level1-Mock-114HYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINK"GuidanceStandardsI–VII"StandardI(A)–KnowledgeoftheStandardI(D)–Misconduct17.answer:B.InorderavoidviolatingStandardIII(E)–PreservationofStaalshoulddeterminewhetherapplicablesecuritiesregulationsrequiredisclosingtherecordsbeforeprovidestheconfidentialinformationconcerningherclient'sinvestments.LevelI"GuidanceStandardsIVII"StandardIII(E)–PreservationofConfidentiality18.answer:A.CompliancewiththeGIPSstandardsdoesnoteliminatetheneedforin-depthduediligenceonthepartoftheLevelI"IntroductiontotheGlobalInvestmentPerformanceStandards(GIPS)"7/45level1-Mock-114Questions19~32RelateQuantitativeanalysis19.answer:B.Aconfidenceintervalforaparameter=Pointestimate±Reliabilityfactor×StandardForexample,thereliabilityfactorsforconfidenceintervalsbasedonthestandardnormaldistributionare1.65for90%confidenceintervalsand1.96for95%confidenceintervals.agivenpointestimateandstandardtheconfidenceintervalwillbenarrowerwithalowerreliabilityLevelI"SamplingandEstimation,"RichardA.DeFusco,DennisJeraldE.Pinto,andDavidE.RunkleSection4.220.answer:A.Forapositivelyskewedunimodaldistribution,themodeislessthanthemedian,whichislessthantheLevelI"StatisticalConceptsandMarketReturns,"RichardA.DeFusco,DennisJeraldE.Pinto,andDavidE.RunkleSection821.answer:C.FailuretorejectafalsenullhypothesisisaIILevelI"HypothesisRichardA.DeFusco,DennisJeraldPinto,andDavidRunkleSection222.answer:C.Theappropriateteststatisticisaz-statisticbecausethesamplecomesfromanormaldistributedpopulationwithknownvariance.Az-testdoesnotusedegreesoffreedom.Thistestistwo-sidedatthe0.05significancelevel,andtherejectionpointconditionsarez>1.960andz<1.960.8/45level1-Mock-114LevelI"HypothesisRichardA.DeFusco,DennisJeraldPinto,andDavidE.RunkleSection323.answer:B.CorrelationofreturnsbetweenAssetAandBρ(RA,isdefined,R)=,R,ABABABwhereRAandRBarethereturnsofAssetAandB,RisthecovarianceofreturnsbetweenAssetAandBAB(R)and(R)arethestandarddeviationsofreturnsofAssetAandBABInthisproblem,thecorrelationis×=.LevelI"ProbabilityConcepts,"RichardA.DeFusco,DennisJeraldE.Pinto,andDavidRunkleSection324.answer:C.Givenapopulationthatafinitevarianceandasamplesize,thecentrallimittheoremestablishesthatthesamplingdistributionofsamplemeanswillbeapproximatelynormal,thedistributionofsamplemeanwillhaveaequaltothepopulationandwillhaveavarianceequaltothepopulationvariancedividedbysamplesize.LevelI"SamplingandEstimation,"RichardA.DeFusco,DennisJeraldE.Pinto,andDavidE.RunkleSection3.19/45level1-Mock-11425.answer:C.Resistanceisdefinedasapricerangeinwhichsellingactivityissufficienttostoptheriseprice.LevelIAnalysis,"BarryM.SineandRobertA.StrongSection3.226.answer:C.Thep-valuethesmallestlevelofsignificanceatwhichthenullhypothesiscanberejected.Inthiscase,thegivenp-value(0.0275)isthanthegivenlevelofsignificance(0.05);therefore,thenullhypothesisisrejected.LevelI"HypothesisRichardA.DeFusco,DennisJeraldPinto,andDavidRunkleSection227.answer:A.Bythedefinitionofp-value,0.03isthesmallestlevelofsignificanceatwhichthenullhypothesiscanberejected.Ananalystcannotrejectnullhypothesisatthe0.01significancelevel.LevelI"HypothesisRichardA.DeFusco,DennisJeraldPinto,andDavidRunkleSection228.answer:A.Anopportunitycostisthevaluethatinvestorsbychoosingaparticularcourseofaction.LevelI"TheofRichardDeFusco,DennisJeraldE.Pinto,andDavidE.RunkleSection210/45level1-Mock-11429.answer:B.Eventsareexhaustivewhentheycoverallpossibleoutcomes.Mutuallyexclusivemeansthatonlyoneeventcanoccuratatime.eventsaredependentiftheoccurrenceofoneeventdoestheprobabilityofoccurrenceoftheotherevent.thissituation,EventAandBbothmutuallyexclusive(becausetheycannotoccurthetime)anddependent(becauseifoneeventoccurs,theprobabilityoftheotherbecomeszero).thetwoeventsarenotexhaustivebecausetheydonotcovertheeventthatfundwillearnareturnabove5%.LevelI"ProbabilityConcepts,"RichardA.DeFusco,DennisJeraldE.Pinto,andDavidRunkleSection230.answer:A.Thet-statisticforthegiveninformation(normallydistributedpopulations,populationvariancesassumedequal)iscalculatedas:XXt12120.5s2s2PPnn12Inthiscase,have:s2=2678.05.P2001850t0.937680.9420.52678.052678.052518LevelI―HypothesisRichardA.DeFusco,DennisJeraldPinto,andDavidRunkleSection3.231.answer:B.Nonparametricproceduresareprimarilyusedthreesituations:whenthedatagiveninranks,level1-Mock-114whenthedatadonotdistributionalassumptions,orwhenthehypothesisbeingaddresseddoesnotconcernaLevelI"HypothesisRichardA.DeFusco,DennisJeraldPinto,andDavidRunkleSection532.answer:C.Theappropriateteststatisticforthedifferencebetweentwopopulation(unequalandXXt1212unknownpopulationvariances)is0.5s2s221nn12LevelI"HypothesisRichardA.DeFusco,DennisJeraldPinto,andDavidRunkleSection3.212/45level1-Mock-114Questions33~44RelateEconomics33.answer:B.Infirst-degreepricediscrimination,theentireconsumersurplusiscapturedbytheproducer;theconsumersurplusfallstozero.LevelI"TheFirmandMarketStructures,"RichardG.FritzandMicheleGamberaSection6.434.answer:C.Usingtheexpendituresapproach:GDP=Consumerspendingongoodsandservices+Businessgrossfixedinvestment+Changeinventories+Governmentspendingongoodsandservices+Governmentgrossfixedinvestment+Exports–Imports+StatisticaldiscrepancyConsumerspendingongoodsandservicesBusinessgrossfixedinvestmentChangeininventories875,060286,400(68,500)305,60084,120GovernmentspendingongoodsandservicesGovernmentgrossfixedinvestmentExports219,800(250,980)(2,850)ImportsStatisticaldiscrepancy=Grossdomesticproduct1,448,650LevelI―AggregateOutput,Prices,andEconomicGrowth,‖PaulR.KutasovicandRichardG.FritzSections2.2,2.335.answer:A.13/45level1-Mock-114Cost-pushinflationarisesduetoincreasesincostsassociatedwithproduction:wagesandrawmaterialsprices.LevelI―UnderstandingBusinessCycles,‖MicheleGambera,MiltonEzrati,andBolongCaoSection36.answer:C.Priortothepriceceiling,thetotalsurpluswasd+e+f+g+h,consistingofconsumersurplusoff+eandproducersurplusofd+g+h.priceceilingcausesthequantitysupplieddecreasetoQCandforthoseconsumerswhocanfindsupplygainconsumersurplusofgattheexpenseofproducers.thedeclineconsumersloseconsumersurpluseandproducersloseproducersurplusdacombineddeadweightlossofd+e.LevelI"DemandandSupplyAnalysis:Introduction,"RichardEastinandGaryL.ArbogastSection3.1337.answer:C.Theoptimaloutputlevelis60unitsasthatlevelproducesthehighestprofit:Output(units)20PriceCostsProfit($)($/unit)2,8002,6002,4002,2002,000Revenue($)56,00010,60032,60066,600170,60045,40071,40077,40063,40029,40040104,000144,000176,000200,0006080100LevelI―TheFirmandMarketStructures,‖RichardG.FritzandMicheleGambera14/45level1-Mock-114Sections6.1,6.2,6.338.answer:B.Thecharacteristicsofmonopolisticcompetitionincludeanumberofcompetitors,lowpricingandtheproductionofdifferentiatedproducts(throughadvertisingandothernon-pricestrategies),butthesestillresultpricingeaseofentryresultszeroeconomicprofitsinthelongrun.LevelI"TheFirmandMarketStructures,"RichardG.FritzandMicheleGamberaSections2.1,2.2,439.answer:C.NominalGDPisdefinedasthevalueofgoodsandservicesmeasuredatcurrentprices.RealGDPisnotbypriceincreaseswhilenominalGDPandtheGDPdeflatorincreasewithpriceincreases:RealGDPcurrentyear=NominalGDPcurrentyear×100GDPdeflatorRealGDPcurrentyear=PXbaseyear×QXcurrentyearLevelI―AggregateOutput,Prices,andEconomicGrowth,‖PaulR.Kutasovic,andRichardG.FritzSection2.1.240.answer:A.Atfullemployment,aweakercurrencyreducesthepurchasingpowerofalldomesticcurrencydenominatedassets(includingthepresentvalueofcurrentandfutureincome).Householdsrespondbyreducinggeneralexpendituresandincreasingsavings.Thisresponsethewealthandreflectstheproportionofone'sincomethatissaved(orspent).LevelI"DemandandSupplyAnalysis:ConsumerDemand,"RichardEastinandGaryL.ArbogastSection6.2"AggregateOutput,Prices,andEconomicGrowth,"PaulR.KutasovicandRichardFritz15/45level1-Mock-114Section3.3.1"CurrencyExchangeRates,"A.PaulD.McNelis,andJerryNickelsburgSections5.1,5.241.answer:B.Ashiftthedemandcurveresultsfromachangeanyvariableotherthanthegood'sownprice,Px.Giventhedemandfunction,achangeineitherPyorIwouldresultinashiftthedemandcurve.Achangeinquantitydemanded,whichrefersamovementalongthedemandcurve,ariseswhenthegood'sownpricechanges.LevelI"DemandandSupplyAnalysis:Introduction,"RichardEastinandGaryL.ArbogastSection3.242.answer:B.Inaperfectlycompetitivemarket,sellershavenopricingpowerandthusselltheirproductatthepriceestablishedbydemandandsupplyinthemarket–themarketequilibriumprice.LevelI"TheFirmandMarketStructures,"RichardG.FritzMicheleGamberaSection3.343.answer:A.EachcompanywillconsiderthereactioninselectingitsUsingthefollowingitisbestforbothchainstoprovide24-hourservice.ChainConsiderationBestDecisionIfitopensfor24hours,itwillahigherregardlessofwhatChain2does.1Chain2Chain2Closesat9Opensfor24hoursOpenfor24hours16/45level1-Mock-114Chain1earns540Chain1earns108insteadof180insteadof55Ifitopensfor24hours,itwillahigherregardlessofwhatChain1does.2Chain1Chain1Openfor24hoursClosesat9Opensfor24hoursChain2earns592Chain2earns140insteadof290insteadof75LevelI―TheFirmandMarketStructures,‖RichardG.FritzandMicheleGamberaSection5.144.answer:A.TheprofitmaximizingoutputwillarisewhenMR=MCMR=150-10×Q=MC=3×Q2-20×Q+73Onreduction,thisbecomes:3xQ2-10-77=0Onlywithwillthisequationbesatisfied:3×72–10×7-77=0Alternatively:bycomparingnetprofitundereachalternativeUnitsMarginalrevenue150-10×7=80150-10×8=70150-10×=40MarginalcostTRTCNetProfit73×72-20×7+73=803×82-20×8+73=1053×2-20×+73=2168058801045484576104532130408LevelI"TheFirmandMarketStructures,"RichardG.FritzandMicheleGamberaSection5.117/45level1-Mock-114Questions45~68RelateFinancialStatementAnalysis45.answer:C.Adecreaseinthetaxratewillresultadecreaseinthepreviouslyreportedamountsofdeferredtaxassets.Thatis,thevalueofthefuturetaxassets,basedonthenewlowerrate,isreducedforoffsettingfuturetaxpayments.LevelI―IncomeElbieAntonitesandMichaelA.BroihahnSection3.346.answer:C.Whenalonglivedassetissoldonlythenetgainorlossisreportedontheincomestatement.Thegainorlossonasale=salesproceeds–carryingamount=$80,000–$70,000=$10,000gain.LevelI"Long-livedAssets,"ElaineHenryandElizabethA.GordonSection6.147.answer:C.Thedirectmethodofcashflowstatementpresentationshowsthespecificcashinflowsandoutflowsthatresultreportedcashflowfromoperatingactivities(e.g.,cashfromcustomersandcashtosuppliers).CompaniesusingIFRScandecidereportinterestanddividendreceiptsaseitheraninvestingoroperatingwhereasunderUStheyreportsuchincomeasanoperatinglistedoperatingandinvestmentactivitiesindicatethatthecompanyreportsunderIFRSusingdirectmethod.LevelI"UnderstandingCashFlowStatements,"ElaineThomasR.Robinson,JanHendrikvanGreuning,andMichaelA.BroihahnSections2.3,2.3.2,48.answer:C.UnderUSbankoverdraftsarenotconsideredpartofcashandcashequivalentsandare18/45level1-Mock-114classifiedasfinancingcashflows.LevelI"UnderstandingCashFlowStatements,"ElaineThomasR.Robinson,JanHendrikvanGreuning,andMichaelA.BroihahnSection2.249.answer:C.Incometaxexpenseequalsincometaxpayable(thetaxratemultipliedbythetaxableincome)plustheincreaseinthedeferredliabilities.(0.30×$215,000)+($90,650–$82,400)=$64,500+$8,250=$72,750.LevelI―IncomeElbieAntonitesandMichaelA.BroihahnSection250.answer:A.TheSECnowadvocatesforglobalaccountingstandardsthroughpublicannouncements,suchits"StatementinSupportofConvergenceandGlobalAccountingStandards"(2010).Inthepast,theSEChadrequiredreconciliationsbetweenIFRSandUSbuttheserequirementswerewithdrawn2008.Thenowimposesnorequirementsonitsissuers.LevelI"FinancialReportingStandards,"ElaineJanHendrikvanGreuning,andThomasR.RobinsonSection451.answer:B.TheDeferredtaxassetisbasedonthetemporarydifferencearisingfromtheinthecarryingvaluefortaxesvs.thefinancialstatements=(120,000–100,000)×17%=3,400.Theratethatshouldbeusedistheexpectedwhenthereversalwilloccurwhichisnowthelowerrateof17%.LevelI19/45level1-Mock-114"IncomeElbieAntonitesandMichaelA.BroihahnSection3.352.answer:A.Acommon-sizebalancesheetexpressesallbalancesheetaccountsapercentageoftotalassetsandwouldprovideinsightintowhatportionofaassetsisliquid.Ontheotherhand,cashandcurrentratiosmeasureliquidityrelativecurrentliabilities,notrelativetototalassets.LevelI―UnderstandingBalanceSheets,‖ElaineHenryandThomasR.RobinsonSections7.1,7.2―FinancialAnalysisElaineThomasR.Robinson,andJanHendrikvanGreuningSection3.2.153.answer:A.UnderIFRS(InternationalFinancialReportingStandards),firstdeterminetherecoverableamount,whichisthehigherofvalueinuse(thepresentvalueoftheexpectedfuturecashflows)=$32,000orfairvalueminuscostssell=$34,000–4,000=$30,000Therecoverableamount($32,000)islowerthanthecarryingvalue($36,000).Therefore,theassetisimpairedshouldbewrittendowntothatamount.UnderUStoassessimpairment,thecarryingvalue($36,000)iscomparedwiththeundiscountedexpectedfuturecashflows($38,000).Inthiscase,thecarryingvalueislowerthepatentisnotimpaired.LevelI―Long-LivedAssets,‖ElaineHenryandElizabethA.GordonSections5.1,5.254.answer:A.USGAAPprohibitstherevaluationofPPE.Therefore,thisisasourceofimportantdifferencebetweenUSGAAPandIFRSwithrespecttoreportingofincometaxes.20/45level1-Mock-114LevelI"IncomeElbieAntonitesandMichaelA.BroihahnSection855.answer:C.Becausetheassetisself-constructed,thecostsofspecificallyidentifiableinterestduringtheconstructionperiodcanbecapitalizedandincludedthecostoftheshowroom.€MillionsConstructioncosts38.54.8Interestexpensein2012and2013:0.08×€30×2yearscapitalizedcost43.3Straightlinedepreciationexpense:(Capitalizedcost–Residualvalue)/Usefullife=(43.3–5.0)/400.9575LevelI―Long-LivedAssets,‖ElaineHenryandElizabethA.GordonSections2.1,3.156.answer:C.CurrentRatioCashRatioCashQuickRatioNumeratorCurrentassets=+Cash+MarketableCash+MarketablesecuritiesMarketablesecurities+Receivables+Receivables+InventoryCurrentliabilitiessecuritiesCurrentliabilitiesCurrentliabilitiesDenominatorCurrentyearNumerator+23+231+462+23=137+23+231=36821/45level1-Mock-114=830Denominator390390390Ratio:Current2.13year0.350.37–0.020.940.97–0.03Ratio:yearPrior2.19Changeinratio–0.06LevelI―UnderstandingBalanceSheets,‖ElaineHenryandThomasR.RobinsonSection7.2―FinancialAnalysisElaineThomasR.Robinson,andJanHendrikGreuningSection4.357.answer:B.TheallowancefordoubtfulaccountsincreasesbythebaddebtexpenserecognizedfortheyearanddecreasesbytheamountswrittenduringtheBeginningbalanceallowancefordoubtful￡56millionaccountsPlusbaddebtexpenseMinus?–￡84millionEndingbalanceallowancefordoubtful￡92millionaccountsSolveforbaddebtexpense=￡120million.LevelI22/45level1-Mock-114―UnderstandingBalanceSheets,‖ElaineHenryandThomasR.RobinsonSection3.1.358.answer:C.acceleratedamortisation,firstyearamortisationexpenseisthehighest.LevelI―Long-livedAssets,‖ElaineHenryandElizabethA.GordonSections3.1,3.259.answer:A.Netincome=Comprehensiveincome–Othercomprehensive$193.0–$105.4millionincome$87.6Netincomepershare(EPS)=Netincome/CommonsharesoutstandingP/E=Stockprice/EPS$105.4/46.5$60.75/$2.27$2.27million26.76LevelI―UnderstandingIncomeStatements,‖ElaineHenryandThomasR.RobinsonSection8―FinancialAnalysisElaineThomasR.Robinson,andJanHendrikGreuningSection5.160.answer:A.Thenotesprovideacomprehensivedescriptionofalloftheentity'saccountingpolicies,irrespectiveofwhetherjudgmentwasrequiredorwhetherthepoliciesareimportantunderstandingthefinancialstatements.LevelI23/45level1-Mock-114"FinancialReportingStandards,"ElaineJanHendrikvanGreuning,andThomasR.RobinsonSection8.3.161.answer:C.Theprimarybenefitofthedirectmethodthatitprovidesinformationonthespecificsourcesofoperatingcashreceiptsandpayments.LevelI"UnderstandingCashFlowStatements,"ElaineThomasR.Robinson,JanHendrikGreuning,andMichaelA.BroihahnSection2.362.answer:C.Costofsalesreportedonthebasisasrevenue.reportrevenueundergrossreporting,thee-commercecompanymeetfourcriteria:CriteriaMet/NotMetThee-commercecompanymustbetheprimaryobligorunderthecontract.beartheinventoryriskandcreditrisk.beablechooseitsNotNotMetalsohavereasonablelatitudetoestablishpricing.MetThefirstcriterionisnotmet.Themajorhotelchainshavetheobligationoffulfillingtheroomcontractonceitisenteredinto.Thesecondcriterionisnoteitherbecausethee-commercecompanydidnotincurcostsforvacantThemajorchainsbeartheinventoryrisk.Becauseallcriterianotthee-commercecompanymustusenetreportingforwhichrevenue$500,000andcostofsalesis$250,000.LevelI24/45level1-Mock-114―UnderstandingIncomeStatements,‖ElaineHenryandThomasR.RobinsonSection3.2.463.answer:C.Whethersecuritiesclassifiedasheldfortradingoravailableforsale,theyaremeasuredattheirfairvalueonthebalancesheet.Allgains/lossesonheld-for-tradingsecuritiesarereportedontheincomestatements,whereastheunrealizedgains/lossesonavailable-for-salesecuritiesarereportedinThistreatmentistheforbothIFRSandUSGAAPreporting.LevelI"UnderstandingIncomeStatements,"ElaineHenryandThomasR.RobinsonSection8"UnderstandingBalanceSheets,"ElaineHenryandThomasR.RobinsonSection4.564.answer:C.Therevenue/expense-basedapproachisameasurementapproach,notastandardsettingapproach.LevelI"FinancialReportingStandards,"ElaineJanHendrikvanGreuning,andThomasR.RobinsonSections2,6.265.answer:C.Deferredtaxbalancesresultfromtemporarydifferencesbetweenaincomeasreportedfortaxpurposesandincomereportedforfinancialstatementpurposes.Thetemporarydifferenceinthiscasearisesfromthedifferencebetweenthedepreciationaccountingpurposesandthedepreciationfortaxpurposes.Becauseofthisthecompanywouldreportmoreincometaxexpensethanwouldactuallybepaidtaxes.differenceisadeferredtax25/45level1-Mock-114differencebalance=Depreciationexpensefor￡6,340–￡4,500accountingpurposes–DepreciationtaxpurposesDeferredtaxbalance=￡1,840￡460differencebalance×Corporatetaxrate￡1,840×25%LevelI―UnderstandingBalanceSheets,‖ElaineHenryandThomasR.RobinsonSection5.2―IncomeElbieAntonitesandMichaelA.BroihahnSections2.2,466.answer:A.Acompanymustdiscloseseparateinformationaboutanyoperatingsegmentwhichmeetscertainquantitativecriteriathesegmentconstitutes10percentorofthecombinedoperatingsegments’revenue,assets,orprofit.(Forpurposesofdeterminingwhetherasegmentconstitutes10percentormoreofcombinedprofitsorlosses,thecriteriaisexpressedinoftheabsolutevalueoftheprofitorlossasapercentageofthegreaterof(i)thecombinedprofitsofallprofitablesegmentsand(ii)theabsoluteamountofthecombinedlossesofallloss-makingsegments.)LevelI"FinancialAnalysisElaineThomasR.Robinson,andJanHendrikvanGreuningSection7.167.answer:A.26/45level1-Mock-114(millions)AccountingPurposes(￡10,000–￡6,800)=￡3,20020yearsPurposesRevaluationsurplusNorevaluationallowed5yearsremainingDepreciation,straightlineStartofyearbalanceafterrevaluation,2013￡10,000￡5,000Depreciation,2013(￡10,000/20years)=￡500￡9,500￡1,000￡4,000_____Netbalance,endof2013MinusrevaluationsurplusCarryingvalueforpurposesofdeferredtaxes–￡3,200￡6,300￡4,000Deferredtaxliability=0.30×(￡6,300–￡4,000)=￡690OnlytheportionofthedifferencebetweenthetaxbaseandthecarryingamountthatisnottheresultoftherevaluationrecognizedgivingriseadeferredtaxTheportionarisingfromtherevaluationsurplusisusedtoreducetherevaluationsurplusLevelI―IncomeElbieAntonitesandMichaelA.BroihahnSections2.2,6.268.answer:C.Thehigherthecurrentratio,theliquidtheThus,withacurrentratioof2.6(1,800/700),thecompanyislessliquidthanthewhichhasacurrentratioof3.2.Currentratio=Currentassets/Currentliabilities.CurrentAssetsCash￡thousands200CurrentLiabilitiesAccountspayablepayable￡thousands300Accountsreceivable350200Inventory1,2501,800Loanpayable,firstinstallment20070027/45level1-Mock-114LevelI―UnderstandingBalanceSheets,‖ElaineHenryandThomasR.RobinsonSection7.2―FinancialAnalysisElaineThomasR.Robinson,andJanHendrikGreuningSection4.3CapitalManagement,‖EdgarA.Norton,KennethL.Parkinson,andPamelaPetersonDrakeSections2.228/45level1-Mock-114Questions69~76RelateCorporatefinance69.answer:B.operatingcost00012Operatingpoint==000price-tunitLevelI―Measuresofleverage‖70.answer:A.Breakevenquantityofsales,FCPVQBE=(€50million+€30million)÷(€85-€65)=4.0millionunits.LevelI―MeasuresofLeverage,‖PamelaPetersonDrake,RajAggarwal,CynthiaHarrington,andAdamKoborSection3.671.answer:A.365/NumberofdaysbeyonddiscountperiodDiscount1DiscountCostoftradecredit=11365/303%13%Costoftradecredit=1144.9%LevelICapitalManagement,‖EdgarA.Norton,KennethL.Parkinson,andPamelaPetersonDrakeSection7.172.answer:A.29/45level1-Mock-114Areductioninventorywillincreasetheinventoryturnover(Costofgoodsinventory),whichthatthedaysininventorywillbereduced(365/Inventoryturnover).Thiswillleadareductionthecashconversioncycle(alsocallednetoperatingcycle).Cashconversioncycleconsistsofnumberofdaysofinventoryandnumberofdaysofreceivablesminusnumberofdaysofpayables.LevelI―FinancialAnalysisThomasR.Robinson,JanHendrikvanGreuning,ElaineandMichaelA.BroihahnSection4.3.2CapitalManagement,‖EdgarA.Norton,KennethL.Parkinson,andPamelaPetersonDrakeSection2.273.answer:C.Basedthefollowingequation:QuantityPrice-VariablecostDTLQuantityPrice-VariablecostFixedcosts-Financingcoststhechangetoaccelerateddepreciationincreasesthefixedcosts,thusmakingincrease(i.e.,thenumeratordoesnotchangeanddenominatordecreases).LevelI―MeasuresofLeverage,‖PamelaPetersonDrake,RajAggarwal,CynthiaHarrington,andAdamKoborSection3.574.answer:C.Salesriskisassociatedwithuncertaintywithrespecttotalrevenue,which,turn,dependsonpriceandunitssold.LevelI―MeasuresofLeverage,‖PamelaPetersonDrake,RajAggarwal,CynthiaHarrington,andAdamKobor30/45level1-Mock-114Section3.1,3.275.answer:C.3.6DFL=LevelI―Measuresofleverage‖76.answer:A.InaDutchauction,thecompanystipulatesarangeofacceptableprices.Shareholdersindicatehowmanysharestheywilltenderatthevariousprices.LevelI―DividendsandShareRepurchases:Basics,‖H.andGregoryNoronhaSection4.131/45level1-Mock-114Questions77~88RelateEquityinvestment77.answer:A.Companiespursuingcostleadershipmustbeableinvestinproductivity-improvingcapitalequipmentinordertobelow-costproducersandmaintainoperatingsystems.LevelI―IntroductiontoIndustryandCompanyAnalysis,‖PatrickAnthonyM.Fiore,andIanRossaO’ReillySection678.answer:B.Netprofit=Netearnings/SalesNetearnings=Netprofit×Sales;Dividendspershare(Dn)=(Netearnings×Payoutratio)/Numberofoutstandingshares;Therefore,D1=($180million×0.15×0.60)/8.1million=$2.00D2=$2.00(1+0.25)=$2.50D3=$2.00(1+0.25)2=$3.13D4=$2.00(1+0.25)2(1+0.05)=$3.28$3.280.120.05V3=$46.68$2.00$2.50$3.13$46.86v0$39.36310.1210.1210.1210.1223LevelI―EquityConceptsandBasicJohnJ.NagorniakandStephenSection4.379.answer:B.Sharebuybackreducesholdingotherfactors(e.g.,earnings)constant,thusreturnonequitywillbeLevelI―FinancialAnalysisElaineThomasR.Robinson,andJanHendrik32/45level1-Mock-114GreuningSections4.5.2,6.2―IntroductiontoIndustryandCompanyAnalysis,‖PatrickAnthonyM.Fiore,andIanRossaO’ReillySection6.180.answer:B.Operationallyefficientmarketsliquidmarketsinwhichthecostsofarrangingtrades,commissions,bid–askspreads,andorderpriceimpacts,areLevelI―MarketandStructure,‖LarryHarrisSection981.answer:C.Theputoptionfeaturefacilitatesraisingcapitalbecausethesharesareappealinginvestors.Assuch,itprovidesabenefittheissuingItalsohelpsinvestorslimittheirpotentiallossesbecausetheycansellthesharesbacktheissuingcompanyifthemarketpricefallsbelowthepre-specifiedputprice.Therefore,putablesharesarebeneficialtoboththeissuingcompanyandtheinvestors.LevelI―OverviewofEquitySecurities,‖C.FuhrmannandAsjeetS.Section382.answer:B.Inefficientmarket,marketparticipantswillprocessavailableinformationandthosewithoppositeviewswilltradeamongeachotheruntilsecuritiesmarketpricesfullyreflecttheirfundamentalvalues