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)

Question 15

When capitalizing software:

Answer 15

annual amortization % is greater of % of revenue or useful life %

Question 16

Annual cost of discount

Answer 16

=[360/(Total pay period - discount period)] * [discount %/ (100% - discount)]

Question 17

3 elements needed to estimate cost of capital

Answer 17

1) current dividends per share
2) expected growth rate
3) current market price of common share

Question 18

Projected stock price

Answer 18

PEG ratio * g * EPS * (1+ g%)

Question 19

R&D cost is expensed

Answer 19

Before tech is feasible established… planning cost + design of software + testing of initial project

Question 20

Remeasurement (temporal) method

Answer 20

• current (year-end) exchange rate all monetary like AR
• historical exchange rate like all NON-monetary like patents, paid in capital, and PPE

Question 21

Effective interest rate

Answer 21

(loan amount * stated interest %) / (loan amount - comp balance % * loan amount)

Question 22

Different funds

Answer 22

a) Special revenue: revenue from specific taxes to finance specific gov activities

b) Fiduciary funds: monies donated for specific purposes

c) general funds: ordinary operations of gov unit

d)capital project funds: grants for specific purposes

Question 23

Finance liability when tranfer takes place

Answer 23

= selling price - fair value

Question 24

What is COG manufactured and transferred to WIP

Answer 24

Each job calculate than sum = beg WIP + labor + (labor * OH % of labor)

Question 25

Derivative reported under CF investing section

Answer 25

Derivative that is not designated for hedging purposes nor held for trading

Question 26

Derivative reported under CF operating section

Answer 26

A derivative with no hedging designation but is being held for training purposes

Question 27

Derivative reported under CF financing section

Answer 27

A derivative with significant financing element at transition inception