Value of a financial asset is {~Monetary value place on the asset.

=Intrinsic val
ue placed on the asset. ~Sentimental value placed on the asset. ~Personal value
placed on the asset.}
Value of a financial asset is generally based on {~Variables perceived to be rel
ated to future investment return ~Earnings characteristics of a similar asset ~D
emand and supply of a particular financial asset =Either on variables perceived
to be related to future investment returns or based on comparisons with similar
assets}
Intrinsic value of an asset is {=Worth of an asset that is justified by the info
rmation about its payoffs ~Value placed by an investor on the particular asset ~
Value based on the future expectations ~Value based on the demand and supply of
the particular asset}
The exchange value of an asset, without any compulsion to buy or sell is the {~E
xchange value of the asset =Fair value of the asset ~Bargaining value of the ass
et ~Market price of the asset}
Valuation is an inherent part of the active managers attempt to produce {~Fair va
lue for the asset =Excess risk-adjusted return ~Return equal to the market retur
n ~Correct holding period return}
Shares are overvalued when; {~Intrinsic value > Market value =Intrinsic value <
Market value ~Intrinsic value > Book Value ~Intrinsic value < Book value}
The fair return on asset given its risk is known as {~Market return =Required ra
te of return ~Abnormal return ~Holding period return}
Two major types of valuation approaches are: {~Discounted cash flow technique an
d Economic profit technique =Absolute valuation and Relative valuation ~Present
value models and Future value models ~Dividends discount models and Discounted c
ash flow models}
A valuation model which specifies the value of FCFF or FCFE is: {~Asset based va
luation model =Absolute valuation model ~Discounted cash flow model ~Relative va
luation model}
Security analysts, in particular use valuation concepts and models in: {~Evaluat
ing business strategies and models =Selecting stocks ~Inferring market expectati
on ~Evaluating corporate events}
Value is created when; {~ROE equals to WACC ~WACC is greater than ROIC = ROIC i
s greater than WACC ~ WACC equals to ROIC}
Invested capital is; {~Total assets Total liabilities ~Total asset Non operating
liabilities =Operating assets operating liabilities ~Operating assets Total lia
bilities}

ROIC can be calculated by; {~Net income/Total capital ~NOPLAT/Total capital ~Net
income /Invested capital =NOPLAT/Invested capital}
Net investment can be calculated as; {~NOPLAT Capital Charge =Invested Capital (
t+1) Invested capital (t) ~Invested capital Cost of capital ~Total assets Operat
ing liabilities}
The breakdown of the ROE into its component ratios is referred to as the: {~Rati
o analysis =DuPont analysis ~Financial Statement Analysis ~Horizontal analysis}
ROA is calculated using the following formula: {~Net Profit Margin Equity Turnove
r =Total Asset Turnover Net Profit Margin ~Net Income Common Equity ~Financial Lev
erage Profit Margin}
The Earning per Share (EPS) of Telelog PLC was Rs.2.00 in 2011, Rs.2.50 in 2012,
Rs.2.70 in 2013, and Rs.3.00 in 2014. The historical growth rate in the EPS est
imated using the arithmetic average and the geometric average respectively are:
{=14.70% and 14.47% ~2.55% and 14.47% ~14.70% and 10.67% ~2.55% and 10.67%}
EPS= 2 + 0.04t is the linear regression an analyst had obtained by regressing t
he EPS of a company against time. If the average EPS during this time period was
Rs.1.20 what is the growth rate of the firm? {~4.00% =3.33% ~Cannot be determin
ed ~2%}
EPS= 0.085 + 0.056t is log-linear regression of EPS against time. The average EP
S duringthis time period was Rs.2.00.The growth rate for this firm is: {=5.6% ~8
.5% ~2.8% ~Cannot be determined}
Free Cash Flow to the firm indicates the: {=Freely available cash to distribute
among the capital suppliers of the company ~Cash available to the equity holders
~Cash available to repayment of loans and equity ~Cash available for the fixed
and working capital requirement}
Net income can be converted into cash flow by; {~Deducting the non cash items fr
om net income ~Adding non cash items to net income =Adding non cash expenses to
the net income and deducting non cash revenue from net income ~Without any adjus
tments to the non cash items}

Free cash flow to equity is the cash flow available after making adjustments for
capital investments to the ; {~Equity holders =Debt holders ~Companys suppliers of c
tal ~Management}
Cash flow from operations can be converted into Free Cash Flow to Firm by; {~Add
ing non cash items ~Deducting fixed and working capital investments =Deducting t
he fixed capital investment ~Deducting taxes}
Cash flow from operations can be converted to Free Cash Flow to Equity by {~Dedu
cting the working capital requirement ~Deducting both working capital and fixed

capital investments =Deducting fixed capital investment and adjusting for new bo
rrowings ~Adjusting the new borrowings}
Tax shield on interest is calculated as; {~Interest + tax =Interest tax ~Interes
t (1 tax) ~Interest / (1 tax)}
EBIT of a company for the year 2014 was Rs. 1,200 million. Depreciation on fixed
assets was Rs. 250 million and the interest expense was Rs. 200 million. Invest
ment in fixed and working capital was Rs. 180 million and Rs. 30 million respect
ively. Net borrowing was amounted to Rs. 100. Tax rate was 40%. Free cash flow t
o the firm is: {~Rs.560 million =Rs.760 million ~Rs.460 million ~Rs.500 million}
Net sales of a company amounts to Rs. 2,500 million. Net profit margin is 20% of
net sales. Depreciation of fixed assets amounted to Rs. 100 million. Company ha
s borrowed Rs. 2,000 million at 8% annual interest rate and has paid the annual
interest charge at the end of the period. Investment requirements in fixed and w
orking capital are Rs.125 million and Rs. 50 million respectively. Income tax ra
te is 40%. Free cash flow to the firm is: {~Rs. 329 million =Rs.521 million ~Rs.
585 million ~Rs.625 million}
EBIT of a company for the year 2014 was Rs. 1,200 million. Depreciation on fixed
assets was Rs. 250 million and the interest expense was Rs. 200. Investment in
fixed and working capital was Rs. 180 million and Rs. 30 million respectively. N
et borrowing was amounted to Rs. 100 million. Tax rate was 40%. Free cash flow t
o equity is: {=Rs.740 million ~Rs.860 million ~Rs.640 million ~Rs.540 million}
EBITDA of a company amounted to Rs.4,000 million. Depreciation of fixed assets a
mounted to Rs. 1,200 million and interest expense was Rs. 500 million. Net borro
wing was Rs.600 million. Investment in fixed capital and working capital were Rs
. 250 million and Rs. 200 million respectively. Tax rate is 40%. FCFF and FCFE f
or the company were respectively: {=Rs. 2,430 million and Rs. 2,730 million ~Rs.
3,100 million and Rs. 3,400 million ~Rs. 2,130 million and Rs. 2,430 million ~R
s. 2,730 million and Rs. 2,430 million}
If cash flow from operation is Rs. 300 million, total interest is Rs. 40 million
, depreciation is Rs.100 million, fixed capital requirement is Rs. 150 million,
working capital requirement is Rs. 25 million and tax rate is 30%, what is the v
alue of Free Cash Flow to Firm? {~Rs. 190 million =Rs. 178 million ~Rs. 153 mill
ion ~Rs. 145 million}
If net income is Rs. 450 million, net borrowing is Rs. 70 million, non cash char
ges are Rs. 40 million, fixed capital requirement is Rs. 100 million, working ca
pital requirement is Rs. 60 million, total interest is Rs. 30 million and tax ra
te is 40%, what is the value of Free Cash Flow to Equity? {=Rs. 400 million ~Rs.
370 million ~Rs. 430 million ~Rs. 418 million}
If EBIT is Rs. 1,000 million, stock holders equity is Rs. 3,500 million, number
of shares outstanding is Rs. 350 million and tax rate is 30%, what is ROE? {~28.
57% =20% ~200% ~24%}
Teledisk Inc. has incurred an R&D expense of Rs.1 million in 2014, Rs.750, 000 i

n 2013, Rs.800, 000 in 2012 and Rs.900, 000 in 2011. As an analyst you estimate
that the R&D efforts of Teledisk take three years to result in a commercial prod
uct. What is the amortizable R&D expense for 2014? {=Rs. 816,666. 67 ~Rs. 333,33
3.33 ~Rs. 1,150,000.00 ~1,766, 666.67}
Jayaram Inc. incurred an R&D expense of Rs. 300,000 in 2014; however, you estima
te that the R&D amortization for 2014 should be Rs. 250,000. At the beginning o
f 2014 the book value of equity of the company was Rs. 2 million and the value o
f the research asset was estimated to be Rs. 800,000. If the reported net income
for 2014 is Rs. 500,000, ignoring taxes, the adjusted net income and adjusted R
eturn on Equity (ROE) respectively would be: {=Rs.550,000 and 19.64% ~ Rs. 550,0
00 and 27.5% ~ Rs. 450,000 and 16.07% ~Rs. 550,000 and 17.85%}
If NOPLAT is Rs. 500 million, invested capital is Rs. 50 000 million, WACC is 15
% and Growth rate is 8%, what is the investment rate (IR)? {~10% ~7% ~80% =8%}

NOPLAT of Ruhunu company for the year 2014 was Rs. 2,500 million. Estimated ROIC
and Growth of the company are 8% and 5% respectively. The estimated free cash f
low for this company is: {~Rs. 1037.50 million ~Rs. 937.50 million ~Rs. 850 mill
ion =Rs. 984.375 million}
Recorded NOPLAT of Rajarata company for 2014 was Rs. 5,000 million. Estimated RO
IC and growth rate of the company are 15% and 12% respectively. What is the valu
e of the company if the WACC is 14%? {=Rs. 56,000 million ~Rs.58, 000 million ~R
s. 50, 000 million ~Rs. 60, 000 million}
XYZ Company recorded a net income of Rs. 1,250 million in 2014. While the compan
y incurred a one-time restructuring cost of Rs. 250 million during the year, non
-operating income amounted to 100 million. If the tax rate is 28%, what is the N
OPLAT for 2014? {~Rs. 1,250 million, ~Rs.1,400 million, =Rs. 1,358 million ~Rs.9
00 million}
The Free Cash Flow to Firm of a company was Rs. 2,000 million in 2014. The amoun
t of debt shown in the balance sheet was Rs. 1,200 million at the beginning of t
he year and Rs. 1,500 at the end of the year. Investment in Property, Plant and
Equipment during the year was Rs. 500 million. If the finance cost was Rs.300 mi
llion and the tax rate is 30%, how much would be the Free Cash Flow to Equity? {
=Rs.1,800 million ~Rs.2,010 million ~ Rs.1,990 million ~Rs.1,200 million}
ABC Corporation had accounts receivables of Rs. 30 million, inventories of Rs. 5
0 million, a cash balance of Rs. 25 million and accounts payables worth Rs. 40 m
illion as at 31.03.2014. On the 31.03.2015 it had accounts receivables of Rs. 40
million, inventories of Rs. 25 million, a cash balance of Rs. 32 million and ac
counts payables worth Rs. 60 million. What is the amount of the investment made
in working capital in the year 2014/2015 that you would consider when calculatin
g the free cash flow?{=A cash inflow of Rs.35 million ~ A cash outflow of Rs.35
million ~A cash inflow of Rs.28 million ~A cash outflow of Rs.28 million}
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