V and VI
1. All the above are externally generated funds for organizations
except___________.
a) Business angels.
b) Retained earnings.
c) Common Stock Issuance.
d) Sale of Assets.
2. You are the finance minister for Nana Addo Dankwa Akufo-
Addo’s government, the government is considering a new
investment project with no anticipated returns in the early years.
What financial principle should the government consider regarding
the duration of finance for this project?
a) The government should raise long-term finance to ensure stability
and avoid the need for frequent refinancing.
b) The government should rely on internal funds and not seek
external financing for the project.
c) The government should raise short-term finance to match the
project's expected short-term cash flow.
d) The government should consider a mix of short-term and long-
term financing to match the varying cash flow needs of the project.
3. The managing director of Blue Cars Ltd is considering raising new
equity to finance its projects. Which of the above is the most
common method to raise equity?
a) Public Issue
b) Rights Issue
c) Placing
d) Private Placement
4. which of the following equity-raising methods match the Rights of
issue:
i. Involves selling shares to participating institutions at a
maximum 10% discount to the market price.
ii. Grants existing shareholders the right to subscribe to new share
issues in proportion to their existing holdings.
iii. Grants potential shareholders the right to subscribe to new share
issues in proportion to their potential holdings.
iv. Involves offering shares to the general public
a) ii and iv
b) ii only
c) ii, iii, and iv
d) iii only
e) ii and iii
5. Given that Divicut invests in year 1 to return in year 2, what is the
implication of a negative Net Present Value (NPV) when the return
on reinvested earnings (8%) falls short of the required 10%?
a) The NPV is negative, indicating a successful investment
strategy
b) The NPV is negative, suggesting that the return on
reinvested earnings is below the required rate of 10%.
c) The NPV is zero, indicating a break-even scenario with equal
returns and required rates.
d) The NPV is inconclusive without additional information on
the investment horizon.
6. Oval plc is financed solely by equity. Its cash flow from existing
operations is expected to be £29.5 million p.a. in perpetuity, all of
which has hitherto been paid as dividend. Shareholders require a
return of 10 percent. Oval has previously issued 20 million shares.
The total value of the dividend stream is:
a) a. £20 million
b) b. £29.5 million
c) c. £295 million
d) d. £590 million
7. According to the efficient markets hypothesis (EMH), what is a
characteristic of an efficient market?
a) Limited information availability
b) Delayed reaction to new information
c) Freely available information to all participants
d) Inconsistent reflection of intrinsic value in prices
8. In an efficient market, the weak form of efficiency implies that
consistently achieving superior returns is possible through trading
rules based on past stock market data.
a) True
b) False
9. What implication does the notion of stock prices being essentially
random walks have for generating above-average returns?
a) Past stock prices have predictive power for future returns
b) Randomly arising patterns in past stock prices can generate above-
average returns.
c) There is no predictive power in past stock prices for share
prices or returns.
d) Simple rules can consistently generate above-average returns based
on available information.
10. Why might investors not need to be unduly concerned about
overpaying for a particular share in an efficient market?
a. Share prices are always undervalued.
b. Share prices reflect the value of the stock given the available
information.
c. Investors consistently achieve above-average returns.
d. Market efficiency is irrelevant to share valuation.
11. According to the efficient markets hypothesis, the irrational
behavior of some investors is rectified by:
a. More irrational behavior from other investors
b. Rational arbitrageurs who profit from the irrationality of
others
c. Complete market crashes
d. Government intervention in the stock market
12. The role of rational arbitrageurs in the efficient markets hypothesis is
to:
a. Contribute to market inefficiency
b. Profit from the irrationality of others and rectify market
anomalies
c. Cause overreactions in the market
d. Ignore new information in the market
13. Oval plc is financed solely by equity. Its cash flow from existing
operations is expected to be $29.5 million p.a. in perpetuity, all of
which has hitherto been paid as dividend. Shareholders require a
return of 10 percent. Oval has previously issued 20 million shares.
What is the yielding share price?
a. $14.75 (ex-div)
b. $1.475 (ex-div)
c. $15.11 (ex-div)
d. 15.75 (ex-div)
14. In an efficient capital market, what is the expected dilution effect
on the share price with a scrip dividend?
a. Share price is expected to rise
b. Share price is not affected
c. Share price is expected to fall
d. Share price becomes volatile
15. From the firm's perspective, what advantage does the scrip
alternative offer in terms of financial gearing?
a) It increases reported financial gearing
b) It has no effect on financial gearing
c) It may decrease reported financial gearing
d) It reduces borrowing capacity
16. What is parallel matching in the context of hedging against
currency fluctuations?
a. Matching the same currency for revenue and cost streams
b. Matching different currencies for revenue and cost streams
c. Avoiding hedging altogether
d. Ignoring currency fluctuations
17. What strategic measures can firms implementing services in
overseas locations adopt to achieve a 'self-hedging' effect?
a. Diversify sourcing by obtaining components and inputs from
various countries.
b. Establish operating subsidiaries in countries where sales are made.
c. Borrow in the same currency as cash inflows.
d. All of the above.
18. How can a British firm producing and selling in the USA achieve
a natural hedge against sterling/dollar variations?
a. Increase the exposure to sterling/dollar variations
b. Decrease the exposure to sterling/dollar variations
c. Hedge only the profit element
d. Source inputs from a different currency
19. Why is it considered prudent for firms to safeguard against the
impact of future contingencies related to foreign exchange (FX)
variations?
a. FX markets always move quickly to new equilibria
b. FX markets are predictable and stable
c. Foreign exchange markets cannot always be relied upon to
move quickly, and it is sensible to anticipate changes in
operating conditions
d. Competitors in international markets rarely adapt to changing
conditions
20. What is the suggested approach for mitigating translation risk in
foreign projects?
a. Striving for perfect matching of assets and liabilities.
b. Acknowledging the impossibility of matching assets and liabilities
due to limitations in capital markets.
c. Recognizing that matching applies primarily to property assets
and working capital items.
d. Relying on the Law of One Price to eliminate the necessity for
matching.
21. Why is using the forward market to hedge against variations in
the value of cash flows challenging for firms in foreign projects?
a. The forward market has a very limited time horizon.
b. The forward market is highly predictable.
c. The forward market is well-regulated for all currencies.
d. The forward market is always available for all currencies.
22. In the context of foreign investment projects, what best
describes a buy-back?
a. An arrangement to repurchase shares of the foreign project.
b. A method for financing and managing foreign investment
projects, wherein suppliers agree to receive payment in the
form of the future output of the investment.
c. A strategy for hedging against currency fluctuations.
d. A reciprocal agreement involving the exchange of goods and
services between importers and exporters.
23.
