Finance Exam
Which of the following is NOT considered to be an area of particular concern for the treasury area? a. Berlin Wall violations b. Segregation of duties failures c. Insider trading d. Manipulation of earnings
a. Berlin Wall violations
The functional area of a company whose primary objectives is to use the firm's liquidity as effectively as possible is known as: a. Cash Management b. Payables Management c. Receivables Management d. Investment Management
a. Cash Management
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
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? a. Fair value hedge b. Cash flow hedge c. Interest rate hedge d. Derivatives that do not qualify as hedge instruments
a. Fair value hedge
Which of the following shows would be acceptable to list at the top of an income statements, and why? a. For the Year Ended 20XX; it is measured over a span of time b. For the Year Ended 20XX; it is measured at a point in time c. As of Janaury 31, 20XX; it is measured over a span of time d. As of January 31, 20XX; it is measured at a point in time
a. For the Year Ended 20XX; it is measure over a span of time
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
Which of the following BEST expresses the primary objective of managers of a publicly held United States corporation? a. Maximizing the value of common stock over the long term b. Maximizing the value of common stock over the short term c. Maximizing revenues over the short term d. Maximizing revenues over the long term
a. Maximizing the value of common stock over the long term
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
Which of the following items would be classified as a source of cash on a company's statement of cash flows? Select all that apply. a. Increase in accounts payable b. depreciation expense c. increase in inventory d. increase in accounts receivable
a. increase in accounts payable b. depreciation expense
The role of the controller in a large corporation includes a. internal accounting b. liquidity management c. insurance d. bank relationship management
a. internal accounting
All of the following are true of the free cash flow analysis EXCEPT a. it must be a positive amount for it to be interpreted positively by investors b. it includes adjustments for the difference between the change in total current assets and total current liabilities c. it can also be calculated using the operating cash flow figure from the statement of cash flow less capital expenditures d. it is considered a better representation of the value of the firm to shareholders than operating cash flow
a. it must be a positive amount for it to be interpreted positively by investors
US Governmental and not-for-profit (G/NFP) organizations a. must generally be audited on a regular basis but may not be subject to SOX requirements b. are tax-exempt and therefore have no IRS reporting requirements c. exclusively follow standards set by the Financial Accounting Standards Board (FASB) d. typically report on their balance sheets using the terms assets, liabilities, and equity
a. must generally be audited on a regular basis but may not be subject to SOX requirements
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%
The examination and comparison of core activities within an industry/function area or across industries/functional areas is: a. Reengineering b. Benchmarking c. Outsourcing d. Offshoring
b. Benchmarking
Which of the following roles would be responsible for preserving and collecting accounts receivable? a. Assistant treasurer b. Credit manager c. Cash manager d. Accounts payable manager
b. Credit manager
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
Which of the following is true of the major differences between GAAP and IFRS? a. GAAP can evaluate PP&E to reflect fair values; IFRS values PP&E at historical cost b. GAAP allows LIFO, while IFRS prohibits LIFO c. GAAP permits intangible assets to be written up if an active market exists; IFRS does not allow intangible assets to be written up d. GAAP allows R&D expenses to be capitalized; IFRS must expense R&D as incurred
b. GAAP allows LIFO, while IFRS prohibits LIFO
Pace 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. I. Plant building II. Patent rights III. Cash IV. Inventory a. I, II, IV, III b. III, IV, I, II c. IV, I, II, III d. III, II, I, IV
b. III, IV, I, II
Which of the following does the head office usually do when managing a decentralized treasury control structure? a. Performs all daily treasury functions b. Makes periodic audit visits to local offices c. Requires local subsidiary managers to set treasury structure policies d. Manages local bank relationships
b. Makes periodic audit visits to local offices
The controller is primarily responsible for all the following tasks EXCEPT: a. Coordinating with external auditors b. Managing overall financial risk c. Preparing budgets d. Accounts payable oversight
b. Managing overall financial risk
Which is the following is considered to be an example of internal collaboration? a. Financial Markets b. Purchasing c. Rating agencies d. Legal counsel
b. Purchasing
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? a. Report gains as comprehensive income b. Report gains as current period income c. Do not report these unrealized holding gains d. Report gains and offsetting hedge item gains/losses as income
b. Report gains as current period income
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.
Which of the following Accounting Standards Codification Topics covers US accounting for translating a company's foreign financial statements into their home currency? a. Topic 320 b. Topic 830 c. Topic 820 d. Topic 815
b. Topic 830
The independent auditor performs all of the following tasks in a financial statement audit EXCEPT a. checking that all accounting methods used to create the statements conform to GAAP or IFRS b. issuing an opinion as to the ongoing viability of the company c. examining the strengths of the organization's internal control procedures d. ensuring that all information material to assessing the company's financial position is included in the statements and disclosures
b. issuing an opinion as to the ongoing viability of the company
In a large organization, the board of directors can grant authority to treasury senior management to do all of the following EXCEPT: a. issue debt and equity securities b. make dividend payment decisions c. devise and execute risk management strategies d. oversee investments
b. make dividend payment decisions
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 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? a. Accrual-based assets, liabilities, and owner's equity b. Modified cash basis income c. Accrual-based income d. Modified cash basis assets, liabilities, and owner's equity
c. Accrual-based income
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
Which of the following corporate officers is personally responsible for the accuracy of financial statement as a result of Sarbanes-Oxley legislation? a. Controller b. External Auditor c. Chief Financial Officer d. Treasurer
c. Chief Financial Officer
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? a. Total liabilities to total assets b. Long-term debt to capital c. Debt to tangible net worth d. Times interest earned
c. Debt to tangible net worth
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
In the U.S., which of the following is NOT considered to be a key party impacting corporate governance? a. The Securities and Exchange Commission b. The New York Stock Exchange c. Investor Relations d. States' Attorney General Offices
c. Investor Relations
Who would a treasury professional ask to receive an advance copy of the organization's annual report? a. Internal auditor b. Controller c. Investor relations manager d. Risk manager
c. Investor relations manager
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)? a. Net profit margin of 2.1% b. Cash conversion efficiency of 34% c. Net profit margin of 6.7% d. Cash conversion efficiency of 45%
c. Net profit margin of 6.7%
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
When a company sets up a consolidated operation that supports standard finance processes and controls treasury functions that is called (a): a. Outsourcing b. Systems Design c. Shared Service Center d. Internal Auditor
c. Shared Service Center
Ina accrual accounting, which of the following occurs when cash is collected from the customer to pay off a credit account balance? a. The cash balance decreases without any impact on income b. The cash balance decreases, lowering income c. The cash balance increases without any impact on income d. The cash balance increases, raising income
c. The cash balance increases without any impact on income
Which of the following are reasons for deploying a shared service center (SSC)? Select all that apply. a. Allows regional processes to be autonomous and specialized. b. Allows higher quality and lower cost but less timeliness or flexibility. c. The resulting SCC becomes an internal service provider similar to an external vendor. d. The resulting SCC reduces costs by creating multiple regional operations.
c. The resulting SCC becomes an internal service provider similar to an external vendor.
All of the following are advantages of a centralized treasury EXCEPT a. control over operations b. lower operating costs c. subsidiary autonomy d. economies of scale
c. subsidiary autonomy
The SEC's Release 1 (FRR-1) officially recognizes accounting standards issued by a. the IASB because the SEC's philosophy is that the private sector retains the initiative for establishing and improving accounting standards b. the FASB because the SEC's philosophy is that the public sector retains the initiative for establishing and improving accounting standards. c. the FASB because the SEC's philosophy is that the private sector retains the initiative for establishing and improving accounting standards. d. the IASB because the SEC's philosophy is that the public sector retains the initiative for establishing and improving accounting standards
c. the FASB because the SEC's philosophy is that the private sector retains the initiative for establishing and improving accounting standards
All of the following are advantages of using traditional financial ratios for analysis EXCEPT that they a. allow comparisons to be made between like companies b. can easily be computed from the information found in publicly available financial reports c. usually reflect accounting rather than economic values d. are widely used by many different types of financial analysts
c. usually reflect accounting rather than economic values
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%
Why must individuals responsible for funds management interact daily with accounts payable and accounts receivable? a. Because they directly impact cash management and report to managers outside treasury. b. Because they indirectly impact cash management and report to managers outside treasury. c. Because they indirectly impact cash management and report directly to treasury. d. Because they directly impact cash management and report to managers outside treasury.
d. Because they directly impact cash management and report to managers outside treasury.
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
Which of the following would normally fall under the purview of the controller? a. Collection/concentration b. Borrowing c. Foreign exchange (FX) risk management d. Financial reporting
d. Financial reporting
Which is an expected result of proper long-term management? a. The organization is able to invest in every good opportunity that arises. b. Cash is available to pay vendors, utilities, and employees without undue delays. c. Cash is safeguarded in secure locations within the organization. d. Funds and information are available to sustain senior management's initiatives.
d. Funds and information are available to sustain senior management's initiatives.
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? I. Increase in an asset II. Increase in depreciation III. Decrease in an asset IV. Decrease in a liability a. II and III are uses of funds; I and IV are sources of funds b. I, II, and IV are uses of funds; III is a source of funds c. III is a use of funds; I, II, and IV are sources of funds d. I and IV are uses of funds; II and III are sources or funds
d. I and IV are uses of funds; II and III are sources of funds
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? a. Internal auditor b. Board of directors c. Risk manager d. Management of the company
d. Management of the company
Which of the following may be assigned to negotiate all insurance policies or perform business continuity planning? a. Credit manager b. Internal auditor c. Operations manager d. Risk manger
d. Risk manager
Lenders, creditors, and investors are usually the MOST concerned with which of the following financial statements? a. Balance sheet b. Income statement c. Statement of retained earnings d. Statement of cash flows
d. Statement of cash flows
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
In which of the following situations would it be inappropriate for an auditor to issue an unqualified opinion with an explanatory paragraph? a. When some information immaterial to GAAS or GAAP requires special emphasis b. When there has been a change in who performs the audit c. When the auditor questions the business' ability to continue d. When the audit was conducted by an internal auditor
d. When the audit was conducted by an internal auditor
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 a. current method is used to translate all assets and liabilities at the current spot rate at the date of translation b. temporal (historical) method is used to translate all assets and liabilities at the current spot rate at the date of translation c. current method is used to re-measure nonmonetary balance sheet accounts and related income statement accounts using historical exchange rates d. temporal (historical) method is used to re-measure nonmonetary balance sheet accounts and related income statement accounts using historical exchange rates
d. temporal (historical) method is used to re-measure nonmonetary balance sheet accounts and related income statement accounts using historical exchange rates
