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Corporate Finance · Capital budgeting & stock valuation

BSMS2205 · 5 questions · 20 marks · 1 paper

Answer key

Indian Institute of Technology Madras

BS Degree Programme · Examination & Study Paper

BSMS2205 · Corporate Finance

Capital budgeting & stock valuation

Official Paper

Examination Instructions & Guidelines

Solve on notebook/paper first before checking solutions.
MCQ: Exactly 1 option is correct. Negative marking applies.
Scientific calculator allowed for all calculations.
Official answer key is sealed at the end of this sheet.

Q1MCQ4 Marks·Choose one option
Key ↓
Which rule helps an entrepreneur with limited capital get back invested money fastest in high interest environments?
1. ANPV
2. BPayback
3. CIRR
4. DProfitability Index
Q2MCQ4 Marks·Choose one option
Key ↓
The PVC stock is trading at Rs 300 today. PVC is expected to pay a dividend of Rs 20 per share next year. If the growth rate of the PVC dividend is 3% every year and the appropriate rate of return is 10% per year, then according to the Gordon growth model
1. AThe PVC stock is underpriced, and an investor should buy PVC shares.
2. BThe PVC stock is overpriced, and an investor should buy PVC shares.
3. CThe PVC stock is underpriced, and an investor should sell PVC shares.
4. DThe PVC stock is overpriced, and an investor should sell PVC shares.
Q3MCQ4 Marks·Choose one option
Key ↓
Suppose there is a new project that demands an investment of Rs 10 lakh today and promises to pay off after two years. If the estimated internal rate of return of the project is 12%, then what amount is paid off on the payment date (after two years)?
1. ARs 12 lakh
2. BRs 12.400 lakh
3. CRs 12.544 lakh
4. DRs 12.838 lakh
Q4MCQ4 Marks·Choose one option
Key ↓
ABC Corporation is looking to invest in one new project, and they have three options: Project-A is expected to generate Rs 30 lakh after two years and Rs 40 lakh after 5 years; Project-B is expected to generate Rs 10 lakh each year for 6 years (beginning next year); Project-C is expected to generate Rs 100 lakh after 10 years. Each one of the project costs Rs 40 lakh today. The required rate of return on these projects is 10%. What is the profitability index of Project-B?
1. A1.09
2. B1.19
3. C1.88
4. D0.88
Q5MCQ4 Marks·Choose one option
Key ↓
ABC Corporation is looking to invest in one new project, and they have three options: Project-A is expected to generate Rs 30 lakh after two years and Rs 40 lakh after 5 years; Project-B is expected to generate Rs 10 lakh each year for 6 years (beginning next year); Project-C is expected to generate Rs 100 lakh after 10 years. Each one of the project costs Rs 40 lakh today. The required rate of return on these projects is 10%. Which one of the projects should ABC Corporation choose according to NPV criterion?
1. AProject-A
2. BProject-B
3. CProject-C
4. DNone of these

Official Key

Master Answer Key & Explanations

Official answer keys from IIT Madras BS past papers. Click any question to review.

Reveal Key

Q1B

Q2D

Q3C

Q4A

Q5A

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