Institute of Chartered Financial Analysts of India (ICFAI) University 2006 Certification Finance Security Analysis-I - Question Paper

Low, risky returns

High
High, stable returns
High, risky returns


Therefore, choice (c) is the accurate ans.
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10.
ans : (c)

cause : Net profit margin = PAT/Sales

PAT = 100 crores

Cash earning per share =

Number of shares = 10 crores

Earning per share = 100/10 = Rs.10

Therefore, choice (c) is the accurate ans.
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11.
ans : (d)

cause : The net income is understated by Rs. 22,000. As purchases are overstated by Rs.8,000, thus net income will show less by the identical amount. The closing inventory is understated by Rs.12,000, thus net income will again show less by the identical amount. Therefore, Opening inventory will be overstated by Rs.2,000.

Therefore, choice (d) is the accurate ans.
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12.
ans : (e)

cause : All the statements are actual with respect to lease accounting. Therefore, choice (e) is the accurate ans.
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13.
ans : (d)

cause : choice (d) defines the characteristics of the H-model. Two-stage dividend discount model is most suitable to firms that register high growth and they also expect to maintain this growth rate for a certain period of time after the growth rate tends to decline.

It is difficult to specify the supernormal growth period with precision since the growth rate is expected to decrease to stable level after this period. The model suffers with the limitation of the change of high supernormal growth to a lower stable growth rate at the end of the supernormal growth period. The terminal price computed in this model is derived from Gordon model and hence it suffers from the limitation of the Gordon model. This model assumes two-stage i.e. high-growth period and stable-growth period for valuing a stock.

Therefore, choice (d) is the accurate ans.
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14.
ans : (c)

cause :

= 0.89

Therefore, choice (c) is the accurate ans.
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15.
ans : (c)

cause :

Particulars
Year 2
Year 1
Year 0
current value
12.90
–
–

FCFE
15.609
–
–

change in working capital (1 – debt ratio)

Earning:   Approval pending.