Financial Forensics Quiz 2: 6 August 2023 (May 2023 term)

XYZ Inc. has quick assets of ₹ 5,50,000 and current liabilities of ₹ 2,50,000. The company purchased ₹ 85,500 in inventory on credit. After the purchase, the quick ratio would be

An increasing inventory turnover ratio

A decrease in selling and administrative expenses would impact which of the following ratio?

Which ratio is reported on the financial statement or in the notes to the statements?

Which of the following transactions would usually cause accounts payable turnover to increase?

You are considering two independent projects that have differing requirements. Project A has a required return of 12 percent compared to Project B’s required return of 13.5 percent. Project A costs ₹75,000 and has cash flows of ₹21,000, ₹49,000, and ₹12,000 for Years 1 to 3, respectively. Project B has an initial cost of ₹70,000 and cash flows of ₹15,000, ₹18,000, and ₹41,000 for Years 1 to 3, respectively. Based on the NPV, you should:

Your company has a project available with the following cash flows:

If the required return is 13 percent, should the project be accepted based on the IRR?

Scott has been offered an employment contract for ten years at a starting salary of ₹ 65,000 with guaranteed annual raises of 5 percent. What is the current value of this offer at a discount rate of 7 percent?

A trust has been established to fund scholarships in perpetuity. The next annual distribution will be ₹ 1,200 and future payments will increase by 3 percent per year. What is the value of this trust at a discount rate of 7.4 percent?

An insurance settlement offer includes annual payments of ₹ 36,000, ₹ 42,000, and ₹ 50,000 over the next three years, respectively, with the first payment being made one year from today. What is the minimum amount you should accept today as a lump sum settlement if your discount rate is 7 percent?

A stock with a beta of zero would be expected to have a rate of return equal to:

The excess return earned by an asset that has a beta of 1.0 over that earned by a risk-free asset is referred to as the:

Stock A has an expected return of 12 percent and a variance of 0.0203. The market has an expected return of 11 percent and a variance of 0.0093. What is the beta of Stock A if the covariance of Stock A with the market is 0.0137?

The risk-free rate of return is 3.68 percent and the market risk premium is 7.84 percent. What is the expected rate of return on a stock with a beta of 1.32?

Phil's Carvings wants to have a weighted average cost of capital of 9.5 percent. The firm has an after tax cost of debt of 6.5 percent and a cost of equity of 12.75 percent. What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital?

What is the KS of the below table?

What is the capture rate at the top 5 bins from the below report?

Which of the following statements regarding the Weight of Evidence (WoE) technique is correct?

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

In the context of credit scoring and loan approval, what does "Reject Inferencing" refer to?

Consider a credit card company analyzing its customer base to assess the risk of default on credit card payments. The company wants to use the WoE technique to transform the "Income Level" feature, which is a categorical variable with values "Low," "Medium," and "High," based on the observed relationship with the target variable (default or non-default). After analyzing historical data, the company finds that the WoE values for each income level are as follows:
● WoE for "Low" income level = -0.75
● WoE for "Medium" income level = 0.15
● WoE for "High" income level = -0.90
What does the negative WoE value for the "High" income level suggest in the context of credit risk modeling?

In credit risk analysis, the "roll forward rate" is used to:

Suppose a bank is analyzing the credit risk of a group of borrowers over a period of four quarters (Q1, Q2, Q3, and Q4). The bank uses the "roll forward rate" to assess the probability of default for these borrowers during this time. The following table shows the number of borrowers in different credit risk categories:

What does the roll forward rate indicate about the credit risk migration of borrowers from Q1 to Q4?

A credit analyst is developing a credit risk model for a bank. The analyst is evaluating the "Credit Score" feature, which represents the creditworthiness of borrowers. The analyst categorizes borrowers into four groups based on their credit scores and examines the number of good and bad loans in each group:

Calculate the Weight of Evidence (WoE) for the "Credit Score" feature for the "701-850" range.

In credit risk modeling, the Weight of Evidence (WoE) is used to: