Fin630 Online Quiz No. 2 Announcement

Semester "Fall 2010"

On-Line Quiz (No.02) Announcement

Quiz will cover video Lecture no. 1 to 19

Schedule

Opening Date and Time

November 22, 2010 At 12:01 A.M. (Mid-Night)

Closing Date and Time

November 24, 2010 At 11:59 P.M. (Mid-Night)

24 hours extra time is not available

Dear Students!!!! Read the following instructions carefully before

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Question # 15 of 15 ( Start time: ) Total Marks: 1 
Which of the following statements highlights the financial condition of a company at any single point of time? 
Select correct option:

Income Statement
Cash Flow Statement
Balance Sheet
Statement of Owner's Equity

Question # 14 of 15 ( Start time:) Total Marks: 1 
Which of the following is the theories searching the patterns in randomness?

Elliott wave theory
Chaos theory
Portfolio theory
Valuation theory

Question # 13 of 15 ( Start time:) Total Marks: 1 
More investors are using technical analysis now than in earlier periods because: 
Select correct option:

Investors are able to know the quantitative calculations of technical analysis
More business schools are now teaching technical analysis 
The Internet makes more data available to track stock prices 
There is now more empirical evidence supporting technical analysis 

Question # 12 of 15 ( Start time:) Total Marks: 1 
All of the following steps are involved in estimating the earnings stream, EXCEPT:
Estimating corporate sales
Estimating corporate earnings before taxes
Estimating corporate liabilities and assets
Estimating corporate earnings after taxes

Question # 11 of 15 ( Start time:) Total Marks: 1 
Buying power of an investor is calculated as: 
Select correct option:

Assets – liabilities
Equity – debt balance
Short term debt – long tem debt
Current assets – current liabilities

Question # 10 of 15 ( Start time:) Total Marks: 1 
Which of the following terms refer to the recurring and fluctuating levels of economic activity that an economy experiences over a long period of time? 
Select correct option:

Claims cycle
Reaction cycle
Business cycle
Capital cycle

Question # 9 of 15 ( Start time:) Total Marks: 1 
Which of the following ratios indicate the ability of a company to repay its current liabilities from it operating cash flow? 
Select correct option:

Price to sales ratio
Price to book value ratio
Leverage ratio
Debt coverage ratio

Question # 8 of 15 ( Start time:) Total Marks: 1 
Which of the following is a characteristic of cyclical stock? 
Select correct option:

Their value is tied with the overall state of the national economy.
They are low-priced, speculative and risky securities.
They have stable earnings and no extensive liabilities
None of the given options

Question # 7 of 15 ( Start time:) Total Marks: 1 
The S&P 500 Composite Stock Index is favored by most institutional investors and money managers. What does S&P stands for? 
Select correct option:

Sophisticated and Poised
Standard and Poor
Stylish and Permanent
Sojourn and Perennial

Question # 6 of 15 ( Start time:) Total Marks: 1 
Cash flow statement in conjunction with which of the following statements provides information on liquidity, viability and financial adaptability of company? 
Select correct option:

The Income Statement
The Cash Flow Statement
The Balance Sheet
The Statement of Owner's Equity

Question # 5 of 15 ( Start time:) Total Marks: 1 
Which of the following take place at the declining stage of the industry life cycle? 
Select correct option:

Firm operations get more stable and dependable
Rapid growth in demand and subsequent profits occur
Costs get stable rather than decreasing or increasing
Sales growth decline as new products are developed

Question # 4 of 15 ( Start time:) Total Marks: 1 
Which of the following ratios are of more concern for the shareholders? 
Select correct option:

Liquidity and profitability 
Liquidity and leverage
Profitability and activity
Profitability and leverage 

Question # 3 of 15 ( Start time:) Total Marks: 1 
Which of the following function removes the fear of buying or selling at rip off price? 
Select correct option:

Fair pricing function
Economic function
Exchange function
Continuous pricing function

Question # 2 of 15 ( Start time:) Total Marks: 1 
Which of the following is the source of income for members or brokers? 
Select correct option:

Copyright fee
Application fee
Fixed cost fee
Trading fee

Question # 1 of 15 ( Start time:) Total Marks: 1 
Which of the following take place at the expansion stage of the industry life cycle? 
Select correct option:

Firm operations get more stable and dependable
Rapid growth in demand and subsequent profits occur
Costs get stable rather than decreasing or increasing
Sales growth decline as new products are developed

Fin622 GDB No. 1 solution

Semester "Fall 2010"

"Corporate Finance (Fin622)"

This is to inform that Graded Discussion Board (GDB) will be opened according to the following schedule

Schedule

Opening Date and Time

November 22 , 2010 At 12:01 A.M. (Mid-Night)

Closing Date and Time

November 24 , 2010 At 11:59 P.M. (Mid-Night)

Topic/Area for Discussion

" Capital budgeting"

Note: The discussion question will be from the area/topic mentioned above. So start learning about the topic now.

Discussion Question

XYZ Company is one of the biggest manufacturing concerns of the country. Being the finance manager of XYZ Company, you have been assigned a task to evaluate three projects. The future cash flows from the three projects are summarized in given table.

Project A
Project B
Project C

Initial investment
45,000
70,000
50,000

Cash inflows

Year 1
20,000
20,000
30,000

Year 2
20,000
26,000
28,000

Year 3
20,000
30,000
35,000

Consider the discount factor to be 14% and that the company has sufficient funds to take projects.

Required:

I. On the basis of NPV approach, which project(s) you would select if the projects are independent and why?

II. On the basis of NPV approach, which project(s) you would select if the projects are mutually exclusive and why?

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FIN622 GDB No. 1 Solution

Project A

Initial Investment = 45000

 

Years           1            2                      3

Cash Flows 20000      20000              20000

 

Calculation:-

NPV = -Io + CF1/(1+r)t + CF2/(1+r)t + CF3/(1+r)t

NPV = - 45000 + 20000/(1+0.14)1 + 20000/(1+0.14)2 + 20000/(1+0.14)3

NPV = -45000 + 17543.859 + 15389.350 + 13499.430

NPV = - 45000 + 46432.639

NPV = 1432.639

 

Project B

Initial Investment = 70000

 

Years               1                      2                     3

Cash Flows     20000              26000              30000

 

Calculation:-

NPV = -Io + CF1/(1+r)t + CF2/(1+r)t + CF3/(1+r)t

NPV = - 70000 + 20000/(1+0.14)1 + 26000/(1+0.14)2 + 30000/(1+0.14)3

NPV = - 70000 + 17543.859 + 20006.155 + 20249.145

NPV = - 70000 + 57800

NPV = - 12200

 

Project C

Initial Investment = 50000

 

Years               1                      2                      3

Cash Flows     30000             28000              35000

 

Calculation:-

NPV = -Io + CF1/(1+r)t + CF2/(1+r)t + CF3/(1+r)t

NPV = - 50000 + 30000/(1+0.14)1 + 28000/(1+0.14)2 + 35000/(1+0.14)3

NPV = - 50000 + 26316 + 21545 + 23624

NPV = - 50000 + 71485

NPV = 21485

1) On the basis of NPV approach, which project(s) you would select if the projects are independent and why?

Reference:

MGT201 (Page 47)

 

Independent: implies that the cash flows of the two investments are not linked to each other

Solution:-

If the projects are independent then I will select Project C 1st and after that I will select Project A on 2nd because both have Positive NPV.

 

2) On the basis of NPV approach, which project(s) you would select if the projects are mutually exclusive and why?

Reference:

MGT201 (page 47)

 

Mutually Exclusive: means that you can invest in ONE of the investment choices and having chosen one you cannot choose another.

Solution:-

I will Select Project C because it has positive NPV and also have greater amount Rs. 21485.

Fin621 GDB Announced

Semester "FALL 2010"

"Financial Statement analysis(FIN621)"

This is to inform that next Graded Discussion Board (GDB) will be opened according to the following schedule

Schedule:

Opening Date and Time

November 22, 2010 At 12:01 A.M. (Mid-Night)

Closing Date and Time

November 24, 2010 At 11:59 P.M. (Mid-Night)

Topic/Area for Discussion

" Accounting Principles and its Application in Financial Statements "

Note: The discussion question will be from the area/topic mentioned above. So start learning about the topic now.

.................

"Suppose you are working as an accountant and the president of your firm Mr. Ali has a little back ground of accounting. This morning, he approached you and said:

"Last year we purchased a piece of land for Rs. 200,000. During this, the inflation has driven prices up by 12 %, and an expert has also just told me that we can sell this land for Rs. 300,000 whereas our balance sheet still shows the land at Rs. 200,000. It should be valued at Rs. 300,000 or at least at Rs. 224,000 (after the effect of 12% inflation)".

Identify accounting principle(s) (GAAP) applicable to this situation which negates Mr. Ali's Claim. "

....................

STA630 GDB No. 1 Solution

Semester Fall 2010

"Research Methods (STA630)"

This is to inform that Graded Discussion Board (GDB)

will be opened according to the following schedule

Schedule

Opening Date and Time
November 22, 2010 At 12:01 A.M. (Mid-Night)

Closing Date and Time
November 24 , 2010 At 11:59 P.M. (Mid-Night)

Topic/Area for Discussion

"MEASUREMENT OF CONCEPTS"

Note: The discussion question will be from the area/topic mentioned above. So start learning about the topic now.

....................

Discussion Question

"Which of the scale among ratio and interval scale is better? Justify our answer"

..........

Solution:

I think Ration Scale is better:

Interval Scale:-Permissible Statistics
mean, standard deviation, correlation, regression, analysis of variance

Ratio Scale:-Permissible Statistics
All statistics permitted for interval scales plus the following: geometric mean, harmonic mean, coefficient of variation, logarithms

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Interval scale

Quantitative attributes are all measurable on interval scales, as any difference between the levels of an attribute can be multiplied by any real number to exceed or equal another difference. A highly familiar example of interval scale measurement is temperature with the Celsius scale. In this particular scale, the unit of measurement is 1/100 of the difference between the melting temperature and the boiling temperature of water at atmospheric pressure. The "zero point" on an interval scale is arbitrary; and negative values can be used. The formal mathematical term is an affine space (in this case an affine line). Variables measured at the interval level are called "interval variables" or sometimes "scaled variables" as they have units of measurement.

Ratios between numbers on the scale are not meaningful, so operations such as multiplication and division cannot be carried out directly. But ratios of differences can be expressed; for example, one difference can be twice another.

The central tendency of a variable measured at the interval level can be represented by its mode, its median, or its arithmetic mean. Statistical dispersion can be measured in most of the usual ways, which just involved differences or averaging, such as range, interquartile range, and standard deviation. Since one cannot divide, one cannot define measures that require a ratio, such as studentized range or coefficient of variation. More subtly, while one can define moments about the origin, only central moments are useful, since the choice of origin is arbitrary and not meaningful. One can define standardized moments, since ratios of differences are meaningful, but one cannot define coefficient of variation, since the mean is a moment about the origin, unlike the standard deviation, which is (the square root of) a central moment.

Ratio measurement

Most measurement in the physical sciences and engineering is done on ratio scales. Mass, length, time, plane angle, energy and electric charge are examples of physical measures that are ratio scales. The scale type takes its name from the fact that measurement is the estimation of the ratio between a magnitude of a continuous quantity and a unit magnitude of the same kind (Michell, 1997, 1999). Informally, the distinguishing feature of a ratio scale is the possession of a non-arbitrary zero value. For example, the Kelvin temperature scale has a non-arbitrary zero point of absolute zero, which is denoted 0K and is equal to -273.15 degrees Celsius. This zero point is non arbitrary as the particles that compose matter at this temperature have zero kinetic energy.

Examples of ratio scale measurement in the behavioral sciences are all but non-existent. Luce (2000) argues that an example of ratio scale measurement in psychology can be found in rank and sign dependent expected utility theory.

All statistical measures can be used for a variable measured at the ratio level, as all necessary mathematical operations are defined. The central tendency of a variable measured at the ratio level can be represented by, in addition to its mode, its median, or its arithmetic mean, also its geometric mean or harmonic mean. In addition to the measures of statistical dispersion defined for interval variables, such as range and standard deviation, for ratio variables one can also define measures that require a ratio, such as studentized range or coefficient of variation.

.....

Interval Scale

An interval scale assumes that the measurements are made in equal units. However, an interval scale does not have to have a true zero. Good examples of interval scales are the Fahrenheit and Celsius temperature scales. A temperature of "zero" does not mean that there is no temperature...it is just an arbitrary zero point. An Interval Scale


Ratio Scale

Ratio scales are similar to interval scales. A ratio scale allows you to compare differences between numbers. For example, if you measured the time it takes 3 people to run a race, their times may be 10 seconds (Racer A), 15 seconds (Racer B) and 20 seconds (Racer C). You can say with accuracy, that it took Racer C twice as long as Racer A. Unlike the interval scale, the ratio scale has a true zero value.

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INTERVAL SCALE
A characteristic of data such that the difference between two values measured on the scale has the same substantive meaning/significance irrespective of the common level of the two values being compared. This implies that scores may meaningfully be added or subtracted and that the mean is a representative measure of central tendency. Such data are common in the domain of physical sciences or engineering - e.g. lengths or weights. Also see : MEASUREMENT TYPE, SCALE TYPES, STEVENS' TYPOLOGY. 

RATIO SCALE
This is a type of MEASUREMENT SCALE for which it is meaningful to reason in terms of differences in scores (see INTERVAL SCALE) and also in terms of ratios of scores. Such a scale will have a zero point which is meaningful in the sense that it indicates complete absence of the property which the scale measures. The RATIO SCALE may be either unipolar (negative values not meaningful) or bipolar (both positive and negative values meaningful), and either continuous or discrete.