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model based testing for embedded systems
Wiley CPA Exam Review Problems And Solutions Vol 2 2011-2012 38th Edition O. Ray Whittington, Patrick R. Delaney - Solutions
The 2009 accounts receivable turnover for McKeon company isa. 1.882b. 3.500c. 5.000d. 4.118
McKeon Company’s debt-to-total-asset ratio at 12/31/09 isa. 0.352b. 0.315c. 0.264d. 0.237
If Dawson Corporation’s common stock is expected to trade at a price/earnings ratio of eight, the market price per share (to the nearest dollar) would bea. $125b. $ 56c. $ 72d. $ 68
The expected common stock dividend per share for Dawson Corporation for 2009 isa. $2.34b. $2.70c. $3.90d. $2.10
What financial analysis technique would imply benchmarking with other firms?a. Horizontal analysis.b. Vertical analysis.c. Cross-sectional analysis.d. Ratio analysis.
Which of the following is not a measure of asset utilization?a. Inventory turnover.b. Average accounts receivable collection period.c. Fixed asset turnover.d. Debt to total assets.
What is the free cash flow for 2009?a. $36,000,000b. $30,000,000c. $29,000,000d. $26,000,000
What is the amount of the economic value added(EVA)?a. $20,000,000b. $26,000,000c. $15,000,000d. $36,000,000
The following information is available for the wholesale products division of Watco:Net operating profit before interest and taxes $30,000,000 Depreciation expense 10,000,000 Change in net working capital 5,000,000 Capital expenditures 4,000,000 Invested capital (total assets – current
Which of the following measures the amount of free cash flow for Walkin Corporation for the year?a. $ 7,000,000b. $ 8,000,000c. $21,000,000d. $25,000,000
Which of the following measures economic value added for Walkin Corporation for the year?a. $ 3,000,000b. $ 7,000,000c. $15,000,000d. $17,000,000
What is a major disadvantage of using economic value added (EVA) alone as a performance measure?a. It fails to focus on creating shareholder value.b. It promotes the acceptance of unprofitable projects.c. It fails to reflect all of the ways that value may be created.d. It discourages cost cutting.
Residual income is often preferred over return on investment (ROI) as a performance evaluation becausea. Residual income is a measure over time while ROI represents the results for a single time period.b. Residual income concentrates on maximizing absolute dollars of income rather than a percentage
Which combination of changes in asset turnover and income as a percentage of sales will maximize the return on investment?Income as a Asset turnover percentage of salesa. Increase Decreaseb. Increase Increasec. Decrease Increased. Decrease Decrease
Division A is considering a project that will earn a rate of return which is greater than the imputed interest charge for invested capital, but less than the division’s historical return on invested capital. Division B is considering a project that will earn a rate of return that is greater than
The following selected data pertain to the Darwin Division of Beagle Co. for 2009:Sales $400,000 Net income 40,000 Capital turnover 4 Imputed interest rate 10%What was Darwin’s 2009 residual income?a. $0b. $ 4,000c. $10,000d. $30,000
Select Co. had the following 2009 financial statement relationships:Asset turnover 5 Profit margin on sales 0.02 What was Select’s 2009 percentage return on assets?a. 0.1%b. 0.4%c. 2.5%d. 10.0%
The following information pertains to Bala Co. for the year ended December 31, 2009:Sales $600,000 Net income 100,000 Capital investment 400,000 Which of the following equations should be used to compute Bala’s return on investment?a. (4/6) × (6/1) = ROIb. (6/4) × (1/6) = ROIc. (4/6) × (1/6) =
Return on investment can be increased bya. Increasing operating assets.b. Decreasing operating assets.c. Decreasing revenues.d. Bothb. and c.
A company’s rate of return on investment (ROI) is equal to thea. Percentage of profit on sales divided by the capital employed turnover rate.b. Percentage of profit on sales multiplied by the capital employed turnover rate.c. Investment capital divided by the capital employed turnover rate.d.
On the graph below, lines A-B-C and D-E-F illustrates residual income (measured on the vertical axis in dollars) at various interest rates. Point G is the firm’s cost of capital.Line ABC represents the residual income of Division X at various interest rates. Line DEF represents the residual
What does point A represent?a. Return on sales.b. Return on investment.c. Asset turnover.d. Net income.
What does point B represent?a. Return on sales.b. Return on investment.c. Asset turnover.d. Operating income.
What is the residual income for Cara Corp.?a. $0b. $200,000c. $210,000d. $246,000
What is the return on investment at Cara Corp.?a. 60%b. 33%c. 18%d. 15%
What is the amount of interest rate spread for the division?a. 8%b. 10%c. 2%d. 20%
What is the amount of residual income (RI) for the division?a. $2,000,000b. $1,600,000c. $1,000,000d. $ 400,000
What is the return on investment (ROI) for the division?a. 10%b. 8%c. 4%d. 2%
What is the asset turnover ratio for the division?a. .25b. 10c. 2.5d. 8
What is the return on sales (ROS) for the division?a. 8%b. 4%c. 10%d. 20%
A target in the balanced scorecard framework isa. A statement of what the strategy must achieve and what is critical to its success.b. A key action program required to achieve strategic objectives.c. A diagram of the cause-and-effect relationships between strategic objectives.d. The level of
A strategy objective in the balanced scorecard framework isa. A statement of what the strategy must achieve and what is critical to its success.b. Key action programs required to achieve strategic objectives.c. Diagrams of the cause-and-effect relationships between strategic objectives.d. The level
Which of the following is an example of an efficiency measure?a. The rate of absenteeism.b. The goal of becoming a leading manufacturer.c. The number of insurance claims processed per day.d. The rate of customer complaints.
In the balanced scorecard framework, a survey of employee satisfaction is a potential measure in which of the four perspectives?a. Financial.b. Customer.c. Internal business processes.d. Learning and growth.
Which of the following is not a characteristic of the balanced scorecard?a. Both financial and nonfinancial performance measures are included.b. Cause-and-effect linkages between strategic objectives.c. Customer performance measures are excluded.d. Internal process performance measures are included.
Which of the following best describes a value chain in the balanced scorecard framework?a. The cause-and-effect linkages.b. The baseline level of performance.c. The sequence of business processes in which usefulness is added to products or services.d. The chain of financial and nonfinancial
Which of the following is not a component of the balanced scorecard?a. Strategic objectives.b. Targets.c. Strategy initiatives.d. Assessment of human resources.
Management has identified a relationship between customer satisfaction and return on investment. This relationship could be depicted in aa. Strategy map.b. Value chain.c. Customer perspectives chart.d. Strategic initiatives list.
The balanced scorecard and value-based management are techniques that are being used by a number of corporations.In comparison to the balanced scorecard, value-based management focuses ona. Nonfinancial measures.b. Financial measures.c. Both financial and nonfinancial measures.d. Quality measures.
The balanced scorecard has been adopted by many corporations.Which of the following best describes the balanced scorecard?a. A strategy that meets management’s objectives.b. A diagram illustrating cause and effect relationships.c. A table of key actions to achieve strategic objectives.d. A
The balanced scorecard generally uses performance measures with four different perspectives. Which of the following performance measures would be part of those used for the internal business processes perspective?a. Cycle time.b. Employee satisfaction.c. Hours of training per employee.d. Customer
Which of the following is not one of the four perspectives of the balanced scorecard?a. Investment in resources perspective.b. Customer perspective.c. Learning and growth perspective.d. Financial perspective.
What is the most important purpose of a balanced scorecard?a. Develop strategy.b. Measure performance.c. Develop cause-and-effect linkages.d. Set priorities.
A shoe manufacturing firm acquiring a brokerage house is an example of aa. Horizontal merger.b. Vertical merger.c. Congeneric merger.d. Conglomerate merger.
A soft drink producer acquiring a bottle manufacturer is an example of aa. Horizontal merger.b. Vertical merger.c. Congeneric merger.d. Conglomerate merger.
A horizontal merger is a merger betweena. Two or more firms from different and unrelated markets.b. Two or more firms at different stages of the production process.c. A producer and its supplier.d. Two or more firms in the same market.
The acquisition of a retail shoe store by a shoe manufacturer is an example ofa. Vertical integration.b. A conglomerate.c. Market extension.d. Horizontal integration.
A parent company sold a subsidiary to a group of managers of the subsidiary. The purchasing group invested$1 million and borrowed $49 million against the assets of the subsidiary. This is an example of aa. Spin-off.b. Leveraged buyout.c. Joint venture.d. Liquidation.
Which of the following methods of valuation provides the most reliable measure of fair value?a. Use of a discounted cash flow method.b. Market values obtained from active markets.c. Combination of valuation models and active markets.d. Sophisticated valuation models.
The return on equity will be and the debt ratio will be under Arrangement #2, as compared with Arrangement #1.List A List Ba. Higher Higherb. Higher Lowerc. Lower Higherd. Lower Lower
Which of the following statements comparing the two financing arrangements is true?a. The company will have a higher expected gross margin under Arrangement #1.b. The company will have a higher degree of operating leverage under Arrangement #2.c. The company will have higher interest expense under
If the cost of equity were 12%, then the weighted average cost of capital under Arrangement #1, to the nearest full percentage point, would bea. 8%b. 10%c. 11%d. 12%
Hi-Tech Inc. has determined that it can minimize its weighted-average cost of capital (WACC) by using a debt/equity ratio of 2/3. If the firm’s cost of debt is 9% before taxes, the cost of equity is estimated to be 12% before taxes, and the tax rate is 40%, what is the firm’s WACC?a. 6.48%b.
According to the Capital Asset Pricing Model(CAPM), the relevant risk of a security is itsa. Company-specific risk.b. Diversifiable risk.c. Systematic risk.d. Total risk.
When calculating the cost of capital, the cost assigned to retained earnings should bea. Zero.b. Lower than the cost of external common equity.c. Equal to the cost of external common equity.d. Higher than the cost of external common equity.
The Capital Asset Pricing Model (CAPM) computes the expected return on a security by adding the risk-free rate of return to the incremental yield of the expected market return that is adjusted by the company’s beta. Compute DQZ’s expected rate of return.a. 9.20%b. 12.20%c. 7.20%d. 12.00%
Assume that the after-tax costs of debt is 7% and the cost of equity is 12%. Determine the weighted-average cost of capital.a. 10.50%b. 8.50%c. 9.50%d. 6.30%
Using the Capital Asset Pricing Model (CAPM), Martin Corporation’s current cost of common equity isa. 8.75%b. 10.00%c. 15.00%d. 17.00%
Martin Corporation’s current net cost of debt isa. 5.5%b. 7.0%c. 5.1%d. 8.5%
In practice, dividendsa. Usually exhibit greater stability than earnings.b. Fluctuate more widely than earnings.c. Tend to be a lower percentage of earnings for mature firms.d. Are usually changed every year to reflect earnings changes.
The bond-yield-plus approach to estimating the cost of common equity involves adding a risk premium of 3% to 5% to the firm’sa. Cost of short-term debt.b. Cost of long-term debt.c. Return on assets.d. Return on equity.
Assume a firm is expected to pay a dividend of $5.00 per share this year. The firm along with the dividend is expected to grow at a rate of 6%. If the current market price of the stock is $60 per share, what is the estimated cost of equity?a. 8.3%b. 6.0%c. 14.3%d. 12.0%
Which of the following methods explicitly recognizes a firm’s risk when determining the estimated cost of equity?a. Capital asset pricing model.b. Dividend-yield-plus-growth model.c. Bond-yield-plus model.d. Return on equity.
Assume that two companies, Company X and Company Y, are alike in all respects, except the market value of the outstanding common shares of Company X is greater than the market value of Company Y shares. This may indicate thata. Company X’s investors expect higher dividend growth than Company
If nominal interest rates increase substantially but expected future earnings and dividend growth for a firm over the long run are not expected to change, the firm’s stock price willa. Increase.b. Decrease.c. Stay constant.d. Change, but in no determinable direction.
Management of Terra Corp. is attempting to estimate the firm’s cost of equity capital. Assuming that the firm has a constant growth rate of 5%, a forecasted dividend of$2.11, and a stock price of $23.12, what is the estimated cost of common equity using the dividend-yield-plus-growth approach?a.
Which of the following is not a characteristic of the capital asset pricing model for estimating the cost of equity?a. The model is simple to understand and implement.b. The model can be applied to all firms.c. The model does not rely on any dividend assumptions or growth of dividends.d. It is
In general, it is more expensive for a company to finance with equity than with debt becausea. Long-term bonds have a maturity date and must, therefore, be repaid in the future.b. Investors are exposed to greater risk with equity capital.c. The interest on debt is a legal obligation.d. Equity
Management of Kelly, Inc. uses CAPM to calculate the estimated cost of common equity. Which of the following would reduce the firm’s estimated cost of common equity?a. A reduction in the risk-free rate.b. An increase in the firm’s beta.c. An increase in expected inflation.d. An increase in the
Which of the alternatives has the lowest weightedaverage cost of capital and how much is the differential?a. Alternative 1 by 1.5%b. Alternative 2 by 0.59%c. Alternative 1 by 0.167%d. The alternatives have equal weighted-average cost of capital.
Which of the following statements is not true if management decides to accept Alternative 1?a. Alternative 1 is the more conservative capital structure.b. Alternative 1 provides the greatest amount of financial leverage.c. Net income will be less variable under Alternative 1.d. Total interest
A company has made the decision to finance next year’s capital projects through debt rather than additional equity. The benchmark cost of capital for these projects should bea. The before-tax cost of new-debt financing.b. The after-tax cost of debt financing.c. The cost of equity financing.d. The
When a company increases its degree of financial leveragea. The equity beta of the company falls.b. The systematic risk of the company falls.c. The unsystematic risk of the company falls.d. The standard deviation of returns on the equity of the company rises.
A firm with a higher degree of operating leverage when compared to the industry average implies that thea. Firm has higher variable costs.b. Firm’s profits are more sensitive to changes in sales volume.c. Firm is more profitable.d. Firm is less risky.
Which of the following factors generally does not impact management’s capital structure strategy?a. Business risk.b. Tax position.c. Management aggressiveness.d. Expected return on assets.
Which of the following is not a source of capital used to finance long-term projects?a. Common stock.b. Long-term debt.c. Preferred stock.d. Line of credit.
Assume that Company A and Company B are alike in all respects except that Company A utilizes more debt financing and less equity financing than does Company B.Which of the following statements is true?a. Company A has more net earnings variability than Company B.b. Company A has more operating
Which of the following is an advantage of equity financing in comparison to debt financing?a. Issuance costs are greater than for debt.b. Ownership is given up with respect to the issuance of common stock.c. Dividends are not tax deductible by the corporation whereas interest is tax deductible.d.
What is the degree of financial leverage for Rothenberg, Inc.?a. 10b. 5c. 1/6d. 1/10
What is Rothenberg’s degree of operating leverage?a. 1/5b. 10c. 5d. 2/3
Which of the following is not an advantage of going public?a. Access to capital.b. Compliance.c. Use of stock options.d. Liquidity for owners’ investments.
Which of the following is usually not a feature of cumulative preferred stock?a. Has priority over common stock with regard to earnings.b. Has priority over common stock with regard to assets.c. Has voting rights.d. Has the right to receive dividends in arrears before common stock dividends can be
In capital markets, the primary market is concerned witha. New issues of bonds and stock securities.b. Exchanges of existing bond and stock securities.c. The sale of forward or future commodities contracts.d. New issues of bond and stock securities and exchanges of existing bond and stock
The market for outstanding, listed common stock is called thea. Primary market.b. New issue market.c. Over-the-counter market.d. Secondary market.
Assume that one of Watco’s bonds with $1,000 face is currently selling for $950. What is the current yield on the bond?a. 8.00%b. 9.00%c. 7.56%d. 8.42%
If the market rate of interest for this type of bond increases to 9%, which of the following is true?a. The market value of Watco’s bond will increase.b. The market value of Watco’s bond will decrease.c. The effect will depend on the change in the LIBOR rate.d. The effect cannot be predicted.
What can you assume about the interest rates at the time the bonds were issued?a. The market rate for this bond was about 8%.b. The nominal rate of interest was about 8%.c. The coupon rate on the bond includes no premium for credit risk.d. The risk-free interest rate is about 6%.
Nerco has a bond issue that matures in fifteen years.Recently, the company’s bond rating has gone from B to Baa. How would this affect the market price of the bonds?a. Increase.b. Decrease.c. Remain the same.d. The effect cannot be predicted.
Which of the following is not an advantage of leasing as a form of financing?a. Up front costs may be less.b. The provisions of the agreement may be less stringent than for other debt agreements.c. The dollar cost.d. The firm may be able to lease the asset when it does not have the credit capacity
Which of the following provisions is generally considered detrimental to the investor?a. Conversion.b. Redeemable.c. Callable.d. Serial maturity.
The best reason corporations issue Eurobonds rather than domestic bonds is thata. These bonds are denominated in the currency of the country in which they are issued.b. These bonds are normally a less expensive form of financing because of the absence of government regulation.c. Foreign buyers more
DQZ Telecom is considering a project for the coming year that will cost $50 million. DQZ plans to use the following combination of debt and equity to finance the investment:• Issue $15 million of 20-year bonds at a price of 101, with a coupon rate of 8%, and flotation costs of 2%of par.• Use
Wilson Corporation issued bonds two years ago. If the _______ interest rate _______, the market value of the bond will decrease.a. Coupon; increases.b. Coupon; decreases.c. Market; increases.d. Market; decreases.
Bonds in which the principal amount is paid as a series of installments over the life of the bond issue are calleda. Serial bonds.b. Sinking fund bonds.c. Convertible bonds.d. Callable bonds.
If an investor is concerned about interest rate risk, the investor should consider investing ina. Serial bonds.b. Sinking fund bonds.c. Convertible bonds.d. Floating rate bonds.
All of the following are advantages of debt financing excepta. Interest is tax deductible.b. The use of debt will assist in lowering the firm’s cost of capital.c. In periods of inflation, debt is paid back with dollars that are worth less than the ones borrowed.d. The acquisition of debt
Which of the following is an advantage of debt financing?a. Interest and principal obligations must be paid regardless of the economic position of the firm.b. Debt agreements contain covenants.c. The obligation is generally fixed in terms of interest and principal payments.d. Excessive debt
Capital and operating leases differ in that the lesseea. Obtains use of the asset only under a capital lease.b. Is using the lease as a source of financing only under an operating lease.c. Receives title to the asset in a capital lease.d. Capitalizes the net investment in the lease.
At the inception of an operating lease how should the leased asset be accounted for on the lessee financial statements?a. The present value of the future lease payments is recorded as an asset on the balance sheet.b. The total amount of the lease payments is recorded as an asset on the balance
Which of the following are characteristics of Eurobonds?a. Are always denominated in Eurodollars.b. Are always sold in some country other than the one in whose currency the bond is denominated.c. Are sold outside the country of the borrower but are denominated in the currency of the county in which
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