1.

Cost accounting (job order costing/ process costing) involves the measuring, recording
and reporting of - *
A) Product costs
B) Managerial accounting decisions
C) Period costs
D) Future costs

2. Manufacturing overhead is over allocated if - *

A) Actual overhead is less than allocated
B) Actual overhead equals allocated overhead
C) The indirect overhead cost rate equals the actual indirect cost rate
D) Actual overhead is greater than allocated

3. Arman's Clothing factory produces two different styles of jeans for women. Recently
Arman paid $15,000 to purchase insurance for his factory. What type of cost is this if the
cost object is style-A jeans? *
A) Direct cost
B) Indirect cost
C) Can be direct or indirect
D) Administrative cost

4. D & L Corporation sold 30,000 units and reported sales of $450,000 during the past year.
Their unit contribution margin for the last year was $6.75. What is the company's
contribution margin ratio? *
A) 55%
B) 40%
C) 45%

1/
 D) 60%

5. Under the assumptions of CVP, total cost usually includes: *

A) fixed cost and mixed cost
B) mixed cost only
C) fixed cost and variable cost
D) variable cost and mixed cost

6. The largest electronic screen-based equity securities market in the U.S. is known
as: *
A) Pink Sheets
B) Instinet
C) Amex
D) NASDAQ

7. Loss resulting from foreign exchange fluctuations can be classified on the income
statement as: *
A) Unusual losses
B) Extraordinary losses
C) Discontinued operations
D) None of the above

8. Statement of Retained Earnings generally links the following two financial

statements: *
A) Cash Flow Statement and Income Statement
B) Income Statement and Balance Sheet
C) Cash Flow Statement and Balance sheet
D) None of the above

9. The income statement reveals: *

A) resources and equities of a firm at a point in time
B) resources and equities of a firm for a period of time
C) net earnings (net income) of a firm at a point in time
D) net earnings (net income) of a firm for a period of time

10. Which of the following remains constant under straight line method of depreciation? *
A) cost
B) depreciation expense
C) accumulated depreciation
D) book value

11. Which of the following is adjusted on the statement of retained earnings? *

A) changes in accounting principle like FIFO to LIFO

B) changes in estimate of plant assets
C) all of the above
 D) none of the above

12. The amount of time during which an asset can be converted into cash is referred to as: *

A) solvency
B) financial flexibility
C) liquidity
D) exchangeability

13. Balance sheet information is useful for all of the following except to: *

A) compute working capital

B) analyze cash inflows and outflows for the period
C) evaluate capital structure
D) assess future cash flows

14. The balance sheet is useful for analyzing all of the following except: *
A) profitability
B) liquidity
C) solvency
D) financial flexibility

15. Which of the following would be an operating activity? *

A) provide services on account
B) pay dividend to shareholders
C) purchase company car for salesperson
D) sell a building previously used by the company as a factory

16. Investing activities include the cash effects of: *

A) producing and delivering goods and services

B) purchasing and disposing of fixed assets
C) borrowing and repaying loans used to purchase fixed assets
D) selling stocks and bonds to raise capital to purchase fixed assets

17. Use of common stocks to purchase an asset can be classified as: *

A) financing activities
B) operating activities
C) non-cash activities
D) investing activities

18. Cash flow statement can be prepared with information from the: *

A) Owner’s Equity Statement and Income Statement

B) Statement of Retained Earnings and Balance Sheet
C) Owner’s Equity Statement and Statement of Retained Earnings
 D) Income Statement and Balance Sheet

19. Indirect method of the cash flow statement adjusts net income to net cash flow under: *
A) investing activities
B) financing activities
C) cash activities
D) operating activities

20. Which of the following is usually considered in the statement of retained earnings? *

A) net income and dividends

B) net income and drawings
C) capital stock and net income
D) capital stock and dividends

21. In a two-stock portfolio, if the correlation coefficient between two stocks were to
decrease over time, everything else remaining constant, the portfolio's risk would *
A) Decrease.
B) Remain constant.
C) Increase.
D) Fluctuate positively and negatively.

22. Which of the following portfolios has the least reduction of risk? *

A) A portfolio with securities all having positive correlation with each other
B) A portfolio with securities all having zero correlation with each other
C) A portfolio with securities all having negative correlation with each other
D) A portfolio with securities all having skewed correlation with each other

23. Markowitz's main contribution to portfolio theory is: *

A) that risk is the same for each type of financial asset
B) that risk is a function of credit, liquidity and market factors
C) risk is not quantifiable
D) insight about the relative importance of variance and covariance in determining portfolio risk

24. Which of the following is a problem using the dividend discount model to value
common stock? *
A) The model does not account for the risk of the stock.
B) The model does not consider the present value of the dividends.
C) The model does not consider that dividends may not be paid
D) The model does not account for small dividends.

25. If maintenance margin is not maintained, the broker will place: *

A) a sell order on sufficient securities to ensure the portfolio is compliant with maintenance margin
requirements
 B) a sell order on sufficient securities to ensure the portfolio is compliant with initial
margin requirements
C) contact the investor with a margin put
D) contact the investor with a margin call

26. XYZ Company has expected earnings of $3.00 for next year and usually retains 40
percent for future growth. Its dividends are expected to grow at a rate of 10 percent
indefinitely. If an investor has a required rate of return of 15 percent, what price would he
be willing to pay for XYZ stock? *
A) $12.50
B) $25.00
C) $30.00
D)$36.0

27. A portfolio is considered to be efficient if: *

A) No other portfolio offers higher expected returns with the same risk.
B) No other portfolio offers lower risk with the same expected return.
C) There is no portfolio with a higher return.
D) Choices a and b.

28. A major difference between a closed-end investment company and an open-end

investment company is that: *
A) closed-end investment companies are generally much riskier.
B) their security portfolios are substantially different.
C) closed-end investment companies are passive investments and open-ends are not.
D) closed-end companies have a more fixed capitalization.

29. Beta is a measure of: *

A) Company specific risk

B) Industry risk
C) Diversifiable risk
D) Systematic risk

30. The capital market line (CML) uses ____ as a risk measurement, whereas the capital
asset pricing model (CAPM) uses ____. *
A) Beta; total risk
B) Standard deviation; total risk
C) Standard deviation; systematic risk
D) Unsystematic risk; total risk

31. You want to have $1 million in your savings account when you retire. You plan on
investing a single lump sum today to fund this goal. You are planning on investing in an
account which will pay 7.5 percent annual interest. Which of the following will reduce the
amount that you must deposit today if you are to have your desired $1 million on the day
you retire? I. Invest in a different account paying a higher rate of interest. II. Invest in a
different account paying a lower rate of interest. III. Retire later. IV. Retire sooner. *
 A) I only
B) II only
C) I and III only
D) I and IV only

32. You just acquired a mortgage in the amount of $249,500 at 6.75 percent interest,
compounded monthly. Equal payments are to be made at the end of each month for thirty
years. How much of the first loan payment is interest? (Assume each month is equal to 1/12
of a year.) *
A) $925.20
B) $1,206.16
C)$1,403.4
D) $1,511.21

33. Keyser Mining is considering a project that will require the purchase of $980,000 in new
equipment. The equipment will be depreciated straight-line to a zero book value over the 7-
year life of the project. The equipment can be scraped at the end of the project for 5
percent of its original cost. Annual sales from this project are estimated at $420,000. Net
working capital equal to 20 percent of sales will be required to support the project. All of
the net working capital will be recouped. The required return is 16 percent and the tax rate
is 35 percent. What is the amount of the after-tax salvage value of the equipment? *
A) $17,150
B) $31,850
C) $118,800
D) $237,600

34. Keyser Mining is considering a project that will require the purchase of $980,000 in new
equipment. The equipment will be depreciated straight-line to a zero book value over the 7-
year life of the project. The equipment can be scraped at the end of the project for 5
percent of its original cost. Annual sales from this project are estimated at $420,000. Net
working capital equal to 20 percent of sales will be required to support the project. All of
the net working capital will be recouped. The required return is 16 percent and the tax rate
is 35 percent. What is the recovery amount attributable to net working capital at the end of
the project? *
A) $21,000
B) $54,600
C) $84,000
D) $178,000

35. Keyser Mining is considering a project that will require the purchase of $980,000 in new
equipment. The equipment will be depreciated straight-line to a zero book value over the 7-
year life of the project. The equipment can be scraped at the end of the project for 5
percent of its original cost. Annual sales from this project are estimated at $420,000. Net
working capital equal to 20 percent of sales will be required to support the project. All of the
net working capital will be recouped. The required return is 16 percent and the tax rate is
35 percent. What is the value of the depreciation tax shield in year 4 of the project? *
A)$49,00
B) $52,200
C) $68,600
D)
$71,400
36. The Pancake House has sales of $1,642,000, depreciation of $27,000, and net working
capital of $218,000. The firm has a tax rate of 35 percent and a profit margin of 6 percent.
The firm has no interest expense. What is the amount of the operating cash flow? *
A) $98,520
B)$125,520
C) $147,480
D) $268,480

37. A project will produce an operating cash flow of $14,600 a year for 8 years. The initial
fixed asset investment in the project will be $48,900. The net after-tax salvage value is
estimated at
$11,000 and will be received during the last year of the project's life. What is the net
present value of the project if the required rate of return is 12 percent? *
A) $23,627.54
B)$28,070.26
C) $34,627.54
D) $39,070.26

38. The higher the degree of financial leverage employed by a firm, the: *

A) lower the amount of debt incurred.

B) less debt a firm has per dollar of total assets.
C) higher the number of outstanding shares of stock.
D) higher the probability that the firm will encounter financial distress

39. Lee Sun’s has sales of $3,000, total assets of $2,500, and a profit margin of 5%. The firm
has a total debt ratio of 40%. What is the return on equity? *
A) 6%
B) 8%
C)
10%
D)
12%

40. The sustainable growth rate of a firm is best described as the: *

A) minimum growth rate achievable assuming a 100 percent retention ratio.

B) minimum growth rate achievable if the firm maintains a constant equity multiplier.
C) maximum growth rate achievable excluding external financing of any kind.
D) maximum growth rate achievable excluding any external equity financing while maintaining
a constant D-E ratio.