Course Final Exam - This quiz

contributes 40% towards your final

grade
40questions

1
point

1.
$1000 expected in two years time with a discount rate of 10% p.a. is worth
what today?
$980
$874
$909
$826

1
point

2.
What is the future value of $1,000 today in 3 years time, assuming a
discount rate of 7% p.a.
$1,378
$4,913
$1,070
$1,225

1
point

3.
$4,000 expected in 3 years at a discount rate of 4% p.a. is worth less than
$3,500 in todays terms.
True
False

1
point

4.
How many years would it take to triple an initial investment with an interest
rate of 14% p.a.
9.8 Years
5.7 Years
8.4 Years
3 Years

1
point

5.
If we could only choose one, which of the following projects should be
selected according to an NPV analysis?
NPV = -4 million
NPV = $8 million
NPV = $4 million
NPV = $0

1
point

6.
Calculate the NPV of a project which has an initial cost of $20,000 and will
provide cash ows of $15,000 for the next 2 years with a discount rate of 6%
p.a.
$7,501
$10,000
$12,254
$5,501

1
point

7.
According to NPV analysis, should the following project be undertaken?
Initial cost of $15,000; cash ows of $7,000 for three years with a 6% p.a.
discount rate
Yes
No
We are indierent (NPV = $0)
We do not have enough information

1
point

8.

Calculate the NPV of a project that has no initial cost ($0) however will

Calculate the NPV of a project that has no initial cost ($0) however will
provide the following cash ows with a discount rate of 5% p.a.
Yr1: $5,000
Yr2: -$7,000
Yr3: $6,000
$4,000
$3,596
$3,879
$4,134

1
point

9.
According to NPV analysis, should the following project be undertaken?
Initial gain of $10,000; negative cash ows of $4,000 for three years with a
6% p.a. discount rate
We do not have enough information
We are indierent (NPV = $0)
No
Yes

1
point

10.
If no positive NPV projects are available, it is correct to say a rm should
invest in the least negative project available.
True
False

False

1
point

11.
Price to book ratio equals:
Market capitalization/Book value of equity
Gross Prot/Assets
Market capitalization/Book value of assets
Gross Prot/Owners Equity

1
point

12.
What is market value also known as?
Acquisition cost
Book value
Historical cost
Fair value

1
point

13.
In what scenario should cash-basis accounting generally not be used?
If sales are on credit
If expenses are paid in cash
If all sales are in cash
If expenses are paid immediately

If expenses are paid immediately

1
point

14.
What is an advantage of accrual accounting?
Income statement may hide cash ow problems
Matches cash received to expenses incurred
Requires monitoring cash ow separately
There are no advantages

1
point

15.
An advantage of cash basis accounting is that is matches clearly the cash
received for goods sold to the expenses incurred in making the goods
True
False

1
point

16.
Most small and young business tend to use historical cost accounting
True
False

1
point

17.

17.
Corporations looking after the interests of shareholders should focus on:
Wealth maximization
Minimizing expenses at all costs
Short term business decisions
Any business operation regardless of whether it is sustainable or
not

1
point

18.
Direct evidence of wealth maximization can most clearly be signaled by
changes in:
The currency market
Market value of debt
The commodity market
Market value of equity

1
point

19.
A rise in market capitalization (without any associated equity raisings) signals
evidence of wealth creation by the rm
False
True

1
point

20.
Who do corporation owners rely mostly on to further their interests?

Who do corporation owners rely mostly on to further their interests?

Competitors
Employees
Governments
Executive management

1
point

21.
Gross margin equals:
Gross prot/Assets
Gross prot/Liabilities
Gross prot/Owners equity
Gross prot/Sales

1
point

22.
Gross margin measures the:
Gross prot of the rm
Firms ability to sell a product for more than the direct cost of
production
Firms ability to sell a product for more than the indirect cost of
production
Gross sales of the rm

1
point

point

23.
Price/Earnings ratio equals:
Share price/Liabilities
Share price/Earnings per share
Share price/Asset
Share price/Earnings

1
point

24.
Are forward-looking Price/Earnings ratios stable?
Sometimes. Only when dividend payout ratios are constant in the
market
No. They are volatile
Only after the GFC
Yes. They are constant

1
point

25.
Protability focuses on:
Return to owners
Return to debt holders
Return to government
Return to suppliers

1
point

26.
High levels of debt can create:
Flexibility to invest in positive NPV projects
Flexibility to pay dividends
Lower distress risk
Higher distress risk

1
point

27.
What do we divide revenues by in order to estimate a rms total asset
turnover?
(average) Total assets
EBIT
Net income
Interest expense

1
point

28.
Inventory turnover equals:
Cost of goods sold/ (average) Inventory
Gross prot/Sales
Sales/Total assets

Current assets/Current liabilities

1
point

29.
What does accounting liquidity measure?
Long term solvency
Short term solvency
Productivity
Eciency

1
point

30.
In the quick ratio fraction, near cash includes:
Pre-paid expenses
Cash
Short-term investments and accounts receivable
Inventory

1
point

31.
Which of the following is a non-current asset?
Accounts receivable
Goodwill
Inventory
Cash

1
point

32.
Which of the following equations represents the calculation of an assets
book value?
Investment purchase price Book value of investment
Investment purchase price Current liabilities
Acquisition cost (Accumulated) Depreciation expense
Current assets Current liabilities

1
point

33.
Which of the following is a current liability?
Pension liabilities
Accounts payable
Long-term debts
Deferred income taxes

1
point

34.
Which of the following is a non- current liability?
Pension liability
Current maturities of long-term debt
Prepaid short-term expenses
Notes payable

Notes payable

1
point

35.
Total liabilities equals:
Non-current liabilities
Current liabilities
Current liabilities + non-current liabilities
Equity - Assets

1
point

36.
Which measures are needed to compute the market value of equity?
Current assets & number of shares
Share price & number of shares
Retained earnings
Retained earnings & number of shares

1
point

37.
Which of the following is a key characteristic of being a shareholder?
Shareholders must receive interest payments
Shareholders own debt in companies and not equity
Shareholders can never sell their shares

Shareholders may sell their shares

1
point

38.
Which of the following is NOT included in the cost of goods sold gure?
Product or raw materials
Direct labor cost
Adjustment or depreciation of goods
Administrative expenses

1
point

39.
Which of the following items would be listed the furthest down a prot &
loss statement?
Cost of goods sold
Income taxes
Operating prot
Interest expenses

1
point

40.
Which of the following does NOT need to be disclosed in the notes to the
prot and loss statement?
Write downs of inventories or property, plant & equipment
Litigation settlements

Sales strategy
Restructurings

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