BEC 2 Questions

*Conroe Company is reviewing the data provided by its management accounting system. Which of the following statements is/are correct? -A cost driver is a causal factor that increases the total cost of a cost object. -Cost drivers may be volume based or activity based. -Cost drivers are normally the largest cost in the manufacturing process. a.) 1 and 2 only are correct. b.) 1 only is correct. c.) 2 and 3 only are correct. d.) All of the choices are correct.

a.) 1 and 2 only are correct. -Cost drivers may be volume-based, activity-based, or based on any number of other operational characteristics. -Cost drivers are what cause the costs, NOT the cost themselves (choices c and d).

*Companies in what type of industry may use a standard cost system for cost control? a.) Mass production industries. b.) Service industries. c.) Both a and b. d.) Neither a nor b.

c.) Both a and b. -Manufacturing industries such as mass production are typically areas where standard cost systems are used. However, service industries may also use a standard cost system.

*A U.S. company purchased goods for 45,000 euros on September 30 and the vendor is requiring payment by November 30. The current exchange rate is 1 euro per $1.19. The company purchases a call option expiring in two months with a strike price of $1.19 per euro at a premium of $0.05. If the company records a net savings of $1,350, the exchange rate must have moved to: a.) $1.27 per euro. b.) $1.22 per euro. c.) $1.11 per euro. d.) $1.16 per euro.

a.) $1.27 per euro. -

*Demand Co. uses a material that costs $195 per ton at the beginning of the year and $200 per ton at the end of the year. The industry experienced 4% inflation during the year. What is the change in the real cost of Diamond's material? a.) $2.80 per ton decrease. b.) $5.00 per ton increase. c.) $8.00 per ton decrease. d.) $7.80 per ton increase.

a.) $2.80 per ton decrease. -With an inflation rate of 4%, the initial cost of $195 x 1.04 = $202.80. The material cost $200 at year-end, implying an actual decrease of $2.80 in real costs. $195 x 1.04 = $202.80 - $200 = $2.80. -$5.00 just represents the increase from $195 to $200 and does NOT account for inflation. $200 - $195 = $5 (choice b). -$8.00 represents the difference between the $200 price and the price of $200 inflated by an additional 4%. $200 x 1.04 = $208 - $200 = $8 (choice c). -$7.80 represents the price change and treats the decrease of $2.80 as an increase in real costs. $200 - $195 = $5 + $2.80 = $7.80 (choice d).

*A company is conducting a risk analysis on a project. One task has a risk probability estimated to be 0.15. The task has a budget of $35,000. If the risk occurs, it will cost $6,000 to correct the problem caused by the risk event. What is the expected monetary value of the risk event? a.) $900 b.) $5,250 c.) $4,350 d.) $6,150

a.) $900 -Analyzing risks involves calculating and categorizing the probability of outcomes. The risk event in this question has a low likelihood of occurrence, at an estimated 15% of occurring and an 85% chance of NOT occurring. The expected monetary value of the $6,000 risk event = 15% x $6,000 + 85% x $0 = $900. -Choice B incorrectly applies the risk probability of 15% to the budget of $35,000, instead of using $6,000. -Choice C incorrectly applies the risk probability of 15% to the budget of $35,000 - $6,000 = $29,000. -Choice D incorrectly applies the risk probability of 15% to the budget of $35,000 + $6,000 = $41,000.

*Which of the following statements concerning data mining is (are) correct? -Data mining is the analysis of data in a data warehouse performed in an attempt to discover hidden patterns and trends in business. -Data mining assists managers in making business decisions and strategic planning. -Although it will take a little longer without a computer, a manager would be able to perform data mining analysis manually. a.) 1 and 2 only. b.) All of the above. c.) 2 and 3 only. d.) 1 and 3 only.

a.) 1 and 2 only. -Data analytics, sometimes referred to as data mining, involves taking raw data, looking for trends, and then transforming that information into insights. Applications used can include basic sums or averages, or can be more advanced, involving statistics or artificial intelligence. -Data cannot be mined without a computer. Manually sifting through data of the magnitude involved in data mining cannot be done accurately or in a time-efficient manner. Data mining is used to sift through large amounts of data, sometimes several terabytes of information. Without a computer, a person would never be able to analyze so much data and uncover trends using algorithms and other mathematical and statistical procedures (choices b, c, and d).

*A stock priced at $50 per share is expected to pay $5 in dividends and trade for $60 per share in one year. What is the expected return on this stock? a.) 30%. b.) 10%. c.) 25%. d.) 20%.

a.) 30%. -The expected return is $15, which consists of the $5 in dividends and the $10 increase in stock value from $50 to $60. A $15 return on a $50 investment yields a return of 30% ($15/$50). -This answer choices only takes into account the dividend of $5 (choice b). -This answer choice divides the total return of $15 into the end-of-the-year stock value of $60 rather than the beginning value of $50 (choice c). -This answer choice only takes into account the increase in stock value of $10 (choice d).

*An entity has the following sales orders in a batch: Invoice # Product Quantity Unit Price 101 K 10 50 $5.00 102 M 15 100 $10.00 103 P 20 150 $25.00 104 Q 25 200 $30.00 105 T 30 250 $35.00 Which of the following numbers represents the document count? a.) 5 b.) 105 c.) 100 d.) 750

a.) 5 -The batch includes 5 documents representing invoices 101-105. -The number 105 is a sum of the unit prices of the items on the included invoices. Since this total has NO real meaning, it would be a hash total that is used to validate batch data entry (choice b). -The number 100 is a hash total that is the sum of the product ID numbers (choice c). -The number 750 is a sum of the number of items sold. Since there are different items, this total has NO meaning alone but could be a hash total used as a data input control in batch data entry (choice d).

*Elasticity of demand or supply is: a.) A measure of how sensitive the demand for or supply of a product is to a change in its price. b.) A measure of how flexible the demand or supply of a product is when preferences change. c.) A measure of how well a firm's strategic plan is able to adapt to changes in demand or supply. d.) A measure of how flexible the firm is with respect to responding to the needs of the consumers.

a.) A measure of how sensitive the demand for or supply of a product is to a change in its price. -The other options are all measures of the success of strategic planning, but they do NOT define elasticity of demand or supply (choices b, c, and d).

*An internet service provider's (ISPs) vision is to provide reliable and consistent network connectivity for all customers. Part of its corporate strategy for achieving that is heavily reliant on all of the following EXCEPT having: a.) A virtual network. b.) Quick disaster recovery speeds. c.) A physical network. d.) All IT personnel on company payroll.

a.) A virtual network. -Aligning an organization's corporate strategy with its IT strategy promotes the effective implementation of IT governance. The documentation of both strategies as well as the company's IT architecture serves as the means through which management can sync these objectives. Several key IT factors can impact a company's corporate strategy, including virtual/physical network design, centralized/decentralized network design, cybersecurity, disaster recovery, and IT personnel. -Having a virtual network that uses outsourced computing power would NOT be ideal for an ISP because it would remove several layers of control that it otherwise would have if it managed this function on site. Although hosting a physical network requires maintenance and more upkeep, it allows a company to develop the network according to its own unique requirements using its own highly skilled IT staff. This sort of heightened control can also allow an organization to fine-tune disaster recovery speeds, offering flexibility that assigns faster recovery speeds to high-priority applications and lower speeds to others. -Having the ability to deploy disaster recovery protocols quickly would serve an ISP well, because minimal network downtime is aligned with its vision of consistent connectivity. The faster the organization can recover from a catastrophic event, the more reliable the service may seem to customers (choice b). -Because the ISPs vision is to provide clients connectivity that does NOT fail regularly, they should have a physical network design. Networks that are on-premise, or hosted by the company at its own site, ensure more control over the network (choice c). -Providing consistent connectivity for customers would require IT staff to be on company payroll so they could respond immediately to any outages as well as provide ongoing maintenance to prevent network downtime. Relying on third-party IT staff could result in response time lags because the third-party provider may prioritize other clients first (choice d).

*The performance of a standard cost center should be evaluated by comparing: a.) Actual costs with flexible budget costs. b.) Actual costs with fixed (static) budget costs. c.) Flexible budget costs with fixed (static) budget costs. d.) Actual contribution of the cost center with budgeted contribution of the cost center.

a.) Actual costs with flexible budget costs. -

*Which one of the following statements best reflects an executive information system (EIS)? a.) An EIS helps executives to monitor the business conditions in general and assists in strategic planning to control and operate the company. b.) An EIS processes and records the routine daily transactions necessary to conduct the business. c.) An EIS assists executives in making daily business decisions. d.) An EIS provides management and other end users with reports.

a.) An EIS helps executives to monitor the business conditions in general and assists in strategic planning to control and operate the company. -A system that processes and records the routine daily transactions necessary to conduct the business is called a transaction processing system (TPS) (choice b). -A system that assists executives (or other workers) in making daily business decisions is called a business information system. Although an EIS is one type of business information system, an EIS assists with higher level strategic decisions, NOT daily business decisions (choice c). -A system that provides management and other end users with reports is called a management information system (MIS) (choice d).

*Which of the following would indicate that the economy is in an expansionary phase? a.) Businesses increase capital investment. b.) Building up of inventories is in excess of consumer demand. c.) Potential national income will exceed actual national income. d.) The economy's resources are underused.

a.) Businesses increase capital investment. -In an expansionary phase, GDP increases, firms' profits rise, and the demand for goods and services increases. To capitalize on this rising economic activity, businesses increase their capital investment and expand the size of their workforce. -The buildup of inventories would most likely occur during a contractionary phase or trough, NOT the expansionary phase, when the demand for goods and services declines (choice b). -An economy that is an expansionary phase will have rising economic activity (actual GDP growth) that is above its long-term (potential) growth trend. Actual national income will exceed potential national income (choice c). -During an expansionary phase, firms are likely to increase the size of their workforce as the demand for goods and services increases and more economic resources are necessary (choice d).

*Arbor Corporation is evaluating its working capital financing needs. Management is concerned about increasing interest rates and has elected to fund its working capital needs with an equity loan from Harbor National Bank collateralized by land. The Arbor Corporation's decision is most likely designed to minimize: a.) Credit risk. b.) Default risk. c.) Market risk. d.) Interest rate risk.

a.) Credit risk. -This relates to a debtor's exposure to either the inability to secure financing or the inability to secure financing at attractive interest rates. Arbor's use of long-term financing locks in financing at predictable rates and is designed to eliminate risk that credit might NOT be available. -Default risk represents a creditor's exposure to non-payment. This question relates to the debtor's risk exposure (choice b). -Market risk relates to nondiversifiable risks associated with participation in the economy. Although the Arbor Corporation is concerned about its appeal in the market place as a borrower, its predominant concern relates to its company-specific business risks that might impede the ability to secure credit to meet ongoing working capital needs (choice c). -Interest rate risk generally relates to the changes in valuation of investments that result from interest rate fluctuations. Although Arbor Corporation is concerned about changes in interest rates, its concern relates to meeting ongoing credit needs, NOT the valuation of its instrument (choice d).

*How does inflation distort reported income? a.) Depreciation is NOT reflective of the current fixed asset replacement costs. b.) Sales are NOT reflective of current product prices. c.) Wages are NOT reflective of current labor rates. d.) Interest expense is NOT reflective of current borrowing rates.

a.) Depreciation is NOT reflective of the current fixed asset replacement costs. -Depreciation represents a method of reasonable and rational allocation of the historical cost of fixed assets to benefitting accounting periods. Depreciation is a method of allocation, NOT valuation. Inflation will cause the consumption of non-monetary assets accounted for as depreciation to be undervalued since the total value used as the basis for depreciation is the asset's historical cost, NOT an inflation adjusted amount. -Product prices in a free market will increase with inflation. Sales revenue will reflect inflation (choice b). -Wages will typically increase with inflation as workers negotiate higher wages to keep up with inflation and employers increase wages to compensate for purchasing power losses due to inflation as a means of attracting and retaining a talented work force (choice c). -Although long term borrowing rates may be reflective of historical rates, they include an adjustment for anticipated long term inflation and current interest rates will automatically adjust for inflation as lenders change rates to compensate for changes in purchasing power (choice d).

*In determining cash flows from a proposed investment, the amount of the investment's depreciation tax savings (shield) in a given year is equal to: a.) Depreciation x tax rate. b.) The depreciation. c.) Depreciation x (1 + tax rate). d.) Depreciation x (1 - tax rate).

a.) Depreciation x tax rate. -The depreciation tax shield represents the reduction in taxes paid as a result of having depreciation as a deductible expense. For example, assuming a 40% tax rate and having $10,000 in depreciation expense. Depreciation tax savings (shield) = depreciation expense x tax rate = $10,000 x 0.40 = $4,000. -Depreciation expense alone, without apply the tax rate, would overstate the correct impact of the depreciation tax savings (shield) (choice b). -Multiplying the depreciation expense by (1 + tax rate) would heavily overstate the impact of the depreciation tax savings (shield) (choice c). -Applying (1 - tax rate) is appropriate in assessing the net impact of a cash inflow or revenue source, NOT an expense such as depreciation (choice d).

*What is the formula for calculating the profitability index (PI) of a project? a.) Divide the present value of the annual after tax cash flows by the original cash invested in the project. b.) Divide the initial investment for the project by the net annual cash inflow. c.) Subtract actual after tax net income from the minimum required return in dollars. d.) Multiply net profit margin by asset turnover.

a.) Divide the present value of the annual after tax cash flows by the original cash invested in the project. -PI = present value of net future cash inflows / present value of net initial investment. -The PI is used to rank qualifying investments. -Note: The denominator maybe the "present value of the cash outflows" as opposed to "original cash invested" if the investment is NOT all made at the time of the initial investment. -This is the formula for the payback period, NOT the PI (choice b). -This is an economic value added concept (choice c). -This is the formula for return on investment, NOT the PI (choice d).

*The best basis upon which cost standards should be set to measure controllable production inefficiencies is: a.) Engineering standards based on attainable performance. b.) Recent average historical performance. c.) Practical capacity. d.) Normal capacity.

a.) Engineering standards based on attainable performance. -The best basis for setting standards is engineering standards based on attainable performance. Tight standards are good, but if unattainable, employees will NOT be motivated. -Historical performance may be poor (choice b). -Practical capacity is close, but may be too low to serve as the standard (choice c). -Normal capacity may be inefficient (choice d).

*When the supply of and demand for a good both increase: a.) Equilibrium price may increase, decrease, or remain unchanged. b.) Equilibrium quantity may increase, decrease, or remain unchanged. c.) Equilibrium price will increase. d.) Equilibrium price will decrease.

a.) Equilibrium price may increase, decrease, or remain unchanged. -Equilibrium quantity increases but the impact on price is indeterminate. If demand and supply increase by the same amount, price will remain unchanged. If demand increases by more than supply, price will increase. If supply increases by more than demand, price will decrease.

*Comprehensive Care Nursing Home is required by statute and regulation to maintain a minimum 3 to 1 ratio of staff to residents to maintain the licensure associated with the Nursing Home beds. The salary expense associated with direct service staff for the Comprehensive Care Nursing Home would most likely be classified as: a.) Fixed cost. b.) Variable cost. c.) Semi variable cost. d.) Overhead costs.

a.) Fixed cost. -Costs that maintain production capacity and do NOT vary regardless of utilization are classified as fixed costs. In this instance, the salary costs of direct labor are required to maintain capacity and will be incurred whether the facility is full or empty. -Direct labor costs mandated by statute do NOT vary with production, they vary with the compliance requirement. Consequently direct labor costs, in this instance, are fixed, NOT variable (choice b). -Semi variable costs share the characteristics of both fixed and semi variable costs, such as utilities that have minimum charge amounts with additional costs over a set utilization. As presented, the direct salaries associated with care givers is fixed, NOT semi variable (choice c). -Direct costs related to service provider salaries are considered to be prime costs, NOT overhead costs (choice d).

*Which of the following activities would most likely detect computer-related fraud? a.) Reviewing the systems-access log. b.) Performing validity checks. c.) Conducting fraud-awareness training. d.) Using data encryption.

a.) Reviewing the systems-access log. -Because computer-related fraud often involves unauthorized access to systems and/or data, review of systems access logs is the most likely of these choices to detect fraud. System access logs are electronic lists of who has accessed or has attempted to access systems or part of systems or data or subsets of data. -Validity checks might prevent erroneous data from being entered into a system, but they will NOT detect fraud (choice b). -Fraud-awareness training would help employees to identify possible fraudulent activity but it is NOT the most likely to detect fraud (choice c). -Data encryption might help intercepted data from being understood, but it will NOT detect fraud (choice d).

*Siaggas International is a United States corporation with substantial dealings in Europe. The company is hedging the amounts it owes on individual accounts payable denominated in euros. The financial instrument most likely used by the company would be: a.) Futures contracts to buy the specific number of euros to settle the debt at the spot rate at the time the liability was incurred. b.) Futures contracts to sell the specific number of euros to settle the debt at the spot rate at the time the liability was incurred. c.) Forward contracts to buy the monthly requirement of euros to satisfy anticipated accounts payable for the month. d.) Forward contracts to sell the monthly requirement of euros to satisfy anticipated accounts payable for the month.

a.) Futures contracts to buy the specific number of euros to settle the debt at the spot rate at the time the liability was incurred. -Futures contracts to buy euros would be used to hedge transaction exposure to exchange rate risk for an account payable. -Futures contracts for foreign currency represent the obligation to buy or sell a particular number of foreign currency units at a specific time and at a specific date. Futures contracts are often used to hedge specific contracts, while forward contracts are used to specify general foreign currency needs. Hedge contracts to mitigate risks associated with liabilities are call or buy contracts. The company locks in the amount of foreign currency it needs to satisfy its obligation ensuring that a weakening domestic currency won't make the settlement more expensive. -A futures contract to sell would be applicable to accounts receivable (choice b). -Forward contracts would normally NOT be used in this situation (choices c and d).

*Which of the following pairs of techniques best provides for roughly the same level of assurance about the enforceability of a digitally signed transaction as an inked signature provides for a paper-based transaction? a.) Hashing and asymmetric encryption. b.) Data masking and asymmetric encryption. c.) Hashing and symmetric encryption. d.) Data masking and symmetric encryption.

a.) Hashing and asymmetric encryption. -Hashing involves mapping large quantities of data into a smaller table for the purpose of recovering data more rapidly. It is also utilized in the encryption of advanced and digital signatures. Data masking involves breaking the linkage between data and the individual to whom the data is associated through the removal of personal identifiers. -Encryption involves using a password or digital key to scramble readable information into unreadable information. The two types of encryption are symmetric (the sender and the recipient use the same shared key) and asymmetric (two keys, one public and the other private, are used.) Asymmetric encryption is considered to be more secure. -Asymmetric encryption is more appropriate for securing data transfer, but hashing provides a comparable level of assurance for the enforceability of digitally signed transactions.

*Which of the following procedures is most important to include in the disaster recovery plan for an IT department? a.) Identification of critical applications. b.) Cross-training of operating personnel. c.) Physical security of warehouse facilities. d.) Replacement personal computers for user departments.

a.) Identification of critical applications. -This will be found in almost all disaster recovery plans. Cross-training could be included in some disaster recovery plans, assuming that the "operating personnel" means computer operations personnel (if it means something else, it will NOT be) (choice b). -Although the physical security of warehouses may be in another function's disaster recovery plan, it is NOT likely to be part of the IT function's disaster recovery plan. It will most likely be included in a supply chain business continuity plan (choice c). -Replacement of PCs could be in some disaster recovery plans, but even when it is, the plan is more like to be called a business continuity plan. PCs can be readily purchased, and many firms will decide to purchase replacements only when they need to (choice d).

*Performance of quality assurance occurs in which of the following processes? a.) Implementation b.) Authorization c.) Close d.) Planning

a.) Implementation -Quality assurance takes place in the implementation process, after the standard of quality has been defined. -Quality, NOT the performance of quality assurance, is broadly defined in the authorization process (choice b) -The close process occurs after the performance of quality deliverables (choice c). -The standard of quality is more precisely defined in the planning process. Quality assurance performance takes place after it is planned (choice d).

On January 2, Year 3, JRCorp purchases a 5-year $100,000 face value, 4% fixed coupon bond paying annual interest when market rates at issuance for comparable bonds are 5%. The bond cost $95,671 at purchase one year later, the market price was $94,742. Market rates most likely: a.) Increased by 0.5%. b.) Decreased by 0.5%. c.) Decreased by 5.5%. d.) Increased by 5.5%.

a.) Increased by 0.5%. -

*An investor has $200,000 in an FDIC insured money market account at her local bank. Her financial advisor recommends that she take half of the money and invest it in a balanced mutual fund holding stocks and bonds. The biggest risk to the investor is NOT following her advisor's suggestion is: a.) Inflation eroding the value of her money. b.) The potential loss of principal. c.) The liquidity of her funds. d.) Taxes owed on investment gains.

a.) Inflation eroding the value of her money. -Inflation (rising price levels) erodes the purchasing power of monetary assets such as cash and money market accounts. This is the biggest risk associated with cash held in an FDIC money market account, as the interest paid by banks on these balances is typically extremely low. The FDIC protects investors' cash balances at banks (below a specific threshold). The funds are very liquid, and the taxes owed will be minimal due to low interest payouts. -There is NO loss of principal for money market accounts at the $200,000 level that are FDIC insured (choice b). -Money market accounts are highly liquid, and investors can access them easily (choice c). -Money market accounts are NOT going to produce significant taxes on investment gains. The only taxes owed would be on interest payments, which are typically very small (choice d).

*The required rate of return consists of which of the following? a.) Risk-free rate + market risk premium + inflation premium + liquidity risk premium + default risk premium. b.) Effective interest rate + market risk premium + default risk premium. c.) Simple interest rate + compounding premium + market risk premium + inflation risk premium + default risk premium. d.) Compound interest rate + default risk premium + market risk premium + inflation risk premium.

a.) Risk-free rate + market risk premium + inflation premium + liquidity risk premium + default risk premium. -The minimum annual percentage earned by an investment that will cause a company to put money into a particular security or project. -The required rate of return is the risk-free rate plus the financial risks that represent possible exposure to loss plus an inflation premium. Market risk is the possible loss in trading value of assets or liabilities

*Which of the following statements about an executive information system (EIS) is INCORRECT? The EIS: a.) Is likely to be one of the most widely used and the largest of the information subsystems in a business. b.) Is designed to accept data from many different sources; to combine, integrate, and summarize the data; and to display this data in a format that is easy to understand and use. c.) Helps executives monitor business conditions in general and assists in strategic planning to control and operate the company. d.) Provides top executives with immediate and easy access to information in a highly interactive format.

a.) Is likely to be one of the most widely used and the largest of the information subsystems in a business. -An EIS is a system utilized by senior management that provides access to internal as well as external information to help make strategic decisions. These systems consolidate data so it can be absorbed and interpreted at a macro level so that those using it can identify "big picture" insights or trends. Those insights are then used to guide a company's corporate strategy. EIS systems are usually tailored to the needs of top management and only used by a select few individuals. Therefore, it would NOT widely be used throughout an organization and would likely be one of the smallest subsystems in terms of usage. -An EIS system aggregates data from many sources across an enterprise and displays it in a fashion that is easy to understand at a high level. These macro-level insights are then used to form policy and lead an organization (choice b). -One of the purposes of an EIS is to synthesize business and economic conditions so executives can incorporate that knowledge into a well-designed strategic plan (choice c). -An EIS does give executives quick and easy access to enterprise-wide data points in an interactive format. This functionality provides visibility into all parts of an organization the executive may otherwise have to research or wait for someone else to provide data (choice d).

BEC5*A county's currency conversion value has recently changed from 1.5 to the U.S. dollar to 1.7 to the U.S. dollar. Which of the following statements about the country is correct? a.) Its exports are less expensive for the U.S. b.) Its imports of U.S. goods are more affordable. c.) Its purchases of the U.S. dollar will cost less. d.) Its currency has appreciated.

a.) Its exports are less expensive for the U.S. -The foreign country's exports will be less expensive for the U.S. since it will require fewer U.S. dollars to buy the foreign goods. If the conversion factor is 1.5 FCU to the $, it takes $0.666 (1/1.5) to purchase one currency unit. When the conversion factor changes to 1.7 FCU to the $, it takes $0.588 (1/1.7) to purchase one currency unit. Therefore, with the higher exchange rate the country's exports will be less expensive for the U.S. -Imports of U.S. goods are less affordable. It will now require 1.7 FCU rather than the old 1.5 FCU to purchase every dollar of the same U.S. goods for the foreign country (choice b). -The currency of the foreign country will be able to buy fewer U.S. dollar per unit as a result of the change in the exchange rate (choice c). -The currency has depreciated (choice d).

*To address the problem of a recession, the Federal Reserve Bank most likely would take which of the following actions? a.) Lower the discount rate it charges to banks for loans. b.) Increase the level of funds a bank is legally required to hold in reserve. c.) Increase the federal funds rate charged by banks when they borrow from one another. d.) Sell U.S. government bonds in open market transactions.

a.) Lower the discount rate it charges to banks for loans. -During a recession, GDP has fallen and unemployment has risen. To simulate the economy, the Federal Reserve can lower the discount rate. This would cause the money supply to increase, which would cause GDP to increase and unemployment to decrease. -An increase in the required reserve ratio and the Federal Reserve selling U.S. government bonds on the open market would cause the money supply to decrease. This would cause GDP to decrease and unemployment to increase increase which would indicate a recession (choices b and d). -Increasing the federal funds rate would increase interest rates. Higher interest rates would cause GDP to decrease and unemployment to increase which would indicate a recession (choice c).

*Under pure competition, strategic plans focus on: a.) Maintaining the market share and being responsive to market conditions related to sales price. b.) Maintaining the market share, ensure product differentiation, and adapting to price changes or required changes in production volume. c.) Profitability from production levels that maximize profits. d.) Maintaining the market share and planning for enhanced product differentiation.

a.) Maintaining the market share and being responsive to market conditions related to sales price. -Under pure (or perfect) competition, strategic plans include maintaining the market share and responsiveness of the sales price to market conditions. -Product differentiation is a characteristic of monopolistic competition and oligopoly's, NOT perfect competition (choices b and d). -Profitability from production levels that maximize profits is a characteristic of a monopoly, NOT perfect competition (choice c).

*The competitive model of supply and demand predicts that a surplus can only arise if there is a: a.) Minimum price above the equilibrium price. b.) Maximum price above the equilibrium price. c.) Maximum price below the equilibrium price. d.) Minimum price below the equilibrium price.

a.) Minimum price above the equilibrium price. -The competitive model predicts that a surplus is created when supply exceeds quantity demanded at that price.

*A financial analyst determines that the cross elasticity of demand for Good X (relative to Good Y) is negative, while the income elasticity of demand for Good X is positive. This implies that Good X is a(n): a.) Normal good and complementary to Good Y. b.) Inferior good and complementary to Good Y. c.) Inferior good and a substitute to Good Y. d.) Normal good and a substitute to Good Y.

a.) Normal good and complementary to Good Y. -Cross elasticity measures the % change in quantity demanded for one good caused by a price change in another good. If the cross elasticity is positive, the goods are substitutes (a price increase in one will cause the quantity demanded to increase for the other). If the cross elasticity is negative, the goods are complementary (a price increase in one causes the quantity demanded to decrease for the other). If the cross elasticity of demand for Good X (relative to Good Y) is negative, the goods are complementary. -Income elasticity measures the % change in quantity demanded given a % change in income. If income elasticity is positive, the good is a normal good where demand increases as income increases. If income elasticity is negative, the good is an inferior good where demand decreases as income increases. If the income elasticity of demand for Good X is positive, Good X is a normal good.

*LTD is a company in Switzerland that sold goods to a company in the United States and expects to be paid $100,000 in three months. The current exchange rate is $1.09 per 1 Swiss franc, and LTD's CFO is concerned that the Swiss franc will appreciate to $1.15 per Swiss franc. To mitigate the risk of the exchange rate moving against them, the CFO should enter into a futures contracts at the current exchange rate to: a.) Sell U.S. dollars. b.) Sell Swiss francs. c.) Buy Swiss francs. d.) Buy U.S. dollars.

a.) Sell U.S. dollars. -

*Which of the following statements is (are) correct? -Segregation of duties in a computerized environment is NOT important because the controls in the application systems provide a sufficient control environment when the application systems are purchased from a vendor. -Segregation of duties in a computerized environment is important because controls can be overridden if duties are NOT appropriately segregated. -System programmers are responsible for maintaining operating systems and application programmers are responsible for writing and maintaining application systems. Since there are different skills, the same person would seldom if ever do both. a.) Only statement 2 is correct. b.) Statement 1 and statement 2 are correct. c.) Statement 1 and statement 3 are correct. d.) Only statement 1 is correct.

a.) Only statement 2 is correct. -Statement 2: segregation of duties in a computerized environment is important because controls can be overridden if duties are NOT appropriately segregated. -Segregation of duties in a computerized environment is important for application systems because the controls in the application systems may NOT provide a sufficient control environment even if the application systems are purchased from a vendor (statement 1). -The skills of system programmers and application programmers are different, and it is highly unusual, but NOT impossible, for the same person to perform both functions, especially in small organizations (statement 3).

*Which of the following is true regarding Public Key Infrastructure (PKI)? a.) PKI refers to the system and processes used to issue and manage asymmetric keys and digital certificates. b.) PKI assume asymmetric encryption to create legally-binding electronic documents. c.) PKI includes a "tree of trust" that's checked each time a certificate is presented as proof of one's identity. d.) PKI is intended for e-business use and is typically available through commercial certificate authorities.

a.) PKI refers to the system and processes used to issue and manage asymmetric keys and digital certificates. -Digital signatures, NOT PKI, facilitate the creation of legally binding electronic documents (choice b). -Certificate authorities, NOT PKI, include a "tree of trust" to verify identities by checking certificates (choice c). -Digital certificates, NOT PKI, are available through commercial certificate authorities (choice d).

*Compared to firms in a perfectly competitive market, a monopolist tends to: a.) Produce substantially less but charge a higher price. b.) Produce the same output and charge a higher price. c.) Produce substantially more and charge a higher price. d.) Produce substantially less and charge a lower price.

a.) Produce substantially less but charge a higher price.

*Which of the following methods should be used if capital rationing needs to be considered when comparing capital projects? a.) Profitability index (PI). b.) Return on investment (ROI). c.) Net present value (NPV). d.) Internal rate of return (IRR).

a.) Profitability index (PI). -The PI is used for capital rationing. The PI is the ratio of the present value of net future cash inflows to the present value of the net initial investment. Ranking and selection of investments is made by listing projects in descending order. Limited capital resources are applied in the order of the index until resources are either exhausted of the investment required by the next project exceeds remaining resources. -The ROI, NPV, and IRR methods are techniques to screen investments for compliance with capital investment policy or criteria, NOT a capital rationing method (choice b, c, and d).

*Felix Supplies Inc. is looking to expand its cat and dog food business in the upcoming year. After performing significant due diligence, Felix identifies another company that would fulfill its strategic objective but is much larger and has various other lines of business. Which strategy should Felix management pursue given the above. a.) Purchase of assets b.) Merger c.) Acquisition d.) Tender offer

a.) Purchase of assets -Felix management is only interested in the cat and dog food business of the identified company. Because this company is much larger in size and has various other lines of business, Felix should attempt to purchase only the cat and dog food segment's assets of the identified company. The transaction would only be successful if the identified company is willing to sell this part of its company. -Felix management is interested in expanding its cat and dog food segment and would most likely NOT pursue a merger of a much larger company that has various other lines of business (choice b). -The identified company is too large for a full acquisition and has various other lines of business that were NOT strategically selected by Felix (choice c). -Because Felix is only interested in part of the identified company's assets, a tender offer does NOT apply (choice d).

*The discount rate set by the Federal Reserve is the: a.) Rate that the central bank charges for loans to commercial banks. b.) Ratio of a bank's reserves to its demand deposits. c.) Rate that the commercial banks charge for loans to each other. d.) Rate that the commercial banks charge for loans to the general public.

a.) Rate that the central bank charges for loans to commercial banks. -The discount rate refers to the rate established by the Federal Reserve for short term (often overnight) loans it makes to member banks. -This would be the bank's reserve ratio, NOT the discount rate (choice b). -The discount rate is the rate that the Federal Reserve charges, NOT commercial banks (choices c and d).

*A U.S. parent company is reviewing the cash flows from its international subsidiaries. In addition to exchange rate risk, which of the following items would be a primary consideration in the company's cash flow analysis? a.) Repatriation restrictions. b.) Default risk premium. c.) American depository receipts (ADRs). d.) Foreign trade deficit.

a.) Repatriation restrictions. -These exist when a company invests money in a foreign company but is restricted from bringing that money back to its home county. These restrictions would affect the cash inflows expected from the investment. -The default risk premium is the additional return that a lender requires from a borrower to compensate for the risk that the borrower may NOT be able to make interest or principal payments. This exists in most lending arrangements and is NOT specific to international transactions (choice b). -American depository receipts (ADRs) are securities of non-U.S. companies that trade in U.S. financial markets. Because they trade like regular shares of stock on U.S. exchanges and are denominated in U.S. dollars, they carry lower levels of risk than direct investments in foreign entities (choice c). -A foreign trade deficit is relevant at a macro level and occurs when imports exceed exports (choice d).

*Rivington Corp. is reviewing its competitive strategy. It has been following a combined cost leadership/differentiation/vertical integration strategy for its general retail merchandise division, but that strategy has NOT been working too well and the company has bee losing market share to national competitors. Which of the following statements is/are more then likely correct with respect to competitive strategies? -Cost leadership strategies typically focus on building market share and matching the prices of rival firms. A possible reason for the lack of success of Rivington's cost leadership strategy is that it has an outmoded warehousing and distribution system. -Differentiation strategies attempt to gain competitive advantage by creating the perception that products are superior to those of competitors. A possible reason for the lack of success of Rivington's differentiation strategy is that it implemented its strategy by advertising its "everyday low prices." -Vertical integration strategies attempt to control an entire supply chain. A possible reason for the lack of success of Rivington's strategy is that it has NOT acquired any of the companies in its supply chain. a.) Statements 1 and 2 only are correct. b.) Statement 1 only is correct. c.) Statements 1 and 3 only are correct. d.) All of the statements are correct.

a.) Statements 1 and 2 only are correct. -Statement 1 is correct and says that cost leadership strategies typically focus on building market share and matching the prices of rival firms and that a possible reason for the lack of success of Rivington's cost leadership strategy is that it has an outmoded warehousing and distribution system. Cost leadership strategies certainly focus on building market share and matching prices, and an outmoded warehousing and distribution system could certainly keep a firm from reducing its costs sufficiently. -Statement 2 is correct and says that differentiation strategies attempt to gain competitive advantage by creating the perception that products are superior to those of competitors and that a reason for the lack of success of Rivington's differentiation strategy is that it implemented its strategy by advertising its "everyday low prices." The definition of differentiation strategies is correct. However, "everyday low prices" is NOT normally a way to implement a differentiation strategy, and that could have been a reason for the lack of success of the strategy. -Statement 3 is incorrect and says that vertical integration strategies attempt to control an entire supply chain and that a possible reason for the lack of success of Rivington's strategy is that it had NOT acquired any of the companies in its supply chain. Acquiring companies is NOT a necessary factor for the control of a supply chain.

*A company increased the price of its products and noted subsequent deceases in demand as below: -Product A: 20% price increase and 40% demand decrease. -Product B: 30% price increase and 20% demand decrease. The data above best supports which of the following conclusions regarding the price elasticity of demand for the two products? a.) Substitutes are more readily available for product A than product B. b.) Product B is treated by consumers as a luxury item. c.) Substitutes are more readily available for product B than product A. d.) Product A is treated by consumers as a necessity.

a.) Substitutes are more readily available for product A than product B. -Price elasticity is a measure of the sensitivity of the demand for a product to a change in price. The price elasticity of demand is calculated by diving the % change in quantity demanded by the % change in price. The absolute value of the output is used, as it is assumed that a price increase will lead to a decrease in quantity demanded (and vice versa). -Price elasticity of demand for product A = 40% / 20% = 2. -Price elasticity of demand for product B = 20% / 30% = 0.67. -Goods with an elasticity above 1.0 are considered elastic (sensitive to price changes) and goods with an elasticity below 1.0 are considered inelastic (NOT sensitive to price changes). When more substitutes are readily available for a product, it will mean the product is more price elastic (which is the case for product A). Product B, with a relatively low price elasticity, must NOT have as many substitutes available for consumers. -If product B was treated as more of a luxury item, it would have a higher price elasticity (choice b). -If product A was treated as more of a necessity, it would have a lower price elasticity (choice d).

*When the demand for a product is inelastic, a decrease in price has what effect on the number of units sold and total revenue? a.) The % change in price will be greater than the % change in quantity, and total revenue will fall. b.) The % change in price will be less than the % change in quantity, and total revenue will fall. c.) The % change in price will be greater than the % change in quantity, and total revenue will rise. d.) The % change in price will be less than the % change in quantity, and total revenue will rise.

a.) The % change in price will be greater than the % change in quantity, and total revenue will fall. -A good is price inelastic when the absolute price elasticity of demand is less than 1.0. When demand for a good is inelastic, the decrease in price results in an increase in quantity demanded that is proportionally smaller than the decrease in price. Because the positive quantity effect does NOT fully offset the negative price effect, total revenue (which is price x quantity demanded) will fall. -A % change in price is less than the % change in quantity demanded for an elastic good, NOT an inelastic good, and if price declines for an elastic good, total revenue will increase because quantity demanded will increase by more than the price decline (choice b). -Total revenue would rise for an inelastic good if prices increased (while quantity demanded decreased) (choice c). -This statement is true for an elastic, NOT inelastic, good (choice d).

*In an effort to encourage the employment of summer teens, the federal government lowered the minimum wage from $7/hour to $6/hour. The equilibrium wage for such employees is $8/hour. What effect should this change in the minimum wage have on teen employment? a.) The change should have NO effect on teen employment because the minimum wage is set below the equilibrium wage. b.) Teen employment should decrease because fewer teens will be willing to work for the lower wage of $6/hour. c.) Teen employment should increase because $6/hour is lower than the equilibrium wage of $8/hour. d.) Teen employment should increase because $6/hour is lower than the old minimum wage of $7/hour.

a.) The change should have NO effect on teen employment because the minimum wage is set below the equilibrium wage. -A price floor is only effective when it is set above the equilibrium price. The $8/hour market price (equilibrium wage) is already higher than both the $7/hour and $6/hour price floors. -Employers should be willing to pay the equilibrium rate of $8/hour, so the willingness of teens to work for $6/hour is irrelevant (choice b). -The wage change should have NO effect because it is below the equilibrium wage (choices c and d).

*The net present value (NPV) method of capital budgeting assumes that cash flows are reinvested at: a.) The discount rate used in the analysis. b.) The risk free rate. c.) The cost of debt. d.) The rate of return of the project.

a.) The discount rate used in the analysis.

*Which of the following is NOT a feature of a firm operating in a monopolistic competition environment? a.) The firm faces a downward sloping and fairly inelastic demand curve. b.) Other companies produce similar products. c.) The firm faces few barriers to entry. d.) The firm is able to influence prices.

a.) The firm faces a downward sloping and fairly inelastic demand curve. -A downward sloping, fairly elastic, NOT inelastic, demand curve is a feature of a firm in monopolistic competition. -Choices b, c, and d are all characteristics of monopolistic competition. -Note: firms in a monopolistically competitive market produce "similar" goods; however, unlike in a perfectly competitive market, the goods are NOT identical or perfect substitutes. The definition of being able to "influence prices" is that the firm has a downward sloping demand curve. A firm in a monopolistic competition environment has little market control, but it is still able to influence prices. It cannot influence them as much as a pure monopoly can, but the influence is still there. The firm is a price-maker, NOT a price-taker (hence the downward sloping demand curve), so it is able to influence to some degree.

*Which of the following is NOT considered a factor that increases the bargaining power of the customer? a.) The firm is unable to change suppliers easily. b.) One group of customers makes up a large volume of the firm's business. c.) Buyers have low switching costs of changing products. d.) Much information is available to the customer to compare and contrast features of all products on the market.

a.) The firm is unable to change suppliers easily. -This is a factor that increases the bargaining power of the suppliers. -Choices b, c, and d are incorrect because they are factors that increase the bargaining power of the customer, which are: -Customers make up a large volume of a firm's business. -There is much information available to customers. -The buyers have low switching costs. -There are a high number of alternate suppliers (sellers) of the product.

*Hickman International is based in the United States, but it conducts significant business in Canada. The company's exposure to economic risks of exchange rate fluctuation include: a.) The potential that net sales in Canadian markets (inflows) are denominated in a devalued currency that is less valuable than the United States dollar, thereby reducing the present value of the company. b.) The potential that the remeasurement of subsidiary financial statements denominated in Canadian dollars may produce a foreign exchange loss. c.) The potential that translated financial statements might reflect a reduction in comprehensive income. d.) The potential that accounts receivable denominated in Canadian dollars may be exchanged for fewer United States dollars at the settlement date than on the date of origination.

a.) The potential that net sales in Canadian markets (inflows) are denominated in a devalued currency that is less valuable than the United States dollar, thereby reducing the present value of the company. -Economic exposure represents the potential that the present value of an organization's cash flows could increase or decrease as a result of changes in the exchange rate. Economic exposure is generally defined through local currency appreciation or depreciation and measured in relation to the organization's earnings and cash flows. -This choice is correct because net inflows of a depreciated local currency (Canadian dollar) relative to a domestic currency (United States dollar) results in an economic loss. -These statements represent translation risks, NOT economic risks (choices b and c). -This statement represents a transaction risk, NOT an economic risk (choice d).

*Which of the following is NOT true regarding strategic plans? a.) The process of strategic planning begins with the creation of the plan. b.) Various levels of the organization will implement strategic plans differently. c.) Strategic plans will vary by segment based on the characteristics of the segments. d.) Continual reevaluation and revision of strategic plans is necessary.

a.) The process of strategic planning begins with the creation of the plan. -The process of strategic planning actually begins with defining the firm's vision and mission statements and then moves to setting the goals and objectives of the firm before it considers creation of the strategic plan. -Choices b, c, and d are all true statements regarding strategic plans.

*Reyd Inc. operates in a heavily regulated industry with high initial capital requirements. Advertising and R&D costs are relatively low across the industry, which is reflected in stagnant industry growth over the last several years. The products and services that Reyd offers are similar to its industry peers and although its customers have strong brand preferences, they will incur relatively low switching costs if they choose to move to competitor products. Which of the factors noted above has the biggest impact on increased market competitiveness from Reyd's perspective? a.) The trend in industry growth. b.) Low switching costs for customers. c.) Current spending on advertising and R&D costs. d.) Capital requirements and industry regulations.

a.) The trend in industry growth. -Market competitiveness is one of the five forces identified by Michael Porter as influencing the competitive environment of a firm and its overall profitability. Industry growth has been stagnant, and when a market is NOT growing, competition increases amongst the firms in the industry who are fighting for market share. -Low switching costs relate to the bargaining power held by customers rather than market competitiveness (choice b). -Advertising and R&D costs do relate to market competitiveness, but in this case, spending in these areas is low and will NOT increase market competitiveness (choice c). -Capital requirements and industry regulations, which are both significant here, are barriers to entry that make it harder for new entrants to come into the industry (choice d).

*What is the primary objective of data security controls? a.) To ensure that storage media are subject to authorization prior to access, change, or destruction. b.) To formalize standards, rules, and procedures to ensure the organization's controls are properly executed. c.) To monitor the use of system software to prevent unauthorized access to system software and computer programs. d.) To establish a framework for controlling the design, security, and use of computer programs throughout an organization.

a.) To ensure that storage media are subject to authorization prior to access, change, or destruction. -The objective of this control is to protect information. -Policy support documents, such as procedures, formalized standards, rules, and procedures to ensure the organization's controls are properly executed. Data security controls may be included in procedures, but development of procedures is NOT their objective (choice b). -Choice C is accomplished by change management and related control activities. -Policies establish an overall approach to computer security and are sometimes referred to as the IT security strategy. Data security controls are designed to protect information, NOT to establish strategy or policy (choice d).

*An organization is conducting a Beta test with its top customer. The developer will NOT be present during the test, and the customer gets to test, and the customer gets to test the software at its own site. What type of test is this? a.) Unit test b.) Acceptance test c.) Validation test d.) Integration test

b.) Acceptance test -This ensures that the software works correctly for the intended user in his or her normal work environment. -Unit tests are used to validate the smallest components of a system, ensuring that they handle known input and output correctly (choice a). -Validation tests focus on visible user actions and user-recognizable outputs from the system. These tests answer the question, "Did we build the right thing?" (choice c). -Integration tests exercise an entire subsystem and ensure that a set of components operates smoothly together (choice d).

*In a competitive market, an increase in the minimum wage will likely have which of the following effects? a.) Total employment will likely decrease in affected industries and generate unemployment. Employers will demand a smaller number of workers while a larger number of workers will be attracted by the higher wage. b.) If a marginally more expensive form of capital is available to substitute for labor (e.g., due to technological advances), firms will reduce their use of labor. c.) Firms currently paying above the new minimum wage would generally raise their pay rates (although the new minimum wage creates a new floor for employee wage bargaining purposes). d.) Firms paying at the current minimum wage rate would generally be unaffected if the marginal revenue produced by the lowest paid workers does NOT exceed the new higher cost of the worker. Many firms would thus be forced to work more efficiently.

a.) Total employment will likely decrease in affected industries and generate unemployment. Employers will demand a smaller number of workers while a larger number of workers will be attracted by the higher wage. -If a marginally cheaper, NOT more expensive, form of capital is available to substitute for labor, firms will reduce their use of labor (choice b). -Firms currently paying above the new minimum wage would generally be unaffected, NOT raise their pay rates (choice c). -Firms paying at the current minimum wage rate would attempt to reduce labor, NOT generally be unaffected (choice d).

*An oligopolist faces a "kinked" demand curve. The terminology indicates that: a.) When an oligopolist lowers its price, the other firms in the oligopoly will match the price reduction, but if the oligopolist raises its price, the other firms will ignore the price change. b.) An oligopolist is a similar to a monopolist, and as the quantity demanded for its product increases, the demand curve for that firm shifts to the right. c.) An oligopolist faces a non-linear demand for its product, and price changes will have little effect on demand for that product. d.) An oligopolist can sell its product at any price, but after the "saturation point," another oligopolist will lower its price and, therefore, shift the demand curve to the left.

a.) When an oligopolist lowers its price, the other firms in the oligopoly will match the price reduction, but if the oligopolist raises its price, the other firms will ignore the price change. -In an oligopoly, each firm faces a "kinked" demand curve Others will match price cuts, but ignore price increases. The "kink" is at the prevailing price. Best real world examples of oligopoly are the airline and auto industries. -A change in quantity demanded indicates a movement along the demand curve, NOT a shift in the curve (choice b). -An oligopolist's demand curve is linear but "kinked." Above the "kink," demand is highly elastic. Below the "kink," demand is very inelastic (choice c). -An oligopolist cannot sell at any price. There is NO "saturation point" (choice d).

*Colter Corp. is conducting an analysis of a potential capital investment. The project is expected to increase sales by $100,000 and reduce costs by $50,000 annually. Depreciation expense is $30,000 per year. Colter's marginal tax rate is 40%. What is the annual operating cash flow for the project? a.) $72,000 b.) $102,000 c.) $42,000 d.) $90,000

b.) $102,000 -Annual operating cash flow = pretax cash flow x (1 - tax rate) + (depreciation x tax rate) = $150,000 x (1 - 0.40) + ($30,000 x 0.40) = $150,000 x 0.6 + $12,000 = $102,000. -Choice A represents the expected net income from the project. This only uses the $100,000 increase in sales and ignores the costs reduction when determining the pretax cash flows ($100,000 x 0.6 + $12,000 = $72,000). -Choice C only uses the $50,000 costs reduction and ignores the increase in sales when determining the pretax cash flows ($50,000 x 0.6 + $12,000 = $42,000). -Choice D does NOT add back the interest tax shield of $12,000 when calculating the annual operating cash flow ($150,000 x 0.6 = $90,000).

*As the price for a particular product changes, the quantity of the product demanded changes according to the following schedule: Total Quantity Demanded Price per Unit 100 $50 150 $45 200 $40 225 $35 230 $30 232 $25 The price elasticity of demand for this product when the price decreases from $50 to $45 is: a.) 0.10 b.) 5.00 c.) 0.20 d.) 10.00

b.) 5.00 -% change in quantity demanded = (150 - 100) / 100 = 0.5. -% change in price = (45 - 50) / 50 = - 0.1. -Price elasticity of demand = % change in quantity demanded / % change in price = 0.5 / -0.1 = -5.00 or 5.00. -A price elasticity of demand that is greater than 1.0 is relatively elastic,

*At the equilibrium price, a firm that is in a competitive environment in which it is a price-taker faces: a.) A demand curve that is downward sloping. b.) A demand curve that is horizontal. c.) Significant barriers to entry. d.) A demand curve that is kinked.

b.) A demand curve that is horizontal. -A monopoly faces the market demand curve, which is downward sloping (choice a). -In a competitive environment, there are NO barriers to entry (choice c). -The kinked demand curve model applies only to oligopolist firms (choice d).

*Which of the spreadsheets most likely has the highest risk of data integrity errors? a.) A spreadsheet that displays imported comma-delimited text files from the check payment module and is reviewed by the accounts payable administrator. b.) A spreadsheet into which the controller enters summary daily sales data from a printed report of an automated accounting system. c.) A spreadsheet that captures time and attendance transactions from an automated time clock system. d.) A spreadsheet the CFO uses that is directly linked to the company's accounting system.

b.) A spreadsheet into which the controller enters summary daily sales data from a printed report of an automated accounting system. -Data integrity relates to the assurance that data is consistent and accurate. Spreadsheets with manual inputs carry a higher risk of errors than those produced from automated processes. A spreadsheet with manual entry inputs from a printed report carries a high risk of data integrity errors. -Because the spreadsheet is an output from the check payment module and is reviewed by an administrator in accounts payable who is likely responsible for check payments, the risk of data integrity errors is low (choice a). -A spreadsheet with inputs from an automated clock system carries a lower risk of data integrity errors than a spreadsheet created from manual entries (choice c). -A spreadsheet that has a direct linkage to the accounting system database should have a high degree of data integrity (choice d).

*An audit trail that allows a user to trace a transaction from source documents to the financial statement reports and to trace from the financial statement reports back to source documents can be found in what type of well-designed system? a.) Customer relationship management (CRM) system b.) Accounting information system (AIS) c.) Supply chain management (SCM) system d.) Executive information system

b.) Accounting information system (AIS) -This creates an audit trail for accounting transactions. The ability to trace in both directions is important in auditing. -Customer relationship management (CRM) systems provide sales force automation and customer services in an attempt to manage customer relationships (choice a). -Supply chain management (SCM) is concerned with the four important characteristics of every sale: what, when, where, and how much (choice c). -Executive information systems (EIS) provide senior executives with immediate and early access to internal and external information to assist in strategic decision making (choice d).

*Management information systems (MIS) allow a business to perform the following functions: a.) Upload data to supporting systems for tactical or daily use. b.) Aggregate and report data for strategic planning. c.) Remove data that is corrupt or malicious. d.) Transmit data among multiple networks.

b.) Aggregate and report data for strategic planning. -MIS are software solutions that allow companies to use information for strategic planning. These systems often provide predefined reports, insights, or trends that facilitate the decision-making process for companies. Software utilizing this technology includes EIS, DSS, and AIS, among others. One of the primary functions of an MIS is to serve as an aggregating and reporting tool for a given managerial function such as financial management, decision support, CRM, or SCM. -An MIS serves more of a strategic function than simply uploading data from a source to a destination location. Uploading data to ancillary devices is more tactical in nature and doesn't fit the profile of a typical MIS (choice a). -Scanning for corrupt or malicious data and removing it is the function of antivirus software or other cybersecurity programs, NOT MIS. Even though an MIS may be geared toward IT controls, cybersecurity, or otherwise support that function, that is NOT its primary purpose (choice c). -Transmitting data among different networks is a characteristic more closely aligned with networking equipment such as a router, switch, or a gateway, NOT an MIS. An MIS may perform this function to some extent, but that is NOT its primary purpose (choice d).

*Which of the following configurations of elements represents the most complete disaster recovery plan? a.) Vendor contract for alternate processing site, names of persons on the disaster recovery team, off-site storage procedures. b.) Alternate processing site, backup and off-site storage procedures, identification of critical applications, test of the plan. c.) Off-site storage procedures, identification of critical applications, test of the plan. d.) Vendor contract for alternate processing site, backup procedures, names of persons on the disaster recovery team.

b.) Alternate processing site, backup and off-site storage procedures, identification of critical applications, test of the plan. -All of the factors listed in the other options are important for disaster recovery, but this question asks for the "most complete" disaster recovery plan. Normally, there must be some identification of critical applications; although it is certainly possible in certain situations for "all" applications to be considered critical. -An alternate processing site, backup, and testing are NOT included in this choice (choice a). -A disaster recovery plan has to include some sort of alternate processing site and backup. Off-site storage tends to imply backup (since there has to be something to store off-site), but backup is NOT specifically included (choice c). -A vendor contract for an alternate processing site is normally included in a disaster recovery plan; however, it is possible for an organization to use its own facilities so that an outside vendor is NOT necessary. The names of persons on the disaster recovery team are NOT essential, the individuals involved could be identified by position and NOT by name. Also, testing of the plan must be included in the disaster recovery plan (choice d).

*Which of the following statements is true assuming that demand for a product is price unit elastic: a.) An increase in price will result in an increase in total revenue. b.) An increase in price will have NO effect on total revenue. c.) An increase in price will result in a decline in total revenue. d.) An increase in price will result in a decline in the quantity demanded that is less than the increase in price.

b.) An increase in price will have NO effect on total revenue. -If demand is unit elastic, a change in price will have NO effect on total revenue.

*If a product's demand is elastic and there is a decrease in price, the effect will be: a.) NO change in total revenue. b.) An increase in total revenue. c.) A decrease in total revenue and the demand curve shifts to the left. d.) A decrease in total revenue.

b.) An increase in total revenue. -If demand is relatively elastic, the reduction in price will produce a proportionately greater increase in quantity demanded which will cause total revenue to increase.

*A static budget contains which of the following amounts? a.) Budgeted costs for actual output. b.) Budgeted costs for budgeted output. c.) Actual costs for actual output. d.) Actual costs for budgeted output.

b.) Budgeted costs for budgeted output. -A static budget is based on costs at one level of output. Static budgets thus include budgeted costs for budgeted output. They are NOT based on or adjusted for actual performance. -Budgeted costs for actual output are the basis for flexible budget computations and would NOT be part of a static budget (choice a). -Actual costs for actual output represent actual activity, NOT budget (choice c). -Actual cost for budgeted output would NOT be computed as part of static budget (choice d).

*Accountants often access the website for the AICPA and order publications from that organization. As part of that process, they provide their name and address and a password establishing their identity and provide credit or debit card information to pay for goods purchased. Which type of e-commerce is this? a.) Consumer-to-consumer (C2C). b.) Business-to-consumer (B2C). c.) Consumer-to-business (C2B). d.) Business-to-business (B2B).

b.) Business-to-consumer (B2C). -E-commerce is a form of trade or exchange of goods and services that occurs on the internet. This type of commerce differs from traditional "brick and mortar" operations because it often has low overhead. It also encourages competitive pricing and product comparison, creating a marketplace that might NOT exist without it. -A C2C model would be a scenario in which one consumer is selling to another consumer, without the involvement of a business (choice a). -A C2B model would mean a consumer is selling products or services to an organization, which is the opposite of this question (choice c). -A B2B model involves an organization selling to another organization, NOT a consumer (choice d).

*An advantage of the net present value (NPV) over the internal rate of return (IRR) model in discounted cash flow analysis is that the net present value (NPV) method: a.) Computes a desired rate of return for capital projects. b.) Can be used when there is NO constant rate of return required for each year of the project. c.) Uses a discount rate that equates the discounted cash inflows with the outflows. d.) Uses discounted cash inflows whereas the internal rate of return (IRR) model does NOT.

b.) Can be used when there is NO constant rate of return required for each year of the project. -The NPV model discounts all future cash inflows and outflows to present value. The present values are netted together and the end output (whether positive or negative) determines the acceptability of the project. -When using the NPV method of capital budgeting, different hurdle rates can be used for each year of the project to reflect the level of risk associated with each cash flow. Some cash flows, particularly ones that are further out, have more risk than cash flows that occur in the near future. -The desired rate of return for capital projects is established by management and is applicable to both the NPV and the IRR method (choice a). -The IRR is the discount rate that will equate the discounted cash inflows with the outflows, thus resulting in NO gain or loss, or breakeven (choice c). -Both the NPV and IRR method are discounted cash flow methods (choice d).

*At the peak of a business cycle, which of the following conditions is most true? a.) Output (GDP) tends to be below the potential level of output. b.) Capacity constraints and labor shortages are likely to put upward pressure on the overall price level. c.) The overall price level is likely to be falling. d.) There is likely to be an excess supply of labor and business inventories are likely to be high.

b.) Capacity constraints and labor shortages are likely to put upward pressure on the overall price level. -The peak of a business cycle marks the highest point of economic activity. At that point, firms are likely to face capacity constraints and labor shortages, which will put upward pressure on the overall price level. -GDP is likely to be above, NOT below, its potential level (choice a). -The overall price level is likely to be rising, NOT falling (choice c). -Business inventories are likely to be low, NOT high, and there is likely to be excess demand for labor and NOT an excess supply of labor (choice d).

*In the long run in a competitive market, a maximum or ceiling price set below the equilibrium price will: a.) Result in a decrease in price. b.) Cause a shortage to be created. c.) Have NO effect on the market. d.) Cause a surplus to be produced.

b.) Cause a shortage to be created. -Setting a ceiling price below the price dictated by market forces (which is the equilibrium price set by the supply and demand curves) would create excess demand for the product (at its reduced price) and, consequently, a shortage. -A surplus would be produced if a floor price (under which NO supplier could sell) were set above the equilibrium price, because suppliers would supply excess product at the inflated price (choice d).

*Which of the following pricing policies results in establishment of a price to external customers higher than the competitive price for a given industry? a.) Transfer pricing. b.) Collusive pricing. c.) Predatory pricing. d.) Dual pricing.

b.) Collusive pricing. -This anticipates that competitors will collude or conspire to maintain prices and mutual profitability. Collusive pricing undermines competitive pricing and maintains prices to external customers at levels higher than they would be in a competitive market place. -Transfer pricing is the charge made between affiliates for products or services. Transfer prices may be at any level including cost and market and do NOT relate to the establishment of prices to external customers (choice a). -Predatory pricing strategies typically result in lower prices to external customers than competitive pricing. Predatory pricing (below market or even below cost) is undertaken by larger organizations that can absorb losses and deliberately do so in an attempt to drive smaller, less capitalized, competitors from the market place (choice c). -Dual pricing involves appropriately assigning different prices to the same product in different market settings. Dual pricing is a sophisticated extension of competitive pricing. The prices are simply established at the levels appropriate for each market and would NOT result in higher prices than would be experienced in competitive markets (choice d).

*Which of the following situations best illustrates a potential horizontal merger between Companies X and Y? a.) Company X operates in the financial services industry, whereas Company Y operates in the scientific research and development industry. b.) Companies X and Y are competitors in the same industry. c.) Company X is a textile manufacturer, whereas Company Y operates as a wholesaler for Company X products. d.) Company X supplies raw materials to the production processes for Company Y.

b.) Companies X and Y are competitors in the same industry. -When two companies operating in the same industry merge, it represents a horizontal merger. -This situation represents a circular combination, as the two companies appear to be in relatively unrelated industries (choice a). -This is likely to represent either a vertical or diagonal combination, depending on the extent of the relationship between the two companies (choice c). -If a company merges with one of its suppliers, this represents a vertical merger (choice d).

*Which of the following situations illustrates a potential vertical merger between Company X and Company Y? a.) Company X operates in the financial services industry, whereas Company Y operates in the scientific research and development industry. b.) Company X supplies raw materials to the production processes for Company Y. c.) Company X is a textile manufacturer, whereas Company Y operates as a wholesaler for Company X products. d.) Company X and Company Y are competitors in the same industry.

b.) Company X supplies raw materials to the production processes for Company Y. -A company merging with one of its suppliers represents a vertical merger. -This situation represents a circular combination, NOT a vertical merger, as the two companies appear to be in relatively unrelated industries (choice a). -This is likely to represent a diagonal combination, NOT a vertical merger (choice c). -The merger of two companies operating in the same industry represents a horizontal, NOT vertical, merger (choice d).

*Which of the following management philosophies does NOT focus on quality? a.) Total Quality Management (TQM). b.) Lean manufacturing. c.) Gap analysis. d.) Absolute conformance.

b.) Lean manufacturing. -The main objective is waste reduction. Although customer requirements and demand-pull serve as the basis for the approach, quality is NOT the preeminent concept. -TQM is driven by customer satisfaction and continuous product improvement (choice a). -Gap analysis determines the difference between industry best practices and current company practices. It focuses on quality as it identifies areas that need improvement to meet industry best practices (choice c). -Absolute conformance represents perfect compliance with pre-established levels of quality (choice d).

*An enterprise resource planning (ERP) system has which of the following advantages over multiple independent functional systems? a.) The time to implement an ERP system is significantly less. b.) Data input is less intensive because a central repository is used. c.) Integration is less costly. d.) ERP systems are more cost effective.

b.) Data input is less intensive because a central repository is used. -ERP coordinates information to ensure timely and responsive reporting and data administration in support of decisions. An ERP system is cross-functional enterprise system that integrates and automates many business processes that work together in the manufacturing, logistics, distribution, accounting, finance, and HR functions of a business. One of the benefits of an ERP system is that data is stored in a central repository. This means that it only has to be entered once as opposed to multiple times in separate independent functional systems. -The time required to implement an ERP system can be exorbitant. Independent systems are much smaller in scale and application, so time to implement would be less (choice a). -Integrations with existing systems can be very complex for ERP implementations because companies often have multiple systems with which they need to connect (choice c). -ERP systems can be very expensive due to the hardware, software, and training required to implement and launch them (choice d).

*Which changes in costs are most conducive to switching from a traditional inventory ordering system to a JIT ordering system? -Cost per purchase order. -Inventory unit carrying costs. a.) Decreasing, Decreasing b.) Decreasing, Increasing c.) Increasing, Increasing d.) Increasing, Decreasing

b.) Decreasing, Increasing -A JIT system is used to lower inventory levels and results in more purchase orders of fewer units each. If carrying costs are increasing, JIT would be beneficial. Costs per purchase order that are decreasing would also be conducive to JIT. -Carrying costs should decrease in total; however, they will do so only as a result of ordering more frequently and maintaining fewer items in stock. Ordering more frequently will spread the costs of the purchasing department over more orders, thereby decreasing the cost per purchase order. Maintaining fewer items in inventory or holding items for a shorter period of time will actually increase the inventory unit carrying costs.

*If an organization decides to analyze sales by looking at the average sales by region, it would be implementing which type of data analytic process? a.) Predictive analytics b.) Descriptive analytics c.) Diagnostic analytics d.) Prescriptive analytics

b.) Descriptive analytics -This describes what happens within the data. It describes events that have already occurred. Compiling the average sales by region would be considered a summary statistic used to describe the data and is therefore descriptive analytics. -Predictive analytics provide expected or predicted outcomes based on historical data. It helps to forecast future data points. This type of analytics only provides a simple descriptive output. It uses statistical techniques and forecasting models to predict what could happen (choice a). -Diagnostic analytics explain why something happened. It focuses on determining why an event occurred. This form of analytics provides a simple descriptive output and does NOT explain the drivers or underlying causes of the value of the output (choice c). -Prescriptive analytics prescribe or recommend actions to be taken based on advanced analytics to reach a desired goal. It uses optimization and simulation algorithms to affect future decisions. This type of analytics only provides a simple descriptive output (choice d).

*The benefits of a JIT system for raw materials usually include: a.) Increase in the number of suppliers, thereby ensuring competitive bidding. b.) Elimination of non-value-adding operations. c.) Decrease in the number of deliveries required to maintain production. d.) Maximization of the standard delivery quantity, thereby lessening the paperwork for each delivery.

b.) Elimination of non-value-adding operations. -The JIT system focuses on expediting the production process by having materials available as needed without having to store them prior to usage. Thus, the non-value-adding operations or storing materials is eliminated. -A JIT system is designed to facilitate the flow of materials whether the materials come from one or more suppliers. Competitive bidding is NOT a major benefit of the JIT system (choice a). -With a JIT system, deliveries are made as materials are needed. A decrease in deliveries may increase the delivery quantity, thus increasing the need to store the materials prior to using them. The JIT system focuses on minimizing storage time and storage costs (choice c). -Maximizing the delivery quantity of materials may increase the need to store the materials prior to using them. The JIT system focuses on minimizing storage time and storage costs. Lessening paperwork is NOT a focus of the JIT system (choice d).

*A company's new time clock process requires hourly employees to select an identification number and then choose the clock-in or clock-out button. A video camera captures an image of the employee using the system. Which of the following exposures can the new system be expected to change the LEAST? a.) Recording of other employees' hours. b.) Errors in employees' overtime computation. c.) Fraudulent reporting of employees' own hours. d.) Inaccurate accounting of employees' hours.

b.) Errors in employees' overtime computation. -Controls over time and attendance will NOT be effective in preventing or detecting errors in the computation of employee overtime. Miscalculation of the wage or overtime premium amount could occur even if hours are worked are accurately controlled and captured by the time and attendance system. -Controls over time and attendance systems would be designed to be effective in preventing the other options. The video image would be very helpful in this regard (choices a, c, and d).

*Capital budgeting decisions include all but which of the following? a.) Selecting among long term investment alternatives. b.) Financing short term working capital needs. c.) Financing large expenditures. d.) Making investments that produce returns over a long period of time.

b.) Financing short term working capital needs. -This is more operational in nature. -Choices a, c, and d are all types of capital budgeting decisions.

*The difference between the actual amounts and the flexible budget amounts for the actual output achieved is the: a.) Production volume variance. b.) Flexible budget variance. c) Standard cost variance. d.) Sales volume variance.

b.) Flexible budget variance. -Production volume variance is the variance in an absorption costing system that measures the departure from the denominator level of activity that was used to set the fixed overhead rate (choice a). -Standard cost variance is the net difference between the total actual cost and the standard cost (choice c). -Sales volume variance arises solely because the quantity actually sold differs from the quantity budgeted to be sold (choice d).

*Fearing that interest rates will rise, SGT Co. enters into an interest rate swap on a principal amount of $5 million. One side will pay a fixed rate of 4% and the other side will pay based on a floating interest rate equal to the Secured Overnight Financing Rate (SOFR) plus 0.50%. If SGT receives a payment of $37,500 on the first settlement date, it must be a case that they are the: a.) Fixed rate receiver and the SOFR is equal to 4.25%. b.) Floating rate receiver and the SOFR is equal to 4.25%. c.) Floating rate payer and the SOFR is equal to 2.75%. d.) Fixed rate payer and the SOFR is equal to 2.75%.

b.) Floating rate receiver and the SOFR is equal to 4.25%. -In an interest rate swap, one party will pay the fixed rate and the other party will pay the floating rate. The fixed rate for this swap is 4%, while the floating rate is equal to SOFR + 0.50%. So, if SGT receives a payment of $37,500 on a principal amount of $5 million, that implies that the floating rate is 75 basis points (0.0075%) higher than the fixed rate. -

*Which of the following is NOT typically a function of the information systems steering committee? a.) Ensuring top-management participation, guidance, and control. b.) Frequently communicating with users and holding regular meetings to consider ideas and discuss progress so there are NO surprises at project completion. c.) Facilitating coordination and integration of information systems activities to increase goal congruence and reduce goal conflict. d.) Setting governing policies for the various information systems within the company.

b.) Frequently communicating with users and holding regular meetings to consider ideas and discuss progress so there are NO surprises at project completion. -This is a function of the project development team. -Choices a, c, and d are all typical roles of the information systems steering committee during systems design.

*A digital signature is used primarily to determine that a message is: a.) Sent to the correct address. b.) From an authentic sender. c.) Received by the intended recipient. d.) NOT interested in route.

b.) From an authentic sender. -The digital signature uses encryption so that the recipient of a message can be assured that it is from the sender that is shown. -The other choices would NOT be ensured by a digital signature, any more than a normal signature would (choices a, c, and d).

*Which of the following concepts can best be used to understand oligopoly behavior? a.) Interindustry competition. b.) Game theory model. c.) Herfindahl index. d.) Concentration ratio.

b.) Game theory model. -This is a study of mathematical models of conflict and cooperation between rational decision makers. There are several versions of game theory models that are used to evaluate participant behavior under oligopolies. -Interindustry competition involves firms from different industries competing against one another. Understanding oligopoly behavior focuses on companies within the same industry (choice a). -The Herfindahl index is a measure of the size of firms relative to the industry that gives more weight to larger firms. It may be used as an indicator of an oligopoly, but would NOT be used to understand oligopoly behavior (choice c). -A concentration ratio is a quantitative indicator of industry concentration that measures the market share of the leading firms in an industry relative to all firms in the industry. It is an indicator of an oligopoly, rather than a concept used to understand oligopoly behavior (choice d).

*Mindy's Restaurants Inc., an international casual dining business, completed a circular business combination of Euro Property Management Co. at year-end. Mindy's currently uses a variety of independent property management companies in the U.S. and in Europe. All of the following would represent valid reasons for this type of business combination, with the exception of: a.) Improves restaurant locations and sales. b.) Helps achieve better economies of scale. c.) Centralizes European property management. d.) Reduces operating costs.

b.) Helps achieve better economies of scale. -Achieving economies of scale is NOT consistent with a circular combination, which includes the merger of different types of businesses with remote connections under a single management. A horizontal combination of companies within the same industry may be done with the goal of achieving economies of scale. -This represents a valid reason to complete this circular combination. Merging with Euro Property Management could be based on the premise of improving restaurant locations in Europe, which could lead to higher sales (choice a). -This is a valid reason to complete this circular combination. By acquiring Euro Property Mgmt., managing restaurant locations in Europe could be more effectively centralized (choice c). -This represents a valid reason to complete this circular combination. In the event that Mindy's acquired Euro Property Management to reduce or eliminate other independent property management companies in Europe, a reduction in operating costs could be achieved (choice d).

*A firm currently has a capital structure that is financed 50% by debt and 50% by equity. In an effort to reduce its weighted average cost of capital (WACC), the firm's CFO is considering a shift to a target structure of 60% debt and 40% equity. Assuming the CFO implements this shift, the firm will have: a.) Fewer tax deductions related to interest expenses. b.) Higher financial leverage. c.) Lower variable costs and higher fixed costs. d.) Higher operating leverage.

b.) Higher financial leverage. -Financial leverage is the degree to which a company uses debt rather than equity in its capital structure. The current structure is 50% debt and 50% equity. Moving to a target of 60% debt and 40% equity implies greater financial leverage. -By moving to a capital structure with more debt, interest expenses (all else equal) will increase, NOT decrease, which will result in more (NOT fewer) tax deductions related to interest (choice a). -Lower variable costs and higher fixed costs imply higher operating leverage, which is NOT what is covered in this question (choice c). -Operating leverage is the degree to which a company uses fixed operating costs rather than variable operating costs. This question relates entirely to financing and capital structure, NOT fixed vs. variable costs (choice d).

*Which of the following correctly lists the three ways to increase the money supply? a.) Lower the required reserve ratio, increase the discount rate, buy bonds (government securities) in the open market. b.) Lower the required reserve ratio, decrease the discount rate, buy bonds (government securities) in the open market. c.) Raise the required reserve ratio, increase the discount rate, buy bonds (government securities) in the open market. d.) Raise the required reserve ratio, increase the discount rate, sell bonds (government securities) in the open market.

b.) Lower the required reserve ratio, decrease the discount rate, buy bonds (government securities) in the open market. -Increasing the discount rate decreases the money supply (choice a). -Raising the required reserve ratio and increasing the discount rate would decrease the money supply (choice c). -Raising the required reserve ratio, increasing the discount rate, selling bonds (government securities) in the open market would decrease the money supply (choice d).

*The concept of timeliness of data availability is most relevant to: a.) Data analytics. b.) IT governance. c.) Risk management. d.) Process management.

b.) IT governance. -IT governance frameworks depict the way an organization achieves its mission-critical goals using IT strategies, processes, and resources. Governance focuses on the effective management of data and is ultimately the responsibility of management and the board of directors. Information that isn't available to employees when they need it provides NO benefit. Therefore, it must be available at the right time to support IT governance goals. -Data analytics focuses on the manipulation of large data sets from which insights can be drawn. Because this is more of a research-intensive and secondary process that is NOT as vital for daily operations, availability is of less importance (choice a). -Risk management relates somewhat to data availability, but its primary function is to mitigate risks. Often this may involve NO data at all (choice c). -In processes that involve real-time data, availability is relevant. However, there are many processes that may NOT directly involve the availability of data, making this choice less relevant (choice d).

*Which of the following methods may the Federal Reserve use to reduce inflationary pressure? a.) Increase the money supply. b.) Increase margin requirements. c.) Decrease the target interest rate. d.) Decrease reserve requirements.

b.) Increase margin requirements. -The Federal Reserve can increase margin requirements as a means to decrease the economy's money supply. This is a viable contractionary monetary policy used by the Federal Reserve to lower the economy's price level (inflation). -Increasing the money supply is NOT a method but the effect of a given method used by the Federal Reserve to further stimulate the economy and raise the economy's price level (choice a). -An increase in the money supply causes the target interest rate to fall. This is an expansionary policy that will result in an increase in an economy's price level (choice c). -Lowering the required reserve ratio for banks increases the money supply and is an expansionary monetary policy that will cause the price level to further rise (choice d).

*In competitive markets, an increase in an effective minimum wage will: a.) Decrease the supply of labor. b.) Increase unemployment. c.) Have a neutral effect on the demand for labor. d.) Decrease unemployment.

b.) Increase unemployment. -When the "minimum" wages are increased, employers may elect to hire fewer employees thereby increasing unemployment. -The supply of labor will likely go up, NOT down, as the wage being paid increases (choice a). -An increase in the minimum will have an effect on the demand for labor (choice c). -As the minimum wage increases, unemployment will increase, NOT decrease (choice d).

*An international firm based in the United States is forecasting the impact of various factors on its trade in foreign markets. Each of the following factors would serve to improve the exchange rate of the U.S. dollar relative to foreign currencies, EXCEPT: a.) Declining domestic income. b.) Increased foreign capital investment. c.) Foreign inflation d.) Low foreign interest rates.

b.) Increased foreign capital investment. -The question asks which of the answer choices would NOT serve to improve the exchange rate of the U.S. dollar relative to foreign currencies. Increased U.S. capital investment in a foreign economy would likely cause the exchange rate for the U.S. dollar to deteriorate. Increased capital investment in a foreign country creates a demand for the foreign currency. The increased demand for a fixed amount of foreign currency ultimately increases the value (exchange rate) of the foreign currency relative to the U.S. dollar. -Declining domestic income will reduce the amount of domestic currency spent. Reduced demand for foreign currency from a declining pool of domestic currency will effectively strengthen the domestic currency and improve exchange rates (choice a). -Foreign inflation would reduce the buying power of the foreign currency, thereby increasing the value of the U.S. dollar, which caused the exchange rate to improve (choice c). -Low foreign interest rates will reduce incentives for foreign investment. The less demand for foreign currency, the stronger the domestic currency and exchange rates would improve (choice d).

*A significant decline in the exchange rate of the U.S. dollar generally will have which of the following effects? a.) It will hurt all U.S. business. b.) It will benefit U.S. exporters. c.) It will benefit U.S. importers. d.) It will make foreign goods cheaper for U.S. consumers.

b.) It will benefit U.S. exporters. -A decline in the exchange rate of the U.S. dollar will result in U.S. goods being less expensive for purchasers outside of the U.S. The currency for a foreign purchaser will be worth more relative to the U.S. dollar, allowing that purchaser to afford more U.S. goods than before. As a result, this will benefit U.S. exporters, who will be able to sell more of their goods to foreign purchasers. -U.S. businesses who sell goods to foreign purchasers will benefit from the depreciated U.S. dollar, as these purchasers will be able to afford more U.S. goods due to the decline in the exchange rate (choice a). -U.S. importers will be hurt by the decline in the exchange rate, as goods denominated in foreign currencies will now be more expensive for a U.S. purchaser. A decline in the exchange rate of the U.S. dollar implies that foreign currencies are now more expensive relative to the dollar (choice c). -foreign goods will now be more expensive to U.S. consumers, as the U.S. dollar will be worth less relative to foreign currencies (choice d).

*Which of the following uses analysis of production processes to ensure that resources uses stay within target costs? a.) Just-in-time (JIT). b.) Kaizen. c.) Value Chain Analysis. d.) Activity-based Costing (ABC).

b.) Kaizen. -Kaizen, or continuous improvement, occurs at the manufacturing stage where there is an ongoing search for cost reductions. -Just-in-time (JIT) management emphasizes efficiency by scheduling the deployment of resources just in time to meet customer or production requirements (choice a). -Value chain analysis is concerned with the additional value a product gains by passing through the activities of the production chain (choice c). -Activity-based costing (ABC) focuses on costs for each activity in a process (choice d).

*The impact of a government price support program would most likely result in which of the following? a.) Lead to shortages. b.) Lead to surpluses. c.) NOT influence the rationing function of prices. d.) Improve the rationing function of prices.

b.) Lead to surpluses. -A government price support program acts as a subsidiary that will encourage suppliers to increase supply beyond an equilibrium point (the point where supply and demand curves intersect). This excess of supply over demand will create surpluses in the market.

*Bret works with Stampede Inc. where he is responsible for product design. Bret is part of which business process? a.) Expenditure process b.) Manufacturing process c.) Revenue process d.) Human resources and payroll process

b.) Manufacturing process -Product design is the first step in the manufacturing process.

*A firm is in heavy competition with a rival firm, and its rivals are consistently able to effectively respond to changes in consumer preferences by making strategic moves in an effort to win over the buyers and gain competitive advantage. Which of the five forces that affect the competitive environment and profitability of a firm does this best demonstrate? a.) Barriers to entry. b.) Market competitiveness. c.) Bargaining power of customers. d.) Existence of substitute products.

b.) Market competitiveness. -This is often the most significant of the five forces facing a firm. Firms need to be able to anticipate the strategic moves of rival firms. If a firm is in competition with other firms who are able to respond to changes in various components affecting business, the firm faces a strong competitive force of intensity of competition (market competitiveness). -Barriers to entry are "hoops" or other obstacles that a firm must combat when it attempts to enter a new market (choice a). -The bargaining power of customers relates to the ability of the customer to directly impact the profitability of the firm by increasing the negotiating power of customers (choice c). -A firm faces heavy competition from substitute products when similar products exist in the marketplace, and consumers are easily able to switch from one product to another (choice d).

*An increase in the minimum wage: -Will move employers down the labor demand curve, causing the quantity of labor demanded to fall. -Is likely to increase the supply of labor, as more people will be willing to work for the higher wage. a.) Both statement 1 and statement 2 are correct. b.) Neither statement 1 nor statement 2 are correct. c.) Only statement 1 is correct. d.) Only statement 2 is correct.

b.) Neither statement 1 nor statement 2 are correct. -Statement 1 is incorrect, as an increase in the minimum wage will move employers up, NOT down, the labor demand curve, causing the quantity of labor demanded to fall. -Statement 2 is incorrect, as an increase in the minimum wage leads to a decrease in the quantity demanded of labor and an increase in the quantity supplied of labor. It does NOT increase the supply of labor, only the quantity supplied of labor.

*A company has unlimited capital funds to invest. The decision rule for the company to follow in order to maximize shareholders'' wealth is to invest in all projects having a(n): a.) Accounting rate of return greater than the hurdle rate used in capital budgeting analyses. b.) Net present value (NPV) greater than zero. c.) Internal rate of return (IRR) greater than zero. d.) Present value greater than zero.

b.) Net present value (NPV) greater than zero. -If the NPV is positive (greater than zero), a project should be accepted, unless there is a better project. -Considering only the accounting rate of return greater than the hurdle rate ignores the time value of money (choice a). -Considering only the IRR greater than zero may result in the acceptance of a project with an IRR less than the company's minimum desired rate of return (choice c). -Considering only the present value greater than zero accounts for future net cash inflows, but it ignores cash outflows from the initial capital investment (choice d).

*The method that recognizes the time value of money by discounting the after tax cash flows over the life of a project, using the company's minimum desired (hurdle) rate of return is the: a.) Internal rate of return (IRR) method. b.) Net present value (NPV) method. c.) Payback method. d.) Accounting rate of return method.

b.) Net present value (NPV) method. -IRR is similar to NPV, but does NOT assume a desired rate of return. The rate is calculated that produces a NPV of zero (choice a). -Payback method does NOT recognize the time value of money (choice c). -The accounting rate of return is the accrual accounting increase compared to the initial investment (choice d).

*The discount rate is determined in advance for which of the following capital budgeting techniques? a.) Internal rate of return (IRR). b.) Net present value (NPV). c.) Payback. d.) Accounting rate of return.

b.) Net present value (NPV). -Project cash flows are discounted based upon a predetermined rate and compared to the investment in the project to arrive at a positive or negative NPV. Advance determination of management's required return is integral to the development and evaluation of NPV. -The IRR computes a rate of return that produces a NPV of zero and does NOT require a predetermined rate. The computed IRR is evaluated in relation to management's required hurdle rate after the computation has been completed (choice a). -The payback method computes the period of time required to recover the cost of an investment and does NOT require a predetermined discount rate (choice c). -The accounting rate of return computes a % return based upon accrual basis data and does NOT require a predetermined discount rate (choice d).

*All of the following actions are valid tools that the Federal Reserve Bank uses to control the supply of money, EXCEPT: a.) Selling government securities (bonds). b.) Printing money when the money supply appears low. c.) Raising or lowering the discount rate. d.) Changing the reserve ratio.

b.) Printing money when the money supply appears low. -The Treasury, NOT the Federal Reserve, prints money. -The Federal Reserve must increase the money supply through: -Federal open market committee (FOMC) purchasing or selling government securities (bonds). -Raising or lowering the discount rate. -Changing the reserve ratio. -The other options are all valid tools to control the supply of money (choices a, c, and d).

*CRE, LLP, has recently adopted new controls in its enterprise resource planning (ERP) system. One control within accounts payable is designed to compare individual transactions with previously recorded transactions to match certain designated fields. This is a(n): a.) Input control. b.) Processing control. c.) Output control. d.) Access control.

b.) Processing control. -These are designed to ensure that the processing of data is accurate and complete. An example control includes matching two or more items or transactions before action is taken on the item or transaction. -Input controls are designed to ensure that the integrity of the data meets certain parameters as it is entered (choice a). -Output controls are designed to provide additional control over processing integrity (i.e., user review of output, reconciliation procedures, etc.) (choice c). -Access controls are designed to restrict the admission of a user or system into another system or place (choice d).

*If the Federal Reserve wanted to implement an expansionary monetary policy, which one of the following actions would the Federal Reserve take? a.) Raise the reserve requirement and the discount rate. b.) Purchase additional U.S. government securities and lower the discount rate. c.) Raise the discount rate and sell U.S. government securities. d.) Lower the discount rate and raise the reserve requirement.

b.) Purchase additional U.S. government securities and lower the discount rate. -Federal Reserve Bank purchases of government securities increase the money supply (putting money into circulation), and lowering the discount rate encourages borrowing by member banks and increases the money supply. These measures would help implement an expansionary monetary policy. -Raising the reserve requirement and the discount rate would have the opposite effect of decreasing the money supply (choice a). -Raising the discount rate and selling government securities would reduce the money supply (choice c). -Raising the reserve requirement would decrease the money supply, but lowering the discount rate would increase the money supply (choice d).

*The Federal Reserve wishes to conduct expansionary monetary policy. Which of the following policy approaches will be most successful? a.) Sell government securities (bonds) and lower the discount rate. b.) Purchase government securities (bonds) and lower the discount rate. c.) Sell government securities (bonds) and raise the required reserve ratio. d.) Purchase government securities (bonds) and raise the required reserve ratio.

b.) Purchase government securities (bonds) and lower the discount rate. -The tools that the Federal Reserve has available to control the money supply include open market operations, changes in the discount rate, and changes in the required reserve ratio. In order to conduct expansionary monetary policy, the Fed would purchase government securities (bonds), lower the discount rate, and/or lower the reserve requirement. Each of these actions would increase the money supply and expand the economy by making it easier for banks to lend money and by putting more money into the marketplace. -Although lowering the discount rate will increase the money supply, selling government securities (bonds) will decrease the money supply (choice a). -Selling government securities (bonds) and raising the required reserve ratio will both decrease the money supply (choice c). -Purchasing government securities (bonds) increases the money supply, but this impact is offset by raising the required reserve ratio (choice d).

*Which type of analytics are described by activities such as continuous monitoring, continuous auditing, and continuous reporting? a.) Customer analytics b.) Risk and compliance analytics c.) Operational analytics d.) New products and services innovation analytics

b.) Risk and compliance analytics -This is used to monitor transactions through continuous monitoring, continuous auditing, and fraud detection. -Customer analytics support digital marketing and allow a company to deliver timely, relevant, and anticipated offers to customers (choice a). -Operational analytics use data mining and data collection tools to plan for more effective business operations (choice c). -New products and services innovation analytics are used to determine where innovation is needed, and to isolate product qualities that are most important to customers (choice d).

*To decrease the money supply, the Fed might: a.) Decrease the required reserve ratio. b.) Sell bonds (government securities) on the open market. c.) Buy bonds (government securities) on the open market. d.) Lower the discount rate.

b.) Sell bonds (government securities) on the open market. -To decrease the money supply, the Fed can: 1.) sell bonds (government securities) in the open market, 2.) increase the discount rate, and 3.) increase the required reserve ratio. -The Fed should increase, NOT decrease, the required reserve ratio (choice a). -The Fed should sell, NOT buy, bonds (government securities) on the open market (choice c). -The Fed should increase, NOT decrease, the discount rate (choice d).

*The U.S. government and the Federal Reserve Bank are working to help the economy rebound from a recent and prolonged economic slump. Which of the following actions is LEAST likely to help them meet their objectives? a.) Lowering marginal income tax brackets. b.) Selling U.S. Treasury bills and notes. c.) Decreasing the required reserve ratio. d.) Increasing government spending.

b.) Selling U.S. Treasury bills and notes. -Selling government securities (such as Treasury bills and notes) is a type of monetary policy that reduces the money supply by taking money out of investors' hands and putting it into the government's hands. A reduction in the money supply leads to higher interest rates, which in turn will reduce economic output and growth. If the goal is to help the economy rebound from a slump, an appropriate action is to buy, NOT sell, government securities. -Lowering taxes is a fiscal policy action that will keep more money in the hands of consumers and help to increase economic growth (choice a). -The required reserve ratio represents the amount of money banks must hold in reserves vs. money they can circulate into the economy. Decreasing the required reserve ratio is considered an expansionary monetary policy action that will increase the money supply and spur economic growth and output (choice c). -An increase in government spending represents expansionary fiscal policy, which will help to spur economic expansion and growth (choice d).

*Specialty Design Co. is considering divesting its figurine and holiday ornament segment given its ongoing capital requirements and perceived lack of sufficient creativity in this business. The segment has been profitable over the past three years, but sales and operating margins have incrementally declined. What is the best course of action for management to take given these circumstances? a.) Sell off the segment. b.) Spin off the segment. c.) Complete an equity carve-out. d.) Maintain the segment.

b.) Spin off the segment. -Management should spin off the figurine and holiday ornament segment, which will create a new company that will receive a capital infusion. The fact that this segment lacks sufficient creative expertise and has generated declining sales and operating margins in the near term makes a spin-off the most attractive course of action. In essence it represents a fresh start for the business. -Although a sell-off is a possible course of action by management, a spin-off of the segment is a better course of action. Also, the facts of the scenario do NOT directly indicate that this segment is non-core to the strategic plans of the company (choice a). -Completing an equity carve-out will require costs associated with an IPO and continual monitoring, as the parent will retain a controlling interest in this business. A spin-off of the segment is the best course of action (choice c). -Maintaining the segment is NOT the best course of action given its capital needs, lack of creative expertise, and declining profit margins (choice d).

*Specialty Design Co. is considering divesting its figurine and holiday ornament segment given its ongoing capital requirements and perceived lack of sufficient creativity in this business. The segment has been profitable over the past three years, but sales and operating margins have incrementally declined. What is the best course of action for management to take given these circumstances? a.) Complete an equity carve-out. b.) Spin-off the segment. c.) Sell-off the segment. d.) Maintain the segment.

b.) Spin-off the segment. -Management should spin-off the figurine and holiday ornament segment, which will create a new company that will receive a capital infusion. The fact that this segment lacks sufficient creative expertise and has generated declining sales and operating margins in the near term makes a spin off the most attractive course of action. In essence it represents a fresh start for the business. -Completing an equity carve-out will require costs associated with an IPO and continual monitoring, as the parent will retain a controlling interest in this business (choice a). -A sell-off is possible but the facts of the scenario do NOT directly indicate that this segment is non-core to the strategic plans of the company (choice c). -Maintaining the segment is NOT the best course of action given its capital needs, lack of creative expertise, and declining profit margins (choice d).

*Which of the following statements is (are) correct? -Disaster recovery consists of plans for continuing operations in the event of destruction of NOT only program and data files but also processing capability. -A warm site is an off-site location that has all of the electrical connections and other physical requirements for data processing but that does NOT have the actual equipment. Warm sites are used when the possibility of a disaster occurring is remote. -A hot site is an off-site that is completely equipped to take over an organization's data processing. a.) None of the above statements are correct. b.) Statement 1 and statement 3 are correct. c.) Statement 1 and statement 2 are correct. d.) All of the above statements are correct.

b.) Statement 1 and statement 3 are correct. -A cold site, NOT warm site, is an off-site location that has all of the electrical connections and other physical requirements for data processing but that does NOT have the actual equipment. A warm site is a facility already equipped with the necessary hardware that creates a replication of the primary data center.

*Which one of the following is NOT a requirement of JIT systems? a.) Employee empowerment. b.) Strong job specialization. c.) Supplies received as needed throughout the day. d.) Reduced setup time.

b.) Strong job specialization. -JIT means that employees with multiple skills are used more efficiently and will NOT specialize in merely one job or task. -JIT requires a sense of empowerment amongst employees to ensure the coordination of production and materials delivery is handled with maximum efficiency and accommodates variable schedules (choice a). -JIT coordination of supplies inventory generally means synchronization of production scheduling where demand and supplies arrive at regular intervals throughout the production day (choice c). -Reduced setup times that NO longer need to accommodate buffers for the delivery of goods would be benefits and features of JIT inventory systems (choice d).

*A U.S. firm enters into a currency swap with a firm in London. Per the terms of the swap, the two exchanges to be made in Year 1 are as follows: Date U.S. Firm Receives U.K. Firm Receives June 30, Year 1 72,000 pounds $100,000 December 31, Year 1 90,000 pounds $125,000 If the pound depreciates to 0.75 pounds per $1 as of June 30, which of the following statements is most accurate? a.) The U.K. firm records a gain on June 30 of 4,000 pounds. b.) The U.S. firm records a loss on June 30 of $4,000. c.) The U.S. firm records a gain on June 30 of $3,000. d.) The U.K. records a loss on June 30 of 3,000 pounds.

b.) The U.S. firm records a loss on June 30 of $4,000. -A currency swap is designed to allow each counterparty to receive a foreign currency at an agreed upon exchange rate. The exchange rate used to price the swap is equal to 0.72 pounds per $1, as evidenced by the agreed upon payments on both June 30 and December 31. The pound depreciates if the exchange rate moves to 0.75 pounds per $1 on June 30, and the U.S. firm will therefore record a loss. The loss will occur when the U.S. firm takes the 72,000 pounds received and exchanges them for dollars at the new exchange rate of 0.75 pounds per $1 (72,000 pounds / 0.75 = $96,000). Paying $100,000 per the terms of the swap and receiving the equivalent of $96,000 equates to a $4,000 loss ( $100,000 - $96,000 = $4,000 loss). -The U.K. firm will receive $100,000. In exchange, they are paying 72,000 pounds when based on the new exchange rate, they would have otherwise paid 75,000 pounds ($100,000 x 0.75 = 75,000 pounds). This represents a gain of 3,000 pounds (75,000 pounds - 72,000 pounds = 3,000 pounds).

*Which of the following is NOT correct regarding best cost provider strategies? a.) The best cost strategy is a combination of the benefits of the cost leadership and differentiation strategies. b.) The best cost strategy strives to have the firm evaluate and change its value chain such that it can achieve the highest cost among its closest competitors with a quality differentiated product in an effort to obtain the highest profits. c.) The overall lowest cost in the industry is NOT a viable option in best cost strategies because the firm could NOT compete profit-wise with its differentiation strategy component. d.) When generic products are NOT acceptable to buyers, yet they still remain price sensitive to the value they are receiving for their money, the best cost strategy may work well.

b.) The best cost strategy strives to have the firm evaluate and change its value chain such that it can achieve the highest cost among its closest competitors with a quality differentiated product in an effort to obtain the highest profits. -This is an incorrect statement because the best cost strategy strives to have the firm evaluate and change its value chain such that it can achieve the lowest (NOT highest) cost among its closest competitors while matching them on the features desired by consumers. -Choices a, c, and d are all true statements regarding best cost provider strategies.

*A company's total assets are $60 million and its current capital structure is 40% debt and 60% equity. The company wants to issue $20 million in AA rated debt. EBIT is forecasted at $5 million and interest expense (with the new debt included) is forecasted at $2 million. Which of the following terms is LEAST likely to appear as a debt covenant associated with the new issuance? a.) Total assets must be above $70 million. b.) The debt to equity ratio must remain below 1.0. c.) The debt to assets ratio must be below 60%. d.) The interest coverage ratio must be above 2.0.

b.) The debt to equity ratio must remain below 1.0. -

*Which of the following statements is correct regarding the variety and price of products produced under monopolistic competition as compared to production under perfect competition? a.) The monopolistically competitive industry produces a greater variety of products at a lower cost per unit. b.) The monopolistically competitive industry produces a greater variety of products at a higher cost per unit. c.) The monopolistically competitive industry produces a smaller variety of products at a lower cost per unit. d.) The monopolistically competitive industry produces a smaller variety of products at a higher cost per unit.

b.) The monopolistically competitive industry produces a greater variety of products at a higher cost per unit. -Under perfect competition, there is very little product differentiation and because prices are set by the market, costs have to be kept low in order for a company to survive. Under monopolistic competition, firms have more influence over price and can afford to incur higher costs because they can charge more for their products. Also, there is more differentiation than what exists under perfect competition. -Costs will likely be higher, NOT lower, per unit in a monopolistically competitive industry relative to a perfectly competitive industry due in part to expenses associated with differentiation (choice a).

*Management at MDK Corp. is deciding whether to replace a delivery van. A new delivery van costing $40,000 can be purchased to replace the existing delivery van, which cost the company $30,000 and has accumulated depreciation of $20,000. An employee of MDK has offered $12,000 for the old delivery van. Ignoring income taxes, which of the following correctly states relevant costs when making the decision whether to replace the delivery vehicle? a.) The purchase price of the new van, the purchase price of the old van, and a gain on the sale of the old van. b.) The purchase price of the new van and the disposal price of the old van. c.) The purchase price of the new van, the disposal price of the old van, and a gain on the sale of the old van. d.) The purchase price of the new van, the purchase price of the old van, the accumulated depreciation of the old van, a gain on the sale of the old van, and the disposal price of the old van.

b.) The purchase price of the new van and the disposal price of the old van. -Costs are deemed to be relevant if they change as a result of selecting different alternatives. The decision to replace the old van will result in the company paying the purchase price of the new van and receiving the disposal price of the old van. Neither the purchase price of the new van nor the disposal price of the old van will be incurred if the van is NOT replaced. -Neither the purchase price/book value/accumulated depreciation of the old van (a sunk cost) nor the gain on the sale of the old van (ignoring tax consequences) are relevant to our decision (choices a, c, and d).

*Organizations with one-piece flow manufacturing environments that are experiencing bottlenecks in production are most likely to develop strategies associated with: a.) Demand flow manufacturing. b.) Theory of constraints (TQM). c.) Just-in-time (JIT) management. d.) Lean manufacturing.

b.) Theory of constraints (TQM). -This says that organizations are impeded from achieving objectives by the existence of one or more constraints. Organizations or projects must be operated in a manner that either works around or leverages the constraint (in this case, the bottleneck). -Demand flow manufacturing manages resources using customer demand as the basis for resource allocation (choice a). -Just-in-time (JIT) management says that efficiency improves by scheduling the deployment of resources just in time to meet customer or production requirements (choice c). -Lean manufacturing supports the use of only those resources required to meet the requirements of customers (choice d).

*During a period of high inflation, which of the following groups in society would be most likely to gain? a.) Those holding a large amount of money. b.) Those with a fixed amount of debt. c.) Workers under contract without a cost of living adjustment. d.) Those with a fixed income.

b.) Those with a fixed amount of debt. -They will repay their debt with inflated dollars and are thus likely to gain. -Those holding a large amount of money will see the purchasing power of their money erode and are thus likely to be hurt (choice a). -Cost of living adjustments take inflation into account, but fixed wage contracts with NO cost of living adjustments have less earnings power (choice c). -Those with a fixed income will see the purchasing power of their income erode are are thus likely to be hurt (choice d).

*Which of the following factors has the greatest impact on the design of an effective management information system (MIS)? a.) Number of transactions to be processed. b.) Types of decisions to be made. c.) Number of employees managed. d.) Frequency of reports generated.

b.) Types of decisions to be made. -MISs are designed to provide data to help managers and executive leaders of an organization in strategic planning and execution of tactical operations. Common systems include AISs, SCM systems, and DSSs. To design the most effective MIS, the key driver comes from the ultimate goal of the reports, which is to help managers make decisions. The types of decisions that need to be made will dictate the overall design of the system. -The number of transactions may have some bearing on the way the system is designed, but only in terms of the processing power that is needed. The types of decisions being made would have a greater influence (choice a). -Of all choices, this may have the lowest impact because this would only be a matter of users and potentially licensing, NOT the design of a system (choice c). -The frequency with which a system could generate reports would NOT be as impactful to the design of an MIS as it would be to the processing capacity of that MIS (choice d).

*Always Fresh Co. produces fruits and vegetables from hundreds of farms throughout the United States. The company sells its products directly to local retailers but weekly produce contracts are NOT guaranteed and retailers have recently demanded price concessions which have negatively impacted margins. In the event the company management pursues a business combination, which type would be most optimal? a.) Diagonal combination. b.) Vertical combination. c.) Horizontal combination. d.) Circular combination.

b.) Vertical combination. -By pursuing a vertical combination with a national grocery store chain, the company can provide a stable market for its produce sold (forward integration). This type of vertical combination will also eliminate ongoing price concessions and stabilize profit margins. -A diagonal combination involves integrating another company that provides ancillary services. A protentional combination with a national grocery store chain to sell its produce is NOT an ancillary activity (choice a). -Combining with another company that also produces fruits and vegetables or a horizontal combination is suboptimal, as the company should pursue a vertical combination (choice c). -A circular combination does NOT apply to this scenario, as a vertical combination would be optimal (choice d).

*Shore Co. records its transactions in U.S. dollars. A sale of goods resulted in a receivable denominated in Japanese yen, and a purchase of goods resulted in a payable denominated in euros. Shore recorded a foreign exchange gain on collection of the receivable and an exchange loss on settlement of the payable. The exchange rates are expressed as so many units of foreign currency to one dollar. Did the number of foreign currency units exchangeable for a dollar increase or decrease between the contract and settlement dates? a.) Yen exchangeable for $1: Increase; Euros exchangeable for $1: Increase. b.) Yen exchangeable for $1: Decrease; Euros exchangeable for $1: Decrease. c.) Yen exchangeable for $1: Decrease; Euros exchangeable for $1: Increase. d.) Yen exchangeable for $1: Increase; Euros exchangeable for $1: Decrease.

b.) Yen exchangeable for $1: Decrease; Euros exchangeable for $1: Decrease. -

*A lender and a borrower signed a contract for a $1,000 loan for one year. The lender asked the borrower to pay 3% interest. Inflation occurred and prices rose by 2% over the next year. The borrower repaid $1,030. What is the amount worth in real terms, after inflation? a.) $1,060.90 b.) $1,019.80 c.) $1,009.80 d.) $1,050.60

c.) $1,009.80 -The $1,030 amount repaid is adjusted for the 2% inflation by dividing it by a factor of 1.02 ($1,030 / 1.02 = $1,009.80). Inflation reduces the purchasing power and will reduce the value of a transaction. -The $1,060.90 is produced by multiplying the $1,030 final payment by 1.03 ($1,030 x 1.03 = $1,060.90), NOT by dividing it by 1.02. The 2% reflects the inflation and the 3% is the interest rate (choice a). -The $1,019.80 is produced by dividing the $1,030 final payment by 1.01 ($1,030 / 1.01 = $1,019.80), NOT by dividing it by 1.02. The 1% is produced by subtracting the 2% inflation rate from the 3% interest rate (choice b). -The $1,050.60 is produced by multiplying, NOT dividing, the $1,030 final payment by 1.02 ($1,030 x 1.02 = $1,050.60) (choice d).

*A company purchased property that it expects to sell for $14,000 next year. The net present value (NPV) of the investment is $1,000. The company is guaranteed an interest rate of 12% by the bank. What amount did the company pay for the property? a.) $13,000 b.) $13,500 c.) $11,500 d.) $12,500

c.) $11,500 -Present value of cash inflows = $14,000 / (1 + 0.12) = $14,000 / 1.12 = $12,500. -Present value of cash outflows = present value of cash inflows - NPV = $12,500 - $1,000 = $11,500. -NPV = present value of cash inflows - present value of cash outflows = $12,500 - $11,500 = $1,000. -$13,000 as outflow would fail to take into account the present value of the $14,000 to be received one year in the future (choice a). -This answer choice incorrectly adds the present value of cash inflows to the NPV ($12,500 + $1,000 = $13,500) (choice b). -$12,500 is the present value of future cash inflows, NOT outflows (choice d).

*Kore Industries is analyzing a capital investment proposal for new equipment to produce a product over the next 8 years. The analyst is attempting to determine the appropriate "end-of-life" cash flows for the analysis. At the end of 8 years, the equipment must be removed from the plant and will have a net book value of zero, a tax basis of $75,000, a cost to remove of $40,000, and scrap salvage value of $10,000. Kore's effective tax rate is 40%. What is the appropriate "end-of-life" cash flow related to these items that should be used in the analysis? a.) $27,000 b.) $(18,000) c.) $12,000 d.) $(30,000)

c.) $12,000 -The $75,000 loss on disposal is a non-cash reduction in taxable income that will reduce taxes paid.

*The payroll for the Railside Co. in the current year (Year 1) is $13.5 million. Inflation is expected to be 4.0% next year, followed by steady growth of 2.5% for the next 3 years. The CFO sets a target of keeping salaries in line with price level changes. In forecasting the payroll for the Year 5 pro forma income statement, the CFO will calculate a payroll budget closest to: a.) $14.90 million. b.) $15.09 million. c.) $15.12 million. d.) $15.05 million.

c.) $15.12 million. -Inflation represents a rise in price levels over time. Given the CFO's desire to keep salaries in line with price level changes, payroll is forecasted to grow at the same rate as inflation. Year 2 salaries are expected to be 4.0% higher than Year 1, and salaries for Years 3, 4, and 5 are expected to be 2.5% higher than the previous year. -With the current year (Year 1) payroll of $13.5 million, the Year 5 payroll will be forecasted at: $13.5 million x 1.04 x 1.025 x 1.025 x 1.025 = $15.12 million. -This answer choice incorrectly uses the 2.5% inflation rate for every year (choice a). -This answer choice uses the 4.0% rate for Year 2 but then combines the next 3 years into a single growth factor of 7.5%. The growth factor must be applied on an annual basis to account for compounding (choice b). -This answer choice combines the growth factors for all 4 years into a single growth factor of 11.5%. The growth factor must be applied on an annual basis to account for compounding (choice d).

*A manufacturer performed an analysis of its product's price point in an effort to meet its customers' demand without experiencing excess inventory. Price Point Supply Demand $4 20 10 $3 15 15 $2 10 20 $1 5 25 The manufacturer uses JIT inventory processes, and demand for the product is elastic. Which of the following prices should management use in order to address the efforts above while maximizing profits? a.) $2 b.) $4 c.) $3 d.) $1

c.) $3 -To maximize profits, the price point should be set as high as possible. However, if the goal is also to meet the customer demand without having excess inventory, the supply should NOT exceed the demand. The highest price point that allows for meeting customer demand without having excess supply is $3. The other options either create excess supply or NOT enough supply to meet customer demand. -Demand still exceeds supply at the price point of $2 (choice a). -Although $4 is the highest price point, excess supply will result at this level (choice b). -NOT only is $1 the lowest price point but demand far exceeds supply at this level (choice d).

*Which of the following errors most likely would be detected by analyzing financial totals? a.) Malfeasance resulting from a receivable clerk's pocketing of a customer's payment and altering of the related records. b.) A missing digit in an invoice number in a batch of daily sales. c.) A transposition error on one employee's paycheck on a weekly payroll run. d.) A purchase order mistakenly entered into two different batches.

c.) A transposition error on one employee's paycheck on a weekly payroll run. -A manual total will be calculated for each transaction file and compared to a computer-generated batch control total. Any financial discrepancies (such as an error on an employee paycheck) will be identified as part of this process. -A company should have other controls in place to ensure that all payments received are accounted for appropriately, as controls would NOT necessarily catch this activity (choice a). -Analyzing financial totals would NOT capture missing digits on invoice numbers (choice b). -A company should have other controls in place to prevent this, as a financial total is only designed to ensure that what is in the purchase order itself is appropriately reconciled to the computer-generated control total (choice d).

*An investor looks to add an A-rated, 10-year corporate bond to her investment portfolio. To determine her required rate of return, she uses the following components: -Interest rate risk: 1%. -Liquidity risk: 1.25%. -Real rate of return: 1.75%. -Inflation premium: 2%. -Default risk: 2.75%. -Nominal rate of return: 3.75%. What should the required rate of return be for her investment? a.) 9.50% b.) 6.50% c.) 8.75% d.) 7.75%

c.) 8.75% -The required rate of return for an investment is comprised of several components, including the nominal rate of return (equal to the real rate of return + inflation premium) and risk premiums such as the interest rate risk, the liquidity risk, and the default risk. NOT all risks are applicable to each individual investment, but they have all been identified as relevant per the facts of the question. -Nominal rate of return = real rate of return + inflation premium = 1.75% + 2% = 3.75%. -Required rate of return = nominal rate of return + interest rate risk + liquidity risk + default risk = 3.75% + 1% + 1.25% + 2.75% = 8.75%. -Choice a correctly includes the nominal rate of return, default risk, and liquidity risk but it incorrectly incorporates the real rate of return (when that is already included in the nominal rate) and does NOT include the interest rate risk (3.75% + 2.75% + 1.25% + 1.75% = 9.50%) (choice a). -Choice b only accounts for the nominal rate of return and the default risk, while ignoring the interest rate risk and liquidity risk (3.75% + 2.75% = 6.50%) (choice b). -Choice d incorrectly excludes the interest rate risk (3.75% + 1.25% + 2.75% = 7.75%) (choice d).

*Karen Parker wants to establish an environmental testing company that would specialize in evaluating the quality of water found in rivers and streams. Parker has discovered that she needs either certification or approval from 5 separate local and statement government agencies before she can commence business. Also, the necessary equipment to begin would cost several million dollars. Parker believes that if she is able to obtain capital resources, she can gain market share from the two major competitors. The large capital outlay necessary for the equipment is an example of a(n): a.) A minimum efficiency scale. b.) An external cost. c.) A barrier to entry. d.) A created barrier.

c.) A barrier to entry. -Large capital (money) requirements are the basic example of barriers to entry. A barrier to entry effectively prevents firms from entering the market to compete against existing firms. -A minimum efficiency scale is the output level at which long run average costs are minimized. In this example, Parker has NOT even been able to enter the industry (choice a). -An external cost is a cost that the company does NOT account for, but passes on to the detriment of society (choice b). -A created barrier is made by firms already in the industry. In this example, Parker's barrier was NOT created (choice d).

*Interest rates have recently declined, which has helped spur economic growth over the last couple of quarters. Economists have linked an increase in several money supply measures to the decline in interest rates. Which of the following monetary policy actions most likely led to the changes noted above? a.) Lowering the highest marginal tax rate from 39% to 37%. b.) A 3% increase in federal spending relative to the prior year. c.) A decrease in the required reserve ratio for banks. d.) An increase in the sale of government securities.

c.) A decrease in the required reserve ratio for banks. -A change in the money supply and the impact that has on interest rates relates to monetary policy, which is used by a nation's central bank to affect the amount of money and credit available in the economy along with interest rates. An increase in money supply, along with a reduction in interest rates, reflects expansionary monetary policy. -The money supply will increase from one or all of the following actions: buying government securities, reducing the discount rate (the rate at which member banks borrow from the central bank), and reducing the required reserve ratio (the amount of money banks to hold). Given that the money supply has increased and rates have decreased, a decrease in the required reserve ratio is the only monetary policy that would have this effect. -A reduction in tax rates is a fiscal policy decision, NOT a monetary policy decision (choice a). -An increase in government spending is a fiscal policy decision, NOT a monetary policy decision so it would NOT directly impact the money supply (choice b). -An increase in the sale of government securities would lead to a reduction in the money supply and an increase in interest rates (choice d).

*Projections indicate that the economy is entering a slowdown. What is the expected outcome in the near future? a.) Wage hikes. b.) Increasing demand for credit. c.) A drop in interest rates. d.) Inflationary pressures.

c.) A drop in interest rates. -When the economy enters a slowdown, the government and the Federal Reserve will consider fiscal and monetary policies respectively that will help to stimulate economic growth. Lowering interest rates (specifically the discount rate) is a monetary policy action that will help spur economic growth by making it cheaper for market participants to borrow money. -Wage hikes are needed when suppliers need workers to meet growing demand. During a slowdown, there is less of a need for employees and wage hikes are NOT necessary (choice a). -A slowdown will reflect lower, NOT higher, demand for credit, as less borrowing is needed when economic activity slows (choice b). -If the economy is entering a slowdown, overall demand will fall and price levels will decrease, NOT increase, as is the case with inflation (choice d).

*Companies that adopt JIT purchasing systems often experience: a.) Fewer deliveries from suppliers. b.) Less need for linkage with a vendor's computerized order entry system. c.) A reduction in the number of suppliers. d.) A greater need for inspection of goods as the goods arrive.

c.) A reduction in the number of suppliers. -Because a company that adopts JIT is very dependent on supplier performance, usually fewer suppliers are used and a very close working relationship is developed with existing suppliers. -JIT requires more deliveries from suppliers (choice a). -There is much more need for linkage with the vendor's order entry system with JIT because the company is dependent on timely deliveries from the vendor (choice b). -Usually there is more reliance on quality control by the supplier. Finding defective goods as they arrive is too late; a stock-out could cause production to shut down (choice d).

*When the risks of the individual components of a project's cash flows are different, an acceptable procedure to evaluate these cash flows is to: a.) Compare the internal rate of return (IRR) from each cash flow to its risk. b.) Utilize the accounting rate of return. c.) Discount each cash flow using a discount rate that reflects the degree of risk. d.) Compute the net present value (NPV) of each cash flow using the firm's cost of capital.

c.) Discount each cash flow using a discount rate that reflects the degree of risk. -Discount rates are may be adjusted to factor differences in the risk into a cash flow analysis. For example, a 12% discount rate may be used for the first 3 years of a project and a 15% discount rate for subsequent years to reflect the greater risk associated with the cash flows in the later time periods. Discount rates may also be adapted to compensate for expected inflation.

*Which of the following statements that relate to capital budgeting is true? a.) If the depreciable life of a project is shorter than the expected useful life of the project, then the anticipated after tax cash flows should be evaluated over the depreciable life. b.) The impact of taxes on capital budgeting will NOT make a difference in the decision to purchase new equipment. c.) Accelerated methods of depreciation provide tax shields that are advantageous from a present value point of view. d.) The depreciation method used for financial accounting reporting and NOT the depreciation method used for tax purposes should be used in capital budgeting decisions.

c.) Accelerated methods of depreciation provide tax shields that are advantageous from a present value point of view. -Accelerated methods of depreciation produce greater tax expense deductions in earlier years, which reduce the amount of taxes paid. Because present value calculations apply higher weights to cash flows occurring in the near future, having larger tax deductions early on will provide greater benefits from a present value perspective. -The expected useful life of the project is the one that needs to be used for capital budgeting purposes (choice a). -Taxes are always an important factor to consider when making purchasing decisions (choice b). -Capital budgeting decisions require after tax cash flows, so the appropriate cash flows to consider are ones that take taxes into account. Therefore, the depreciation method used for tax purposes is the one that is relevant (choice d).

*An accounting Information System (AIS) is distinguished from a Management Information System (MIS) by the fact that: a.) An AIS is control-oriented while an MIS is used exclusively for planning. b.) An AIS deals with financial information while an MIS handles all other information. c.) An AIS is a subsystem within an MIS. d.) Information produced by an AIS is used only by financial people while information produced by an MIS is used throughout the organization.

c.) An AIS is a subsystem within an MIS. -An AIS is NOT control-oriented, and an MIS is NOT exclusively used for planning (choice a). -An AIS deals with accounting transactions. It is a part of an MIS (choice b). -AIS information is NOT used only by financial people (choice d).

*If an economy is currently experiencing both full employment and price stability, a major tax reduction will probably cause: a.) An increase in the unemployment rate. b.) NO change in GDP or the price level. c.) An acceleration in the inflation rate, unless government expenditures are also reduced. d.) A decrease in consumption.

c.) An acceleration in the inflation rate, unless government expenditures are also reduced. -A tax cut would result in higher net income and profits, which allows higher compensation, more discretionary income, and rising price levels. A reduction in government spending will help to offset rising prices. -The unemployment rate would fall, NOT rise (choice a). -The GDP and price level would rise, NOT remain unchanged (choice b). -Consumption would rise as disposable income rises, NOT fall (choice d).

*A transaction processing system (TPS) allows an authorized individual to select a quantity of items from the company's online inventory. It is also possible to trace back to a copy of the purchase order to see when the items were ordered and who authorized the order. Which of the following features does this system have? a.) Real-time inventory auditing. b.) Automated order processing. c.) An audit trail. d.) An inventory tracking system.

c.) An audit trail. -A well-designed information or processing system creates an audit trail for transactions. The audit trail allows a user to trace the transactions from the source documents to the system and from the system to the source documents. The focus of this system is to track orders as opposed to inventory levels. -Real-time inventory auditing would allow for continuous auditing of inventory levels. This would track inventory levels but does NOT focus on tracing inventory orders to their source documents (choice a). -Automated order processing eliminates many manual tasks in the ordering process. The feature discussed in this TPS does NOT note that there is anything automated about the process and notes the use of a PO. The feature discussed is focused on tracing transactions to source documents (choice b). -Inventory tracking systems allow an organization to track and monitor inventory levels to avoid adverse situations like stockouts or excess stock of inventory. The feature described works to trace orders to their source documents, NOT to monitor inventory levels (choice d).

*Which of the following events would lead to an increase in the equilibrium price of a good and a decrease in the equilibrium quantity? a.) An increase in the price of a substitute good. b.) A decrease in the price of a complementary good. c.) An increase in production costs. d.) A increase in consumer income.

c.) An increase in production costs. -This shifts the supply curve to the left. As a result, equilibrium price will rise and equilibrium quantity will fall. -An increase in the price of a substitute good, a decrease in the price of a complementary good, and an increase in consumer income would shift the demand curve to the right, causing equilibrium quantity to rise (choices a, b, and d).

*An entity is doing business on the Internet most likely could use any of the following methods to prevent unauthorized intruders from accessing proprietary information, EXCEPT: a.) Digital certificates. b.) Password management. c.) Batch processing. d.) Data encryption.

c.) Batch processing. -An organization's use of batch processing has NO effect on unauthorized access to proprietary information. Batch processing is a processing methodology, NOT a security measure. Batch processing procedures include collection and grouping of input documents/transactions by type of transaction. -Digital certificates are forms of data security. They behave online in the same way driver's licenses, passports, and other trusted documents behave. Digital certificates are electronic documents, created and digitally signed by a trusted party that certifies the identity of the owners of a particular public key (choice a). -Password management is a method of preventing intrusion, since it regulates system access. Password management is the responsibility of the Security Administrator (choice b). -Data encryption is a method of preventing intrusion, since it uses a password or a digital key to scramble any readable data into a message unreadable to the intruder (choice d).

*A firm has a perfectly inelastic supply curve, and it faces a downward sloping demand curve. Which of the following results best describes an increase in demand when the supply curve is constant? a.) Price will rise, and quantity will increase. b.) Price will fall, and quantity will increase. c.) Price will rise, and quantity will be constant. d.) Price will fall, and quantity will be constant.

c.) Price will rise, and quantity will be constant. -A perfectly inelastic supply curve is vertical, which means that the quantity supplied will NOT change regardless of what happens with prices. If the demand curve increases, the equilibrium price will necessarily rise as the point at which the curves intersect will now be higher on the supply curve. The quantity will be constant, given the vertical supply curve.

*Which of the following steps in the development of a business continuity plan should a company initiate first? a.) Identify critical personnel. b.) Develop an emergency contact list. c.) Conduct a business impact analysis (BIA). d.) Prepare recovery procedures.

c.) Conduct a business impact analysis (BIA). -The appropriate order for developing a business continuity plan for disaster recovery is as follows: assess the key risks, identify mission critical applications and data, develop a plan for handling these applications, determine responsibilities for parties involved in disaster recovery, and test the recovery plan. Of the choices given, the BIA has to happen before identifying critical and emergency personnel and preparing recovery procedures themselves. -Critical personnel will be identified and an emergency contact list will be developed after the BIA is performed (choices a and b). -The recovery procedures are based on the BIA (choice d).

*Rick wants to make sure the number of sales he had for the past year is accurate. He added the grand total column and checked it against the total of all the rows in the spreadsheet. Which type of control has Rick implemented? a.) Data validation b.) Referential integrity c.) Cross-footing d.) Sequence check

c.) Cross-footing -This is the process of testing the sum of a column of row totals to the sum of a row of column totals to verify identical results and provide some assurances as to accuracy. -Data validation is a spreadsheet control that is implemented on input cells to restrict the input to certain established types or values (choice a). -Referential integrity is an input check that ensures data entered into a field ties back to a master file if the input data is a foreign key referring to the master data file (choice b). -Sequence check is a processing control that reviews sequentially ordered documents or transactions to ensure NO items are missing (choice d).

*All of the following are different types of reporting risk that an accountant must recognize as threats to accuracy of reports, EXCEPT: a.) Financial risk b.) Information risk c.) Data integrity risk d.) Strategic risk

c.) Data integrity risk -There is NO separate data integrity risk category. -Financial risk includes risks such as having financial resources lost, wasted, or stolen (choice a). -Information risk includes risks such as a loss of data integrity, having incomplete transactions, or hackers (choice b). -Strategic risk includes risks such as choosing inappropriate technology (choice d).

*An increase in sales collections resulting from an increased cash discount for prompt payment would be expected to cause a(n): a.) Increase in bad debt losses. b.) Increase in the operating cycle. c.) Decrease in the cash conversion cycle. d.) Increase in the average collection period.

c.) Decrease in the cash conversion cycle. -Bad debt losses would decrease from an increase in sales collections (choice a). -The operating cycle (as well as the cash conversion cycle) would decrease (choice b). -The average collection period would decrease (choice d).

*An increase in the quantity demanded for a product would be associated with a(n): a.) Increase in average household income. b.) Decrease in the price of a substitute product. c.) Decrease in the price of that product. d.) Increase in the price of a complementary product.

c.) Decrease in the price of that product. -The fundamental law of demand holds that there is an inverse relationship between price of the product and the quantity demanded. We move along the demand curve. -An increase in consumers and consumer income will shift the demand curve itself (choice a). -A decrease in price for a substitute product (like Pepsi) decreases demand for the other product (Coke) (choice b). -An increase in complementary product prices would decrease the demand curve (ex: if PC prices increase, the demand for printers decrease) (choice d).

*If the demand for a normal good is inelastic, then the sales price of the product would increase following a(n): a.) Decrease in the price of a substitute good. b.) Increase in the supply of the product. c.) Decrease in the supply of the product. d.) Increase in the number of suppliers of the product.

c.) Decrease in the supply of the product. -If demand is perfectly inelastic (or NOT price sensitive), there will be NO change in quantity demanded for a change in price. This means that consumers of the product will demand a constant quantity, regardless of the price. If the quantity supplied is reduced (presumably below an equilibrium point where supply equals demand), there will be excess demand for the product and sales price will go up. The increase in sales price will have NO impact on demand (because demand is assumed to be perfectly inelastic).

*Which of the following steps is NOT found in existing product and business process improvements under Six Sigma? a.) Define the problem. b.) Control. c.) Design optimization. d.) Analyze data.

c.) Design optimization. -Design optimization is one of the steps involved in new product or business process development under Six Sigma. The steps involved in the new product or business process development under Six Sigma is DMADV - define design goals, measure CTQ (critical to quality issues), analyze design alternatives, design optimization, and verify the design. -The steps involved in the existing product and business process improvements under Six Sigma is DMAIC - define the problem, measure key aspects of the current process, analyze data, improve or optimize current processes, and control.

*Scales Co., a fresh fish retailer, is pursuing a merger with Great Lakes Transport Inc. The rationale is that Scales has incurred rising costs related to the shipments of its daily fresh fish purchases, and by acquiring Great Lakes shipping costs would be materially reduced. Once the merger is completed, it would be classified as a: a.) Circular combination b.) Vertical combination c.) Diagonal combination d.) Horizontal combination

c.) Diagonal combination -Because the acquisition of Great Lakes would provide ancillary support to Scales' business operations, the merger would be classified as a diagonal combination. The merger with Great Lakes will lower shipping costs and improve the combined company's profit margins. -This scenario does NOT represent two companies who are in the same market but offer a different product mix or a circular combination (choice a). -This scenario above does NOT indicate that two companies are in different stages of the production process or a vertical combination (choice b). -This scenario does NOT demonstrate two companies in the same industry or a horizontal combination (choice d).

*Which one of the following is most relevant to a manufacturing equipment replacement decision? a.) A lump sum write off amount from the disposal of the old equipment. b.) Original cost of the old equipment. c.) Disposal price of the old equipment. d.) Gain or loss on the disposal of the old equipment.

c.) Disposal price of the old equipment. -Rule: Relevant costs are only those costs that will differ among many alternatives. -This is most relevant because it is an expected future inflow that will differ among alternatives. If this old equipment is replaced, there will be a cash inflow from the sale of the old equipment. If the old equipment is kept, there will be NO cash inflow from the sale of the old equipment. -The book value is NOT relevant to future decisions because the undepreciated sunk cost of an asset will only reduce net income in the future as either depreciation expense or as a loss on disposal (choice a). -The original cost of the old equipment is a sunk cost and, therefore, is NOT relevant (choice b). -This is NOT relevant. The gain or loss is an accounting computation that combines the book value, which is always NOT relevant, and the disposal value, which is relevant. The result is meaningless to future decisions and, therefore, is NOT relevant (choice d).

*A disadvantage of the net present value (NPV) method of capital expenditure evaluation is that it: a.) Is calculated using sensitivity analysis. b.) Is difficult to apply because it uses a trial and error approach. c.) Does NOT provide the true rate of return on investment (ROI). d.) Is difficult to adapt for risk.

c.) Does NOT provide the true rate of return on investment (ROI). -The NPV indicates whether or NOT an investment will earn the "hurdle rate" used in the NPV calculation. If the NPV is positive, the ROI will exceed the hurdle rate. If the NPV is negative, the ROI will be less than the hurdle rate. If the NPV is zero, the ROI will be exactly equal to the hurdle rate. -Sensitivity analysis is a "what if" technique that asks how a given organization will change if the original estimates used in the capital budgeting model are changed (choice a). -NPV calculations do NOT use a trial and error approach (choice b). -NPV method is NOT difficult to adapt for risk. To adapt for increased risk, a higher hurdle rate is used. To adapt for less risk, a lower hurdle rate is used (choice d).

*A natural monopoly exists because: a.) Other firms are unable to enter the industry. b.) The government is the only supplier. c.) Economic and technical conditions permit only one efficient supplier. d.) The firm owns natural resources.

c.) Economic and technical conditions permit only one efficient supplier. -Barriers to entry help create a monopoly, but the product must be unique (choice a). -Government control may create a monopoly, but NOT a natural monopoly. This is a regulated monopoly (choice b). -Owning natural resources, even if they are unique, would NOT create a monopoly. Substitutes for the resource may be available (choice d).

*If a company's output is increasing at 100% while its input is increasing at 80%, the cause is most likely the company's: a.) Diseconomies of scale. b.) Diminishing returns. c.) Economies of scale. d.) Comparative advantage.

c.) Economies of scale. -This occurs when companies experience cost advantages resulting from gains in production efficiencies. Essentially, the more that is produced, the faster and the more efficient the production process becomes. This ultimately results in cost savings. If inputs are only increasing by 80% while outputs are increasing by 100%, the company clearly has been able to take advantage of efficiencies that have resulted in greater outputs from fewer inputs. -Diseconomies of scale occur when costs actually increase due to production inefficiencies, which is NOT the case in this situation (choice a). -Diminishing returns would imply that outputs would grow at a lesser rate than inputs (choice b). -Comparative advantage is when a company or country specializes in production of a specific good or goods, which allows maximizing production relative to cost and relative to what trading partners are able to produce, which is NOT the case in this situation (choice d).

*On January 1, Giant Enterprise Inc. divested one of its top-performing business segments, Energy Performance Products, via an initial public offering (IPO). The new public company is named High-End Performance Co. with Giant receiving $550 million in cash from the IPO in exchange for a 40% interest in this business. If Giant maintains the remaining 60% of the new company and control over the board of directors, the transaction would be considered a: a.) Sell-off. b.) Tender offer. c.) Equity carve-out. d.) Spin-off.

c.) Equity carve-out. -The divestiture transaction described above represents an equity carve-out. Under this partial disposal, a new public company is formed, shares are sold to the public through an IPO, Giant receives cash, and the parent company maintains a controlling interest. -A sell-off is an outright full sale of a company usually associated with a non-core business (choice a). -A tender off occurs when a company makes an offer to the shareholders of another company it is attempting to acquire (choice b). -Although a spin-off creates a new company it would result in a full separation from its parent company (choice d).

*Any business firm that has the ability to control the price of the product it sells: a.) Has a supply curve that is horizontal. b.) Has a demand curve that is horizontal. c.) Faces a downward sloping demand curve. d.) Does NOT have any entry or exit barriers in its industry.

c.) Faces a downward sloping demand curve. -A firm controlling the price of the product it sells would NOT cause a horizontal supply curve (choice a). -Only firms in perfectly competitive markets (price-takers) face horizontal demand curves at the market equilibrium price (choice b). -Firms in competitive industries have NO entry or exit barriers and are price-takers (choice d).

*An increase in government spending will tend to cause: a.) GDP to rise and unemployment to fall. b.) GDP to fall and unemployment to fall. c.) GDP to rise and unemployment to fall. d.) GDP to fall and unemployment to rise.

c.) GDP to rise and unemployment to fall. -An increase in government spending provides more money to industries and companies, leading to increases in production and overall economic activity.

*Which of the following is NOT a typical characteristic of a just-in-time (JIT) production environment? a.) Balanced and level workloads. b.) Insignificant setup times and costs. c.) Push-through system. d.) Lot sizes equal to one.

c.) Push-through system. -JIT has the goal to minimize the level of inventory carried. Typical characteristics include lot sizes equal to one, insignificant setup times and costs, and balanced and level workloads. In a JIT environment, the flow of goods is controlled by a "pull-through" approach, where an item is produced only when it is needed down the line, and NOT a "push-through" system.

*A massive earthquake and tsunami seriously damaged the productive capabilities of auto manufacturers in Japan. As a result, workers at U.S. parts manufacturing firms dedicated to supplying the Japanese manufacturers are furloughed because the parts produced in the U.S. plants are temporarily unneeded. The negative impact of the Japanese earthquake and tsunami on these U.S. parts manufacturers is best described as: a.) Transaction risk. b.) A shift in the economic balance of power. c.) Global sourcing complications. d.) Economic risk.

c.) Global sourcing complications. -Global sourcing is the use of a worldwide supply chain. The reduced production in U.S. factories, as a result of a natural disaster in Japan, is an example of the complications that come from global sourcing. -Transaction risk is the risk that the settlement of a specific transaction in a foreign currency will result in a translation loss (choice a). -Shifts in the economic balance of power relate to the shared and changing ability of countries to impact the worldwide economy (choice b). -Economic risk is the general risk that fluctuations in exchange rates could have a negative impact on a company that either consistently sells to foreign customers or consistently buys from foreign vendors (choice d).

*The net present value (NPV) of a proposed investment is negative; therefore, the discount rate used must be: a.) Less than the project's internal rate of return (IRR). b.) Less than the incremental borrowing rate. c.) Greater than the project's internal rate of return (IRR). d.) Greater than the firm's cost of equity.

c.) Greater than the project's internal rate of return (IRR). -The IRR is the discount rate that results in a NPV of zero. If a discount rate used is greater than the project's IRR, the present value of future cash inflows will be lower resulting in a negative NPV. If a discount rate used is less than the project's IRR, the present value of future cash inflows will be higher resulting in a positive NPV.

*Which of the following statements regarding competitive advantage is NOT true? a.) Differentiation advantage may best be obtained by a firm when the firm builds market share or increases its price. b.) The two major forms of competitive advantage are product differentiation and cost leadership. c.) If the manufacturing costs of a firm are less than those of close rivals, then the firm has a competitive market advantage. d.) Cost leadership advantage may best be obtained by a firm when the firm builds market share or matches the price of its rivals.

c.) If the manufacturing costs of a firm are less than those of close rivals, then the firm has a competitive market advantage. -This is false because if the manufacturing costs of a firm are less than those of close rivals does NOT necessarily mean that the firm has a competitive market advantage. Only if TOTAL costs to a firm are less than those of close rivals will a firm have a competitive market advantage. -Choices a, b, and d are correct regarding competitive advantage.

*Each of the following represents a risk or challenge of e-commerce and Web commerce, EXCEPT: a.) Maintaining privacy and confidentiality of information. b.) An inability to authenticate the identity of buyers and sellers. c.) Incompatible encryption systems resulting in faulty orders. d.) Effecting a secure exchange of money for goods and services provided.

c.) Incompatible encryption systems resulting in faulty orders. -The faulty application of encryption could abort a transaction, but likely would NOT result in a faulty order. -Maintaining privacy and confidentiality of information transmitted across public lines that might be compromised is a major risk of e-commerce (choice a). -The difficulty of authenticating the identity and, hence, the legitimacy of buyers and sellers is a major risk of e-commerce (choice b). -Handling payment information from credit or banking sources is a major challenge in e-commerce (choice d).

*Which of the following might be considered the most expansionary set of fiscal policies? a.) Increase in government purchases, increase in taxes. b.) Decrease in taxes, increase in the money supply. c.) Increase in government purchases, decrease in taxes. d.) Increase in government purchases, increase in the money supply.

c.) Increase in government purchases, decrease in taxes. -Expansionary fiscal policy involves increasing government purchases and/or decreasing taxes. Both increases in government sending and decreases in taxes cause the aggregate demand curve to shift right which would cause GDP (output) to increase. -An increase in taxes is an example of a contractionary, NOT expansionary, fiscal policy (choice a). -An increase in the money supply is an expansionary monetary, NOT fiscal, policy (choices b and d).

*An increase in the market supply of beef would result in a(n): a.) Increase in the price of beef. b.) Decrease in the demand for beef. c.) Increase in the quantity of beef demanded. d.) Decrease in the quantity of beef demanded.

c.) Increase in the quantity of beef demanded. -A shift outward (increase) in supply, increases quantity demanded at equilibrium, accompanied by a decline in price. Thus, an increase in the market supply of beef would result in an increase in the quantity of beef demanded. -Because there is NO information in the question pertaining to any "shift" in the beef demand curve or in the demand for any complementary products (ex: pork) (choice b). -There is an increase, NOT decrease in the quantity of beef demanded and a decrease, NOT increase in the price of beef (choices d and a).

*Which of the following statements regarding inflation is correct? a.) Demand-pull inflation can be caused by tax increases. b.) Companies and individuals with fixed interest debt will be at a disadvantage during periods of inflation. c.) Individuals holding monetary assets will be at a disadvantage during periods of inflation. d.) Cost-push inflation can be caused by a decrease in nominal wages.

c.) Individuals holding monetary assets will be at a disadvantage during periods of inflation. -In periods of inflation, holding net monetary assets will cause an individual to lose purchasing power, and thus, be at a disadvantage. -Demand-pull inflation can be caused by tax decreases, NOT increases (choice a). -Owing fixed interest debt is an advantage, NOT disadvantage, in periods of inflation (choice b). -Cost-push inflation can be caused by an increase in nominal wages, NOT a decrease (choice d).

*The trough of a business cycle is generally characterized by: a.) Increasing purchasing power and increasing capital investments. b.) Shortages of essential raw materials and rising costs. c.) Unused productive capacity and an unwillingness to risk new investments. d.) Declining purchasing power and unused productive capacity.

c.) Unused productive capacity and an unwillingness to risk new investments. -The trough of a business cycle is an economic low point with NO positive indicators for the future. -Increasing purchasing power and increasing capital investments come with a recovery, NOT a trough (choice a). -Shortages of essential raw materials and rising costs may occur during a peak, NOT a trough (choice b). -Declining purchasing power comes with inflation which is unlikely to occur during a trough (choice d).

*A decrease in which economic indicator would most appropriately encourage a business owner to move forward on a planned expansion? a.) Commercial loans. b.) Building permits. c.) Initial claims for unemployment. d.) Stock prices.

c.) Initial claims for unemployment. -Leading indicators are used to predict economic activity, as they tend to change before the economy follows a certain trend. Average new unemployment claims is considered a leading indicator. If a business owner sees decreases in unemployment claims, that is a positive sign for the economy overall as it means fewer people are out of work. When there is low unemployment, the economy is strong and business owners may be more inclined to move forward with planned expansions. -Decreases in commercial loans mean fewer people are borrowing money, which is a negative signal for economic growth (choice a). -Although building permits are a leading indicator, decreases in permits imply that there will be less building in the future, which is a negative signal for economic growth (choice b). -Decreases in stock prices do NOT tend to encourage future planned expansions (choice d).

*Which of the following is a limitation of the profitability index (PI)? a.) It ignores the time value of money. b.) It is inconsistent with the goal of shareholder wealth maximization. c.) It requires detailed long term forecasts of the project's cash flows. d.) It uses free cash flows.

c.) It requires detailed long term forecasts of the project's cash flows. -The PI is the ratio of the present value of net future cash inflows to the present value of the net initial investment. The PI ratio requires detailed long term forecasts of the project's cash flows. For longer term projections might be either unavailable or unreliable. -The time value of money is considered in both the numerator and the denominator of the PI (choice a). -The PI incorporates discounted cash flows based on hurdle rates that can be fully integrated with WACC or marginal cost of capital thresholds. The use of these concepts is fully compatible with the maximization of shareholder value (choice b). -Free cash flow contemplates cash flows that are available for distribution to securities holders such as debt or equity holders. Cash flows for the PI specifically relate to project cash flows (choice d).

*General controls in an information system include each of the following, EXCEPT: a.) Security management. b.) Information technology (IT) infrastructure. c.) Logic tests. d.) Software acquisition.

c.) Logic tests. -General controls ensure that an organization's control environment is well-managed and stable. -All of the other options are general controls (choices a, b, and d).

*Under monopolistic competition, strategic plans focus on: a.) Maintaining the market share and being responsive to market conditions related to sales price. b.) Maintaining the market share, ensuring product differentiation, and adapting to price changes or required changes in production volume. c.) Maintaining the market share and planning for enhanced product differentiation. d.) Profitability from production levels that maximize profits.

c.) Maintaining the market share and planning for enhanced product differentiation. -Under monopolistic competition, strategic plans include maintaining the market share (as with pure competition), but they also likely include plans for enhanced product differentiation and allocation of resources to advertising, product research, etc. -Continuous price responses to maintain market share is a characteristic of perfect competition (choice a). -Coordinating production volume and price changes along with product differentiation is a characteristic of an oligopoly (choice b). -Profit maximization would be a characteristic of a monopoly (choice d).

*Under an oligopoly structure, strategic plans focus on: a.) Profitability from production levels that maximize profits. b.) Maintaining the market share and planning for enhanced product differentiation. c.) Maintaining the market share, ensure product differentiation, and adapting to changes in price and/or production volume. d.) Maintaining the market share and being responsive to market conditions related to sales price.

c.) Maintaining the market share, ensure product differentiation, and adapting to changes in price and/or production volume. -Under an oligopoly, strategic plans focus on maintaining market share and call for the proper amount of advertising (to ensure product differentiation) and ways to properly adapt to price changes or required changes in production volume. -Profitability from production levels that maximize profits is a characteristic of a monopoly, NOT perfect competition (choice a).

*All of the following are complementary goods, EXCEPT: a.) VCRs and video cassettes. b.) Cameras and rolls of films. c.) Margarine and butter. d.) Gas and motor oil.

c.) Margarine and butter. -They are substitute goods. If the price of one goes up, demand for the substitute increases. -The other options are complements. Two goods are complements if they are used together or their demand curve moves together (ex: breakfast cereal and milk or tennis balls and tennis racquets). Thus, if the price of one complement goes up, demand for the other good goes down (choices a, b, and d).

*In markets that are imperfectly competitive, such as a monopoly and monopolistic competition, firms product at an output where: a.) Price equals average cost. b.) Average costs are minimized. c.) Marginal cost equals marginal revenue. d.) Price equals marginal cost.

c.) Marginal cost equals marginal revenue. -Firms produce up to the point where MC = MR, whether the markets are perfectly competitive or imperfectly competitive. -Beyond the point of average costs being minimized, marginal cost will rise. Still, it will make sense to increase production until MC = MR (choice b).

*In order to sell at the rate of output in markets controlled by monopolists, price is set where: a.) Price equals average total cost. b.) Marginal revenue equals average total cost. c.) Marginal revenue equals marginal cost. d.) Price equals marginal cost.

c.) Marginal revenue equals marginal cost. -NO matter which model is representative of the industry in which the firm operates, the firm will maximize profits by producing at MR = MC. In order to sell at the rate of output in markets controlled by monopolists, the price is set where MR = MC. The monopolist's price will be higher than marginal revenue resulting in large profits. -Price exceeds both MR and MC (choice d).

*A transaction processing system (TPS) would appropriately include each of the following activities for an online bookseller, EXCEPT: a.) Receiving internet orders. b.) Processing payroll. c.) Monitoring competitor price changes. d.) Shipping.

c.) Monitoring competitor price changes. -A TPS converts economic events into financial transactions and distributes information to support daily operations and functions. Monitoring competitor price changes is an activity, but is NOT a "transaction" and would NOT be captured in a TPS. -Receiving internet orders, payroll processing, and shipping activities are transaction activities that will be captured in a TPS (choices a, b, and d).

*The Waymand family typically ate hamburger as a regular staple in their diet. In the last few years, the family income has doubled, and they have now replaced hamburger with steak as a regular staple in their diet. This is an example where the demand for hamburger: a.) Is perfectly elastic. b.) Is relatively elastic. c.) Responds as an inferior good. d.) Is perfectly inelastic.

c.) Responds as an inferior good. -An inferior good is one for which the demand declines as income increases. A normal good would experience an increase in demand in response to an increase in income. Because the demand for hamburger went down as income increased, it is an inferior good. -The elasticity of demand for a good is calculated by measuring the change in quantity demanded over the change in price (NOT income). The question does NOT have sufficient information to calculate the elasticity of the demand for hamburger (choices a, b, and d).

*Which of the following statements best characterizes the function of a physical access control? a.) Provides authentication of users attempting to log into the system. b.) Protects systems from the transmission of Trojan horses. c.) Separates unauthorized individuals from computer resources. d.) Minimizes the risk of incurring a power or hardware failure.

c.) Separates unauthorized individuals from computer resources. -Examples of physical access controls are locks on doors to computer rooms, etc. which limit physical access to computer resources to people who need such access in the performance of their job responsibilities. -Choice a would be done by some kind of security system, NOT a physical access control. -Trojan horses are software, and physical access controls would NOT have anything to do with them (choice b). -Choices a, b, and d are NOT physical access controls.

*Which of the following statements regarding a computer network is INCORRECT? a.) Gateways convert protocols to communicate with other network devices. b.) Switches can divide one connection into multiple connections. c.) Servers act as an intermediary among different networks. d.) Routers assign IP addresses.

c.) Servers act as an intermediary among different networks. -All computer network devices play a specific role in facilitating network interconnectivity, with each device holding a different but critical function. At their most basic form, routers manage traffic, switches connect other devices, gateways act as intermediaries, and servers provide computing power for other machines on the network. Servers also coordinate programs, data, and other computers so that the network can operate. However, they do NOT act as an intermediary among different networks. This is the role of a gateway. -Gateways act as intermediaries among networks, and they also convert one protocol into another so that networks can communicate (choice a). -Switches lack many of the more advanced features of a router, but they can divide a connection into multiple connections (choice b). -In addition to assigning IP addresses to different devices, routers manage traffic on a network by connecting those devices (choice d).

*If, in a competitive market, a price ceiling is imposed establishing a maximum price below the market equilibrium price, this price ceiling would result in: a.) Surpluses because the quantity supplied would exceed the quantity demanded. b.) NO effect on the quantity supplied or demanded. c.) Shortages because the quantity demanded would exceed the quantity supplied. d.) Surpluses because the supply curve would shift to the right.

c.) Shortages because the quantity demanded would exceed the quantity supplied. -Setting a ceiling price below the price dictated by the market (as established by the equilibrium price) would create excess demand and a shortage.

*An industry that is oligopolistic would be best characterized by: a.) Horizontal or flat demand curves for the output of individual firms. b.) The absence of significant economies of scale. c.) Significant barriers to entry. d.) One firm selling a product with NO close substitutes.

c.) Significant barriers to entry. -Oligopoly market conditions are characterized by: few firms in the market, significant barriers to entry, differentiated products, fixed (or semi fixed) prices, and kinked demand curves. -Horizontal or flat demand curves represent demand that is perfectly price elastic (buyers will only pay one price for any quantity of a product). This occurs in perfectly competitive markets (choice a). -The absence of significant economies of scale are characteristics of perfect competition, as there are NO barriers to entry ("size doesn't matter") in perfect competition (choice b). -One firm selling a product with NO close substitutes is a characteristic of a monopoly (choice d).

*Which of the following statements is (are) correct with respect to reporting risks? -Strategic risk includes the risk of choosing inappropriate technology. -Information risk includes the risk of loss of data integrity but NOT that of incomplete transactions. -Financial risk includes the risk of having financial resources lost, wasted, or stolen. a.) Only statement 3 is correct. b.) Statement 1 and statement 2 are correct. c.) Statement 1 and statement 3 are correct. d.) All of the above statements are correct.

c.) Statement 1 and statement 3 are correct.

*A CFO and budget director are working together to create the sales budget for the upcoming fiscal year. In developing the sales forecasts for their main products, they want to get a read on where they think the economy is headed over the next year. Which of the following indicators are they most likely to consider in their forecast? a.) The average duration of unemployment. b.) The prime rate charged by banks. c.) The M2 money supply. d.) Industrial production as measured by GDP.

c.) The M2 money supply. -To forecast sales for the coming year, the CFO and budget director will look at leading indicators that are used to predict economic activity. The M2 money supply is the only option that represents a leading indicator, as the others are either coincident indicators (which change at the same time as the economy overall) or lagging indicators (which change after a given economic trend has already begun). -The average duration of unemployment is a lagging indicator, while average new unemployment claims (which was NOT an option given) is a leading indicator (choice a). -The prime rate charged by banks is a lagging indicator (choice b). -Industrial production as measured by GDP is a coincident indicator (choice d).

*The purpose of identifying manufacturing variances and assigning their responsibility to a person or department should be to: a.) Pinpoint fault for operating problems in the organization. b.) Determine the proper cost of the products produced so that selling prices can be adjusted accordingly. c.) Use the knowledge about the variances to promote learning and continuous improvement in the manufacturing operations. d.) Trace the variances to finished goods so that the inventory can be properly valued at year-end.

c.) Use the knowledge about the variances to promote learning and continuous improvement in the manufacturing operations. -Pinpointing fault is NOT productive (choice a). -Selling prices depend on the market, NOT cost variances (choice b). -Proper valuation of inventory can occur without assigning responsibility to a person or department (choice d).

*The Cayper Co.'s CEO wants to focus on expanding sales overseas. The company is based in the Western United States and already has a small presence in England, but the CEO feels there is a significant opportunity for growth throughout the United Kingdom. Which of the following issues is most likely to be a concern for her? a.) An increase in election of government officials wanting to reduce the levels of tariffs. b.) Decreasing price levels in Scotland and Wales. c.) The appreciation of the U.S. Dollar relative to the Pound sterling. d.) Decreasing interest rates in England.

c.) The appreciation of the U.S. Dollar relative to the Pound sterling. -The primary countries of the U.K. include England, Scotland, Wales, and Northern Ireland. The appreciation of the U.S. Dollar implies that the Pound sterling (the primary currency for the countries of the U.K.) is depreciating. A weak local currency will reduce the demand for imported goods, which would be a concern for Cayper's CEO. -Tariffs are taxes on imported goods, which serve to increase the prices of these goods. If there is an increase in elected governmental officials who want to reduce the levels of tariffs, this will lead to an increase in imports (choice a). -Decreasing price levels means low inflation, which increases purchasing power and the demand for imported goods (choice b). -Decreasing interest rates will facilitate an increase in growth and demand within England, which should increase the demand for imported goods (choice d).

*Which of the following statements is correct regarding an economy at the peak of the business cycle? a.) The economy will be in a static equilibrium. b.) The rate of inflation will decrease. c.) The economy will be at the natural rate of unemployment. d.) Incomes will be stable.

c.) The economy will be at the natural rate of unemployment. -At the natural rate of unemployment, there is frictional, structural, and seasonal unemployment; cyclical unemployment is at 0%, which implies that the economy is operating at its highest potential level. -The peak is a temporary state, to be followed by a contractionary phase, which implies that the economy will NOT remain static (choice a). -Price levels are likely to still be rising during a peak which would lead to an increase, NOT decrease, in inflation rates. Once a peak shifts to a contractionary phase, price levels may decline (choice b). -Both costs and prices reach their highest levels at a peak. Although incomes are potentially rising during a peak, they will either level off or decline as the cycle moves into the contractionary phase (choice d).

*The demand curve for a product reflects which of the following? a.) The impact that price has on the purchase amount of two related products. b.) The willingness of producers to offer a product at alternative prices. c.) The impact that price has on the amount of a product purchased. d.) The impact of prices on the amount of product offered.

c.) The impact that price has on the amount of a product purchased. -The demand curve illustrates the maximum quantity of a specific good that consumers are willing and able to purchase at each and every price, all else being equal. Thus, the demand curve reflects the impact that price has on the amount of a product purchased. -Cross elasticity, NOT the demand curve, measures the impact that price has on the purchased amount of two related goods (either substitute or complement) (choice a). -The movement of points along the supply curve, NOT the demand curve, represents a change in quantity supplied as a result of a change in price and is the measure of a willingness of producers to offer a product at alternative prices (choice b). -The supply curve, NOT the demand curve, measures the maximum quantity of a specific good that sellers are willing and able to produce at each and every price (choice d).

According to the Sarbanes-Oxley Act of 2002, an issuer must disclose whether or NOT it has adopted a code of ethics for which of the following? a.) The audit committee. b.) Audit staff. c.) The issuer's senior financial officers, but NOT for other employees of the issuer. d.) All employees of the issuer.

c.) The issuer's senior financial officers, but NOT for other employees of the issuer. -Per Title 4 (Enhanced Financial Disclosures

*Which of the following characteristics would indicate that an item sold would have a high price elasticity of demand? a.) The item is considered a necessity. b.) Changes in the price of the item are regulated by governmental agency. c.) The item has many similar substitutes. d.) The cost of the item is low compared to the total budget of the purchasers.

c.) The item has many similar substitutes. -The price elasticity of demand will be high. Customers can always switch to a substitute, so a change in price may affect demand substantially. -If an item is considered a necessity (ex: insulin to diabetics), the price elasticity of demand will be relatively low (inelastic). Purchasers will buy it regardless of the cost, and demand will NOT change all that much (choice a). -If the price of an item is regulated by a governmental agency, the demand may NOT be highly price elastic because any price changes (if made) will be controlled and implemented gradually over time (choice b). -If the cost of an item is low compared to the total budget of the purchasers, it will make little difference how much it costs. For example, in a business the cost of paper clips will probably NOT be a significant factor (choice d).

*An increase in the discount rate would cause: a.) The money supply to increase and interest rates to rise. b.) The money supply to decrease and interest rates to fall. c.) The money supply to decrease and interest rates to rise. d.) The money supply to increase and interest rates to fall.

c.) The money supply to decrease and interest rates to rise. -An increase in the discount rate discourages borrowing by member banks and thus decreases the money supply which would cause interest rates to rise.

*The inflation rate measures: a.) How the nominal interest rate changes over time. b.) The rate at which nominal GDP increases. c.) The rate at which the overall price level increases. d.) How the price of a particular good changes over time.

c.) The rate at which the overall price level increases. -The inflation rate is associated with price level changes. It is NOT associated with interest rate changes, changes in the nominal value of output, and the price of a particular good (choices a, b, and d).

*The maximization of throughput is an inherent concept in which of the following management philosophies? a.) Activity-based costing (ABC). b.) Six Sigma. c.) Theory of Constraints (TOC). d.) Total Quality Management (TQM).

c.) Theory of Constraints (TOC). -This is concerned with maximizing throughput by identifying and alleviating constraints. -Activity-based costing (ABC) focuses on value added by identifying the cost drivers that add value (choice a). -Six Sigma emphasizes cost reduction above production constraints (choice b). -TQM strives to please customers by improving their products (choice d).

*When a client's accounts payable computer system was relocated, the administrator provided support through a virtual private network (VPN) connection to a server. Subsequently, the administrator left the company. NO changes were made to the accounts payable system at that time. Which of the following situations represents the greatest security risk? a.) Security logs are NOT periodically reviewed for violations. b.) User passwords are NOT required to be in alphanumeric format. c.) User accounts are NOT removed upon termination of employees. d.) Management procedures for user accounts are NOT documented.

c.) User accounts are NOT removed upon termination of employees. -User accounts should immediately be disabled or removed upon termination of any employee. Enabled accounts for terminated employees present a great security risk since they allow unauthorized access to the system. -Security logs should be reviewed periodically to the administrator regardless of whether employees have left the company. Although reviewing logs might detect unauthorized system access, allowing former employees to maintain active passwords has a high security risk of allowing the unauthorized access (choice a). -Passwords are usually required to be a combination of characters, but in comparison to failing to disable accounts for former employees, weak passwords do NOT present the greatest risk. Passwords, however weak they may be, provide at least some security (choice b). -Although management procedures should always be documented, lack of documentation does NOT present a high security risk as long as there are procedures in place that are being used (choice d).

*In an effort to recognize improvement opportunities, a company is reviewing its in-house systems. The best reason for the company to consider switching to cloud computing is that it: a.) Is accessible only from within the company on its Intranet. b.) Provides better program modification options. c.) Usually has lower upfront costs for equipment and maintenance. d.) Is the best way to secure sensitive corporate information.

c.) Usually has lower upfront costs for equipment and maintenance. -Cloud computing involves virtual servers available over the Internet. Upfront and maintenance costs are usually much cheaper than a particular software solution installed in-house. Cloud computing is a cost-efficient method to use, maintain, and upgrade. -Cloud computing is accessible over the Internet, NOT an Intranet system (choice a). -With cloud computing, program modification would depend on the service provider, which may be less responsive and flexible than in-house resources (choice b). -Although cloud computing has a high level of security for customer data, a disadvantage of cloud computing is that a company's sensitive information has to be given to a third-party cloud service provider (choice d).

*Which of the following is NOT a characteristic of Total Quality Management (TQM)? a.) Quality Circles. b.) Continuous Improvement. c.) Waste Reduction. d.) Customer Focus.

c.) Waste Reduction. -TQM focuses on customer needs, continuous improvement, and quality circles which involves (workforce involvement, top management support, objective measures, timely recognition, and ongoing training). Waste reduction is a characteristic of lean manufacturing, NOT TQM.

*A local food writer is asked by a new restaurant chain to review several menu items after the company's opening night and then write an article for a fee in a popular food periodical. This is an example of what type of business model? a.) Business-to-consumer (B2C). b.) Business-to-business (B2B). c.) Consumer-to-consumer (C2C). d) Consumer-to-business (C2B).

d) Consumer-to-business (C2B). -E-commerce removes overhead costs, encourages competition, creates new markets, and provides a level playing field in terms of the knowledge available to all parties. E-commerce does come with drawbacks, such as shipping lag time, IT platform malfunction, personal information misuse, and a potential lack of human support. The consumer generally refers to an individual retail consumer (end consumer) and the business refers to a company such as a wholesaler, retailer, broker, or a raw materials harvester. This example depicts a C2B e-commerce model. Even though the business is seeking the individual for services, this would fall within the C2B model because an individual (consumer) is selling services to a business. The distinguishing factor in a C2B model is that the consumer provides the product, service, or overall value to the company. -This scenario is the opposite of a B2C model in which a business sells a product to an individual. The B2C category describes most online retailer models in which a retailer sells goods to an end consumer, mirroring a grocery store or a clothing outlet but through e-commerce as a means of exchange (choice a). -B2B e-commerce involves the sale of a product or service between companies and does NOT involve a direct sale to a consumer or vice versa. Common participants include raw materials manufacturers, wholesalers, retailers, and brokers (choice b). -In a C2C model, individuals come together in an online marketplace to transact with each other, without the involvement of a business (although businesses often are providers of the e-commerce platform that support these transactions). Common platforms this model facilitate the sale of after-market or used goods that people exchange online (choice c).

*In Year 1, a large domestic manufacturer produces all of its motors domestically and sells them internationally. The company's management team is in the process of developing its Year 2 budget, and copper costs represent a significant line item in the budget. In Year 1, the company spent $1,000,000 in purchasing 250,000 pounds of copper. Economic data indicate that in Year 1 copper costs had a price index of 120, and expectations are that the index will increase to 126 in Year 2. Management anticipates a 5% increase in copper usage for Year 2. What amount represents the Year 2 budget for copper purchases? a.) $1,300,000 b.) $1,050,000 c.) $1,000,000 d.) $1,102,500

d.) $1,102,500 -Year 1 copper price = $1,000,000 / 250,000 lbs. = $4/lbs. -Copper inflation rate = (126 - 120) / 120 = 0.05 x 100 = 5%. -Year 2 copper price = $4 x 1.05 = $4.20. -Year 2 copper usage = 250,000 lbs. x 1.05 = 262,500 lbs. -Year 2 copper budget = 262,500 lbs. x $4.20 = $1,102,500. -Choice A was given as a distracter. -The $1,050,000 budget amount includes the 5% increase in price but does NOT recognize the change in volume (choice b). -This represents the Year 1 copper budget assuming NO change in Year 2 price or copper usage (choice c).

Fernwell wants to buy shares of Gurst Company in two years. Fernwell uses a constant growth dividend discount model with a presumed dividend growth rate of 5%. If Fernwell's discount rate is 10% and Gurst's current year dividend is $20, what is the approximate price Fernwell will pay? a.) $400. b.) $441. c.) $420. d.) $463.

d.) $463.

*Under Stanford Corporation's job costing system, manufacturing overhead is applied to work-in-process using a predetermined annual overhead rate. During November 1, Year 1, Stanford's transactions included the following: Direct materials issued to production $180,000 Indirect materials issued to production $16,000 Manufacturing overhead incurred $250,000 Manufacturing overhead applied $226,000 Direct labor costs $214,000 Stanford had neither beginning nor ending work-in-process inventory. What was the cost of jobs completed in November 20X1? a.) $660,000 b.) $604,000 c.) $644,000 d.) $620,000

d.) $620,000 -The cost of jobs completed in a month = direct materials + direct labor + manufacturing overhead applied = $180,000 + $214,000 + $226,000 = $620,000. -Indirect materials was NOT separately included because indirect materials is a part of manufacturing overhead applied. The manufacturing overhead incurred (actual manufacturing overhead) was NOT included because the manufacturing overhead applied was. The difference between the actual and applied manufacturing overhead is the underapplied or overapplied overhead.

*When the price of shrimp rises from $5 per pound to $6 per pound, the quantity demanded of shrimp falls from 100 pounds to 90 pounds. What is the price elasticity of demand for shrimp? a.) 0.70 b.) 0.10 c.) 2.00 d.) 0.50

d.) 0.50 -Using the point method of calculating price elasticity of demand, if the price of a product rises from $5 to $6 and the demand for that product decreases from 100 pounds to 90 pounds, the price elasticity of demand is defined and calculated as: - = % Change in quantity demanded / % Change in price = ((900 - 100) / 100) / (($6 - $5) / $5) = (0.10) / 0.20 = (0.50).

*Wilcrest Corporation is analyzing the job costing and process costing systems that it uses with its two different production operations. Which of the following statements are correct with respect to these systems? -Wilcrest's job costing system emphasizes accounting for costs by jobs while Wilcrest's process costing system emphasizes accounting for costs by department with departmental costs assigned to units of production at the end of the period. -In Wilcrest's process costing system, transfers in from previous departments are always considered 100% complete. -In Wilcrest's process costing system, both normal spoilage and abnormal spoilage are expensed in the period incurred. a.) 2 and 3 only are correct. b.) All of the choices are correct. c.) 1 and 3 only are correct. d.) 1 and 2 only are correct.

d.) 1 and 2 only are correct. -Statement 1 clearly indicates a major difference between the two methods of product costing which is correct. -Statement 2 is correct. For the "next" department in the production process, transferred-in costs are treated as raw material costs and are considered to be 100% complete. -Statement 3 is incorrect. Costs of abnormal spoilage should be expensed in the period incurred, but costs of normal spoilage are part of inventory cost.

*The following information concerns Westheimer Corporation's equivalent unites in May 20X1: Beginning work-in-process (50% complete) 4,000 units Units started during May 16,000 units Units completed and transferred 14,000 units Ending work-in-process (80% complete) 6,000 units Using the weighted-average method, what were Westheimer's May 20X1 equivalent units? a.) 20,000 units b.) 39,000 units c.) 14,000 units d.) 18,800 units

d.) 18,800 units -Before computing the equivalent units, it is helpful to reconcile the actual units. 4,000 units were in beginning inventory and 16,000 units were started, for a total of 20,000 units. 14,000 units were completed and 6,000 units remained in ending inventory, again for a total of 20,000 units. -Converting to equivalent units using the weighted-average method, the units completed at 100% complete and the units in ending inventory at their % of completion are considered. -Equivalent units = (14,000 units + 6,000 units x 0.80) = 18,800 units. -Using the weighted-average method, the % of completion of the beginning inventory is NOT considered.

*The price elasticity of demand for a good is 2.0, and the quantity demanded is 5,000 units. The price increases by 10%. What is the new quantity demanded? a.) 6,000 units. b.) 1,000 units. c.) 4,500 units. d.) 4,000 units.

d.) 4,000 units. -Price elasticity of demand = % change in quantity demanded / % change in price = 2.0 (given) = 20% solve / 10% (given). -% change in quantity demanded (20%) = X units (new) - 5,000 units (old) / 5,000 units old = 4,000 units. -We can assume the inverse relationship of price to quantity demanded, such that when price increases, quantity demanded decreases. As such, a 20% change in quantity demanded will be a decrease of 20% (from 5,000 units to 4,000 units). -Using the 6,000 units as the new quantity demanded incorrectly assumes that price and quantity demanded have a positive relationship. The new quantity demanded can NOT be over the old quantity demanded (choice a). -The 1,000 units represent the unit change in quantity demanded to obtain a price elasticity of demand of 2.0, NOT the new units of quantity demanded (choice b). -Using the 4,500 units as the new quantity demanded results in a price elasticity of demand of 1.0 (4,500 units - 5,000 units / 5,000 units = -0.1 / 10% = -1.0 or 1.0) (choice c).

*Which of the following is an example of expansionary fiscal policy? a.) A decrease in the required reserve ratio. b.) A decrease in government spending. c.) An increase in the discount rate. d.) A decrease in taxes.

d.) A decrease in taxes. -Fiscal policy refers to government spending and tax policies. Expansionary fiscal policy consists of increases in government spending and/or decreases in taxes. When the government increases government spending and/or decrease taxes, the aggregate demand curve shifts right. As a result, real GDP increases, leading to an increase in, or expansion of, economic activity.

*Which of the following is the most likely result of imposing tariffs to increase domestic employment? a.) A decrease in the tariff rates of foreign nations. b.) A short run increase in domestic employment in import industries from export industries. c.) A decrease in consumer prices in the domestic market. d.) A long run reallocation of workers from export industries to protected domestic industries.

d.) A long run reallocation of workers from export industries to protected domestic industries. -A tariff is a tax imposed on imported goods and services. One of the desired effects of implementing a tariff is that if imported goods and services become more expensive, companies and individuals will be more likely to produce domestically, thereby increasing domestic employment. Taxes will have a negative effect on international business, thereby increasing domestic business. Workers will be needed to meet the demand domestically. -An increase in tariffs implemented domestically will likely lead to an increase, NOT decrease, in the tariff rates of foreign nations (choice a). -Tariffs on imported goods will likely result in a short run decrease, NOT increase, in domestic employment in import industries (choice b). -If anything, higher tariffs and increases in domestic employment will lead to higher consumer prices as costs increase and sales must increase in order to maintain profits (choice c).

*An advertisement in a local newspaper stated that a small local business required "someone who can get our new off-the-shelf production software to do what we want it to do so we can get on with running our business." What type of computer professional is this business looking to recruit? a.) An IT supervisor. b.) A computer programmer. c.) A network administrator. d.) A systems analyst.

d.) A systems analyst. -They would take on the role of learning a purchased package and would have the job of integrating it into any existing software. The systems analyst would also take responsibility for training staff in its use. A systems analyst is sometimes referred to as a systems integrator with purchased systems since that individual is responsible for adapting or integrating the purchased system into the business. -An IT supervisor would manage part of the IT function but would NOT necessarily provide the "hands-on" integration effort contemplated by the employment advertisement (choice a). -A programmer would be involved in writing new programs or maintaining existing programs, NOT integrating a purchased system with existing software (choice b). -A network administrator would manage the LANs (communicate), but would NOT be responsible for leading the integration of purchased software into existing software and systems (choice c).

*All of the following are the rates used in net present value (NPV) analysis, EXCEPT for the: a.) Discount rate. b.) Hurdle rate. c.) Cost of capital. d.) Accounting rate of return.

d.) Accounting rate of return. -This is a capital budgeting technique, NOT a rate. The required rate of return would be included in NPV analysis. -Cost of capital is the cost of borrowing. The hurdle rate, discount rate, and the required rate of return are synonymous terms for an arbitrary rate set by management.

*In microeconomics, the distinguishing characteristic of the long run on the supply side is that: a.) Only demand factors determine price and output. b.) Firms are NOT allowed to enter or exit the industry. c.) Only supply factors determine price and output.. d.) All inputs are variable.

d.) All inputs are variable. -In accounting terms, this means that in the long run all costs are variable (ex: the fixed cost of depreciation of a factory building becomes a variable cost when a second factory building is added). -In competitive markets (including monopolistic competition), firms rather easily enter and exit the market (choice b). -Output and price are ultimately determined by market factors (supply and demand) and the power a firm has in the market (choices a and c).

*Suppose the equilibrium wage for low skilled workers in California is $6/hour. If the government increases the minimum wage to $7/hour, what would be the effect on the market for low skilled labor? a.) The supply of labor would increase. b.) An excess demand for labor would result. c.) The demand for labor would decrease. d.) An excess supply of labor would result.

d.) An excess supply of labor would result. -A minimum wage that is set above the equilibrium wage will result in an excess supply (or surplus) of labor. -The quantity demanded of labor at $7/hour is less than the quantity supplied, implying an excess supply, NOT an excess demand (choice b). -An increase in the minimum wage causes a decrease in quantity demanded of labor, NOT a decrease in the demand (shift in demand) for labor (choice c).

*A government is most likely to reduce taxes on investments when: a.) The real exchange rate is expected to be unusually high. b.) The GDP is expected to be unusually high. c.) Inflation is expected to be unusually low. d.) Capital spending is expected to be unusually low.

d.) Capital spending is expected to be unusually low. -Reducing taxes is a fiscal policy decision designed to increase disposable income and facilitate spending and economic growth. Lower than expected capital spending can be addressed through lower taxes, which puts more money into the hands of businesses and consumers. -Given their unpredictability and volatility, exchange rate fluctuations are unlikely to affect government decisions to raise or lower taxes (choice a). -If GDP is growing faster than expected, the government does NOT need to reduce taxes to spur higher spending (choice b). -Lower than expected inflation means that the cost of goods and services will be more affordable for purchasers, implying that the government will NOT need to reduce taxes to generate economic activity (choice c).

*To maintain effective segregation of duties within the information technology (IT) function, an application programmer should have which of the following responsibilities? a.) Maintain custody of the billing program code and its documentation. b.) Correct detected data entry errors for the cash disbursement system. c.) Modify and adapt operating system software. d.) Code approved changes to a payroll program.

d.) Code approved changes to a payroll program. -A payroll program is an application program. Note that the changes have been previously "approved." -An application programmer should NOT have custody of billing (or any other application system) program code. Custody should be with a librarian (either a person or a system), and application programmers should only have controlled access to the program code. Program documentation should probably also be secured, but it is nowhere near as important (choice a). -An application programmer should never be assigned the responsibility to correct data entry errors for the cash disbursement (or any other) system. Application programmers should NOT have access to data (other than for very controlled situations, such as data fixes). (choice b). -An application programmer should never be assigned the responsibility to modify or adapt operating system software. Few application programmers would have the knowledge and experience to deal with operating system software anyway, but that would be way too much responsibility in one person/position (choice c).

*A company currently sells 100,000 units of product A at $10/unit. The company also sells 100,000 units of product B at the same price. The company raises the price of both products by 10%. Product A has an elasticity of 1.5 and Product B has an elasticity of 3.0. Which of the following effects will the price increase most likely have on company revenues? a.) Company revenues will increase for both products. b.) Company revenues will increase for product B but NOT product A. c.) Company revenues will increase for product A but NOT product B. d.) Company revenues will decrease for both products.

d.) Company revenues will decrease for both products. -Price elasticity of demand measures the % change in quantity demanded relative to the % change in price. When price elasticity is greater than one, the good is considered price elastic and the % change in quantity demanded from an absolute value perspective will exceed the % change in price. The assumption for normal goods is that the quantity demanded will decline when price increases. -For both products A (1.5) and B (3.0), which are price elastic, an increase in price will lead to a greater decrease in quantity demanded. And because revenue is equal to price x quantity, the decline in quantity will exceed the increase in price and the overall result will be a decline in revenue for both products. -Revenues will decrease for both products A and B because the goods are price elastic (choices a, b, and c).

*ITGC Inc. allows job rotation for one year within an organization. One employee typically works for the first six months with the job responsibilities of scheduling and running processing jobs. The last six months the employee is transferred and has new job responsibilities of maintaining the operating system. These job responsibilities best reflect the job role of: a.) Data librarian and computer operator, respectively. b.) File librarian and system programmer, respectively. c.) System programmer and application programmer, respectively. d.) Computer operator and system programmer, respectively.

d.) Computer operator and system programmer, respectively. -Computer operators are responsible for scheduling and running processing jobs, and system programmers are responsible for installing, supporting, monitoring, and maintaining the operating system. -Data librarians are responsible for the custody of and maintaining the entity's data (choice a). -File librarians are responsible for controlling the file libraries (choice b). -Application programmers are responsible for writing and/or maintaining application programs (choice c).

*Scales Co., a fresh fish retailer, is pursuing a merger with Great Lakes Transport Inc. This rationale is that Scales has incurred rising costs related to the shipments of its daily fresh fish purchases, and by acquiring Great Lakes shipping costs would be materially reduced. Once the merger is completed, it would be classified as a: a.) Vertical combination. b.) Horizontal combination. c.) Circular combination. d.) Diagonal combination.

d.) Diagonal combination. -Because the acquisition of Great Lakes would provide ancillary support to Scales' business operations, the merger would be classified as a diagonal combination. The merger with Great Lakes will lower shipping costs and improve the combined company's profit margins. -The scenario above does NOT indicate that two companies are in different stages of the production process or a vertical combination (choice a). -The scenario above does NOT demonstrate two companies in the same industry or a horizontal combination (choice b). -The scenario above does NOT describe a circular combination, but instead demonstrates a diagonal combination (choice c).

*The manufacturer of a high priced car emphasizes the prestige, performance, and safety of the vehicle. The strategy pursued by the manufacturer can be best characterized as: a.) Cost leadership focused on a narrow range (niche) of buyers. b.) Differentiation focused on a narrow range (niche) of buyers. c.) Cost leadership focused on a broad range of buyers. d.) Differentiation focused on a broad range of buyers.

d.) Differentiation focused on a broad range of buyers. -The manufacturer's attempt to appeal to prestige, performance, and safety targets a broad range of motivations in the automotive market and markets to wealthy individuals, corporations, etc. The manufacturer seeks to differentiate itself from other vehicles with various superlatives, however, there is NOT one feature that is specifically emphasized. -Choice a would emphasize price to a specific group interested in price. -Choice b would differentiate the product within the context of a very few buyers and might specifically emphasize one feature such as prestige (for the status conscious professional), performance (for the auto enthusiast), or safety for families, etc. -Choice c would emphasize price to a large number of buyers, NOT various features.

*A company's accounts payable clerk obtained the payroll supervisor's computer password. The clerk then used the password to obtain unauthorized access to the company's payroll files. Any of the following can be used to prevent such unauthorized access to the payroll files, EXCEPT: a.) Smart card. b.) Multifactor authentication. c.) Multimodal authentication. d.) Digital signature.

d.) Digital signature. -Digital signatures create binding electronic documents. The AP clerk could easily obtain the payroll supervisor's digital signature, which would do nothing to prevent the unauthorized access to the company's payroll files. -A smart card would work well because it would be something that the payroll supervisor could carry on his or her person, which would prevent the AP clerk from obtaining it (choice a). -Multifactor authentication is a system that involves multiple methods of authentication from independent categories of credentials; the individual attempting to obtain access to the payroll files would have required more than just a password in this sort of system (choice b). -Multimodal authentication uses multiple biometric data, such as fingerprints, facial scanning, eye scanning, etc., to verify the identity of the individual accessing the data (choice c).

*Variations between business cycles most likely are attributable to which of the following factors? a.) The law of diminishing returns. b.) Comparative advantage. c.) Opportunity costs. d.) Duration and intensity.

d.) Duration and intensity. -Variations in business cycles are attributed or described in terms of how long they last (duration) and the degree of peak or trough (intensity). While a recession, for example, is defined as two consecutive quarters of negative economic growth, a depression is more qualitatively assessed after consideration of both severity (depth) and duration. -The law of diminishing returns contemplates reduced output for each unit of input as industries either mature or become less efficient with size. Diminishing returns is NOT used to describe variations in business cycles (choice a). -Comparative advantage results in specialization by market participants and does NOT describe variations in the business cycle (choice b). -Opportunity costs represent implicit costs that evaluate the cost of alternate uses of resources. Business cycles are NOT attributed to opportunity costs (choice c).

*When employing the modified accelerated cost recovery system (MACRS) method of depreciation in a capital budgeting decision, the use of MACRS as compared to the straight line method of depreciation will result in: a.) MACRS producing more total depreciation than straight line. b.) Equal total tax payments, after discounting for the time value of money. c.) MACRS producing less total depreciation than straight line. d.) Equal total depreciation for both methods.

d.) Equal total depreciation for both methods. -MACRS and straight line depreciation will be equal in total (only the timing differs). The timing of the depreciation tax shields will differ. The discontinuing will result in different present values based on the differing timing.

*Consider the market for sport utility vehicles (SUVs). Suppose that there is a large increase in the price of gasoline as well as an increase in the price of steel (an input in the production of SUVs). What is the predicted effect of these events on the equilibrium quantity and price of SUVs? a.) Equilibrium quantity will rise and equilibrium price will fall. b.) Equilibrium quantity will fall and equilibrium price will rise. c.) Equilibrium quantity may rise, fall, or stay the same and equilibrium price will rise. d.) Equilibrium quantity will fall and equilibrium price may rise, fall, or stay the same.

d.) Equilibrium quantity will fall and equilibrium price may rise, fall, or stay the same. -Gasoline is a complement (they go together) to SUVs. As a result, a large increase in the price of gasoline would cause the demand curve for SUVs to shift left, which would lead to a decrease in both the quantity and price of SUVs. -Steel is an input in the production of SUVs which would cause the supply curve for SUVs to shift left, which would lead to a decrease in the quantity and an increase in the price of SUVs. -When combined, these two events would both cause the equilibrium quantity to fall. However, the effect on price has multiple outcomes. The first causes the price to fall and the second causes the price to rise.

*An increase in the personal income tax will tend to cause: a.) GDP to fall and unemployment to fall. b.) GDP to rise and unemployment to fall. c.) GDP to rise and unemployment to rise. d.) GDP to fall and unemployment to rise.

d.) GDP to fall and unemployment to rise. -An increase in the personal income tax (increase in taxes) will take money out of the hands of consumers and lead to a reduction in economic activity.

*The current interest rate on long term borrowings (5 years or more) exceeds short term borrowings (under 1 year) by an average of 200 basis points (2%). The CFO of a company does NOT want to commit to any borrowings that extend beyond 9 months. Which of the following rationales may be used to convince the CFO to change her mind about the length of the company's borrowing commitments? a.) Lower financing costs. b.) Higher liquidity. c.) Increased profitability. d.) Greater availability of capital.

d.) Greater availability of capital. -Companies (and individuals) can borrow for short and/or long periods of time. The CFO currently wants to borrow for only short periods of time, but one of the rationales for longer term commitments is the greater availability of capital. By borrowing for longer, the company will have the use of lender funds for a longer period of time prior to having to pay them back. -In most situations (as is the case here), long term interest rates are higher than short term interest rates. So financing costs will be higher, NOT lower, with long term borrowings (choice a). -Long term financing results in a decrease, NOT an increase, in liquidity, as interest obligations continue for longer periods of time (choice b). -Interest expense reduces, NOT increases, profitability, so longer term borrowings will result in greater interest expense and lower profitability (choice c).

*When markets are perfectly competitive, consumers: a.) Must search for the lowest price for the products they buy. b.) Do NOT receive any consumer surplus unless producers choose to overproduce. c.) Must choose the brands they buy solely on the basis of informational advertising. d.) Have goods and services produced at the lowest cost in the long run.

d.) Have goods and services produced at the lowest cost in the long run. -Since price is barely sufficient to give a firm a normal profit and stay in business, the consumer obtains the product at as low a price as is economically feasible. In addition, every firm is forced to produce at the most efficient output rate. -Individual consumers are also price takers at the market equilibrium price (choice a). -This is NOT an appropriate application of the "consumer surplus" concept (choice b). -Brand differentiation is present in monopolistic competition, NOT perfect competition (choice c).

*An international firm based in the United States is forecasting the impact of various factors on its trade in foreign markets. Each of the following factors would serve to improve the exchange rate of the U.S. dollar relative to foreign currencies, EXCEPT: a.) Declining domestic income. b.) Foreign inflation. c.) Low foreign interest rates. d.) Increased foreign capital investment.

d.) Increased foreign capital investment. -Increased U.S. capital investment in a foreign economy would likely cause the exchange rate for the U.S. dollar to deteriorate. Increased capital investment in a foreign country creates a demand for the foreign currency. The increased demand for a fixed amount of foreign currency ultimately increases the value (exchange rate) of the foreign currency relative to the U.S. dollar. -Declining domestic income will reduce the amount of domestic currency spent. Reduced demand for foreign currency from a declining pool of domestic currency will effectively strengthen the domestic currency and improve exchange rates (choice a). -Foreign inflation would reduce the buying power of the foreign currency, thereby increasing the value of the U.S. dollar, which would cause exchange rates to improve (choice b). -Low foreign interest rates will reduce incentives for foreign investment. The less demand for foreign currency, the stronger the domestic currency, which would cause exchange rates to improve (choice c).

*The use of an accelerated method instead of the straight line method of depreciation in computing the net present value (NPV) of a project has the effect of: a.) Increasing the cash outflows at the initial point of the project. b.) Raising the hurdle rate necessary to justify the project. c.) Lowering the net present value (NPV) of the project. d.) Increasing the present value of the depreciation tax shield.

d.) Increasing the present value of the depreciation tax shield. -Rule: The greater the depreciation expense, the greater the depreciation tax shield. -Depreciation tax shield = depreciation expense x marginal tax rate. -The depreciation method would NOT affect the cash outflows at the initial point of the project (choice a). -The depreciation method would NOT affect the hurdle rate because that is independently selected by management (choice b). -This would increase, NOT decrease the NPV of the project (choice c).

*An entity is examining potential investments and notes that 1-year maturity yields are higher than those for 10-year maturities. Which of the following explanations for this occurrence is best? a.) The short-term investments carry a more immediate default risk premium resulting in higher rates of return. b.) The short-term investments have higher liquidity and therefore carry a higher rate of interest. c.) The long-term instruments provide a longer stream of investment income and therefore carry a lower rate of return. d.) Investors are expecting reduced inflation in the future as reflected in the lower long-term returns.

d.) Investors are expecting reduced inflation in the future as reflected in the lower long-term returns. -If inflation is expected to be lower in the future, investors will NOT require as high a return on their long-term investments because the value of receiving dollars in the future will NOT be as eroded. This can result in lower long-term rates relative to short-term rates. -Longer-term investments typically carry higher default risks due to the number of payments and length of time the bond issuer is required to pay interest and principal on outstanding debt (choice a). -Investments with higher liquidity will carry lower rates of interest due to the reduced risk (choice b). -While the income stream is longer for long-term instruments, they will typically carry a higher rate of return due to the uncertainty from the lender perspective of receiving those future interest and principal payments (choice c).

*Utility companies can generally price their product, a good that establishes a comfortable life-style (i.e., electricity, gas for home heating) based on the fact that the demand: a.) Is relatively elastic. b.) Is perfectly elastic. c.) Is perfectly inelastic. d.) Is relatively inelastic.

d.) Is relatively inelastic. -Goods that are important for a comfortable life-style would be relatively price insensitive (i.e., inelastic). For example, demand for electricity would only decrease if there were an enormous increase in price (people might then use other forms of energy such as solar). Only goods that are absolute necessities (a theoretical example is water) have perfectly inelastic demand curves. That is, NO matter what price is charged, people will still buy the product because they need it to stay alive.

A country's currency conversion value has recently changed from 1.5 to the U.S. dollar to 1.7 to the U.S. dollar. Which of the following statements about the country is correct? a.) Its imports of U.S. goods are more affordable. b.) Its purchases of the U.S. dollar will cost less. c.) Its currency has appreciated. d.) Its exports are less expensive for the United States.

d.) Its exports are less expensive for the United States. -The foreign country's exports will be less expensive for the United States since it will require fewer U.S. dollars to buy the foreign goods. If the conversion factor changes to 1.7 FCU to the USD, it takes $0.666

*In a perfectly competitive market, firms are likely to: a.) Match price cuts by competitors but ignore price increases. b.) Face significant barriers to market entry. c.) Devote significant resources to promote product differentiation. d.) None of the answer choices are correct.

d.) None of the answer choices are correct. -A perfectly competitive market is characterized by: a large number of firms, very little product differentiation (firms sell identical products) and NO barriers to market entry. -This describes an oligopoly (choice a). -A perfectly competitive market has NO barriers to entry (choice b). -Firms in a perfectly competitive market sell a homogeneous product and, thus, don't compete via product differentiation (choice c).

*In the pharmaceutical industry where a diabetic must have insulin NO matter what the cost and where there is NO substitute, the diabetic's demand curve is best described as: a.) Elastic. b.) Perfectly elastic. c.) Indifferent. d.) Perfectly inelastic.

d.) Perfectly inelastic. -When a good is demanded, NO matter what the price, demand is described as perfectly inelastic. The demand "curve" is a vertical line at the quantity demanded with price making NO difference. -The more elastic demand is, the greater the change in quantity demanded for price changes (choice a). -There is NO such thing as perfect elasticity (choice b). -Diabetics are indifferent to changes in the price of insulin which is perfectly inelastic demand (choice c).

*Which of the following is NOT an external factor that directly affects the competitive environment of the firm? a.) Barriers to market entry. b.) Bargaining power of suppliers. c.) Existence of substitute products. d.) Political issues.

d.) Political issues. -Political issues are external factors that affect the overall industry, NOT simply the competitive environment of the firm. -Choices a, b, and c are all factors that directly affect the competitive environment of the firm.

*If a CPA's client expected a high inflation rate in the future, the CPA would suggest to the client which of the following types of investments? a.) Common stock. b.) Corporate bonds. c.) Treasury bonds. d.) Precious metals.

d.) Precious metals. -Precious metals are a non-monetary asset whose value increases with inflation. Therefore, precious metals would likely serve as a better hedge against inflation than common stock or fixed income securities. -The value of common stock generally increases with inflation, but is also impacted by the value of the underlying company and market fluctuations that are impacted by numerous factors other than inflation. The use of equities may represent a long term hedge against inflation but equities would NOT be as effective as commodities in the short term (choice a). -Corporate bonds and treasury bonds are assets that are fixed in value and will NOT keep up with the purchasing power losses caused by inflation. Inflation will likely cause interest rates to increase and will thereby reduce the value of fixed interest rate securities purchased at the beginning of an inflationary cycle (choices and c).

*An increase in the price of crude oil will have what effect on the equilibrium price and quantity of gasoline? a.) Price will rise and quantity will rise. b.) Price will fall and quantity will fall. c.) Price will fall and quantity will rise. d.) Price will rise and quantity will fall.

d.) Price will rise and quantity will fall. -Crude oil is an input to the production of gasoline. When the price of an input increases, supply shifts left, causing equilibrium price to rise and equilibrium quantity to fall.

*The mission statement for an IT security program most likely would be found in which of the following policies? a.) Issue-specific policy. b.) System-specific policy. c.) Program-framework policy. d.) Program-level policy.

d.) Program-level policy. -These are used for creating a management-sponsored computer security program. A program-level policy, at the highest level, might prescribe the need for information security and may delegate the creation and management of the program to a role within the IT department. -Issue-specific policies address specific issues of concern to the organization (i.e., cloud computing) (choice a). -System-specific policies focus on policy issues that exist for a specific system (i.e., the payroll system) (choice b). -Program-framework policies establish the overall approach to computer security (i.e., a computer security framework). A framework policy adds detail to the program by describing the elements and organization of the program and department that will carry out the security mission. This is the IT security strategy (choice c).

*Felix Supplies Inc. is looking to expand its cat and dog food business in the upcoming year. After performing significant due diligence, Felix identifies another company that would fulfill its strategic objective but is much larger and has various other lines of business. Which strategy should Felix management pursue given the above? a.) Merger. b.) Acquisition. c.) Tender offer. d.) Purchase of assets.

d.) Purchase of assets. -Felix management is only interested in the cat and dog food business of the identified company. Because this company is much larger in size and has various other lines of business, Felix should attempt to purchase only the cat and dog food segment's assets of the identified company. The transaction would only be successful if the identified company is willing to sell this part of its company. -Felix management is interested in expanding its cat and dog food segment and would most likely NOT pursue a merger of a much larger company that has various other lines of business (choice a). -The identified company is too large for a full acquisition and has various other lines of business that were NOT strategically selected by Felix (choice b). -Because Felix is only interested in part of the identified company's assets, a tender offer does NOT apply (choice c).

*If the elasticity of demand for a normal good is estimated to be 1.5, then a 10% reduction in its price would cause: a.) Total revenue to fall by 10%. b.) Total revenue to fall by 15%. c.) Demand to decrease by 10%. d.) Quantity demanded to rise by 15%.

d.) Quantity demanded to rise by 15%. -Price elasticity of demand = % change in quantity demanded / % change in price = 1.5 / 10% = 0.15 = 15%. -If the elasticity of demand is 1.5 (assumed to be the absolute value, as the elasticity of demand for a normal good is always negative), then a 10% price reduction would cause an increase in the quantity demanded by 15%.

*A company's financial reporting system has a process management feature to provide workflow control. This feature allows the division accounting staff to input and review data and send the data to the company's corporate office for final review and approval. What security access, if any, should be granted to the division accounting staff once the data has been sent to the corporate office for approval? a.) Both read and write. b.) Write but NOT read. c.) NO access. d.) Read but NOT write.

d.) Read but NOT write. -Read access allows users to read information, but they cannot add or edit content. Write (create) access allows users to add or edit content. Once the data has been sent to the corporate office for approval, it should NOT be changed by the division accounting staff who inputted and sent the data for approval. To prevent any new inputs or changes, the staff should be given read-only access. There is NO harm in granting read access to the accounting staff for data that staff members have already submitted.

*Greenwood Corporation has been in business for 20 years. This year its profits have hit a record low and three of its factories are working a three day week as a result of low product demand. Redwood Corporation, however, has shown steadily rising profits over the last three years and is actively recruiting the staff being laid off by Greenwood. Which response most appropriately describes the phase of business experienced by these two businesses. a.) Redwood: Expansionary; Greenwood: Declining b.) Redwood: Peak; Greenwood: Expansionary c.) Redwood: Recovery; Greenwood: Contractionary d.) Redwood: Expansionary; Greenwood: Trough

d.) Redwood: Expansionary; Greenwood: Trough -Redwood is showing rising profits, but there is NO indication of its having reached a peak. It is recruiting staff, and that is a clear indication of the expansionary phase. Greenwood has clearly hit a record low as stated in the question and is reducing staff which is a clear indication of the trough phase.

*If a product has a price elasticity of demand of 2.0, the demand is said to be: a.) Relatively inelastic. b.) Perfectly inelastic. c.) Perfectly elastic. d.) Relatively elastic.

d.) Relatively elastic. -A price elasticity of demand of 2.0 means demand will change by 2x (as a percentage) for any change in price which is called being elastic. -Inelastic demand responds less than 1x (as a percentage) for a change in price (choice a). -Perfectly inelastic demand means the quantity demanded will NOT change when price changes (choice b). -Perfectly elastic demand does NOT exist (choice c).

*Smart Co. uses a static budget. When actual sales are LESS than the budgeted sales, Smart would report favorable budget variances on which of the following expense categories? a.) Sales commissions: NO; Building rent: Yes. b.) Sales commissions: NO; Building rent: NO. c.) Sales commissions: Yes; Building rent: Yes. d.) Sales commissions: Yes; Building rent: NO.

d.) Sales commissions: Yes; Building rent: NO. -Static budgets do NOT take changes in sales volume into account. Actual sales are less than the budgeted sales, so sales commissions will also be less than budgeted which would indicate a favorable budget variance. Building rent is generally a fixed expense and is likely NOT influenced by the level of company sales. There would be NO variance in building rent as a result of changes in sales volume. -Note: A favorable sales commission variance is NOT good news; it means that the actual sales are less than the budgeted sales. Yet, variances from a static budget would show a positive or "favorable" variance from the budget. Flexible budget variances provide a more meaningful information than static budget variances.

*Which type of system test would best validate the logical reasoning of the system? a.) Stress test b.) Regression test c.) Security test d.) Sanity test

d.) Sanity test -A system test assesses the overall performance of a newly implemented software package or IT platform to evaluate whether it meets operational, technical, or applicable quality standards. System tests are performed in an environment that simulates how the system should function in production. Various types of tests can be performed, each evaluating different forms of functionality, such as the ability to recover from failures, the ability to protect against unauthorized access or data alteration, or the basic ability to function as intended. -It gauges whether the system behaves as it was designed, verifying that the design parameters align with all intended use cases for the system. This test would also reveal abnormalities or outcomes that are illogical based on the system input and expected output. -A stress test does NOT test logical reasoning but rather it judges the tested system's ability to handle extremes. These extremes scenarios may test how the new platform handles in spike in quantity, a change in frequency, or increase in the volume of records processed (choice a). -A regression test takes rerun test cases within known outcomes given a known set of variables and applies those cases to a new system with new functionality to determine any variation in system performance. This would NOT necessarily test the logical reasoning or behavior of a new system (choice b). -A security test verifies that the tested system can block unauthorized penetration, prevent unintended system or data changes, or prevent any other type of system-related misuse. It does NOT test the logical reasoning or behavior of a system (choice c).

*Suppose a stock market boom causes a large increase in wealth. If the Federal Reserve wanted to counteract the effect of the stock market boom on the economy it could: a.) Purchase government securities (bonds) or increase the discount rate. b.) Purchase government securities (bonds) or decrease the discount rate. c.) Sell government securities (bonds) or decrease the discount rate. d.) Sell government securities (bonds) or increase the discount rate.

d.) Sell government securities (bonds) or increase the discount rate. -A large increase in wealth would lead to an increase in GDP (economic activity) and rising price levels. The Federal Reserve might intervene in such a case to offset these inflationary effects. To do so, the Fed would have to decrease the money supply. It could decrease the money supply by selling government securities (bonds) or increasing the discount rate.

*If the Federal Reserve raises the discount rate, which of the following effects is likely to occur? a.) Corporate profits will increase. b.) Fixed interest rates on mortgages will decrease. c.) Consumer spending will increase. d.) Short term interest rates will likely increase.

d.) Short term interest rates will likely increase. -Increasing or decreasing the discount rate (the interest rate charged by the Federal Reserve to its member banks for short term loans) is one of the main mechanisms by which the Federal Reserve controls the money supply. Increasing the discount rate leads to a reduction in borrowing from member banks and, therefore, a reduction in the money supply. Declines in the money supply will lead to an increase in interest rates. -Reduced demand and higher borrowing costs resulting from interest rate increases will decrease, NOT increase, corporate profits (choice a). -Mortgages that have fixed interest rates will NOT be affected by changes in the discount rate, as "fixed" implies that the rate is locked in by the borrower and lender for a loan's duration (choice b). -Consumer spending will likely decrease, NOT increase, as rising interest rates will have a negative impact on demand because of the higher cost of borrowing funds (choice c).

*NAFTA offers trading partners operating within its boundaries reductions in tariffs on products in exchange for compliance with limits on imported labor and materials used in the manufacture of those products. This practice is also known as a: a.) Value added tax. b.) International rebate. c.) Foreign trade zone. d.) Sourcing requirement.

d.) Sourcing requirement. -Sourcing requirements generally refer to content or value added limits on the percentage of labor or materials used in imported products. Compliance with limits may result in tariff reductions. -A value added tax is an incremental tax, NOT a reduction in tariffs (choice a). -An international rebate is NOT a tariff reduction practice (choice b). -A foreign trade zone contemplates a physical location in which tariffs are waived on imported products until they leave the zone. Foreign trade zones anticipate delay rather than reductions in tariffs (choice c).

*Big Co. issues a stock dividend for all its current shareholders whereby every investor is entitled to receive 1 share of Little for every 10 shares they own in Big. Little is a previously owned subsidiary of Big, and Big does NOT receive any cash resulting from the stock dividend. This transactions is most likely considered a: a.) Sell-off. b.) Equity carve-out. c.) Tender offer. d.) Spin-off.

d.) Spin-off. -A spin-off results in a previous subsidiary becoming a new independent company. NO cash is generated from a spin-off, which is often executed by distributing stock of the new company in the form of a stock dividend to existing shareholders of the original parent company. -A sell-off is an outright sale of a subsidiary, which is NOT what is described in the question (choice a). -An equity carve-out involves the sale of shares of a new company, which will generate cash for the parent company, which is NOT what is being described in the question (choice b). -A tender offer occurs when a company makes an offer to shareholders of a target company to buy their outstanding shares at a specified price; this is NOT what is described in the question (choice c).

*A corporation recently issued five-year debt with a coupon rate of 4.25%, payable on a semiannual basis. Which statement is most accurate regarding the impact of inflation on this debt issuance? a.) The real cost of the principal owed at maturity exceeds its future value. b.) Interest outflows will decrease each year due to rising prices. c.) Interest outflows will increase each year due to rising prices. d.) The real cost of the principal owed at maturity is below its future value.

d.) The real cost of the principal owed at maturity is below its future value. -Inflation represents rising price levels over time. The principal owed at maturity on a debt issuance is fixed at a specific amount, which represents the future cost. Inflation results in a real cost, which is below the future cost per the following formula: -Real cost = future value / (1 + inflation rate)^n. -The principal owed at maturity is the future value and as long as price levels are rising, the inflation rate will be positive and the real cost will be below the future value. -The real cost of the principal owed at maturity is below (NOT above) its future value (choice a). -Interest outflows are fixed every 6 months regardless of price level changes (choices b and c).

*After a B2B transaction occurs, the type of system that is concerned with what goods were ordered, when and where the goods were to be delivered, and what the amount paid is the: a.) Knowledge management system (KMS) b.) Customer relationship management (CRM) system c.) Inventory management system d.) Supply chain management (SCM) system

d.) Supply chain management (SCM) system -There are multiple types of systems that an organization uses throughout its operations, spanning all stages of a product's life cycle. Some systems focus on organizational administration while others focus on relationships with the customer, product management, and logistics. The SCM system is concerned with four important characteristics for every sale: what, when, where the goods were delivered, and how much the goods cost. SCM systems provide a unified solution for managing business processes beginning with the suppliers of raw materials all the way to the delivery of finished goods to the consumer. -A KMS is any system that disseminates information throughout an organization. This choice is too broad and does NOT focus on the SCM aspect of a company's business activities (choice a). -CRM is a system that focuses on interactions with a customer, which may include when and where goods are delivered, but that is NOT its primary function (choice b). -An inventory management system will be integrated within an SCM solution, but it does NOT provide the comprehensive functionality that is required to manage when and where goods are to be delivered (choice c).

*All of the following are characteristics of monopolistic competition, EXCEPT: a.) Differentiated products sold by a large number of firms. b.) Few barriers to entry. c.) Significant non-price competition in the market. d.) The ability of the firm to set output and prices.

d.) The ability of the firm to set output and prices. -This describes a monopoly. Other characteristics of a monopoly include a single firm in the market, significant barriers to entry, and the existence of NO substitute products for the good. -All of these are characteristics of monopolistic competition. Under monopolistic competition, a relatively large number of firms produce differentiated products in a market that has relatively few barriers to entry and significant non-price competition (choices a, b, and c).

*The kinked demand curve is associated with: a.) The analysis of agricultural markets. b.) The analysis of pure competition. c.) The analysis of monopolistic competition. d.) The analysis of oligopoly.

d.) The analysis of oligopoly. -The demand curve for any individual oligopolist is kinked sharply downward. This occurs because, in oligopoly market conditions, the other firms in the market will match any price reduction so they do NOT lose market share will NOT match any price increase of an individual firm. Therefore, for the individual firm attempting to raise its prices beyond equilibrium, consumers will quickly buy from other firms in the market and demand will drop off sharply creating a kinked demand curve.

*Which of the following are NOT considered in the group of internal factors of strengths and weaknesses of a firm? a.) Marketing effectiveness. b.) Clarity of the strategic mission. c.) Competency of management. d.) The bargaining power of suppliers.

d.) The bargaining power of suppliers. -The bargaining power of suppliers is considered in the group of external factors or "opportunities and threats" facing the firm and/or industry, NOT in the group of internal factors of strengths and weaknesses of the firm. -The following are internal factors of strengths and weaknesses of the firm: innovation of product lines, COMPETENCY OF MANAGEMENT (choice c), core competencies, influence of high-level managers, capital improvements, leadership in R&D, cohesiveness of the values of the organization, MARKETING EFFECTIVENESS (choice a), effectiveness of communication, and CLARITY OF THE STRATEGIC MISSION (choice b) (choices a, b, and c). -

*When does competition NOT become an even stronger force impacting the profitability of a firm? a.) Customers do NOT have strong brand preferences. b.) Various firms use various types of strategic plans. c.) The market is NOT growing fast. d.) The costs of exiting the market are less than the costs of continuing to operate.

d.) The costs of exiting the market are less than the costs of continuing to operate. -This is NOT a factor that would cause market competitiveness to be even stronger. -Choices a, b, and c are all reasons that competition becomes an even stronger force that impacts the firm's profitability. Other reasons would include: -The market is NOT growing fast. -There are several equal-sized firms in the market. -Customers do NOT have strong brand preferences. -The costs of exiting the market exceed the costs of continuing to operate. -Some firms profit from making certain moves to increase market share. -The various firms in the market use different types of strategic plans.

*A city ordinance that freezes rent prices may cause: a.) The quantity supplied of rental space exceeds the quantity demanded. b.) The demand curve for rental space to fall. c.) The supply curve for rental space to rise. d.) The quantity demanded of rental space exceeds the quantity supplied.

d.) The quantity demanded of rental space exceeds the quantity supplied. -A city ordinance that freezes rent prices (such as rent control and rent stabilization in NYC) may cause the quantity demanded for rental space to exceed the quantity supplied. This occurs if the rent controlled price is set below the market clearing price. At the controlled price, the quantity supplied will be constrained due to the low rent prices for the rent controlled and rent stabilized properties; builders will NOT want to build and rent properties for less than they are worth on the open market. The quantity demanded for the rental space will still be artificially high due to the city ordinance, which sets the controlled price below the market price. Thus, the quantity demanded will exceed the quantity supplied. NYC rent control is a perfect example of the effect of a price ceiling and the problems that it can cause. -A city ordinance that freezes rent prices will NOT cause the demand and supply curves for rental space to rise and fall. Price changes causes movements, NOT shifts, along the demand and supply curves (choices b and c).

*Long Lake Golf Course has raised green fees for a nine-hold game due to an increase in demand. Average Average Games Games Played at Played Previous New Previous at New Rate Rate Rate Rate Regular weekday $10 $11 80 70 Senior citizen $6 $8 150 82 Weekend $15 $20 221 223 Which of the following is correct? a.) The senior citizen and weekend demand is inelastic. b.) The regular weekday and weekend demand is elastic. c.) The regular weekday and weekend demand is inelastic. d.) The senior citizen demand is elastic and weekend demand is inelastic.

d.) The senior citizen demand is elastic and weekend demand is inelastic. -If demand is elastic, a decline in price will result in an increase in total revenue or an increase in price will result in a decline in total revenue. If demand is inelastic, a decline in price will result in a decline in total revenue or an increase in price will result in an increase in total revenue. -Total revenue = the new or previous rate x the average games played. -TR for the regular weekday previous rate = $10 x 80 = $800. -TR for the senior citizen previous rate = $6 x 150 = $900. -TR for the weekend previous rate = $15 x 221 = $3,315. -TR for the regular weekday new rate = $11 x 70 = $770. -TR for the senior citizen new rate = $8 x 82 = $656. -TR for the weekend new rate = $20 x 223 = $4,460. -Demand for the regular weekday and senior citizen are elastic because the increase in price results in a decline in total revenue. The demand for the weekend is inelastic because the increase in price results in an increase in total revenue. -Note: If the total revenue remains constant after a change in price, the demand is unit elastic.

*Which of the following describes the primary purpose of a disaster recovery plan? a.) To document how data will be backed up to expedite recovery. b.) To document the location of off-site replacement facilities. c.) To test how well prepared the company is to recover data. d.) To specify the steps required to resume operations.

d.) To specify the steps required to resume operations. -A company must have plans in place to restore and continue operations in the event that programs and/or files are destroyed. This is the most important function of a disaster recovery plan. -The other options are steps outlined in the disaster recovery plan and are key components, but are NOT the primary purpose (choices a, b, and c).

*Which of the following represents an organizational commitment to customer-focused performance that emphasizes both quality and continuous improvement? a.) Activity-based costing (ABC). b.) Just-in-time (JIT). c.) Lean management. d.) Total Quality Management (TQM).

d.) Total Quality Management (TQM). -Activity-based costing (ABC) focuses on the cost of activities and seeks to only invest resources in value added activity (choice a). -JIT management anticipates achievement of efficiency by scheduling the deployment of resources just-in-time to meet customer or production requirements (choice b). -Lean manufacturing or lean production emphasizes the use of only those resources required to meet the requirements of customers. It is somewhat like activity-based approaches, as it seeks to invest resources only in value added activities (choice c).

*The transfer price is set by a parent or subsidiary for goods or services most likely can be used by multinational companies to: a.) Transfer funds from a subsidiary located in a strong-currency country to a subsidiary located in a country with depreciating currency. b.) Transfer as much of the cost as allowable to the country with the lowest overall tax burden. c.) Change the financial statements of the individual subsidiaries. d.) Transfer as much of the cost as allowable to the country with the highest overall tax burden.

d.) Transfer as much of the cost as allowable to the country with the highest overall tax burden. -Transfer pricing involves setting prices for a product or service when exchanges occur between different units within the same organization. One of the goals of transfer pricing is to minimize the amount of taxes paid by the overall organization. Shifting more costs to the country with the highest tax burden reduce profitability for the entity in that country, which in turn will reduce taxes owed. Higher profitability in the country with the lower tax burden will minimize the overall taxes paid for the entity. Transfer prices must be set in compliance with applicable tax regulations. -Transfer prices are NOT set with the goal of transferring funds from a subsidiary with a strong currency to a subsidiary with a depreciating currency (choice a). -More costs should be shifted to the country with the highest (NOT lowest) tax burden (choice b). -Transfer prices are NOT set with the goal of changing the financial statements of the individual subsidiaries (choice c).

*When estimating cash flow for use in capital budgeting, depreciation is: a.) Included as a cash or other cost. b.) Excluded for all purposes in the computation. c.) Utilized to estimate the salvage value of an investment. d.) Utilized in determining the tax costs or benefit.

d.) Utilized in determining the tax costs or benefit. -Asset value is determined based on the present value of its future after tax cash flows. After tax cash flows are the most relevant to cash flow decisions and consider the tax impact of depreciation deductions. -Depreciation is a noncash expense and is NOT included in cash or other costs. Depreciation is relevant from the standpoint of the cash flows it generates through its tax shielding effect (choice a). -Its value in reducing taxes and impacting cash flows is included, NOT excluded, from capital budgeting decisions (choice b). -Depreciation is NOT a component in estimating the salvage value (choice c).

*Compliance with the enhanced financial disclosures associated with issuer reports includes all the following details EXCEPT: a.) Management's assessment of the effectiveness of internal control. b.) Disclosure of the existence of an expert on the audit committee or why one does NOT exist. c.) Disclosure of transactions with principal shareholders. d.) Verification of adoption of a code of ethics covering all employees.

d.) Verification of adoption of a code of ethics covering all employees. -Issuers do NOT need to do this, issuers must disclose whether the issuer has adopted a code of conduct for senior officers. If NO code of conduct has been adopted, the issuer must disclose the reasons. -Each annual report of an issuer must include a statement of management's assessment of internal control (choice a). -At least one member of the audit committee should be a financial expert. Financial reports of the issuer must disclose the existence of a financial expert on the committee or the reason why they do NOT have a member who is a financial expert (choice b). -Issuers must disclose transactions involving management and principal shareholders (choice c).