BEC - Session 1

Degree of financial leverage

% change in Net Income / % change in Operating Income

Which of the following assumptions applies to the basic theory underlying the capital asset pricing model?

A single risk-free rate exists.

What is a unique characteristic of cryptocurrency that is not applicable to traditional fiat currencies?

Cryptocurrency is maintained on a blockchain.

Current Ratio

Current Assets / Current Liabilities

Lynn Manufacturing Co. prepares income statements using both standard absorption and standard variable costing methods. For Year 2, unit standard costs were unchanged from Year 1. In Year 2, the only beginning and ending inventories were finished goods of 5,000 units. How would Lynn's ratios using absorption costing compare with those using variable costing?

Current ratio, greater; return on stockholders equity, smaller

What is the discount 2/10, net 30

Customer takes 2% discount is the payment is received within 30 days

Production Requirements =

Ending Inventory + Sales - Beginning Inventory = Required Production

Which of the following does not describe monopolistic competition?

Firms make identical products.

What is the basic underlying concept of the theory of constraints?

Improving any process is best accomplished by focusing on a limiting factor.

Maylar Corporation has sold $50 million of $1,000 par value, 12% coupon bonds. The bonds were sold at a discount and the corporation received $985 per bond. If the corporate tax rate is 40%, the after-tax cost of these bonds for the first year (rounded to the nearest hundredth percent) is:

Interest payment per year ($1,000 x 12%) = $120 Before-tax cost = 120 / 985 = .1218 After-tax cost = .1218 x (1-40%) = 7.31%

Is Net Realizable Value (NRV) a performance measurement?

No

The Jones Company is considering using a lockbox system. The company has gathered the following information: The per-check processing cost will be $0.20. The days saved in the collection process will be 1.2 days. The average size of the check will be $1,000. If funds are freed, they could be invested at a 5% annual rate. On average, 150 checks will be processed per day. Should the Jones Company adopt the lockbox system, and why or why not?

No, since the benefit to the company is $0.17 per check processed

What is the most important component needed to build operational resilience?

Ownership by the COO or CIO

Which of the following is not an area that should be included in an entity's cybersecurity risk assessment?

Physical safeguarding of assets

A corporation manufactures two qualities (brands) of barbed-wire fencing for sale to wholesalers and large ranchers. Which of the following would be the best type of costing system for such a company to use?

Process

Which of the following is not a typical characteristic of a just-in-time (JIT) production environment?

Push-through systems

Which of the following Federal Reserve policies would increase money supply?

Reduce the discount rate

Which of the following terms refers to a performance measurement that is calculated as an investment center's after-tax operating income minus the product of its total assets multiplied by the company's weighted-average cost of capital (WACC)?

Return on Investment

Who is the person ultimately responsible for enterprise risk management within a company?

The chief executive officer

Which of the following responses is not an advantage to a corporation that uses the commercial paper market for short-term financing?

There are no restrictions as to the type of corporation that can enter into this market.

According to COSO, which of the following is a compliance objective?

To maintain a safe level of carbon dioxide emissions during production

Which one of the following transactions would increase the current ratio and decrease net profit?

Vacant land is sold for less than the net book value.

How to calculate Weighted Average Cost of Capital (WACC)

Weight * Cost

Cash discounts are used to incentivize customers to make early payments. Discounts provide all of the following except:

a way to increase orders

The government has a number of policy options designed to stabilize the level of aggregate demand. If policy makers expected a recession, it might be expected that the government would pursue:

an expansionary monetary policy and an expansionary fiscal policy.

Capital Asset Pricing Model (CAPM)

assumes the risk-free rate of return is known and fixed, implying a single rate

just-in-time (JIT) production environment

characterized by production generated by need. This is a "demand-pull" system in which sales occur first and trigger the production of units. Typical features of a JIT system include small lot sizes, low setup times/costs, and balanced workloads.

Profitability Index

considers both the size of the investment and the value of the discounted cash flow. The present value of cash flows not including the initial investment is divided by the initial investment.

How are the hourly wages of part-time technicians who perform tests categorized?

direct labor costs The cost of hourly wages of part-time technicians who perform tests varies directly with production volume, so it is a variable cost. The technicians are producing the product, so it is a direct labor cost.

Employee numbers have all numeric characters. To prevent the input of alphabetic characters, what technique should be used?

field check

Return on investment (ROI)

focuses on the optimal use of invested capital, and is net income divided by invested capital

Cash discounts are designed as an incentive to

get customers to make an early payment; used to attract new customers, provide price reduction for current customers, and reduce average collection period

Projects that earn more than the cost of capital will

increase wealth for the shareholder

A transaction processing system would appropriately include each of the following activities for an online bookseller, except:

monitoring competitor price changes.

Zoo Supply Company borrowed $100,000 from a local bank to purchase equipment. The annual interest rate on the 5-year loan was 10%. Over the 5-year period, Zoo paid $50,000 of interest. This interest was calculated as ________ interest.

simple

simple vs compound interest

simple interest is calculated based on principal compound interest charges interest on principal + interest

With a field check, the computer checks that

the characters entered are the proper type (e.g., alpha or numeric).

Economic Value Added (EVA)

the economic profit of a project, and focuses on the earnings above the required cost of capital for shareholders. EVA is the after-tax profit of operating income less the product of total assets times WACC.

For capital budgeting purposes, management would select a high hurdle rate of return for certain projects because management:

wants to factor risk into its consideration of projects.