Question 66

Which of the following items for a mutual funds company is least likely to be considered an operating item on the income statement?

A)    Interest income.

B)   Interest expense.

C)   Income tax expense.

D)   Financing expenses.

 Question 67

 Question 67

The correct financial statement adjustments for a take-or-pay contract and for a sale of receivables with recourse that has been reported as a true sale would:

       Take-or-pay contract         Sale of receivables with recourse

A)    not affect the current ratio       decrease the total debt-to-equity ratio

B)   decrease the current ratio       increase the total debt-to-equity ratio

C)   decrease the current ratio       decrease the total debt-to-equity ratio

D)   not affect the current ratio       increase the total debt-to-equity ratio

  Question 68

  Question 68

The financial analyst for Markham Inc. has reviewed the most recent financial statements and observed that while sales are up 10%, trade payables are up 20% and short-term liabilities are unchanged. There has also been an increase in advances from customers, also a liability. Based on this information, which of the following effects on Markham’s liquidity are most likely with respect to these changes?

       Short-term borrowings                    Advances to customers

A)    Stable or decreased risk of liquidity problems    Deteriorating liquidity position

B)   Increased risk of liquidity problems               Stable or improving liquidity position

C)   Increased risk of liquidity problems               Deteriorating liquidity position

D)   Stable or decreased risk of liquidity problems    Stable or improving liquidity position

 Question 69

 Question 69

An analyst prepared the following selected horizontal common-size balance sheet data for Spider Corporation:

In the base year, Spider’s current ratio was 1.5. Spider’s current ratio as of December 31, 20X7 is closest to:

A)    0.86.

B)   1.50.

C)   1.29.

D)   1.16.

Question 70

Question 70

Edelman Enginenering is considering including an overhead pulley system in this year's capital budget. The cash outlay for the pully system is $22,430. The firm's cost of capital is 14%. After-tax cash flows, including depreciation are $7,500 for each of the next 5 years. 

Calculate the internal rate of return (IRR) and the net present value (NPV) for the project, and indicate the correct accept/reject decision.

NPV        IRR         Accept/Reject

A)    $15,070
     14%        Accept

B)   $15,070
     14%        Reject

C)   $3,318     20%        Accept

D)   $3,318     20%        Reject

[此贴子已经被作者于2008-11-8 9:47:45编辑过]

答案和详解如下！

Question 66

Which of the following items for a mutual funds company is least likely to be considered an operating item on the income statement?

A)    Interest income.

B)   Interest expense.

C)   Income tax expense.

D)   Financing expenses.

 The correct answer was C) Income tax expense.

 The correct answer was C) Income tax expense.

 The correct answer was C) Income tax expense.

A mutual funds company is an example of a financial services company, so interest income, interest expense, and financing expenses are likely components of operating activities. For both financial and nonfinancial companies, income tax expense is more like a nonoperating item that is reported within “income from continuing operations” as opposed to “operating profit” like the other three answer choices. Therefore, of the four choices, income tax expense is least likely to be considered an operating item.

This question tested from Session 8, Reading 32, LOS f

Question 67

The correct financial statement adjustments for a take-or-pay contract and for a sale of receivables with recourse that has been reported as a true sale would:

       Take-or-pay contract         Sale of receivables with recourse

A)    not affect the current ratio       decrease the total debt-to-equity ratio

B)   decrease the current ratio       increase the total debt-to-equity ratio

C)   decrease the current ratio       decrease the total debt-to-equity ratio

D)   not affect the current ratio       increase the total debt-to-equity ratio

 The correct answer was D) not affect the current ratio        increase the total debt-to-equity ratio

 The correct answer was D) not affect the current ratio        increase the total debt-to-equity ratio

 The correct answer was D) not affect the current ratio        increase the total debt-to-equity ratio

Because the liability on a take-or-pay contract is off-balance-sheet, it reduces leverage ratios. For analytical purposes, the present value of the minimum purchase obligation should be added to both long-term liabilities and long-term assets before calculating leverage ratios. The current ratio (current assets divided by current liabilities) is unaffected by this adjustment.

The sale of receivables with recourse artificially reduces the receivables balance as well as short-term debt. As a result, the leverage ratios (amongst other ratios) are too low. For analytical purposes we should treat the sale as a borrowing so the receivables should be added back to the balance sheet. And the proceeds of the sale should be treated as short-term debt. The ratios should be calculated with the restated values. The increase in debt (with no corresponding increase in equity) will increase the total debt-to-equity ratio.

This question tested from Session 9, Reading 40, LOS c

  Question 68

The financial analyst for Markham Inc. has reviewed the most recent financial statements and observed that while sales are up 10%, trade payables are up 20% and short-term liabilities are unchanged. There has also been an increase in advances from customers, also a liability. Based on this information, which of the following effects on Markham’s liquidity are most likely with respect to these changes?

       Short-term borrowings                    Advances to customers

A)    Stable or decreased risk of liquidity problems    Deteriorating liquidity position

B)   Increased risk of liquidity problems               Stable or improving liquidity position

C)   Increased risk of liquidity problems               Deteriorating liquidity position

D)   Stable or decreased risk of liquidity problems    Stable or improving liquidity position

 The correct answer was D)  Stable or decreased risk of liquidity problems    Stable or improving liquidity position

 The correct answer was D)  Stable or decreased risk of liquidity problems    Stable or improving liquidity position

 The correct answer was D)  Stable or decreased risk of liquidity problems    Stable or improving liquidity position

Decreased reliance on short-term borrowings as opposed to trade payables often indicates that the risk of short-term liquidity problems is stable or decreasing. Trade liabilities that grow more rapidly than sales indicate a heavier reliance on suppliers as a source of cash to fund operations. This is not necessarily a bad thing because in general, operating liabilities will increase as a company’s business grows. But it is the shift from financing liabilities to operating liabilities that often signals a decreased potential for liquidity problems. An increase in advances from customers suggests an increase in future sales and does not indicate a deteriorating liquidity position since it is not a liability that must be paid in cash. Therefore, an increase in advances from customers is more indicative of a stable or even improving liquidity position.

This question tested from Session 9, Reading 39, LOS a

 Question 69

An analyst prepared the following selected horizontal common-size balance sheet data for Spider Corporation:

In the base year, Spider’s current ratio was 1.5. Spider’s current ratio as of December 31, 20X7 is closest to:

A)    0.86.

B)   1.50.

C)   1.29.

D)   1.16.

 The correct answer was D) 1.16.

 The correct answer was D) 1.16.

 The correct answer was D) 1.16.

Since 2007 current assets were 101.4% of base year current assets and 2007 current liabilities were 1.31 time base year current liabilities, the 2007 current ratio is (1.014 / 1.31)(1.5) = 1.161.
   

This question tested from Session 10, Reading 41, LOS a

 Question 70

Edelman Enginenering is considering including an overhead pulley system in this year's capital budget. The cash outlay for the pully system is $22,430. The firm's cost of capital is 14%. After-tax cash flows, including depreciation are $7,500 for each of the next 5 years. 

Calculate the internal rate of return (IRR) and the net present value (NPV) for the project, and indicate the correct accept/reject decision.

NPV        IRR         Accept/Reject

A)    $15,070
     14%        Accept

B)   $15,070
     14%        Reject

C)   $3,318     20%        Accept

D)   $3,318     20%        Reject

 The correct answer was C)  $3,318   20%       Accept

 The correct answer was C)  $3,318   20%       Accept

 The correct answer was C)  $3,318   20%       Accept

Using the cash flow keys:
CF0 = -22,430; CFj = 7,500; Nj = 5; Calculate IRR = 20%
I/Y = 14%; Calculate NPV = 3,318

Because the NPV is positive, the firm should accept the project.

This question tested from Session 11, Reading 44, LOS d

[此贴子已经被作者于2008-5-10 17:40:26编辑过]

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