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NEW QUESTION # 123
Purchasing factory equipment on credit results in a
- A. debit to a liability account and a credit to an asset account.
- B. debit to an expense account and a credit to a liability account.
- C. debit to an asset account and a credit to a liability account.
Answer: C
Explanation:
This transaction results in an increase to an asset account and an increase to a liability account. Assets are increased with debits and liabilities are increased with credits.
NEW QUESTION # 124
An investor can liquidate his holdings in a closed-end fund by_______.
- A. selling his shares back to the fund at the fund's net asset value.
- B. selling his shares back to the fund after paying a redemption fee.
- C. selling his shares in the secondary market.
Answer: C
Explanation:
Closed-end funds raise initial capital by selling shares. However, the funds do not sell or buy back their shares from the shareholders. Like the shares of any other company, shares of closed-end funds trade on the secondary markets.
NEW QUESTION # 125
If people expect a higher rate of inflation, the SAS will ____ LAS will ____.
- A. not be affected, not be affected (changes in inflation expectations will impact demand, not supply).
- B. increase, not be affected.
- C. decrease, not be affected.
Answer: C
Explanation:
If people expect higher inflation rate, sellers' incentive to sell at a given price in the current period will be reduced: goods that they do not sell today will be available for sale in the future at what they anticipate will be even higher prices. SAS will decrease. However, this expectation does not have a long-term effect since LAS is determined by technology, resource base and institutional factors only.
NEW QUESTION # 126
The impact of sales of receivables is:
I). Operating cash flow is reduced because the proceeds are reported as financing cash flows.
II). A portion of operating cash flow in the current period is borrowed from the future.
III). In the future, if a company sought to reduce the amount of receivables sold or securitized, operating cash flow would decline.
- A. II only.
- B. II and III.
- C. I and II.
Answer: B
Explanation:
The proceeds is reported as operating cash flow.
NEW QUESTION # 127
An estimator whose limit (as the sample size approaches infinity) is the parameter it is intended to estimate is called:
- A. Consistent.
- B. Unbiased.
- C. Reliable.
Answer: A
Explanation:
An estimator is called consistent if the accuracy (of measuring the parameter) increases as the sample size increases. As the sample size goes to infinity, the resulting estimate is the population parameter.
NEW QUESTION # 128
Which statement is false?
- A. Public equity markets are much larger than the private equity markets.
- B. Public equity securities are more liquid than private equity securities.
- C. Public equity funds are more likely to challenge the way the businesses are run and improve operations of these businesses.
Answer: C
Explanation:
Management in a private company is more likely to adopt a long-term focus.
NEW QUESTION # 129
The mean of sample with a known population variance of 25 was estimated as 12.5. The sample size was 22 and the sample variance was 28. Which of the following represents the appropriate 95% confidence interval for the normally distributed population?
- A. 10.29, 14.71
- B. 10.41, 14.59
- C. 10.74, 14.26
Answer: B
Explanation:
Since the population variance is known and it is normally distributed, we will ignore the
1/2
sample variance. A 95% confidence 125+-196 (25/22) [1041 1459]
1/2
interval corresponds to a z-value of 1.96. Thus, CI is given by 12.5 +- 1.96 x (25/22) or [10.41, 14.59]
NEW QUESTION # 130
Which one of the following is the formula for the inventory turnover rate?
- A. None of the above.
- B. Average inventory divided by cost of goods sold.
- C. Cost of goods sold divided ending inventory.
Answer: A
Explanation:
The formula for the inventory turnover rate is: Cost of goods sold/Average inventory for the period.
NEW QUESTION # 131
A project has the following annual cash flows:
CF = 24,000; CF = 12,700; CF = 15,000; CF = -10,000
1 2 3 4
What is the maximum amount a firm should invest in the project if it requires a risk adjusted, 12% rate of return?
- A. 48,585
- B. 41,700
- C. 35,874
Answer: C
Explanation:
The maximum a firm should pay is the present value of the project's cash flows discounted at
1 2%. Using a calculator's cash flow keys, PV @ 12% = 35,874.
NEW QUESTION # 132
If John quits his job to find a new job in a different city, John is considered
- A. structurally unemployed.
- B. naturally unemployed.
- C. frictionally unemployed.
Answer: C
Explanation:
This is an example of frictional unemployment, the portion of unemployment attributable to the normal workings of the economy. It differs from structural and cyclical unemployment.
NEW QUESTION # 133
Average income increases from $20,000 p.a. to $22,000 p.a. Quantity demanded per year increases from 5000 to 6000 units. Which of the following is correct?
- A. Demand is price inelastic.
- B. Income elasticity is -2.
- C. The product is normal.
Answer: C
Explanation:
The percentage change in demand is +20%; the percentage change in income is +10%. This means the product is normal because demand rises with more income and has an income elasticity of +2.
NEW QUESTION # 134
Swimsuit Shop uses FIFO inventory method. During a time of rising prices and constant inventory level
(in terms of quantity), Swimsuit Shop would experience
- A. higher taxes.
- B. higher cash flows.
- C. higher cost of goods sold (COGS) and lower net income.
Answer: A
Explanation:
The sequence is: lower COGS --> higher net income --> higher taxes --> lower cash flows.
NEW QUESTION # 135
Under the semi-strong form of the EMH, a company announcing stronger-than-expected earnings would present most investors with what type of abnormal profit opportunity?
- A. no profit opportunity for small investors but the potential for modest profit for large, sophisticated investors such as mutual funds
- B. the potential for a modest profit as long as the investor acts within one or two hours
- C. no profit opportunity, because prices will adjust rapidly to the information
Answer: C
Explanation:
With semi-strong form efficiency, prices will adjust rapidly to new information, so by the time most investors have heard the earnings announcement and made decisions about their trading activity, the price will have already adjusted, thus eliminating the profit opportunity.
NEW QUESTION # 136
An individual asset's relative systematic risk is calculated based on the:
- A. Capital market line.
- B. Security market line.
- C. Efficient frontier.
Answer: B
Explanation:
An individual asset's relative systematic risk is calculated based on the Security Market Line.
NEW QUESTION # 137
If a firm's ratio of "current assets to current liabilities" is lower than the industry average and its ratio of "long-term debt to shareholder's equity" is lower than the industry average, it would most likely indicate that the firm:
- A. has more current liabilities than the industry average.
- B. will be less profitable than the industry average.
- C. has more leased assets than the industry average.
Answer: A
Explanation:
A firm's liquidity can be measured by the long term debt to capital ratio = total long term debt
/ total long term capital, if a firm has a higher ratio than the industry it is taking on more debt than the average. Another measurement of a firm's liquidity is the current ratio = current assets / current liabilities, if a firm has a low current ratio it is taking on more debt. Long term debt to shareholders equity is measured by using the debt to equity ratio, a higher percentage means that the firm is indeed taking on more debt than the industry.
NEW QUESTION # 138
Consider two bonds, A and B.
They are both issued by the same corporate firm. They both have the
same maturity, seniority, and coupon. The only difference between the two bonds is that A is callable and
B is not. Which of the following most likely best describe the relationship between A and B
- A. Bond A will have a higher yield than bond B
- B. Bond A will have a lower yield than bond B
- C. Bond B will have a lower price than bond A
Answer: A
Explanation:
Both bonds are identical except of the cal option embedded in bond A.
The option is granted
to the issuer by the investors. As compensation, the investors receive a higher yield.
NEW QUESTION # 139
In the presence of a risk-free security, the efficient frontier
- A. consisting of risky assets moves down parallel to itself.
- B. consisting of risky assets moves up parallel to itself.
- C. changes and is replaced by a straight line.
Answer: C
Explanation:
In the presence of a risky asset, the efficient frontier of risky assets is dominated by a new efficient frontier consisting of the risk-free security and the tangent portfolio found by joining the risk-free security with a point on the efficient frontier of risky securities where the line has the highest slope.
NEW QUESTION # 140
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