Valuation, Principles & Framework – Corporate and Management Accounting MCQBy CACSMockTest / November 24, 2022 1 Valuation, Principles & Framework – Corporate and Management Accounting MCQ 1 / 36 A Zero Coupon Bond (ZCB) was issued at a face value of ₹ 2,50,000 and has maturity of 5 years. Its YTM is 8%.Whether investor should buy, hold or sell the ZCB if the current market price is -(a) ₹ 1,85,000 (&) ₹ 1,65,000Select the correct answer from the options given below. (A) Hold Buy (B) Buy Sell (C) Sell Buy (D) Hold Sell 2 / 36 A Zero Coupon Bond (ZCB) was issued at a face value of ₹ 2,50,000 and has maturity of 5 years. Its YTM is 8%. What would be fair price of bond today? (A) ₹ 1,70,250 (B) ₹ 1,80,520 (C) ₹ 1,60,750 (D) ₹ 1,90,140 3 / 36 What is the value of deep discount bond issued by IDBI for a maturity period of 15 years and having a par value of ₹ 1,00,000 if the required rate of return is 12%? (A) ₹ 12,000 (B) ₹ 15,400 (C) ₹ 22,600 (D) ₹ 18,300 4 / 36 Zensar Ltd. issued 5 years 12% Bond. The face value of the bond is ₹ 1,000 which is redeemable in 5 equal installments. What would be the current price of the bond if the YTM is 10%? (A) ₹ 1,170.60 (B) ₹ 1,080.30 (C) ₹ 1,048.13 (D) ₹ 1,238.30 5 / 36 ZPA Ltd. issued ₹ 1,000 optionally convertible debentures at a coupon rate of 10%. These debentures are convertible to 50 equity shares today. The shares are quoting ₹ 25 in the stock market. The investor expects an 8% return on his investment. Debentures are redeemable after 5 years. Will you suggest conversion? (A) No, as the fair value of debenture is ₹ 1,080.30 which is more than the fair market value of shares (B) No, as the fair value of debenture is ₹ 1,170.60 which is less than the fair market value of a share (C) Yes, as the fair value of debenture is ₹ 1,080.30 which is less than the fair market value of shares (D) Yes, as the fair value of debenture is ₹ 1,238.30 which is more than the fair market value of shares 6 / 36 A bond has a face value of ₹ 1,000 and the coupon rate is 8%. Interest on bonds is payable annually. Find the value of the bond if the required rate of return is 10% and the bond has a maturity of 20 years. (A) ₹ 681.12 (B) ₹ 849.21 (C) ₹ 830.12 (D) ₹ 765.48 7 / 36 A bond has a face value of ₹ 1,000 and the coupon rate is 8%. Interest on bonds is payable annually. Find the value of the bond if the required rate of return is 6% and the bond is a perpetual bond. (A) ₹ 1,333 (B) ₹ 1,667 (C) ₹ 1,445 (D) ₹ 1,222 8 / 36 Anurag has invested in a share whose dividend is expected to grow @ 15% for 5 years and thereafter @ 5% till the life of the company. Find out the value of the share, if the current dividend is ? 4 per share and investors required rate of return is 6%. (A) ₹ 656.93 per share (B) ₹ 665.39 per share (C) ₹ 666.99 per share (D) ₹ 693.56 per share 9 / 36 The required rate of return of investors is 15%. ABC Ltd. declared and paid an annual dividend of ₹ 4 per share. It is expected to grow @ 20% for the next 2 years and 10% thereafter. Compute the price at which the shares should sell.PVFactors: @ 15% for Year 1 = 0.8696 and Year 2=0.7561. (A) ₹ 108.80 per share (B) ₹ 104.40 per share (C) ₹ 110.10 per share (D) ₹ 105.25 per share 10 / 36 A large chemical company has been expected to grow at 14% per year for the next 4 years and then to grow indefinitely at the same rate as the national economy i.e. 5%. The required rate of return on equity share is 12%. Assume that company paid a dividend of ₹ 2 per share last year (D0 = 2). Determine the market price of the shares today. (A) ₹ 42.60 per share (B) ₹ 46.20 per share (C) ₹ 40.62 per share (D) ₹ 45.46 per share 11 / 36 Current value of Land & Buildings is ₹ 30,00,000, Furniture, Fixture & Fittings is ₹ 2,50,000. Inventory is valued at ₹ 9,11,000. Debtors are expected to realize 90% of their book value. You are informed that the preference dividend has not been paid for the last 5 years. Calculate the intrinsic value of per equity shares having face value of ₹ 6 each fully paid-up by Net Assets Method. (A) ₹ 9.037 per share (B) ₹ 5.037 per share (C) ₹ 6.42 per share (D) ₹ 5.42 per share 12 / 36 ZPA Ltd. is foreseeing a growth rate of 12% p.a. in the next two years. The growth rate is likely to fall to 10% for the third year and fourth year. After that growth rate is expected to stabilize at 8% p.a. If the last dividend (D0) paid was ₹ 1.5 per share and the investor’s required rate of return is 16%, find out the intrinsic value per share of ZPA Ltd. as of date. (A) ₹ 22.33 per share (B) ₹ 23.32 per share (C) ₹ 33.22 per share (D) ₹ 23.23 per share 13 / 36 The shares of the company are selling at ₹ 20 per share. The firm had paid dividends @ ₹ 2 per share last year. The estimated growth of the company is approximately 8% per year. The required rate of return is 15.5%. The market value of equity shares as per the dividend growth model will be: (A) ₹ 32.4 per share (B) ₹ 28.8 per share (C) ₹ 25.5 per share (D) ₹ 29.1 per share 14 / 36 The shares of the company are selling at ₹ 45 per share. The firm had paid dividends @ ₹ 4.5 per share last year. The estimated growth of the company is approximately 5% per year. Determine the cost of equity of the company. (A) 15.5% (B) 12.3% (C) 11.4% (D) 16.8% 15 / 36 The Wind Urja Ltd. (WUL) is a closely held unlisted company with financial details as under: Market Value on 31.3.2019 (₹ in lakh) Land and building 6,500 Plant and machinery 2,000 Furniture and fixtures 20 Trade receivables 1,000 Cash & cash equivalents 30 Spares 10 Trade payables 20 Long-term loans 2,000 Outstanding expenses 5Worldwide Wind Energy Ltd. is ready to take over WUL by paying a 35% premium over the market value of assets and liabilities as goodwill. Calculate the price which WWEL is ready to pay to shareholders of WUL. (A) ₹ 7,535 lakhs (B) ₹ 10,725 lakhs (C) ₹ 10,172.25 lakhs (D) ₹ 12,217.52 lakhs 16 / 36 Ramola Ltd. gives the following cash flows estimate:2015: ₹ 2,000 lakhs 2016 to 2018: Compound growth rate 6.5% 2019 to 2022: Compound growth rate 9.5% Apply 2096 risk-adjusted discount rate and determine the value of the business. (A) ₹ 9,530.07 lakh (B) ₹ 9,053.70 lakh (C) ₹ 9,750.03 lakh (D) 1,800 shares 17 / 36 Following details are available for two companies:X Ltd. has 9 lakh Equity Shares of ₹ 150 each, ₹ 135 paid-up.Y Ltd. has 40 lakh Equity Shares of ₹ 75 paid-up.What is the intrinsic value per share for these companies? (A) ₹ 185.10 & ₹ 180 per share (B) ₹ 118.50 & ₹ 102 per share (C) ₹ 181.50 & ₹ 108 per share (D) ₹ 185.10 & ₹ 102 per share 18 / 36 Value of perpetual bond is calculated by: (A) Interest divided by rate of cost of equity (B) Fixed income on security divided by the required rate of return (C) Fixed income on security divided by growth rate (D) Interest divided by rate of growth 19 / 36 Which of the following best defines the market capitalization for a company’s shares? (A) When a company is listed L e. goes ‘public’ (B) When a company issues new shares and thus increases its capital (C) Current share price (D) Share price × number of shares in issue 20 / 36 As per Section 247 of the Companies Act, 2013, where a valuation is required to be made in respect of any property, stocks, shares, debentures, securities or goodwill or any other assets or net worth of a company or its liabilities, it shall be valued by a person having such qualifications and experience and registered as a valuer in such manner, on such terms and conditions as may be prescribed and appointed by the – (A) Audit committee (B) Board of Directors of the company. (C) Board of Directors on the recommendation of the audit committee. (D) Audit committee or in its absence by the Board of Directors of that company. 21 / 36 Which of the following best describes the replacement value of a business? (A) Value if sold off piece-meal (B) Value to replace assets with new (C) Cost of setting up an equivalent venture (D) Net present value of current operations 22 / 36 Analysts commonly consider all of the following to be indicators that the market is overvalued except. (A) High average P/E ratio (B) High average price-to-book ratio (C) High average dividend yield (D) All of the above 23 / 36 Which of the following is NOT a method of a business valuation? (A) Asset based (B) Earnings based (C) Market based (D) Equity-based 24 / 36 Provisions relating to ‘valuation by registered valuers’ are contained in – (A) Section 247 of the Companies Act, 2013 (B) Section 242A of the Income-tax Act, 1961 (C) Section 347 of the Companies Act, 2013 (D) Section 240AB of the Income-tax Act, 1961 25 / 36 Which of the following do financial analysts consider least important when assessing the long-run economic and financial outlook of a company? (A) Expected return on equity (B) Prospects of the relevant industry (C) Expected changes in EPS (D) General economic conditions 26 / 36 Which of the following is equal to the present value of all cash proceeds received by a stock investor? (A) Value (B) Retention ratio (C) Dividend payout ratio (D) Discount rate. 27 / 36 Which of the following is not a general principle involved in a business valuation? (A) Value is determined at a specific point in time. (B) Value is prospective. (C) Value is influenced by liquidity. (D) Valuation always depends on the fact that who is valuing what. 28 / 36 Which of the following is another name for the required return, on a stock? (A) Discount rate (B) Dividend payout ratio (C) Retention ratio (D) Value 29 / 36 In which of the following cases valuation is essential? (A) Conversion of debt instruments into shares. (B) On directions of Tribunal or Authority or Arbitration Tribunals. (C) When issuing shares to the public either through an Initial Public Offer or by the offer for sale. (D) All of the above 30 / 36 Which of the following is the correct formula for the Capitalization of Earning Method? (A) ‘Net Operating Income divided by ‘Capitalization Rate’ (B) ‘Net Profit’ divided by ‘Discount Rate’ (C) ‘Net Operating Income divided by ‘Growth Rate’ (D) ‘Dividend Per Share’ divided by ‘Annuity Rate’ multiplied by the total number of shares 31 / 36 Which of the following is required to be taken into consideration while valuing equity shares of the company? (A) Size of the block of shares (B) Restricted transferability aspect (C) Dividends (D) All of the above 32 / 36 Present value means – (A) Value in use (B) Value of future cash flows (C) Value calculated using IRR (D) Present value that buyer is ready to pay 33 / 36 Which of the following is normally used as discounting factor under the discounted cash flow valuation? (A) Cost of equity (B) Cost of debt (C) Annuity factor (D) Overall cost of capital 34 / 36 Statement I:Net Asset Method can be fairly used to value shares when the firm is liquidated. Statement 11:This method does not give any weight to earning capacity of the company. (A) Statement I is correct but Statement II is incorrect (B) Statement I is incorrect but Statement II is correct (C) Both Statement I and Statement II are incorrect (D) Both Statement I and Statement II are correct 35 / 36 Net Realizable Value means___ (A) Price the buyer is ready to pay. (B) Same value as the present value. (C) Value net of expenses. (D) Higher of the net selling price and value in use. 36 / 36 Discounted cash flow valuation is based upon__ (A) Expected future discount that is likely to be earned. (B) Real worth of the business (C) Expected future cash flows and discount rates. (D) Earning capacity of the company Your score is LinkedIn Facebook Twitter VKontakte Related