Corporate Finance

Time value of money supports the comparison of cash flows recorded at different time period by

• Discounting all cash flows to a common point of time

• Compounding all cash flows to a common point of time

• Using either a or b

• None of the above

A ____________ would be an example of a principal, while a ___________ would be an example of an agent, in agency theory.

• shareholder and manager

• shareholder and bondhodlers

• manager and employee

• None of the above

According to which approach 100% debt is the optimum capital structure?

• Net Income Approach

• Net Operating Income Approach

• Traditional Approach

• M.M. Approach

At optimum capital structure, value of the firm and average cost of capital are?

• Minimum, Maximum

• Minimum, Minimum

• Maximum, Maximum

• Maximum, Minimum

Project is accepted when:

• Net present value is greater than zero

• Internal Rate of Return will be greater than cost of capital

• Profitability index will be greater than unity

• Any of the above

A project costs Rs. 50,000. The estimated annual cash inflows during its life are Rs. 14,000, Rs. 19,000, Rs. 17,000 and Rs. 10,000, respectively with dividend of Rs. 60,000. What will be the pay-back period?

• 2.5 years

• 3 years

• 3.5 years

• 4 years

Criteria that measures how quickly project will return its original investment is?

• Accounting rate of return

• Payback period

• Internal rate of return

• Benefit cost ratio

The stock selling price is Rs. 45, an expected dividend is Rs. 10 in the coming year and the expected growth rate is 8% then the cost of common stock would be:

• 0.551

• 0.582

• 0.532

• 0.302

Decision criterion with respect to profitability index to accept project is?

• Profitability index is equal to or less than 1

• Profitability index is greater than 1

• Profitability index is greater than or equal to 1

• Profitability index is less than 1

The span of time within which the investment made for the project will be recovered by the net returns of the project is known as:

• Period of return

• Payback period

• Span of return

• None of the above