BEC Deck #5

Question 1

What items are part of an access control matrix (to perform compatibility tests to see if someone can access system)?

Answer 1

An access control matrix includes:

• list of all authorized names & passwords
• list of all files maintained on the system
• record of the access type each user gets

Question 2

In variable costing, what costs are assigned to inventory?

Answer 2

Direct material & labour and variable manufacturing costs (variable selling & admin are period costs)

Question 3

What is the reward/risk ratio?

Answer 3

Rate of return/measure of risk *measure of risk can be standard deviation

Question 4

The purchase of treasury stock with a firm’s surplus cash…

Answer 4

increases the firm’s financial leverage. Stockholder’s equity decreases which increases the debt to equity ratio.

Question 5

What is a sales forecasting technique?

Answer 5

Exponential smoothing - forecasting procedure which is a type of weighted average. Past events are discounted and assigned a multiplier so the effect it has on current projections is decreased with time.

Question 6

Capital budgeting is the most accurate when the method used considers the cost of capital, as in NPV method. The cost of capital in this analysis should be

Answer 6

marginal weighted average cost of capital. This means current market prices are used and not historic book value prices.

Question 7

Many governments & companies see open systems as an advantage because they

Answer 7

reduce computer equipment costs. Open systems increase the number of suitable vendors from which a co can buy component parts, driving down costs.

Question 8

Rate of unemployment caused by change in composition of employment opportunities over time is called

Answer 8

structural unemployment.

Question 9

A digital signature is used to determine a message is

Answer 9

not altered in transmission.

Question 10

What do you do when completing a SOx 404 Top Down Risk Assessment?

Answer 10

A TDRA identifies and assesses:

• financial reporting elements
• Risk related to financial reporting items
• internal control procedures meant to limit the identified risks

These will prevent fraud & embezzlement.

Internal auditors assess if risk info is captured & communicated in a timely manner.

Question 11

What are some techniques for dealing with risk in a capital budgeting project?

Answer 11

Sensitivity analysis tests the effect of various assumptions. Adjusting required rate of return increases rate for more risky projects. Adjusting est. future cash flows makes them more conservative for risky projects.

Question 12

When the economy appears poised to enter the recovery phase of the business cycle, what would inventory levels be like?

Answer 12

Low - firms would sell off inventory toward the end of the contraction phase due to management actions. Levels are high at the beginning of contraction.

Question 13

If risks of project cash flow components are different, it’s acceptable to

Answer 13

evaluate the cash flows by discounting each cash flow using a discount rate that reflects the degree of risk.

Question 14

Depository transfer/official bank checks are

Answer 14

non-negotiable, involve a concentration bank, are payable to a single company account.

Question 15

The trough of a business cycle is generally characterized by

Answer 15

unused production capacity and an unwillingness to risk new investments.

Question 16

What cost is assigned to goods that are purchased or manufactured for resale?

Answer 16

Product cost.

Question 17

When calculating AR with credit terms of 2/10 net 30, what’s the approach?

Answer 17

Calculate as if looking at 2 separate AR accounts and use the collection ratio. E.g. customers paying in 10 days: 10=AR/(average daily sales) Customers paying in 30 days: 30=AR/(average daily sales). Solve for AR in both instances and sum.

Question 18

How do you calculate residual income?

Answer 18

Net opearting income (before tax)-(avg assets x min required rate of return)

Question 19

How to compute annual cost of financing when a company uses factoring?

Answer 19

Figure out amount loaned to co., e.g. 100K * 80% advanced=80K
2% factoring fee assessed on total rec: 2K
10% interest for 30 days on 80K: 667
Total fees: 2667
Collection expense: 18K for year/12 months = 1.5K/month
Net cost per month = 2667-1500=1167. 1167/80K=1.46%. Calculate annual rate: 1.46%*12=17.5%

Question 20

Cost valuation approach is appropriate to use when

Answer 20

The company is in liquidation
The company is worth more in liquidation than as a going concern
The company’s value is tied to assets held
The company has had no income in recent years
Future benefit streams cannot be adequately predicted