Mixed

Question 1

Control environment Principles

Answer 1

The control (also called the internal) environment is the core or foundation of any system of internal control. Creating the control environment includes establishing and communicating baseline expectations for employee performance.
The foundation of internal control
Tone at the top
Management’s philosophy towards internal control and responsibility and operating style
1. Commitment to ethics and integrity (overall integrity)
2.Board independence and oversight
3. Organizational structure
4. Commitment to competence
5. Accountability

Question 2

Risk assessment Principles

Answer 2

The process of identifying, analyzing and managing risk involved in achieving the organizations objectives.
International exposure, acquisition or execute transitions create risks
1. Specify objectives
2. Identify and analyze risks
3. Consider potential for fraud
4. Identify ans assess changes

Question 3

Informatioon & Communication Principles

Answer 3

Allow a company’s employees to identify, capture and exchange information regarding controls and operations
Proper measurement of transactions
1. Obtain and use information
2. Internally communicate information
3. Communicate with external parties
Communication is the process of obtaining and sharing information to facilitate and enhance ERM. This function includes reporting on the organization’s risk, culture, and performance.

Question 4

Monitoring Principles

Answer 4

Involves collecting information to determine the controls are working
Verify that the internal control system remains adequate to address changes in risk
Assessment overtime
Taking corrective actions
1. Ongoing/separate evaluations
2. Communication of deficiencies

Question 5

Control Activities Principles

Answer 5

Ensures directives are performed
Detective and preventative
Performance review of the marketing plan
Primarily relate to risk reduction
1. Select and develop control activities
2. Select and develop technology controls
3. Deployment of policies and procedures

Question 6

Corrective controls

Answer 6

Allow the user to recover from a problem once it has been identified

Question 7

Governance and Culture (DOVES)

Answer 7

Defines desired culture
Exercises board oversight
Demonstrate commitment to core values
Attract, develops, and retains capable individuals
Establlishes operating structure

Question 8

Strategy and Objective-setting (SOAR)

Answer 8

Evaluates alternative strategies
Formulates business objectives
Analyzes business context
Defines risk appetite

Question 9

Performance (VAPIR)

Answer 9

Develops portfolio view
Assesses severity of risk
Prioritizes risk
Identifies risks
Implement risk response

Question 10

Review and revision (SIR)

Answer 10

Assesses subtantial change
Pursues improvement in ERM
Review risk and performance

Question 11

Market Equilibrium

Answer 11

Price ceiling below market equilibrium price will result in more demand and less supply

Question 12

Elasticity

Answer 12

Elasticity = Percentage change in quantity demanded over
Percentage change in price
Less than 1 = inelastic: quantity percentage change is less than the percentage change in price.
Equal to 1 = unitary: quantity percentage change is the same as the percentage change in price.
Greater than 1 = elastic: quantity percentage change is more than the percentage change in price.
Elasticity is measured as the percentage change in quantity divided by the percentage change in price. An elastic product would have an absolute value coefficient greater than one meaning that the percentage change in quantity would be greater than the percentage change in price. Since both products have elasticity coefficients greater than one, then the percentage change in price will be less than the percentage change in demand, causing total revenue, quantity times price, to decrease for both products if there is a price increase.

Question 13

WACC calculation with only debt-to-equity ratio information

Answer 13

Debt-to-equity in this example is 0.80. This measn that total debt/total equity = .8
We can use this ratio to determine the proportion of capital provided by debt and equity
if the ratio is .8, the we can say that debt is 8 and equity is 10
The proportion of debt will be 8/(10+8) = .444
The proportion of equity will be 10/(10+8) = .556
Equity = .556 * cost of capital
Debt = .444 * (cost of capital * tax rate)

Question 14

Put option

Answer 14

A put option would give the company the option to sell the stock at a specified price in the future.
If the price of the stock declines, the value of the put option will increase by a like amount.

Question 15

Issuing of preferred stock

Answer 15

Since preferred stock is not debt, there will be no effect on long-term debt.
Since preferred stock is equity, the debt-to-equity ratio will decrease

Question 16

Return on Investment (ROI)

Answer 16

Return on investment can be increased by decreasing operating assets.
If operating assets decrease(the denominator in ROI) the ROI would increase
ROI is highly related to stock price and, therefore, shareholder value.

Question 17

BV per share

Answer 17

Common stock + Retained eraning / Outstanding shares

Question 18

Return on Equity

Answer 18

Net Income/Average owenr’s equity

Question 18

Break-even point

Answer 18

Fixed cost divided by contribution margin per unit

Question 19

Fiscal Policy

Answer 19

Fiscal policy is the use of government taxation, spending and transfer payments to achieve economic objectives.

Question 20

Marginal propensity to consume

Answer 20

Marginal propensity to consume measures the change in consumption spending as the percentage change in disposable income.

Question 21

GDP Deflactor

Answer 21

Nominal GDP/Real GDP * 100

Question 22

Monopoly

Answer 22

1. One firm with no close substitute
2. No competition and no market forces on the setting prices.
   3.Employ public relations and lobbying
3. Price discrimination

Question 23

Discount Rate of the FED

Answer 23

The rate that the central bank charges for loans granted to commercial banks.

Question 24

Shift in the supply curve

Answer 24

A shift in the supply curve may result from:
1. changes in production technology
2. changes or expected changes in resource prices
3. changes in the prices of other goods
4. changes in taxes or subsidies
5. changes in the number of sellers in the market
6. expectations about the future price of the product

Question 25

Porter strategies

Answer 25

Cost leadership
Differentiation
Market focus

Question 26

General Agreement on Tariffs and Trade (GATT)

Answer 26

Eliminating tariffs
Subsidies
Import quotas
Other trade barriers
Harmonize intellectual property laws
Reduce transportation costs

Question 27

Prevent inflation (reducing demand)

Answer 27

Reduce government spending
increase taxes
reduce money supply
reduce interest rates

Question 28

Recessionary phase

Answer 28

During the recessionary phase of a business cycle, actual national income is less than potential national income as a result of decreased demand

Question 29

Federal deficit

Answer 29

decreased tax revenue
increased payments

Question 30

Deflation

Answer 30

Is the general decline in prices of goods and services

Question 31

Audit trail

Answer 31

An audit trail is a step-by-step record by which a financial transaction can be traced to its corresponding source documents. Such a system allows the tracing of a transaction back to its originating purchase order.

Question 32

Frictional unemployment

Answer 32

Frictional unemployment measures the temporary unemployment that always exists as workers change jobs or new workers enter the workforce.

Question 33

Risk appetite

Answer 33

Risk appetite is the amount of risk an organization accepts in pursuit of a strategy and value. Risk appetite is focused on strategy and goals.

Question 34

Tolerance

Answer 34

Tolerance sets the boundaries of acceptable performance; it is related to strategy implementation and variation from plans.

Question 35

price index

Answer 35

The price index measures the combined price of a selected group of goods and services for a specified period in comparison with the combined price of the same or similar goods for a base period.
The price of a basket of commodities at the point of the first commercial sale.

Question 36

Average fixed cost (AFC) curve

Answer 36

by definition, fixed costs do not change with changes in output over the relevant range of production, the more units produced, the lower the average fixed cost. Simply put, more units are being produced for a fixed cost. Therefore, the average fixed cost decreases continuously over the relevant range of production. It is not “U-shaped

Question 37

Profitability index

Answer 37

The profitability index is calculated by dividing the present value of the after-tax cash flows by the original cash invested.

Question 38

economic value-added (EVA)

Answer 38

EVA is equal to net operating profit after taxes minus the after-tax weighted-average cost of capital multiplied by invested capital.

Question 39

Beta coefficient

Answer 39

The beta coefficient of an individual stock is the correlation between the stock’s price and the price of the overall market.

Question 40

Hedging

Answer 40

Hedging involves sharing the risk with another party.

Question 41

processes and controls

Answer 41

help an entity create and maintain reliable data

Question 42

data management architecture

Answer 42

include models, policies, rules, or standards that determine which data is collected and how it is stored, arranged, integrated, and used in systems and in the organization.
refers to the fundamental design of the technology and related data.