Sample/practice exam 2016, questions and answers Paper 2 PDF

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Practice papers to help you for the mid-sem tests. It is very useful because it shows a very similar pattern and usually similar questions are repeated....

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UNDERGRADUATE Sa mpl eT e s t Pa p e r I I Se me s t e r12 0 1 6 3610

BUSI NESSFI NANCEI CORPFI N10 02

Offic i a l Re a d i n gT i me : Wr i t i n gT i me : T o t a l Du r a t i o n

10mi ns 60mi ns 190mi ns

Instructions to Candidate: 1.

Clearly mark all answers on the answer sheet provided.

2.

This is a Closed Book examination.

3.

Please allocate your time according to the percentage contribution of the questions.

5.

Examination materials must NOT be removed from the examination room.

Materials allowed in the examination:  A calculator incapable of storing any text.

PLEASE DO NOT COMMENCE WRITING UNTIL INSTRUCTED TO DO SO

PLEASE SEE NEXT PAGE

Bu s i n e s sFi n a n c eI

Semester 1 2016 Sample Test Paper II

Page 2 of 9

1 mark Questions 1. Which one of the following statements is related to capital budgeting? A. A firm should monitor the ratio of debt to equity financing which it uses. B. A firm should monitor the amount of its current assets as compared to its current liabilities. C. A firm should consider the size, risk, and timing of an asset's cash flows before deciding to purchase that asset. D. A firm should consider various types of loans offered by various lenders before taking out a loan. E. A firm should determine the ideal level of inventory that should be kept on hand. 2. The primary goal of financial management is to maximise the: A. B. C. D. E.

current net income. net working capital. number of shares outstanding. market value of the existing stock. capital structure.

3. Suppose you need to pay your air-ticket of $2400 for a European trip next year. If you deposit money now, you can earn 7% per annum. How much do you need to invest today? A. $1759 B. $1968 C. $2000 D. $2151 E. $2243 4. Which one of the following is the correct formula for computing the future value of an annuity? A. B. C. D. E.

C × (Future value factor − 1) / r C × (Future value factor + 1) / r C / (Future value factor − 1) + r C × (Future value factor + 1) × r C − (Future value factor − 1) / r

5. The interest rate used to calculate the present value of future cash flows is called the: A. B. C. D. E.

compound interest rate. present value factor. future value factor. current yield rate. discount rate.

Bu s i n e s sFi n a n c eI

Semester 1 2016 Sample Test Paper II

Page 3 of 9

6. A financially wise individual would prefer a loan based on __________ interest and an investment earning __________ interest. A. compound; compound B. compound; simple C. simple; compound D. simple; simple E. complex; compound

7. Which one of the following statements correctly applies to a sole proprietorship? A. The business entity has an unlimited life. B. The ownership can easily be transferred to another individual. C. The owner enjoys limited liability for the firm's debts. D. Debt financing is easy to arrange in the firm's name. E. Obtaining additional equity is dependent on the owner's personal finances. 8. Which one of the following is an agency cost?

A. Accepting an investment opportunity that will add value to the firm. B. Increasing the quarterly dividend C. Investing in a new project that creates firm value D. Hiring outside accountants to audit the company's financial statements E. Closing a division of the firm that is operating at a loss 9. A corporation: A. B. C. D. E.

can neither sue another party nor be sued. may not own property. may enter into contracts to borrow funds. can issue its own shares but cannot purchase shares in another entity. can be formed by an oral agreement amongst the shareholders.

10. Which one of the following is a capital structure decision? A. Determining the optimal inventory level B. Establishing the preferred debt-equity level C. Selecting new equipment to purchase D. Setting the terms of sale for credit sales E. Determining when suppliers should be paid

Bu s i n e s sFi n a n c eI

Semester 1 2016 Sample Test Paper II

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11. Over time, the future value of $1000 invested today at 6%, compounded annually, will increase by a(n): A. constant annual amount given the interest on interest effect. B. constant annual amount given that interest is compounded annually. C. decreasing annual amount due to the compounding effect. D. increasing annual amount given the compound interest effect. E. increasing annual amount due to the effects of the simple interest rate.

2 mark Questions 12. An annuity for which the cash flows occur at the beginning of each time period is called a(n): A. ordinary annuity. B. beginning annuity. C. annuity due. D. perpetuity. E. perpetuity due. 13. Which of the following statements about market efficiency is true?

A. A market can be semi-strong form and strong-form efficient but not weak-form efficient. B. A market can be semi-strong form efficient but not weak-form efficient. C. A market can be semi-strong form, weak-form or strong-form efficient but not all simultaneously. D. A market must be weak-form efficient if it is semi-strong form efficient. E. None of the above is true. 14. Which one of the following statements is correct concerning market efficiency? A. Real asset markets are more efficient than financial markets. B. If a market is efficient, arbitrage opportunities should be common. C. In an efficient market, some market participants will have an advantage over others. D. A firm will generally receive a fair price when it sells shares of stock. E. New information will gradually be reflected in a stock's price to avoid any sudden change in the price of the stock.

Bu s i n e s sFi n a n c eI

Semester 1 2016 Sample Test Paper II

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15. Tom is planning to invest the following amounts at 4% interest. How much money will he have saved at the end of year 3?

A. $2200.00 B. $2238.47 C. $2272.80 D. $2309.16 E. $2363.71 16. How much money does Suzie need to have in her retirement savings account today if she wishes

to withdraw $25 000 a year for 30 years? She expects to earn an average rate of return of 6%. A. $324 642.24 B. $331 288.67 C. $333 333.33 D. $340 025.00 E. $344 120.78

Bu s i n e s sFi n a n c eI

Semester 1 2016 Sample Test Paper II

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3 mark Questions (Attempt any 3) 17. A year ago, Fred purchased 300 shares of RPJ stock for $14 400. The stock is currently selling for $36 a share and Fred has decided to sell all of his shares. What is the total return that Fred has earned on this investment if he received a special dividend of $5 per share? A. -25.00% B. -19.44% C. -14.58% D. -8.89% E. -1.38% 18.Adrian Bank offers all home buyers a 25-year mortgage at 8% per annum. If a home buyer borrows $130,000 from the bank, how much must be repaid every year? Assumed that interest compounds annually. A. $ 1,003 B. $10,659 C. $10,787 D. $11,548 E. $12,178

19. Most studies of stock market efficiency suggest that the stock market is highly efficient in the weak form and reasonably efficient in the semi strong form. On the basis of these findings, which of the following statements is correct? A. Information you read in The Australian Financial Review today cannot be used to select stocks that will consistently beat the market. B. The stock price for a company has been increasing for the past 6 months. On the basis of this information it must be true that the stock price will also increase during the current month. C. Information disclosed in companies’ most recent annual reports can be used to consistently beat the market. D. Statements A and C are correct. E. None of the statements above is correct.

20. According to theory, studying historical stock price movements to identify mispriced stocks: A. is effective as long as the market is only semi-strong form efficient. B. is effective provided the market is only weak form efficient. C. is ineffective even when the market is only weak form efficient. D. becomes ineffective as soon as the market gains semi-strong form efficiency. E. is ineffective only in strong form efficient markets

Bu s i n e s sFi n a n c eI

Semester 1 2016 Sample Test Paper II

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5 mark Questions (Attempt any 2) 21. You have approached Which Bank for a loan to buy a house. The bank offers you a $400 000 loan, repayable in equal monthly instalments at the end of each month for the next 20 years. If the interest rate on the loan is 9% per annum, compounded monthly, your monthly repayment (to the nearest dollar) will be: A. $1831 B. $3599 C. $3000 D. $4667 E. $3652 22. Which one of the following statements is correct concerning both the dollar return and the percentage return on a stock investment? A. The dollar return is dependent on the size of the investment while the percentage return is not. B. The dollar return is more accurate than the percentage return because the dollar return includes dividend income while the percentage return does not. C. The dollar return considers the time value of money while the percentage return does not. D. Dollar returns are based on capital gains while percentage returns are based on the total rate of return. E. Dollar returns must either be zero or a positive value while percentage returns can be negative, zero, or positive. 23. Patrick's Furniture has approved your application for credit. The maximum payment they have approved is $130 a month for 60 months. The APR is 14.9%. How much furniture can you afford to purchase using the credit offered by the store? A. $5436.67 B. $5476.57 C. $5508.19 D. $5587.03 E. $5667.54 24. Katie's Coffee Shop spent $84 000 to refurbish its current facility. The firm borrowed 80% of the refurbishment cost at 9.2% interest for five years. What is the amount of each monthly payment? A. $1108.91 B. $1282.16 C. $1333.33 D. $1401.49 E. $1487.06

Bu s i n e s sFi n a n c eI

Semester 1 2016 Sample Test Paper II

FORMULA SHEET Time Value of Money FV = $1*(1+r)n PV = $1/(1+r)n Ordinary Annuity FV A n C ¿ ∗{( 1+i ) −1 } i C PVA ¿ ∗( 1−( 1+i −n ) ) i Annuity Due Ordinary Annuity ¿ ( 1+i ) Perpetuity C = i m Effective Annual Rate j = (1+ ) −1 m Real Rate 1+nominal rate −1 = 1+expected inflation Shares, Bonds and Preference Share Valuation D1 P0 ¿ R−g PBond F C ¿ ∗( 1− ( 1+i )−n ) + n i ( 1+i ) PPS D ¿ PS K PS E PS D WACC = ( R ) + ( R PS ) + V (R d)( 1−T ) V E V Risk and Return

[

Exp(R)

]

n

¿ ∑ ( pi R i ) i=1

Exp( R p )

R ¿ w j E (¿ j¿) ¿ m

¿∑¿ j=1

Exp( R E ) βE

Rf + β E∗( E (R M )−R f ) βA

*(1+D/E)

END OF EXAMINATION

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Bu s i n e s sFi n a n c eI

Semester 1 2016 Sample Test Paper II

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END OF EXAMINATION

ANSWERS 1 2 3 4 5

C D E A E

6 7 8 9 10 11

C E D C B D

12 13 14 15 16 17

C D D C E C

18 19 20 21 22 23 24

E A C B A B D...