in part a, describe which bank should Mr. Martin deal with and why? (Marks: 02)
Q No 11 Marks: 3
Why would you prefer corporate form of organization over other forms of business organizations? Discuss giving at least three arguments.
Q No 12 Marks: 3
What is an agency relationship? Describe the reason that results in agency problem.
Q No 13 Marks: 3
Suppose a Corporation has a taxable income of Rs.50000 and the tax amount calculated is as given below:
Rs.30000 x 5% = Rs.1500
(Rs.40000 – 30000) x 10% = 1000
(Rs.50000 – 40000) x 15% = 1500
Rs.4000
Total tax amount is Rs.4000. Average tax rate is Rs.4000 / 50000 = 8.0%. Marginal tax rate will be:
v 39%
v 34%
v 15%
v 25%
Q No 14 Marks: 3
What do you understand by seniority in a bond indenture?
Q No 15 Marks: 3
What are the three factors that affect Return on Equity, according to Du Pont Identity?
Q No 16 Marks: 3
In context of inflation and returns, the relationship between real and nominal returns
is described by:
v Fisher Effect
v Ricardo Effect
v Robbins Effect
v Fredrick Effect
Q No 17 Marks: 3
What is optimal credit policy state?
Q No 18 Marks: 3
What is difference between market value and book value?
Q No 19 Marks: 3
How cost of debt can be measured?
Q No 20 Marks: 5
Define benchmarking and its method?
Q No 21 Marks: 5
Find out portfolio?
Q No 22 Marks: 5
Find out capita gain and dividend yield and total percentage of return?
Q No 23 Marks: 5
Describe difference type of firm’s inventory and retail business?
Q No 24 Marks: 5
What is the best cash policy lec 41 page no.219
Q No 25
What do you understand by seniority in a bond indenture?
Q No 26
Explain the difference between Simple Interest & Compound Interest with the help of example?
Q No 27
What is underwriting contract? Discuss in detail?
Q No 28
Discuss the significance of financial statements?
Q No 29
CVP Corporation has a policy of paying a $10 per share dividend every year. This policy is to continue indefinitely. What is the value of a share of stock if the required rate of return is 20%?
Q No 30
Why would you prefer corporate form of organization over other forms of business organizations? Discuss giving at least three arguments.
Q No 31
What do you understand by seniority in a bond indenture?
Q No 32
What are the basic three determinants of term structure? 3Marks
Q No 33
According to Du Pont Identity What are the tree things by which ROE is affected? 3Marks
Q No 34
Why financial statements are standardized and how it done? 3Marks
Q No 35
SNT Inc bond have a Rs.1000 Future Value. The promised annual coupon is Rs.80 and the bond mature in 15years. The market required return on similar bond is 10%. Calculate the Value of bond and weather it is Discount bond or Premium bond? 5Marks
Q No 36
Simple interest calculation numerical
U want to deposit 10,000 in bank at interest rate 8% what will b the amount after 4 years if bank offers simple interest rate 3 marks
Q No 37
Define benchmarking 5 marks
Q No 38
Define debt and equity 5 marks
Q No 39
What arethe contents of the indentures 3 marks
Q No 40 (3 Marks)
Method of Calculating Yield to Maturity?
Question # 41 (3 Marks)
what is meant by total vu39 assets management ratios? name any common ratio under this category?
Question # 42 (5 marks)
Bond valuation Numerical question, given from discount bond valuation.?
Question Material:
face value = 1000
annual coupon = 80
t = 15 years
Market value of the identical bond = 10%
Question # 43 (5 Marks)
Find the debt equity? when profit margin ratio = 10%, Total Assets Turnover = 1.35times, ROE = 15.70%.
Question # 44 (3 Marks)
Method of Calculating Yield to Maturity?
Question # 45 (3 Marks)
what is meant by total vu39 assets management ratios? name any common ratio under this category?
Question # 46 (5 marks)
Bond valuation Numerical question, given from discount bond valuation.?
Question Material:
face value = 1000
annual coupon = 80
t = 15 years
Market value of the identical bond = 10%
Question # 47 (5 Marks)
Find the debt equity? when profit margin ratio = 10%, Total Assets Turnover = 1.35times, ROE = 15.70%.
Q No 48
What do profitability ratios measure? Name commonly used ratios used in this regard. (3)
Q No 49
Write down the content of bond indenture. (3)
Q No 50
Why the present value of an ordinary annuity is less than that of an annuity due? (3)
Q No 51
Write internal and external uses of financial statements information. (5)
Q No 52
Find out the current price of the stock in the following case: (5)
(a). Mr Asad buys a share of stock today, with a plan to sell it in a year. its worth will be Rs. 90 at that time. along with a dividend payment of Rs. 10 per share. Required Rate of return on investment is 25%.
(b). SNT corporation has policy of paying @Rs 15 per share dividend per year. This policy is to continue definitely with a required rate of return of 20%.
Q No 53
A company has total annual sales (25% on cash basis) of Rs.3,000,000 and a gross profit margin of 20 %. Its current assets are Rs. 500,000; current liabilities are Rs. 340,000; inventories are Rs. 260,000; and cash is Rs. 60,000. Calculate: (a) How much average inventory should be carried if management wants the inventory turnover to be 5 times? and (b) How rapidly (in how many days) must accounts receivable be collected if management wants to have an average of Rs.240,000 invested in receivables? (Assume a 365-day year.)
| Q No 54
What is the basic goal of a corporation? Answer: The traditional answer is that the managers of the corporation are obliged to make efforts to maximize shareholder wealth. Alternatively, the goal of the financial manager is to maximize the current value per share of the existing stock. |
|
| Question: 55 | What is the difference between Gross Working Capital and Net Working Capital? |
| Answer: | The term Gross Working Capital refers to total current assets whereas Net Working Capital is equal to total current assets minus total current liabilities. |
| Question: 56 | What role a Financial Manager is supposed to play ? |
| Answer: | To create value, the financial manager should: – try to make smart investment decisions. – try to make smart financing decisions. |
| Question: 57 | How many kinds are there of business structures? |
| Answer: | There are three main kinds of business structures: – Sole-proprietorship – Partnership – Corporation |
| Question: 58 | What kind of roles Treasure and Controller play under Chief Financial Officer (CFO)? |
| Answer: | A treasurer plays role of a financial manager whereas a controller plays role of an accountant. |
| Question: 59 | Is Finance important for other areas of the firm? |
| Answer: | Yes, Finance is as important for other areas as it is for the finance section of a firm. |
| Question: 60 | What are the four basic areas of Finance? |
| Answer: | Four basic areas of Finance include: – Business Finance – Investment – Financial Institution – International Finance |
| Question: 61 | What ultimate objective should be achieved by making a capital structure? |
| Answer: | The ultimate objective while making a capital structure is to maximize the overall value of the firm. |
| Question: 62 | What is meant by the term “Capital Budgeting”? |
| Answer: | Capital Budgeting is the process of planning expenditures on assets whose cash flows are expected to extend beyond one year. In other words, the process of planning and managing a firm’s long-term investments. |
| Question: 63 | How the business structure “Sole-Proprietorship” will be defined? |
| Answer: | A sole proprietorship is a business owned and operated by one individual. |
| Question: 64 | How the business structure “Partnership” will be defined? |
| Answer: | An unincorporated business owned by two or more persons. |
| Question: 65 | How the business structure “Corporation” will be defined? |
| Answer: | A legal entity created by a state, separate and distinct from its owners and managers, having unlimited life, easy transferability of ownership, and limited liability. |
PAPER#1
Question # 1 (3 Marks)
Method of Calculating Yield to Maturity?
Question # 2 (3 Marks)
what is meant by total vu39 assets management ratios? name any common ratio under this category?
Question # 3 (5 marks)
Bond valuation Numerical question, given from discount bond valuation.?
Question Material:
face value = 1000
annual coupon = 80
t = 15 years
Market value of the identical bond = 10%
Question # 4 (5 Marks)
Find the debt equity? when profit margin ratio = 10%, Total Assets Turnover = 1.35times, ROE = 15.70%.
PAPER#2
Q:1 What are the basic three determinants of term structure? 3Marks
Q:2 According to Du Pont Identity What are the tree things by which ROE is affected? 3Marks
Q:3 Why financial statements are standardized and how it done? 3Marks
Q:4 SNT Inc bond have a Rs.1000 Future Value. The promised annual coupon is Rs.80 and the bond mature in 15years. The market required return on similar bond is 10%. Calculate the Value of bond and weather it is Discount bond or Premium bond? 5Marks
PAPER#3
<5 marks > Question: Find out the current price of the stock in the following cases:
(a) Mr. Asad buys a share of stock today, with a plan to sell it in a year, hoping that its worth will be Rs. 90 at that time, along with a dividend payment of Rs. 10 per share. The required rate of return on the investment is 25%.
(b) SNT Corporation has policy of paying a Rs. 15 per share dividend per year. This policy is to continue definitely with a required rate of return of 20%
<3 marks> Question:
You need Rs. 500,000 to buy a new vehicle. If you have Rs. 60,000 to invest at 15 percent compounded annually, how long will you have to wait to buy the vehicle