Download IVY Finance Exam Questions and Answers: Accounting and Financial Analysis and more Exams Finance in PDF only on Docsity!
IVY Finance exam questions with correct
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Accounting Period - CORRECT ANSWERS ✔✔A period of time covered by an accounting report Conservatism - CORRECT ANSWERS ✔✔principle of conservatism states that the accountant will be conservative in the measurement of financial data, thus understating, rather than overstating, organizational income and assets. Required Financial Statements - CORRECT ANSWERS ✔✔Balance sheet Income Statement Statement of Cash Flows Statement of Owners Equity Balance Sheet - CORRECT ANSWERS ✔✔A financial statement that reports assets, liabilities, and owner's equity on a specific date. Income Statement - CORRECT ANSWERS ✔✔shows all sources of revenues and expenses Statement of Owners Equity - CORRECT ANSWERS ✔✔reports investments by stockholders into the firm and distributions (dividends) paid to them Statement of Cash Flows - CORRECT ANSWERS ✔✔uses and sources of cash
Types of financial performance ratios - CORRECT ANSWERS ✔✔Operating performance ratios Liquidity Ratios Financial Strength Ratios Operating Performance Ratios - CORRECT ANSWERS ✔✔indicate how well the company is converting resources into results Liquidity Ratios - CORRECT ANSWERS ✔✔Measures of the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash. financial strength ratios - CORRECT ANSWERS ✔✔indicate the capitalization of the company i.e its long-term debt and equity What shows financial position at the end of an accounting period? - CORRECT ANSWERS ✔✔Balance sheet T/F: Footnotes merely restate information that is readily apparent in the statements themselves - CORRECT ANSWERS ✔✔FALSE: they give more detail and can explain how the information was derived Which statement reports a firms financial situation on a given day? - CORRECT ANSWERS ✔✔Statement of financial position AND balance sheet
DuPoint Equation - CORRECT ANSWERS ✔✔net income/sales x sales/assets x assets/equity Which ratio shows the average percentage by which sales price exceeds the costs of goods sold? - CORRECT ANSWERS ✔✔GROSS MARGIN Industry definition - CORRECT ANSWERS ✔✔what types of products are sold, how stable is the industry, on what basis do firms compete Sales influence - CORRECT ANSWERS ✔✔how is the economy? what marketing strategies are being used? Cost structure - CORRECT ANSWERS ✔✔is the industry more susceptible to a drop in volume or a drop in prices? Sensitivity Analysis - CORRECT ANSWERS ✔✔testing the assumptions used to create a pro forma T/F: the greater the detail of the pro forma, the greater the accuracy - CORRECT ANSWERS ✔✔FALSE: During the qualitative portion of developing pro formas: - CORRECT ANSWERS ✔✔industry wide considerations are LESS important than company specific ones The final step in creating pro formas is to - CORRECT ANSWERS ✔✔compare the results of the sensitivity analysis to the decision makers risk tolerance in the current situation
Companies are concerned about shareholders interests because: - CORRECT ANSWERS ✔✔firms like higher share value shareholders own the firm T/F: A firms dividend policy can usually be established independently of its growth plans - CORRECT ANSWERS ✔✔FALSE T/F: Dividends are the sole source of returns to shareholders - CORRECT ANSWERS ✔✔FALSE: appreciation also The present value of cash flow allows investors to assess: - CORRECT ANSWERS ✔✔the value of a stream of cash flows in terms of the best and most certain alternatives what equivalent present payment would be acceptable in lieu of the investment under consideration Capital Budgeting - CORRECT ANSWERS ✔✔the process used to quantify and measure the results from investments in assets (left side of the balance sheet) capital investments - CORRECT ANSWERS ✔✔expected to provide returns for more than one year. Capital investments can include things like purchase of property, plant, equipment, new products lines or new marketing campaigns T/F: Unless an addition to working capital is permanent, it should not be considered among the cash flows of capital budgeting - CORRECT ANSWERS
For capital budgeting purposes, an assets depricatable life is: - CORRECT ANSWERS ✔✔an arbitrary period dictated by tax code Salvage value: - CORRECT ANSWERS ✔✔the best prediction of what an asset can be sold for at the end of a time horizon. should NOT be used to justify investments Hurtle Rate - CORRECT ANSWERS ✔✔discount rate a firm uses to evaluate investments raised and lowered to compensate for the risk of investment categories opportunity cost - CORRECT ANSWERS ✔✔opportunity cost is expressed in terms of return on assets or return on equity The higher the risk the higher the_______ - CORRECT ANSWERS ✔✔cost of capital cost of capital - CORRECT ANSWERS ✔✔The weighted-average rate of return that the firm must pay to obtain funds from creditors and stockholders. Bonds - CORRECT ANSWERS ✔✔Certificates of debt that carry a promise to buy back the bonds at a higher price Bonds are generally issued in _____ increments - CORRECT ANSWERS ✔✔$1,
Coupon Rate - CORRECT ANSWERS ✔✔the interest rate that a bond issuer will pay to a bondholder yield to maturity - CORRECT ANSWERS ✔✔the rate of return a bondholder will receive if the bond is held to maturity Cost of Equity - CORRECT ANSWERS ✔✔Projected earnings per share/stock price Dividend Growth Model - CORRECT ANSWERS ✔✔a model that determines the current price of a stock as its dividend next period divided by the discount rate less the dividend growth rate risk premium - CORRECT ANSWERS ✔✔the excess return required from an investment in a risky asset over that required from a risk-free investment The advantage of using the marginal cost of capital as a company average hurdle rate is: - CORRECT ANSWERS ✔✔capital markets estimations of risk are more objective it reflects the incremental cost of funding future investments it is the basis of the markets assessments of a company market decisions
Valuation - CORRECT ANSWERS ✔✔The practice of assigning monetary value to seemingly intangible benefits and natural capital. Asset based methods - CORRECT ANSWERS ✔✔book value, liquidation value, and replacement cost Earning and cash flow valuation - CORRECT ANSWERS ✔✔consider the firm as going concern rather than a bundle of assets Earnings Valuation Approach - CORRECT ANSWERS ✔✔considers how much would be added to the acquires income statement through the business combination and measures the dilution of earnings per share that would occur Project investments are generally less complicated than mergers bc: - CORRECT ANSWERS ✔✔the potential benefits of project investments are more obvious Synergy between to companies: - CORRECT ANSWERS ✔✔is a complimentary situation where value is created by joining firms could be defined purely by qualitative benefits T/F: legalities determine whether a merger should occur; a valuation determines what from of the business combination should be - CORRECT ANSWERS ✔✔FALSE Book value is unlike liquidation value and replacement value bc: - CORRECT ANSWERS ✔✔the latter 2 are market driven and it depends fully on accounting methods
the weakest link in earnings valuation is - CORRECT ANSWERS ✔✔projecting the post merger p/e FRICTO - CORRECT ANSWERS ✔✔Flexibility Risk Income Control Timing Other Flexibility - CORRECT ANSWERS ✔✔addresses the issue of a disastrous occurrence. Risk - CORRECT ANSWERS ✔✔involves unfortunate developments that are reoccurring Income - CORRECT ANSWERS ✔✔addresses explicit cost, EPS-dilution, and implicit costs Control - CORRECT ANSWERS ✔✔raises the issue of stock ownership and dilution, a negative consequence of equity issues Timing - CORRECT ANSWERS ✔✔addresses the sequence of financing alternatives and anticipated capital market status when funding is needed
Select one: a. Liquidity ratios b. Operating performance ratios c. Financial strength ratios d. None of the above - CORRECT ANSWERS ✔✔b. operating performance ratios T/F The P/E ratio indicates the stock market's opinion of a company's prospects for growth and earnings as well as the market's perception of the firm's risk. - CORRECT ANSWERS ✔✔TRUE Depreciation is a part of Select one: a. Cash flow from financing activities b. Cash flow from operating activities c. Cash flow from debt activities d. None of the above - CORRECT ANSWERS ✔✔B. cash flow from operating activities Which ratio shows the average percentage by which sales price exceeds the cost of goods sold? Select one: a. profit margin b. asset turnover c. gross margin d. receivables turnover
e. return on assets - CORRECT ANSWERS ✔✔c. gross margin Depreciation expense is a good example of which of the following generally accepted accounting principles? Select one: a. Relevance b. Matching c. Reliability d. Understandability - CORRECT ANSWERS ✔✔B. matching Which of the following ratios measure liquidity? Select one: a. debt to equity b. current c. quick d. B & C e. None of the above - CORRECT ANSWERS ✔✔D. current and quick Which of the following is a qualitative factor of the company? Select one: a. Fixed costs b. Product users c. Marketing strategies d. All of the above - CORRECT ANSWERS ✔✔d. all of the above
T/F Dividend payout is one determination of increase in stockholder returns. - CORRECT ANSWERS ✔✔True T/F Stock price appreciation and dividends paid are the two primary sources of stockholder returns. - CORRECT ANSWERS ✔✔True T/F: If stockholders perceive that the financial risk of a firm has decreased and all other factors are the same, then the stock price will probably rise. - CORRECT ANSWERS ✔✔True Which of the following decreases the present value? Select one: a. Increasing discount rate b. Decreasing discount rate c. None of the above - CORRECT ANSWERS ✔✔a. increasing discount rate T/F: The internal rate of return is the discount factor necessary to make an investment's NPV greater than one. - CORRECT ANSWERS ✔✔False The ITC in capital budgeting analysis is Select one: a. A Cost b. A benefit c. Neither A nor B - CORRECT ANSWERS ✔✔B. a benefit A bond which is valued at par has a yield to maturity which is
Select one: a. equal to its coupon rate b. above its coupon rate c. below its coupon rate d. none of the above - CORRECT ANSWERS ✔✔a. equal to its coupon rate T/F: If market interest rates fall, the market will place a discount on bonds which have coupon rates that are higher than the market interest rate. - CORRECT ANSWERS ✔✔False As the price of a bond increases, the coupon rate - CORRECT ANSWERS ✔✔remains the same The yield to maturity is calculated from the Select one: a. investor's perspective b. seller's perspective c. neither A nor B - CORRECT ANSWERS ✔✔a. investors perspective The maximum price that a target could hope to obtain, based solely on assets is the Select one: a. book value b. replacement cost c. liquidation value d. none of the above - CORRECT ANSWERS ✔✔Replacement cost
a. depreciation of the assets b. current value of the assets c. current value of the liabilities d. none of the above - CORRECT ANSWERS ✔✔a. depreciation of the assets how to calculate sales - CORRECT ANSWERS ✔✔1+% x sales how to calculate cost of goods sold - CORRECT ANSWERS ✔✔sales x % how to calculate gross margin - CORRECT ANSWERS ✔✔
