SAMPLE QUESTIONS - PART 1- revised 2/08

SAMPLE QUESTIONS - PART 1- revised 2/08
Section A. Business Economics
1. In the long run, a firm may experience decreasing returns due to
a. the principle of substitution.
b. opportunity costs.
c. marginal costs.
d. diseconomies of scale.
2. If the price of computers decreases and total revenue of the firm increases, then the demand for computers is
a. inelastic and the elasticity of demand is greater than one.
b. inelastic and the elasticity of demand is less than one.
c. elastic and the elasticity of demand is greater than one.
d. elastic and the elasticity of demand is less than one.
3. Which one of the following most accurately describes the market conditions normally associated with pure competition?
a. High barriers to entry; homogenous products; many independent firms.
b. Few independent firms; high barriers to entry; differentiated products.
c. Low barriers to entry; homogenous products; many independent firms.
d. Differentiated products; many independent firms; low barriers to entry.
4. The trough of a business cycle is generally characterized by which one of the following?
a. Shortages of essential raw materials.
b. Increasing capital investments.
c. Increasing price level.
d. High unemployment.
5. Information related to the financial transactions for a country is given below with
values stated in billions of US$.
Gross domestic product (GDP) $4,000
Transfer payments 500
Corporate income taxes 50
Social Security contributions 200
Indirect business taxes 210
Personal taxes 250
Undistributed corporate profits 25
Depreciation 500
Net income earned abroad 0
What is National Income?
a. $3,500.
b. $3,290.
c. $3,475.
d. $4,500.
Section B. Global Business
6. Assume that the US dollar is depreciating against the Japanese yen. Which of the following groups benefits most?
a. Japanese importers from China
b. Japanese exporters to US
c. US exporters to Japan
d. US government
7. Which one of the following is the most likely result of the U.S. imposing a tariff on imported steel?
a. Foreign steel producers will ship more steel to the U.S., but at a lower price.
b. Foreign steel producers will ship less steel to the U.S., but U.S. users of steel will pay more.
c. U.S. steel producers will sell more steel to U.S. users, but at a lower price.
d. Foreign steel producers will benefit from the higher price of steel.
8. The Baker Company, a U.S. corporation, has a manufacturing affiliate in Mexico. Baker wants to expand the capability of this plant. The plant is very profitable and generates a substantial positive cash flow. The Mexican Peso equivalent of US$1,000,000 is available to be paid in dividends to the U.S. parent from the Mexican affiliate. In addition, another affiliate, located in Europe, has the Euro equivalent of US$750,000 available to be paid in dividends.
Which one of the following should not be considered when Baker is trying to determine the best way to finance a $500,000 investment in the Mexican facility?
a. The current book value of the Mexican facility.
b. Interest rates in Mexico.
c. Interest rates in Brazil.
d. The expected movement of the Mexican peso and the Euro versus the US dollar.
Section C. Internal Controls
9. Which one of the following is most likely to be a major contribution that internal auditors can make to the corporation for which they work?
a. Prepare financial statements for submission to regulators.
b. Identify corporate risks for top management, and suggest methods of minimizing those risks.
c. Attest to the completeness and accuracy of financial statements for outside investors.
d. Advise top management on how to interpret new accounting standards.
10. Which one of the following adds to the risk of operating an online, real time computer system?
a. Updates are made continuously as transactions are processed.
b. The system interacts with many function of the business, including sales, purchases, payables, receivables, and inventory.
c. The system allows faster detection of unauthorized transactions.
d. Updates can be originated by many people, in many locations.
11. Risk assessment is an increasingly important issue. Which of the following best describes an appropriate response after management has identified a risk?
a. Eliminate the risk through diversification.
b. Develop internal controls to mitigate the risk.
c. Accept the risk and the associated profit.
d. Continue the search for other risks.
Section D. Quantitative Methods
12. The table below shows the estimated probabilities of the percent of defective units resulting from a production run. Percent Defective Probability
2% 22%
3% 48%
4% 30%
The expected percent defective for a production run would be
a. 1.50%.
b. 2.68%.
c. 2.90%.
d. 3.08%.
13. Regression analysis is a powerful tool that can help business people forecasts, including forecasts of demand. Which of the following may be good candidates to consider as independent variables in forecasting the quantity demanded?
a. Price
b. Advertising
c. Disposable income
d. All three can be used in multiple regression..
14. Hanson Company manufactures two different types of receivers, a regular Model R and a special features Model S. The company has limited resources. On an annual basis it has a total of 480 direct labor-hours and a total of 300 lbs. of material available for use in the manufacture of these receivers. The company uses linear programming to determine a production schedule that will maximize the company’s profit.
Based on the company’s current data on selling prices and production costs, it is estimated that the sale of Model R will contribute $7 profit per unit and the sale of Model S will contribute $10 profit per unit. Resources used in the production of the two receivers are as follows. (Let Model S = S and Model R = R.) Model S Model R
Raw materials used per unit 5 lbs. 3 lbs.
Labor used per unit 6 hours 4 hours
The objective function for Hanson Company can be expressed as
a. 5S + 3R < = 300.
b. 6S + 4R < = 480.
c. Max 7R + 10S
d. Min 5S + 3 R
15. Reeves Inc. has developed a new production process to manufacture its product. The new process is complex and requires a high degree of technical skill. However, management believes there is a good opportunity for the employees to improve as they become more familiar with the production process. The production of the first unit requires 100 direct labor hours. If an 80% learning curve is used, how many cumulative direct labor hours (to the nearest hour) would be required to produce a total of eight units?
a. 100 hours.
b. 274 hours.
c. 490 hours.
d. 520 hours.
Section E. Financial Statement Analysis
16. Comparison of common-size financial statements from year to year is referred to as
a. vertical analysis.
b. horizontal analysis.
c. liquidity analysis.
d. activity analysis.
17. Appalachian Outfitters Inc., a mail order supplier of camping gear, is putting together its current year Statement of Cash Flows. A comparison of the company’s year-end balance sheet to the prior year’s balance sheet shows the following changes from a year ago.
Assets Liabilities & Net Worth
Cash & Marketable Securities $ (600) Accounts Payable $ 250
Accounts Receivable 200 Accruals 50
Inventories (100) Long-term Note (300)
Gross Fixed Assets 3,600 Long-term Debt 1,400
Accumulated Depreciation 500 Common Stock 0
_____ Retained Earnings 2,200
Total $3,600 Total $3,600
The firm’s payout ratio is 20%. During the current year, net cash provided by operations is
a. $2,900.
b. $3,050.
c. $3,450.
d. $4,050.
18. Selected financial information from Ferguson Inc.’s financial statements is shown below.
Statement of Financial Position
($000’s) Current Year Prior Year
Total current assets 740 590
Total long-term assets 960 1,045
Total assets $1,700 $1,635
Total current liabilities 315 285
Total long-term liabilities 94 80
Shareholders’ equity 1,291 1,270
Total liabilities and equity $1,700 $1,635
Income Statement
($000’s)
Net Sales $1,750
Cost of goods sold 880
Gross profit 870
Operating expenses 712
Operating income 158
Interest expense 11
Income taxes 59
Net income $ 88
Ferguson Inc.’s operating profit margin for the current year is
a. 5%.
b. 8%
c. 9%
d. 50%
19. Which of the following statements is most important for an analyst to use to determine the financial leverage of a company?
a. The Statement of Financial Position.
b. The Statement of Changes in Stockholders’ Equity.
c. The Statement of Cash Flows.
d. The Income Statement.
20. Norton Inc. has a 2 to 1 current ratio. This ratio would decrease to less than 2 to 1 if
a. the company collected an accounts receivable when due.
b. the company increased its reserve for bad debts.
c. the company sold merchandise for cash that earned a normal gross margin.
d. the company purchased inventory by paying cash..
Sample Questions Part 1 – Feb 08 (web)
Question#
Key
1.
D
2.
C
3.
C
4.
D
5.
B
6.
C
7.
B
8.
A
9.
B
10.
D
11.
B
12.
D
13.
D
14.
C
15.
C
16.
B
17.
C
18.
C
19.
A
20.
B