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Mock exam number 6 - part 5 of 6

Question 73 of 120.


A company reports its asset turnover ratio as 2.5 on the basis of the LIFO method of inventory valuation. The analyst is interested in comparing the company's performance to a peer company which reports its results on the basis of the FIFO method. Upon conversion to the FIFO method, which of the following asset turnover ratios is NOT likely to result from the analyst's restatement, if prices are rising?
A. 2.1
B. 2.3
C. 2.6
D. 2.5

Question 74 of 120.

An eight-year zero coupon bond issue with a face value of 30,000,000 brings in 17,460,273 to the company. Which of the following statements related to bond financing is TRUE for the first year?
A. CFF of 17,460,273; CFO of 0; interest expense of 0.
B. CFF of 30,000,000; CFO of 0; interest expense of 0.
C. CFF of 18,682,492; CFO of -1,222,219; interest expense of 1,222,219.
D. CFF of 30,000,000; CFO of -1,222,219; interest expense of 1,222,219.

Question 75 of 120.

Which of the following statements regarding the disclosure of simple capital structures is INCORRECT?
A. All prior period EPS should be restated for stock dividends and splits.
B. Cumulative effect of accounting principle change should be presented in the income statement or the footnotes.
C. EPS for only the latest year should be presented.
D. if one prior period results are adjusted, all prior periods must be adjusted.

Question 76 of 120.

The two basic strategies used by managements to manipulate earnings are:
A. inflate revenues and deflate cash outflows.
B. inflate or deflate revenues and costs.
C. inflate cash inflows and deflate cash outflows.
D. inflate assets and deflate liabilities.

Question 77 of 120.

Which of the following statements regarding accounting shenanigans is CORRECT?

I. They do not produce links between income statements and balance sheets as they are hidden within earnings only.
II. They do not have intertemporal links.
III. Future expense may be shifted to current period as a special chargeoff to reduce current period income and inflate future period income.
IV. Manipulations by deferrals and chargeoffs cancel out in the same year across different accounts and hard to detect.

A. I and III.
B. III and IV.
C. II only.
D. III only.

Question 78 of 120.

Which of the following statements concerning impairment of assets is INCORRECT?
A. An asset is said to be impaired if the sum its future expected cash flows is less than its carrying value.
B. Writedown of an impaired asset equals its carrying cost less fair value.
C. Present value of future cash flows is computed at the company's cost of capital for purposes of impairment.
D. In the absence of availability of a fair value estimate, present value of future discounted cash flows may be used.

Question 79 of 120.

The ________ margin is generally about seventy-five percent of the amount of the ________ margin.
A. variation; initial.
B. maintenance; initial.
C. initial; daily settlement.
D. initial; maintenance.

Question 80 of 120.

Ameriscam, Inc. is considering the issuance of some junior subordinated debt. The Company's combined state/federal corporate tax rate is 30%, and the coupon on its outstanding senior debt is 7.55%. The proposed debt would pay an annual coupon. Very recently, Ameriscam has met with a corporate finance firm, who advised the Company that the pre-tax cost of a debt issuance would be 7.70%; Ameriscam's finance division mirrored these findings. A month earlier, a study in a popular financial magazine found that shareholder's require a 7.95% rate of return on similar investments.

Which of the following represents the best answer for Ameriscam's estimated after-tax cost of debt for this proposed debt issuance?

A. 5.39%
B. 5.425%
C. 5.285%
D. 5.565%

Question 81 of 120.

Which of the following would have an influence on the optimal dividend policy?

I. The costs associated with selling new common stock.
II. Bond indenture constraints.
III. A strong shareholders' preference for current income versus capital gains.
IV. The possibility of accelerating or delaying investment projects.

A. I, II and III.
B. II, III and IV.
C. I, III and IV.
D. I, II, III and IV.

Question 82 of 120.

What is a continuous market?
A. A market that never closes
B. A market priced by auction
C. A market in which trades occur at any time that the market is open
D. A market priced by dealers

Question 83 of 120.

A short sale is possible and desirable when you expect a stock's price to ______. The transaction price must be on a(n) ______.
A. rise, uptick
B. fall, uptick
C. fall, downtick
D. rise, downtick

Question 84 of 120.

Which of the following is not important in the absence of superior analysts?
A. minimizing transaction costs
B. determining and quantifying risk preferences
C. lending or borrowing risk-free assets
D. rebalancing to maintain the specified risk level

Question 85 of 120.

The NAV per share of an investment company equals the ______ of all its assets ______ the number of fund shares outstanding.
A. total market value; multiplied by
B. total market value; divided by
C. the per-share value; divided by
D. the per-share value; multiplied by

Question 86 of 120.

Open-end investment companies
A. do not typically sell shares after their initial public offerings.
B. will repurchase shares at their NAVs.
C. have shares that tend to be priced at a discount to their NAVs.
D. do not typically repurchase shares.

Question 87 of 120.

The Residual Dividend Policy leads to:
A. a highly unstable dividend policy.
B. the firm maintaining a constant absolute amount of dividends.
C. the firm maintaining a steady growth of dividends.
D. the firm paying out a constant fraction of earnings as dividends.

Question 88 of 120.

A disproportionate bidding up of short-term U.S. Treasury issues, combined with an increase in the supply of long-term U.S. Treasury issues, holding everything else equal, will likely have which of the following consequences.
A. An inverted yield curve will steepen.
B. A flat yield curve will become inverted.
C. An upward sloping yield curve will flatten.
D. An inverted yield curve will flatten or even become upward sloping.

Question 89 of 120.

Your company's stock sells for $50 per share, its last dividend was $2.00, its growth rate is a constant 5 percent, and the company would incur a flotation cost of 15 percent if it sold new common stock. Net income for the coming year is expected to be $500,000, the firm's payout ratio is 60 percent, and its common equity ratio is 30 percent. If the firm has a capital budget of $1,000,000, what component cost of common equity will be built into the WACC for the last dollar of capital the company raises?
A. 12.30%
B. 11.75%
C. 10.50%
D. 9.94%

Question 90 of 120.

Projects A and B both have normal (conventional) cash flows. A's IRR is 7% and B's IRR is 8%. If projects A and B are mutually exclusive, you should select:
A. Project B.
B. Neither A not B.
C. Insufficient information.
D. Project A.