Quiz Answer

1300 Words Aug 30th, 2010 6 Pages
MANAGEMENT DEVELOPMENT INSTITUTE (MDI) NMP-XIII CORPORATE FINANCE FOR ENHANCING VALUE (First Quiz) (Open book) Time Allowed: 10 minutes MM: 6

Note: Attempt all the questions. All questions carry equal marks. Correct answers should be marked by darkening the circles in the answer sheet provided.

1. The primary goal of a publicly-owned firm interested in serving its stockholders should be to: a. Maximize expected total corporate profit. b. Maximize expected EPS. c. Minimize the chances of losses. d. Maximize the stock price per share. e. Maximize expected net income.

2. Assume that you plan to buy a share of XYZ stock
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Financial calculator solution:
Inputs: N = 6; I = 2; PV = -1,000; PMT = 0.
Output: FV = Rs.1, 126.16 = Rs.1, 126(rounded off).

7. Assume that you will receive Rs.2,000 a year in Years 1 through 5, Rs.3,000 a year in Years 6 through 8, and Rs.4,000 in Year 9, with all cash flows to be received at the end of the year. If you require a 14 percent rate of return, what is the present value of these cash flows? a. Rs. 9,851 b. Rs.13,250 c. Rs.11,714 d. Rs.15,129 e. Rs.17,353

Solution to Q.No. 7: Time Line: 0 14% 1 2 3 4 5 6 7 8 9 Yrs ├───────┼──────┼────────┼─────────┼───────┼────────┼───────┼─────┼── PV =? 2,000 2,000 2,000 2,000 2,000 3,000 3,000 3,000 4,000

Numerical solution:
PV = Rs.2,000((1-(1/1.145))/.14) + Rs.3,000([(1-(1/1.143))/.14] [1/1.145])+ Rs.4,000(1.149)= Rs.2,000(3.4331) + Rs.3,000(2.3216)(0.5194) + Rs.4,000(0.3075)
= Rs.6,866.20 + Rs.3,617.52 + Rs.1,230.00 = Rs.11,713.72 = Rs.11,714 (rounded off).

Financial calculator solution:
Using cash flows
Inputs: CF0 = 0; CF1 = 2,000; Nj = 5; CF2 = 3,000; Nj = 3; CF3 = 4,000; I = 14.
Output: NPV = Rs.11, 713.54 = Rs.11, 714 (rounded off).

8. A zero coupon bond is a bond that a. Pays interest at maturity b. Is issued at par and redeemed at

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