Financial Forensics Quiz 2: 3 December 2023 (September 2023 term)

Two mutually exclusive projects have 3-year lives and a required rate of return of 10.5 percent. Project A costs ₹75,000 and has cash flows of ₹18,500, ₹42,900, and ₹28,600 for Years 1 to Year 3, respectively. Project B costs ₹72,000 and has cash flows of ₹22,000, ₹38,000, and ₹26,500 for Years 1 to Year 3, respectively. Using the NPV, which project, or projects, if either, should be accepted?

PQR financials is a loan provider for businesses, and it is evaluating the following companies for providing a loan.
a) Company A: Debt Equity Ratio: 0.8, Times Interest Earned: 8
b) Company B: Debt Equity Ratio: 0.2, Times Interest Earned: 8
c) Company C: Debt Equity Ratio: 0.8, Times Interest Earned: 2
d) Company D: Debt Equity Ratio: 0.2, Times Interest Earned: 2
As a financial analyst of PQR, you have to review the above information and provide a recommendation to the CEO of the company. What would be your recommendation to the CEO, regarding the best company to give the loan to?

A company is having a lower PE ratio which of the following statement(s) about the company is most likely true:
a) Statement A : The company is undervalued in the market
b) Statement B : The company’s furfure performance look promising
c) Statement C : The company’s furfure performance doesn’t look promising

In the financial year 2022-2023 a company consumed raw materials worth 10,00,000 INR. The balance sheet as of 31^(st) March 2023 had creditors (for raw materials) worth 4,00,000 INR and the same figure in the balance sheet as of 31^(st) March 2022 was 2,00,000 INR. As a creditor, is it safe to lend raw materials for the company for a 120 day credit?

Which of the following statement is True as debt increases in the capital structure of a company:

Which of the following statement(s) is correct about the Capital Asset Pricing Model:
I. As per CAPM, the expected return decreases if the covariance between the return on the stock and return on the market increases, keeping all other attributes as constant
II. As per CAPM, the expected return increases if the covariance between the return on the stock and return on the market increases, keeping all other attributes as constant
III. If the beta of a stock is 1, then as per CAPM the expected return will be equal to market return IV. If the beta of a stock is 0, then as per CAPM the expected return will be equal to the return on a T-bill

What is the capture rate of events at the top 3 bins from the below report?

What is the rollback rate for 90-119 DPD after 18 MOB?

What is the rollback rate for 60-89 DPD after 18 MOB?

Which of the following is an example of Revolving credit?

What is the roll forward rate for 90-119 DPD after 18 MOB?

What is the roll forward rate for 60-89 DPD after 18 MOB?

Reject Inferencing is used on the approved credit applications.

Which of the following is used for choosing the observation window in Probability of Default model development?

An increasing inventory turnover ratio

XYZ bank is interested in lending loans to companies and earn interest income from it. But at the same time they also want to ensure that their loan is repaid on a timely basis. Which of the following number is most relevant for the bank to look at before approving the loan?

Foremost Inc. has a net income of ₹ 29,600, a total asset turnover of 1.4, total assets of ₹ 3,18,600, and a debt-equity ratio of 0.35. What is the return on equity (expressed in percentage – just enter the numerical value)?

Nu-Tools plans to set aside an equal amount of money each year, starting today, so that it will have ₹ 35,000 saved at the end of three years. If the firm can earn 5.7 percent, how much does it have to save annually?

Your grandparents would like to establish a trust fund that will pay you and your heirs ₹ 3,00,000 per year forever with the first payment 12 years from today. If the trust fund earns an annual return of 6 percent, how much must your grandparents deposit today?

ABC Pension Fund Incorporation is planning to create a pension schemes for it’s employees. The company’s financial analyst comes up the following plan: Employees have to pay a lumpsum of 10,00,000 today and the scheme will generate 95,000 per year annually for the next 30 years. This plan was not well received by the employees, and they wanted an scheme that pays them forever and the same should also grow at 4% per annum. What should be the initial pay out that the scheme has to give to its subscribers at the end of first year after signup? Consider the rate of interest as 7% and the company doesn’t want to spend/earn anything extra for the perpetuity scheme compared to the former.

The net income for a year was ₹ 8,50,000. Beginning and ending assets were ₹ 85,00,000 and ₹ 96,00000, respectively. What was the return on assets ?

Mr. Alex will receive annuity payments of ₹ 5000 a year for 4 years, with the first payment occurring at the beginning of Year 3. What is the value of this annuity to her today at a discount rate of 7.25 percent?

ABC incorporation is in the business of selling luxury cars. The company ended 2022 having a Total Asset of $ 10,000,000 and the Total Liabilities amounting to $ 7,000,000. In the year 2022, the overall cost of goods purchased amounted to $ 2,000,000, other expenses like labour, marketing and distribution amounted to $ 500,000. The company sold their cars at 10% markup. What is the turnover of their capital invested by the shareholders?

You are presented with two investment options:
● A – Invest 5,00,000 today and get a payment of 35,000 per year forever.
● B – Invest 5,00,000 today and get 80,000 per year for the next 10 years.
Based on the above data, answer the given subquestions.

Which of the two options will you consider investing if the return is 7%

You are presented with two investment options:
● A – Invest 5,00,000 today and get a payment of 35,000 per year forever.
● B – Invest 5,00,000 today and get 80,000 per year for the next 10 years.
Based on the above data, answer the given subquestions.

If interest rate drops to 3% will you consider changing the decision?