Corporate Finance Past Papers

By: Prof. Fazal Rehman Shamil

Guess Paper 1: Corporate Finance Fall – 2020 Past Papers

University Name – Confidential

Time Allowed: 3 hours

Total Marks:    70, Passing Marks (35)

Q1: Write short notes on the following:
1. Functions of finance manager
2. Primary market
3. Under writing
4. Stock split

Q2: What are the three types of financial management decisions? For each type of decision, give an example of a business transaction that would be relevant?

Q3: Mr. Rashid invested Rs. 3000 for 4 years in bank. If the interest rate is 14% then how much hw will have at end of 4 years? (Hint: Use Simple interest and compound interest both)

Q4: What are the distinguishing features of debt compared to equity?

Q5: Bata shoes Inc decided to install a new machine which cost Rs. 1,200,000. The annual cash inflow is expected as Rs. 150,000 for 5 years. The interest rate is 19%. Discuss the viability of the project by using payback period and Net present value and elaborate your result?

Q6: ABC company has 50 debt at 8.2 percent. The firm’s WACC is currently 11 percent, and the tax rate is 35 percent. Find the cost of equity of the firm?

Q7: Discuss in detail different forms of organizations?

Guess Paper 2: Corporate Finance Spring – 2020 Past Papers

Time Allowed: 3 hours

Total Marks:    70, Passing Marks (35)

NOTE: Q.1 is compulsory, attempt any four questions from the remaining. All questions carry equal marks. Phones and other Electronic Gadgets are not allowed.

Q1: Choose the correct from multiple choices

1. Which one of the following terms refers to the variability of return on stocks or portfolios, associated
with changes in return on the market as a whole?
a) unsystematic risk b) unique risk c) systematic risk d) company specific risk
2. Determining the mix of debt and equity to be used to finance a firm is which type of a decision?
a) capital budgeting b) working capital c) capital structure
3. The goal of financial management is to maximize the current:
a) net income per share b) dividends per share c) total assets d) market value per share
4. Which one of the following statements concerning the financial markets is correct?
a) Shareholders exchange shares with each other in the primary market b) The New 5. York Stock Exchange is an auction market c) Dealer markets have a physical trading floor.
d) Stocks traded in auction markets are said to trade over-the-counter
5. Which one of the following values will not change when a firm declares a large stock dividend?
a) common stock account balance b) par value per share c) market price per share
d) retained earnings account balance
6. Which one of the following provides limited liability for all of its owners?
a) sole proprietorship b) partnership with only general partners c) partnership with both general and limited partners d) corporation
7. Which one of the following represents a potential agency problem?
a) adherence to the Sarbanes-Oxley Act in 2002 b) hiring a manager and compensating her with shares of company stock c) paying a management bonus based on the number of employees managed d) paying all company earnings out to shareholders in the form of dividends
8. The internal rate of growth assumes which one of the following?
a) 100 percent retention ratio b) constant debt-equity ratio c) additional debt financing but not equity financing d) no new external financing of any kind
9. A negative external financing need indicates that the firm:
a) will need to issue both debt and equity if it wants to achieve its desired level of growth.
b) can grow at the expected rate without obtaining any additional external financing.
c) the firm will need to decrease in size during the pro forma period.
d) will be unable to achieve its maximum rate of growth during the pro forma period
10. Which one of the following statements is correct, assuming all else is constant?
a) The discount rate increases as the present value increases b) The future value decreases as the present value increases c) The time period increases as the interest rate increases d) The present value increases as the discount rate decreases.
11. You invested $5,000 at 6 percent simple interest for five years. How much total interest will you earn over
these five years?
a) $300.00 b) $742.97 c) $1,500.00 d) $1,691.13
12. What is the interest rate per period multiplied by the number of periods per year called?
a) effective annual yield b) compounded effective yield c) periodic rate d) annual percentage rate

13. Firm A is worth $10,000. Firm B is worth $10,000. The combined Firm AB is worth $22,000. The additional
$2,000 of value that is created by combining Firms A and B is called:
a) goodwill b) excess capital c) synergy d) the pooling effect.
14. Of the following ratings, which one is the lowest investment-quality bond rating by Standard & Poor’s?
a) Baa b) A c) BBB d) B
15. Which one of the following is the price you will pay if you buy a bond from a dealer?
a) bid b) yield c) call d) asked
16. Which one of the following is used to appoint an individual to vote on your behalf at a shareholder’s meeting?
a) post b) proxy c) DOT d) yield
17. The Hen’s Nest just paid an annual dividend of $0.82 a share. What will the dividend be in year 4 if the dividend growth rate is 3 percent?
a) $0.88 b) $0.92 c) $0.96 d) $1.00
18. Which one of the following indicates an accept decision for a project?
a) NPV = -$318 b) PI = 0.92 c) IRR = 15.6 percent; Required return = 15 percent
d) Payback = 3.31 years; Required payback = 3 years
19. Which one of the following should be excluded from the cash flows of a project?
a) sunk costs b) taxes c) salvage value d) erosion effects
20. Diversification reduces which type of risk?
a) market b) total c) asset specific d) systematic

Q2: Discus the major decisions of financial management that helps in the accomplishment of the
financial goals. (Marks 13)

Q3: Define share and its role in Pakistan Stock Exchange (PSX) and also differentiate
between common stock and preferred stock. (Marks 13)

Q4: Describe how NPV is calculated and describe the information this measure provides about a
sequence of cash flows. What is the NPV criterion decision rule? (Marks 13)

Q5: a) Discus Present Value, Maturity Value and Discount rate. (Marks 6)
b) Determine the value of a $800 par-value bond with a 10 percent coupon and nine
years to maturity. The required rate of return on the bond is 12 percent. (Marks 7)

Q6: Find the NPV of the two projects at discount rate of 5% .And Interpret the result. (Marks 13)

Years Project 1 Cash Flow Project 2 Cash Flow
0 PKR (1,000.00) PKR (1,000.00)
1 PKR 500.00 PKR 100.00
2 PKR 400.00 PKR 200.00
3 PKR 300.00 PKR 400.00
4 PKR 100.00 PKR 500.00
5 PKR 50.00 PKR 600.00
Q7: Gloria wants to have $20,000 in her investment account ten years from now. Currently, she has nothing saved. How much would she have to deposit today to reach her goal if this is the only amount she invests? She expects to earn 8.5 percent, compounded annually. How much must she deposit today? (Marks 13)

Q8 : Write short notes on any two of the following. (Marks 13)
a. Cash dividend b. Market value and book value c. Firm value and stock value.

Guess Paper 3: Corporate Finance Fall – 2019 Past Papers

Time Allowed: 3 hours

Total Marks:    70, Passing Marks (35)

. Q1. Choose the correct from multiple choices
1. Which of the following values treats the firm as a going concern?
a) market value b) book value c) liquidation value d) none of the above.

2. The limited partners in a limited partnership:
a) are taxed as if the partnership was a general partnership b) have limited liability
c) must be involved in the day to day management of the firm d. answers a and b are both correct
3. If the liquidation value of a firm is negative, then:
a) The firm’s debt exceeds the market value of assets.
b) The firm’s debt exceeds the book value of equity.
c) The book value of assets exceeds the firm’s debt.
d) The market value of assets exceeds the firm’s debt.
4. Firms having a higher expected return have a higher:
a) level of expected risk. b) Dividend yield. c) Market value of equity.
d) Degree of certainty concerning their returns.
5. According to the dividend discount model, the current value of a stock is equal to the:
a) Present value of all expected future dividends. b) Sum of all future expected dividends.
c) Next expected dividend, discounted to the present.
d) Discounted value of all dividends growing at a constant rate.

6. Bonds issued by state and local governments are called:
a) Corporate bonds. b) Municipal bonds. c) Treasury bonds. d) Government agency bonds.

7. The complete termination of the firm as a going concern is called a:
a) Merger. b) Reorganization. c) Divestiture. d) Liquidation.

Q2. What are the Objectives of Financial Management?

Q3. Define Working Capital Management. Explain the types of Working Capital.

Q4. What are the three forms of business organization? Also differentiate general and limited partnership.

Q5. Assume the total cost of a college education will be $200,000 when your child enters college in 18 years. You presently have $27,000 to invest. What annual rate of interest must you earn on your investment to cover the cost of your child’s college education?

Q6. Consider the following two mutually exclusive investments. Calculate the IRR for each and the crossover rate. Under what circumstances will the IRR and NPVcriteria rank the two projects differently?

Year Investment A Investment B
1 -$75 -$75
2 20 60
3 40 50
4 70 15

Q7. What is the impact of financial leverage on stockholders?

Q8. Write short notes on:
a) Bankruptcy Cost
b) The cost of Equity
c) The payback period

Guess Paper 4: Corporate FinanceSpring – 2019 Past Papers

Time Allowed: 3 hours

Total Marks:    70, Passing Marks (35)

Q1. Choose the correct one:
1) The market price of a share of common stock is determined by:
a) The board of directors of the firm.
b) The stock exchange on which the stock is listed.
c) The president of the company.
d) Individuals buying and selling the stock.
2) In the calculation of rates of return on common stock, dividends are _______ and capital gains are _____.
a) guaranteed; not guaranteed
b) guaranteed; guaranteed
c) not guaranteed; not guaranteed
d) D. not guaranteed; guaranteed
3) The book value of a firm’s equity is determined by:
a) multiplying share price by shares outstanding.
b) multiplying share price at issue by shares outstanding.
c) the difference between book values of assets and liabilities.
d) the difference between market values of assets and liabilities
4) A firm’s liquidation value is the amount:
a) Necessary to repurchase all shares of common stock.
b) Realized from selling all assets and paying off its creditors.
c) A purchaser would pay for the firm in bankruptcy.
d) Equal to the book value of equity.
5) The expected return on a common stock is composed of:
a) Dividend yield.
b) Capital appreciation.
c) Both dividend yield and capital appreciation.
d) Capital appreciation minus the dividend yield.
6) All of the following influence capital budgeting cash flows except:
a) Accelerated depreciation.
b) Salvage value.
c) Tax rate changes.
d) Method of project financing used.
7) The investment proposal with the greatest relative risk would have
a) The highest standard deviation of net present value.
b) The highest coefficient of variation of net present value.
c) The highest expected value of net present value.
d) The lowest opportunity loss likelihood.

Q2. What are the determinants of Capital Structure of a company?

Q3. What is meant by Financial Planning? Also discuss the objectives of Financial Planning.

Q4. What do we mean by the present value of an investment? Also differentiate the simple and compound interest.
.
Q5. In the comparison of other forms of business organization, why is the corporate form superior when it comes to raising cash?

Q6 You are offered an investment that requires you to put up $12,000 today in exchange for $40,000 15 years from now. What is the annual rate of return on this investment?

Q7. You are looking at a three-year project with a projected net income of $2,000 in Year 1, $4,000 in Year 2, and $6,000 in Year 3. The cost is $12,000, which will be depreciated straight-line to zero over the three-year life of the project. What is the average accounting return (AAR)?

Q8. Write short notes of the following:
a) Direct bankruptcy cost
b) Dividend policy
c) Real versus Nominal rates

Guess Paper 5: Corporate Finance Fall – 2018 Past Papers

Time Allowed: 3 hours

Total Marks:    70, Passing Marks (35)

Q # 1 Elaborate the chronology of dividend payment?
Q # 2. Elaborate the financial management decisions and investment decisions?
Q # 3.
ABC Company
Income statement For the Year Ended December,31 2017
Net Sales 1059
Cost of Good Sold (300)
Depreciation (65)
Earnings before Interest and Taxes (EBIT) 694
Interest Paid (70)
Taxable Income 624
Taxes (212)
Net Income 412
Dividend Paid 103
Retained Earnings 309
Required: Calculate Operating Cash flows (OCF) from the income statement of ABC Company?

Q #4 Mr. Kashif wants to know how large his deposits of Rs. 100000 today will become at a compound annual interest rate of 10% for five years?
(ii) How long does it take to double Rs. 50000 at a compound rate of 12% per year?

Q # 5 a) Bond P has a $1,000 face value and provides an 8% coupon. The appropriate discount rate is 10%. What is the value of the perpetual bond?
b) Bond C has a $1,000 face value and provides an 8% annual coupon for 30 years. The appropriate discount rate is 10%. What is the value of the coupon bond?

Q#6. What are the legal rights and privileges of common stockholders?

Q#7. Year Cash flow
0 450000
1 210000
2 280000
3 100000
4. 150000

Discount rate 5%
Required. Calculate IRR?

Q.8 Write a detail note on any two of the following.
1. Function of Dealers and Brokers
2. Common Stock Features
3. Function of Financial Managers.

Prof. Fazal Rehman Shamil