Wrong answers

Question 1

When exchange rate for local currency increases than on the payables settlement date?

Answer 1

Exercise option and settle payables with proceeds from option contract at gain

Question 2

During expected high inflation rate, best investment is

Answer 2

Precious metals b/c its a non-monetary asset whose value increases w inflation.

T-bills and corporate bonds = fixed value = increased inflation = interest rate increase = reduce value

Commodities are better hedge than common stock

Question 3

COSO governance and culture:

Answer 3

addresses HR standards

Question 4

Bonds market value:

Answer 4

Floating rate bond: constant
Convertible bonds and callable bonds: fluctuate in value

Question 5

AP/AR Foreign currency fluctuations

Answer 5

Receivable: settlement gain, the foreign currency must be worth more dollars than on transaction date. If foreign currency denominated, # of foreign currency exchangeable into dollars decreased.

Payables: settlement gain, for there to be loss it must take more dollars to buy same foreign currency. IF foreign currency denominated than # of foreign currency exchangeable into dollars decreased

Question 7

Inelastic price demand

Answer 7

increase in price = increase in total revenue ie POSTIVE relationship

Question 8

Calculate new quantity demanded when price increases

Answer 8

= quantity demanded units - (quantity demanded units * elasticity * % price increase)

Question 9

Using dividend growth model, calculate investors required rate of return?

Answer 9

{$ dividends * (1+growth rate %)/ current share price $ } + growth rate %

Question 10

Calculate effective interest rate if borrowing is in form of discount note?

Answer 10

Step 1 cash proceeds = Loan principal - (loan principal *interest rate %)
Step 2 effective interest rate = (loan principal * interest rate %)/ cash proceeds

Question 11

Calculate how much should firm be willing to pay per year for cash management system?

Answer 11

=average daily cash outflows* days added to disbursement * earnings rate

Question 12

Calculate change in real cost of material?

Answer 12

cost per ton at beginning * (1+inflation%) - cost per ton at end

Question 13

Calculate cost of equity?

Answer 13

=expected dividend / current share price + growth rate

Question 14

Calculate safety stock

Answer 14

= reorder point - (lead time *sales per week)