Instruction for Section A: Write the correct answer for each question in your answer book.

1. A company has issued a long-term debt whose cost is 10% per annum. The tax rate is 25%. What is the cost of debt after tax?

A. 10%

B. 12.50%

C. 7.5%

D. 4%

2. Which shares usually offer their owners a fixed rate of dividend each year?

A. Preference

B. Equity

C. Mezzanine

D. Bonds

3. Which of the following key decisions is a financial manager unlikely to make?

A. How much finance should be raised.

B. What type of finance should be raised.

C. How much finance should be invested in a project.

D. What production method to use for a new product.

4. Interest paid (earned) on both the original principal borrowed (lent) and previous interest earned is often referred to as __________.

A. present value

B. simple interest

C. future value

D. compound interest

5. Which of the following statements best describes what would be expected to happen as you randomly add stocks to your portfolio?

A. Adding more stocks to your portfolio reduces the portfolios company-specific risk (diversifiable risk).

B. Adding more stocks to your portfolio reduces the beta of your portfolio.

C. Adding more stocks to your portfolio increases the portfolios expected return.

D. Statements (a) and (c) are correct

6. There are some accounts given below, all of them are component of working capital except:

A. Cash

B. Inventories

C. Fixed Assets

D. Accounts Payable

7. Two projects are moving in the same direction but the magnitude of their movement is not same, these securities are ---------- correlated

A. Perfectively Negatively Correlated

B. Perfectively Positively Correlated

C. Positively Correlated

D. Negatively Correlated

8. Choose the correct option related to the information provided below in the table,

Projects

Beta

Standard deviation

Security X

0.8

0.4

Security Y

2

0.3

A. Security X is defensive while security Y is aggressive

B. Security Y has same risk as market while security X has more risk than market

C. Security Y is defensive while security X is aggressive

D. Security Y has less risk then market while security X has more risk than market

9. Which of the following formulas represents the future value of OMR500 invested at 8% compounded quarterly for five years?

A. 500(1 + 0.08)5

B. 500(1 + 0.08)20

C. 500(1 + 0.02)5

D. 500(1 + 0.02)20

10. Which of the following is considered to be a deficiency of the IRR?

A. It fails to properly rank capital projects

B. It could produce more than one rate of return

C. It fails to utilize the time value of money

D. It is not useful in accounting for risk in capital budgeting