Deck 1: Foundation of Financial and Investment

Question 1

Which of the following is a noncash expense?

A)Disposal of property and equipment
B)Net increase in liability
C)Depreciation expense
D)None of the above

Answer 1

Depreciation expense

Question 2

If we add back the depreciation expense in a closing book value of fixed assets and deduct it from the opening balance of fixed assets, the positive value of the residual is the:

A)Addition of assets
B)Deletion of assets
C)Difference of assets
D)None of the above

Answer 2

Addition of assets

Question 3

The company Panthers Limited has a return on investment (ROI) of 5% and it has a policy of a 20% net profit margin (NPM). What would be its total assets turnover (TAT) ratio?

A)35%
B)25%
C)10%
D)None of the above

Answer 3

None of the above

Question 4

The IRA has announced a reduction in tax rates. How will this change the NPM ratio of a company?

A)It will increase
B)It will decrease
C)It will have no effect
D)There is not enough information to answer this question

Question 5

You want to purchase a bond that will value $10,000 in 10 years. If the simple interest rate is 9.5% per year, what is the maximum amount you should pay right now?

A)$1053
B)$5128
C)$9132
D)None of the above

Question 6

To increase the present value of any future cash flow, the interest rate should be:

A)Increased
B)Decreased

Question 7

The objective of a matching proncipal is:

A)To provide relevant information in the same period
B)To accurately tabulate taxes
C)Recognize expenses in the same period in which income is earned
D)All of the above

Question 8

In general, revenue should be recognized:

A)When goods have been manufactured
B)When related expenses incurred to generate the revenue
C)When it is virtually certain the amount will be collected
D)When goods have been delivered

Question 9

Which of the following is the definition of "pure risk"?

A)Risk in which the chance of loss is equal to the chance of gain
B)When the value of risk is uncertain
C)When the only possible outcome is a loss
D)When the risk sensitivity depends upon contingencies

Question 10

Suppose the expected return on your treasury stock is 9% and the expected return on your market portfolio is 11%. With a beta coefficient of 1.1, the expected return on stock would be:

A)13.5%
B)12.6%
C)11.5%
D)10.5%

Question 11

A hedge position should provide a(n) ______________ position in market equilibrium.

A)Low risk
B)Moderate risk
C)High risk
D)Risk free

Question 12

Suppose you have common stock of TigerCorp amounting to $100 million. At the end of the year, TigerCorp declares a dividend paid to common stock holders. The effect of the dividend on your investment would be:

A)Increasing its value
B)Decreasing its value
C)Having no impact

Question 13

Suppose that the company Leopard Inc. is intending to make a huge investment in Lion Unlimited. Which type of risk is Leopard Inc. facing?

A)Business risk
B)Reputation risk
C)Credit risk
D)Strategic risk

Question 14

A call option is a form of _____ insurance.

A)Profit
B)Interest
C)Price
D)None of the above

Question 15

Jerry Jaguar received an order from the CFP board on July 1, 2016. Now he intends to file an appeal against the order to the CFP Board's appeal committee in accordance with the rules and procedure of the appeal committee on August 2, 2016. What will be result of such an appeal?

A)Jerry Jaguar will be contacted by September 2 with a final decision
B)A notice will be issued to the CFP board, which will have 6 months to reply
C)The appeal will be denied and the original order will be final

Question 16

Sam Serval's wife is the CFO of a leading manufacturing company. If Sam Serval is offered to provide some services related to financial planning for said company, which fundamental principal will be impaired if Sam Serval accepts the proposal?

A)Confidentiality
B)Integrity
C)Objectivity
D)Fairness

Question 17

Investors prefer to hold more investment in bonds because they:

A)Are less volatile than stock
B)Pay a higher return that stock
C)Are more readily available
D)Have low-impact interest rates

Question 18

A prudent investor will always follow the principle of diversification of investments because:

A)They seek to maximize risk
B)They seek to minimize losses

Question 19

When the return on two different investment portfolios is negatively co-related, this indicates:

A)Both investments show a higher rate of return
B)Both investments show a lower rate of return
C)One investment shows a higher rate of return than the other

Question 20

Which of the following is true of an unsystematic risk?

A)It affects all investments irrespective of diversification
B)It is unique to specific investments
C)Non of the above

Question 21

Investment manager Liam Lynx decides to make investments across the board, anticipating a sharp increase in the economy. This is called:

A)Fundamental analysis
B)Bottom up approach
C)Top down approach
D)Dividend investing

Question 22

One share of Caracal Enterprises has a par value of $50, while its market value is $120. The earnings per share (EPS) for Caracal Enterprises is $15. What would be the P/E ratio?

A)15
B)12
C)8
D)None of the above

Question 23

What would be the market value of a company if its annual cash profit is $8 million and its WACC is 10%?

A)$90 million
B)$85 million
C)$80 million
D)None of the above

Question 24

If the compound interest on a company's irredeemable bonds is 8% and the tax rate is 15%, what would be cost of the bond after tax if the bond's market value is $110.

A)4.6%
B)5.2%
C)3.6%
D)4.5%

Question 25

Operational cash flow comes into a business through all of the following EXCEPT:

A)Sale of fixed assets
B)Sale of inventory
C)Cash collected from debtors
D)All of the above are sources of cash flow