FIN Take 2

A company is planning on introducing a new product that has a selling price of $25 and a variable cost percentage of 40%. The company wants to be able break even at $25,000 in sales. What is the maximum level of fixed costs the company can have and still meet this goal?

$15,000

Given the information on the project below, what would be the maximum amount a company would be willing to invest, but still have a profitability index of 1.5 or greater on the project? Assume an interest rate of 12.25%.

$15,284

All of the following are drawbacks to using ROI as a performance measure EXCEPT

Although ROI uses discounted cash flows, it cannot measure to what extent profits exceed the cost of capital.

Assume a company uses a risk-adjusted discount rate model with a +/- 3% adjustment for high/low risk projects. Assume they also use a +/- 2% adjustment for high/low risk divisions within the company. If the company's base WACC is 12%, what would be the RADR for a high risk project in a low risk division?

13%

A company has long-term debt of $4.5 million, equity of $8.5 million, a WACC of 12% and a marginal tax rate of 30%. Given this information, what level of EBIT must they have in order to have an EVA of $1 million?

3,657,143

Assume a company is forecasting an increase in sales of 10%, What must the operating leverage be for the company's operating profit to increase by 33% over the same period?

3.30

Profit Center

A treasury operation set up found in companies heavily involves in global finance, trade, or risk management, or for those companies who are financial service providers

Which of the following is more useful to external decision makers than other methods because it provides a better basis for assessing historical activity and possibly for making predictions about a company's future earnings and cash flows?

Accrual-based income

Why must individuals responsible for funds management interact daily with accounts payable and accounts receivable?

Because they directly impact cash management and report to managers outside treasury.

The examination and comparison of core activities within an industry/function area or across industries/functional areas is:

Benchmarking

Which of the following is NOT considered to be an area of particular concern for the treasury area?

Berlin Wall violations

Which of the following is true in regards to budgets?

Budgets may require treasury professionals to change how they handle short-term assets.

The functional area of a company whose primary objective is to use the firm's liquidity as effectively as possible is known as:

Cash Management

Which of the following items are considered to be Current Assets on a GAAP balance sheet?

Cash, Marketable Securities, Accounts Receivable

Which of the following corporate officers is personally responsible for the accuracy of financial statements as a result of Sarbanes-Oxley legislation?

Chief Financial Officer

Which of the following is always true if Company A has a higher net profit margin than Company B?

Company A generates more net income relative to its revenues than Company B.

Which of the following roles would be responsible for preserving and collecting accounts receivable?

Credit Manager

In acquiring DEF Company, ABC Company acquired a significant amount of goodwill. Their creditors believe that this goodwill and other nonphysical, nonfinancial assets could distort the company's true level of indebtedness. Which of the following ratios should the creditors use to avoid this problem?

Debt to tangible net worth

Which of the following are typical methods is NOT used in evaluating capital budgeting decisions?

Economic value added

The SEC's Release 1 (FRR-1) officially recognizes accounting standards issued by

FASB because the SEC's philosophy is that the private sector retains the initiative for establishing and improving accounting standards.

Which of the following is considered to be an advantage of ratio analysis?

Facilitate comparison between companies

For which of the following does ASC Topic 815 require that gains and losses of a revaluation be recognized as income together with the offsetting gains and losses of the asset or liability on the balance sheet that is being hedged?

Fair value hedge

A company uses long-term bonds to invest heavily in new equipment to reduce its safety risk exposure. While revenues are unaffected by the change, the new equipment increases cash flow from operations. Which of the following ratios would likely be reduced due to this investment?

Fixed asset turnover

Which of the following shows what would be acceptable to list at the top of an income statement, and why?

For the Year Ended 20XX; it is measured over a span of time

Which is an expected result of proper long-term treasury management?

Funds and information are available to sustain senior management's initiatives.

Which of the following is true of the major differences between US Generally Accepted Accounting Principles (GAAP) and International Financial Accounting Standards (IFRS)?

GAAP allows LIFO, while IFRS prohibits LIFO

Which of the following causes a company to become leveraged?

Having high fixed costs

Place the following budgets in the order in which they must be created, from first to last.

II. Sales budget III. Operating budget IV. Capital budget I. Financial budget

Place the following items in the order in which they would be listed on the balance sheet, starting with the first item that would be listed.

III. Cash IV. Inventory I. Plant building II. Patent rights

All of the following would be considered a use of funds, EXCEPT:

Increase in accounts payable

Which of the following items would be classified as a source of cash on a company's statement of cash flows?

Increase in accounts payable Depreciation expense

Assets that lack physical substance and where there is a high degree of uncertainty concerning their future value as known as:

Intangible Assets

The role of the controller in a large corporation includes

Internal accounting.

In the U.S., which of the following is NOT considered to be a key party impacting corporate governance?

Investor Relations

Who would a treasury professional ask to receive an advance copy of the organization's annual report?

Investor relations manager

The independent auditor performs all of the following tasks in a financial statement audit EXCEPT

Issuing an opinion as to the ongoing viability of the company.

All of the following are true of the free cash flow (FCF) analysis EXCEPT

It must be a positive amount for it to be interpreted positively by investors.

The set of ratios that measures the ability of a firm to meet its payment obligations and effective use of cash are known as:

Liquidity Ratio

In a large organization, the board of directors can grant authority to treasury senior management to do all of the following EXCEPT

Make dividend payment decisions

Which of the following does the head office usually do when managing a decentralized treasury control structure?

Make periodic audit visits to local clients

In terms of corporate governance, who assumes the role of trustee or fiduciary for stakeholders including shareholders, donors to not-for-profits, customers, employees, and even society in general?

Management of the company

The controller is primarily responsible for all of the following tasks EXCEPT:

Managing overall financial risk

Which of the following BEST expresses the primary objective of managers of a publicly held United States corporation?

Maximizing the value of common stock over the long term

US Governmental and not-for-profit (G/NFP) organizations

Must generally be audited on a regular basis but may not be subject to SOX requirements.

Which of the following ratios would indicate a company with a higher amount of after-tax profits generated on a given revenue level (relative to the other possible choices)?

Net profit margin of 6.7%

The master budget has two primary components which are:

Operating budget and financial budget

The extent to which a company uses fixed costs of production is generally referred to as:

Operating leverage

The major objectives of treasury management include all of the following EXCEPT:

Prepare financial Statements

Which of the following are components of credit risk for a debt issue or debt issuer as factored into most debt ratings?

Probability of default Loss given default

Which project should be funded according to the following capital projects analysis graph?

Project A

If a company uses its weighted average cost of capital (WACC) as its required return and WACC is 6%, which of the following projects would be acceptable: Project A with an IRR of 7.6% or Project B with an IRR of 5.6%? Which of the following gives the correct reason why the project is acceptable?

Project A. IRR is the discount rate at which NPV equals zero; therefore, a higher IRR indicates a higher expected profit expressed as an annual rate.

Which of the following is considered to be an example of internal collaboration?

Purchasing

Which of the following actions should NOT be taken to mitigate counterparty risk?

Reduce the number of counterparties to increase diversification

A corporation purchases oil futures. The company does not hold or purchase oil as an asset. If they had holding gains during the period from these futures, which of the following is the correct reporting method?

Report gains as current period income

Which of the following may be assigned to negotiate all insurance policies or perform business continuity planning?

Risk Manager

Cash Management

Role primarily responsible for the day to day management of corporate liquidity to ensure that there are sufficient cash assets available to make required payment in a timely fashion

When a company sets up a consolidated operation that supports standard finance processes and controls treasury functions this is called (a):

Shared Service Center

Lenders, creditors and investors are usually the MOST concerned with which of the following financial statements?

Statement of Cash Flows

A subsidiary of a US company based in China keeps its books in the Chinese Yuan and does the majority of its business in the Chinese Yuan. If the home currency is the US dollar, according to Topic 830: Foreign Currency Matters, the

Temporal (historical) method is used to re-measure nonmonetary balance sheet accounts and related income statement accounts using historical exchange rates

The GAAP principle which requires that expenses must be reported when the revenues with which they are associated are recognized is known as:

The Matching Principle

In accrual accounting, which of the following occurs when cash is collected from the customer to pay off a credit account balance?

The cash balance increases without any impact on income

Cost Center

The most common treasury operations set up because the treasury is usually regarded as a support function to the organization

Which of the following are reasons for deploying a shared service center (SCC)?

The resulting SCC becomes an internal service provider similar to an external vendor.

Treasury Management

The role that includes financial risk management and long-term borrowing and invest management

Corporate Finance

The role that includes general corporate overview of all financial matters

Corporate Governance

The role that includes genral authority for all operations

Which of the following statements concerning time value of money is FALSE?

Time value means that a dollar received today is worth less than a dollar received in the future.

A creditor of an organization wants to determine if the organization is likely to be able to continue its payments on its outstanding debts. Which of the following ratios would be the BEST choice to make this determination?

Times interest earned

Which of the following Accounting Standards Codification (ASC) Topics covers US accounting for translating a company's foreign financial statements into their home currency?

Topic 830

All of the following are considered to be liquidity ratios, EXCEPT:

Total asset turnover

When calculating the sources and uses of funds on the statement of cash flows, how would the following changes between the prior and current period's balance sheet accounts be interpreted on the statement of cash flows?

Uses of Funds- I: Increase in an asset IV: Decrease in a liability Sources of Funds- II: Increase in depreciation III: Decrease in an asset

In which of the following situations would it be inappropriate for an auditor to issue an unqualified opinion with explanatory paragraph?

When the audit was conducted by an internal auditor

A company is anticipating an operating profit (EBIT) of $10,000 in the coming year, as well as lease expenses of $2,500. What is the maximum level of interest expense in can have and still have a fixed charge coverage ratio of 4 times or better? a. $625 b. $1,750 c. $2,500 d. $3,625

a. $625

Assets that lack physical substance and where there is a high degree of uncertainty concerning their future value as known as: a. Intangible assets b. Current assets c. Fixed assets d. Impaired assets

a. Intangible assets

The set of ratios that measures the ability of a firm to meet its payment obligations and effective use of cash are known as" a. Liquidity Ratios b. Debt Management Ratios c. Efficiency Ratios d. Performance Ratios

a. Liquidity Ratios

The extent to which a company uses fixed costs of production is generally referred to as: a. Operating leverage b. Financial leverage c. Gearing leverage d. Total leverage

a. Operating leverage

Which of the following actions should NOT be taken to mitigate counterparty risk? a. Reduce the number of counterparties to increase diversification b. Eliminate specific counterparties when deemed risky c. Rebalance liquidity allocations among counterparties d. Adopt a third-party custodians for investments

a. Reduce the number of counterparties to increase diversification

A company is planning on introducing a new product that has a selling price of $25 and a variable cost percentage of 40%. The company wants to be able to break even at $25,000 in sales. What is the maximum level of fixed cost the company can have and still meet this goal? a. $10,000 b. $15,000 c. $20,000 d. $25,000

b. $15,000

Given the information on the project below, what would be the maximum amount a company would be willing to invest, but still have a profitability index of 1.5 or greater on the project? Assume an interest rate for 12.25%. a. $15,000 b. $15,284 c. $17,895 d. $22,925

b. $15,284

A company has long-term debt of $4.5 million, equity of $8.5 million, a WACC of 12% and a marginal tax rate of 30%. Given the information, what level of EBIT must they have in order to have an EVA of $1 million? a. $3,285,714 b. $3,657,143 c. $3,538,462 d. $3,938,462

b. $3,657,143

A company has a restrictive covenant that requires it maintain a quick ratio and 1.2 or greater. What is the maximum amount of current liabilities the company can carry and still meet this restriction, given the information below: Cash=$100, ST Investments=$300, Accounts Receivable=$500, Inventory=$300 a. $300 b. $750 c. $500 d.$1,000

b. $750

A company has $75,000 in total debt, $300,000 in total equity, and $50,000 in intangible assets. What is the company's debt to tangible net worth ratio? a. 8.33% b. 30.00% c. 25.00% d. 21.43%

b. 30.00%

Which of the following are typical methods is NOT used in evaluating capital budgeting decisions? a. Payback period b. Economic value added c. Profitability index d. Internal rate of return

b. Economic value added

The GAAP principle which requires that expenses must be reported when the revenues with which they are associated are recognized is known as: a. The full-disclosure principle b. The matching principle c. The revenue-recognition principle d. The historical-cost principle

b. The matching principle

Which of the following statements concerning time value of money is FALSE? a. Most financial decisions involve a trade-off between present and future cash flows. b. Time value means that a dollar received today is worth less than a dollar received in the future. c. The calculation of future value generally requires compounding. d. Present value is used in business contexts where an investment is made today in return for cash flows in the future.

b. Time value means that a dollar received today is worth less than a dollar received in the future.

A company has a beta of 1.35, a debt to equity ratio of 0.25, an YTM on their bonds of 10% and a marginal tax rate of 35%. If the rate on 10-yr T-notes is 4% and the return on the S&P 500 is 12%, what is the WACC for this company? a. 14.80% b. 12.73% c. 13.14% d. 17.46%

c. 13.14%

Assume a company is forecasting an increase in sales in 10%. What must the operating leverage be for the company's operating profit to increase by 33% over the same period? a. 1.65 b. 2.40 c. 3.30 d. 6.60

c. 3.30

Which of the following items are considered to be Current Assets on a GAAP balance sheet? a. Marketable Securities and Bonds b. Land c. Cash, Marketable Securities, Accounts Receivable d. Property, Plant, and Equipment

c. Cash, Marketable Securities, Accounts Receivable

All of the following would be considered a use of funds, EXCEPT: a. Increase in cash b. Decrease in notes payable c. Increase in accounts payable d. Increase in marketable securities

c. Increase in accounts payable

The master budget has two primary components which are: a. Income statement and balance sheet b. Sales and production c. Operating budget and financial budget d. Capital budget and capital investments

c. Operating budget and financial budget

The major objectives of treasury management include all of the following EXCEPT: a. Maintain liquidity b. Manage risk c. Prepare financial statements d. Coordinate financial functions

c. Prepare financial statements

Assume a company uses a risk-adjusted discount model with a +/- 3% adjustment for high/low risk projects. Assume they also use a +/- 2% adjustment for high/low risk divisions within the company. If the company's base WACC is 12%, what would be the RADR for a high risk project in a low risk division? a. 12% b. 15% c. 14% d. 13%

d. 13%

Which of the following is considered to be an advantage of ratio analysis? a. Assess historical performance at fixed points in time b. Provide a good reflection of economic value c. Can be used in isolation d. Facilitate comparison between companies

d. Facilitate comparison between companies

All of the following are considered to be liquidity ratios, EXCEPT: a. Current ratio b. Quick ratio c. Cash flow to total debt ratio d. Total asset turnover

d. Total asset turnover

Which of the following would normally fall under the purview of the controller?

financial reporting

All of the following are advantages of a centralized treasury EXCEPT

subsidiary autonomy

All of the following are advantages of using traditional financial ratios for analysis EXCEPT that they

usually reflect accounting rather than economic values.