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Finance: 30 multiple choice questions

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1. Accounts payable are component of?
A. Long-term debt
B. Fixed assets
C. Current assets
D. Net working capital

2. Which statement is true?
A. Typically, the after-tax cost of debt financing exceeds the after tax cost of equity financing
B. The weighted average cost of capital is a measure of the before tax cost of capital
C. The weighted average cost of capital measures the marginal after tax cost of capital
D. The marginal cost of capital is always higher than the weight average cost of capital measures

3. A higher corporate tax rate?
A. Will increase the WACC of a firm with debt and equity in its capital structure
B. Will change the WACC of a firm with debt in its capital structure
C. Will not affect the WACC of a firm with debt in its capital structure
D. Will decrease the WACC of a firm with debt in its capital structure
E. Will decrease the WACC of a firm with only equity in its capital structure

4. The cost of capital in a firm that has both debt and equity?
A. Will be the same for its different divisions
B. Depends on the source of the funds for a project
C. Is what a firm must earn on a project to compensate investors for the use of their funds
D. It equal to the cost of debt or equity, depending on which type of financing the firm typically uses
E. It also known as the internal rate of return

5. Which statement is true about the weighted average cost of capital (WACC)?
A. Since discount rate and firm value move in the same direction minimizing the WACC will minimized the value of the firm.
B. The value of the firm will be maximized when the WACC is minimized
C. The WACC is the appropriate discount rate for all new projects of the firm
D. The WACC is virtually impossible to calculate for a firm with multiple division
E. The optimal capital situation is the one that maximize the WACC

6. What is a defensive tactic use to fight off undesired mergers?
A. Raising antitrust issues
B. Pressuring the price of the target firm down
C. Selling assets to reduce the price of the firm's stock
D. Refunding the firm's own debt

7. As volume of activity decreases within the relevant range, what happen to total fixed costs?
A. They remain constant and per-unit fixed costs increase
B. They remain constant and per-unit fixed costs remain constant
C. They remain constant and per-unit fixed cost decrease
D. They decrease and per-unit fixed cost remain constant

8. An analyst has complied the following historical data in a maintenance operations:

Months Operating hr. Expenses
Sept 230 2.600
Oct 190 2,000
Nov 120 1,700
Dec 120 2,000
Jan 90 1,300
Feb 110 1,700

What are the expected total costs for March for 160 hrs of operations?
A. 1,850
B. 1,900
C. 1,950
D. 2,000

9. A company charges $5 per hour, for parking. It can rent 100 spots over an entire upcoming Sunday for a lump sum of 3,000. What would happen to the company's profit it it rented 100 spots?
A. Increase by 3,000
B. Decrease by 500
C. Increase by 1,000
D. Decrease by 2,000

10. A company has two production departments, assembly and finishing, it also has two service departments setup and inspection. Machine setup costs are allocated on the basis of number of setups while inspection costs are allocated on the basis of number of direct labor. What is the cost of assembly cost setups? Department Direct cost Setups Labor hrs
A. 10,000 Machine setup 40,000 0 0
B. 10,714 Inspection 15,000 0 0
C. 11,428 Assembly 25,000 300 200
D. 30,000 Finishing 20,000 100 500

11. A company produces and sells basic meters and deluxe meters. Its manufacturing overhead is 100,000. Given the following info.

Basic Deluxe Total
Sale volume ( In units ) 320,000 100,000
Direct labor costs 150,000 50,000 200,000
Direct material 200,000 100,000 300,000

What is the total unit cost of the deluxe meter if labor cost is used to allocate overhead?
A. $1,50
B. $1.75
C. $2.00
D. $2,75

12. You are contemplating pricing for a new job order, materials for the job would cost 1,250 and direct labor would cost 400, you estimate the following costs:
Activity Cost driver rate Quantity for this
Schedule production 200/production run 6
Process customer order 100/customer 1

A. 1,650
B. 1,700
C. 2,550
D. 2,950

13. A toy manufacture's contribution margin per toy is $20, the fixed cost per year is 25,000. The variable costs of making one toy is $5. How many toys must this company sell to break even?
A. 1,000
B. 1,250
C. 1,667
D. 5,000

14. Period cost as defined here, consists of all non-variable cost manufacturing and marketing. What do inventoriable cost under absorption include?
A. All variable cost
B. All production cost
C. All variable production costs
D. All costs

15. A company manufactures three products: PD1, PD2, and PD3. It's plant capacity is 1,200,000 machine hrs. Demand is expected to be 200,000 for each product for next year.

Sale price $10 $15 $14
Variable cost $8 $9 $12
Machine hrs. 2 3 4

A. 50,000
B. 80,000
C. 160,000
D. 200,000

16. A company sells four products A, B, C, and D.
A B C D=product
Selling price (per unit) $8 $10 $12 $11
Variable (per unit) $3 $4 $9 $7
Allocated fix cost per unit $2 $4 $6 $3
Units sold 1,000 2,000 3,000 4,000

A. Product A
B. Product B
C. Product C
D. Product D

17. The variable cost of a product are $25, fixed cost are $5 per unit based on 10,000 units produced during this period. The company has enough capacity to accept a special order of 1,000 units. What is the minimum price that should be charged for the special order?
A. $5
B. $20
C. $25
D. $30

18. A coffee company has purchasing operations in New York, production facilities in three roasting plants scattered throughout the Midwest and marketing functions in Texas.
If the company want a low cost strategy, what kind of responsibility center is appropriate for the roasting plants?
A. Income
B. Investment
C. Expense (cost)
D. Target

19. Economic valve added (EVA) is defined as NOPAT
A. Having less cost of debt
B. Divided by total assets
C. Having less cost of debt and equity
D. Divided by shareholders' equity

20. What is a planning and control model based on perspectives of learning, customer,financial, and process called?
A. Activity based management
B. Target costing
C. Balance scorecard
D. Economic value added

21. A company began the current year with $300,000 in total assets and 240,000 in total stockholder's equity. During the year, the company earned $60,000 distributed $10,000 as dividend. Assets at the end of the year were $400,000. What were the liabilities?
A. $100,000
B. $110,000
C. $120,000
D. $160,000

22. A company's owner paid his personal electric bill using his business checking account and included it as an expense on his latest income statement. Which accounting assumption convention does this violate?
A. Full disclosure
B. Materiality
C. Historical cost convention
D. Business entity assumption

23. Which statement is true about the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB )?
A. The SEC regulates quarterly reports, while the FASB regulates annual reports
B. The SEC concentrates more on disclosure regulation, while the FASB concentrates more on accounting recognition and measured issues
C. Both the SEC and the FASB are government entities
D. The SEC regulates government entities, while the FASB regulates business corporations

24. A company has the following account balances as of December 31, 2001.
Cash 10,000
Accounts payable 40,000
Goodwill 60,000
Inventory 50,000
Discount on bonds issued 20,000
Accounts Receivable 30,000
What were the total assets?
A. 40,000
B. 50,000
C. 90,000
D. 110,000

25. A company's current assets increased by $150, and current liabilities decreased by $70. Net working capital?
A. Increased by $220
B. Increased by $80
C. Decreased by $80
D. Decreased by $220

26. Total contributed capital of a corporation is most likely to be equal to?
A. The excess of stockholders equity over par value
B. The excess of assets minus liabilities minus retained earning
C. Total earnings less dividends since the stats of the business
D. Cash on hand available for use

27. A company repurchased 1,000 shares of it own $10 par common stock for $30,000. It has not yet paid the $30,000. What was the effect on the financial statement?
A. Expenses increased by $30,000
B. Investments increased by $30,000
C. Treasury stock increased by $30,000
D. Treasury stock decreased by $30,000

28. A company is authorized to issue 10,000 shares of $10 par common stock. During its first year of operation, it issued one-half of the stock for $20 per share earned, 15,000 on profits, and declared (but did not pay) dividends of 5,000. What is the company's book value per share at year end?
A. $22
B. $23
C. $42
D. $43

29. A company has the following inventory info.
Beginning inventory 100 units @ 120 per unit
Purchase #1 40 units @ 25 per unit
Purchase #2 60 units @ 30 per unit
Units sold 150 units
What is the cost assigned to cost of goods sold using first in and first out?
A. 3.300
B. 3,600
C. 3,750
D. 3.800

30. A small bookstore has total revenues of 100,000, gross profit margin of 20% and total operating expenses of 9,000. What is the bookstore's profit margin?
A. 9%
B. 11%
C. 12%
D. 20%

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Solution Summary

The solution answers 30 multiple choice questions related to finance.