Corporate Finance
Practice Questions
Course Introduction
Corporate Finance explores the fundamental concepts and tools required to make effective financial decisions within a corporation. The course focuses on topics such as capital budgeting, valuation of projects and firms, risk and return analysis, cost of capital, capital structure, dividend policy, and working capital management. Through case studies and practical applications, students will learn how financial managers determine how to raise and allocate capital, assess investment opportunities, maximize firm value, and respond to real-world financial challenges in a dynamic global market environment.
Recommended Textbook
Managerial Accounting 2nd Edition by Charles E. Davis
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Page 2
Chapter 1: Accounting As a Tool for Management
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Sample Questions
Q1) Which of the following statements is not true?
A)Managerial accounting reports use historical information.
B)Managerial accounting must not use estimates in preparing reports.
C)Managerial accountants use historical amounts in developing future projections.
D)All of these ans choices are true.
Answer: B
Q2) Which of the following is least likely to be in a company's code of ethics?
A)Transparency of information
B)Commitment to the environment
C)Maximum amount of bonuses to be paid to executives
D)Discrimination
Answer: C
Q3) Managerial accounting is used by managers to
A)Assure appropriate use of an organization's resources.
B)Assure accountability for an organization's resources.
C)Provide information used in planning,evaluation and controlling functions within an organization.
D)All of these ans choices are correct.
Answer: D
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Page 3
Chapter 2: Cost Behavior and Cost Estimation Summary of
Questions by Objectives and Blooms Taxonomy
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Sample Questions
Q1) A scattergraph is simply a graph that shows total costs in relation to volume,or activity level.
A)True
B)False
Answer: True
Q2) When a manager talks about cost behavior,she is referring to
A)The way in which total costs change in response to changes in the level of activity.
B)The method used to determine whether a cost is accrued or expensed.
C)Both A and B.
D)None of these ans choices are correct.
Answer: A
Q3) Contribution margin is the amount of revenue that remains to cover fixed costs and provide a profit.
A)True
B)False
Answer: True
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Chapter 3: Cost-Volume-Profit Analysis and Pricing
Decisions
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Sample Questions
Q1) Saira,Inc.is planning to sell 800,000 units for $1.50 per unit. The contribution margin ratio is 20%. If Saira will break even at this level of sales, what are the fixed costs?
A) $240,000
B) $560,000
C) $800,000
D) $960,000
Answer: A
Q2) The change in operating income relative to a change in sales is referred to as A)CVP.
B)Operating leverage.
C)Margin of Safety.
D)Sales mix.
Answer: B
Q3) The formula for margin of safety in sales dollars is
A)Current unit sales minus breakeven unit sales.
B)Actual sales minus budgeted sales.
C)Current sales revenue minus breakeven sales revenue.
D)Breakeven sales revenue minus budgeted sales revenue.
Answer: C
Page 5
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Chapter 4: Product Costs and Job Order Costing
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Sample Questions
Q1) If the beginning balance in the Raw Materials Inventory account for the month was $25,000,the ending balance of $22,000 and material used during the month was $130,000,what is the amount of materials purchased during the month?
A)$177,000
B)$130,000
C) $127,000
D) $133,000
Q2) When products are completed,which of the following accounts is increased?
A)Raw Materials Inventory.
B)Work in Process Inventory.
C)Finished Goods Inventory.
D)Cost of Goods Sold.
Q3) Gough's Manufacturing had underapplied overhead totaling $5,000 during the period.To dispose of this underapplied overhead,Gough should
A) Increase the cost of goods sold by $5,000
B) Decrease the cost of goods sold by $5,000
C) Increase the work in process account by $5,000
D) Decrease the work in process account by $5,000
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Chapter 5: Planning and Forecasting
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Sample Questions
Q1) Practical standards represent a level of performance that can be attained with reasonable effort.
A)True
B)False
Q2) Myers Company is preparing the raw materials ending inventory budget.Which of the following items will Myers not need to complete the budget?
A)Beginning raw materials inventory balance
B)Actual production
C)Direct materials used in the production of new
D)Myers will need all of these ans choices to complete the budget.
Q3) Which of the following items would most likely\(\textbf{ differ }\) on the Cash Budget and the Budgeted Income Statement?
A)Insurance expense
B)Advertising expense
C)Bad debt expense
D)Supplies expense
Q4) Top-down budgeting is also referred to as participative budgeting.
A)True
B)False
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Chapter 6: Performance Evaluation: Variance Analysis
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Sample Questions
Q1) Melrose Manufacturing produces gourmet blackberry preserves.Melrose based its current year budget on a production level of 540,000 jars of preserves using ½ hour direct labor time for each jar which includes hand-sorting and trimming the berries.Total budgeted variable overhead for the year was $1,242,000.During the year,Melrose used 280,000 direct labor hours to produce 550,000 jars of blackberry preserves.Actual variable overhead for the year was $1,246,000.What is Melrose's flexible budget variable overhead variance?
A) $27,000 unfavorable
B) $19,000 favorable
C) $4,000 unfavorable
D) $23,000 unfavorable
Q2) Which of the following is not a factor that managers use in deciding whether to investigate a variance?
A)Materiality.
B)The existence of a trend.
C)Whether combining several accounts with large offsetting variances results in a small variance.
D)All of these ans choices are correct..
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Chapter 7: Activity-Based Costing and Activity Based Management
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Sample Questions
Q1) Assume you have been hired by a company that is considering implementing an activity-based costing system.One of your co-workers is not eager to change and believes the benefits of moving to activity-based costing will not be worth the time and effort of implementing the new system.Explain to your co-worker the characteristics of an organization that make it a good candidate to implement activity-based costing and how activity-based costing might benefit the company.
Q2) The total amount of manufacturing overhead allocated to a particular product will always be the same for both the traditional overhead allocation method based on direct labor hours and the activity-based costing overhead allocation.
A)True
B)False
Q3) For unit-level activities, the total level of activity performed varies proportionately with the number of units produced.
A)True
B)False
Q4) Product-level activities are also referred to as product-sustaining activities. A)True B)False
Page 9
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Chapter 8: Using Accounting Information to Make
Managerial Decisions
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Sample Questions
Q1) Complete the table below by placing an "X" under each heading that classifies the costs as avoidable or unavoidable in a decision to accept a special order.
\[\begin{array} { | l | l | l | }
\hline & \textbf { Avoidable } & \textbf { Unavoidable } \\
\hline \text { Direct material to produce order } & & \\
\hline \text { Original cost of factory machinery } & & \\
\hline \text { Fixed overhead } & & \\
\hline \text { Cost to deliver products to customers } & & \\
\hline\text { Salary of supervisor moved to another } \\
\text { production line }\\
\hline
\end{array}\]
Q2) In an environment where the there is a constrained resource,the resource should be allocated first to the product with the highest contribution margin.
A)True
B)False
Q3) Offshoring means moving a company's business processes to a foreign country.
A)True B)False
Page 10
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Chapter 9: Capital Budgeting
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Sample Questions
Q1) A stream of equal cash flows received at set time intervals is called a an
A)Annuity
B)Present cash flow
C)Discounted cash flow
D)None of these ans choices are correct
Q2) Which of the following is \(\textbf{ not }\) a step in the net present value approach to capital budgeting?
A)Identify the amount and timing of each cash flow
B)Determine the appropriate discount rate
C)Compare the discount rate to the hurdle rate
D)Calculate the net present value of the project
Q3) Which of the following is an advantage of the payback period?
A)It is a simple technique
B)Accounting records are generally not based on cash flow,so the information for the calculation is readily available.
C)Since depreciation is not included in the calculation,the result is not distorted.
D)None of these ans choices are correct.
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Chapter 10: Decentralizing and Performance Evaluation
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Sample Questions
Q1) You are assigned to a team responsible for evaluating segment managers' performance measures.A team member has indicated that a friend who is a manager at a competitor's company is evaluated using "ROI",but does not know what "ROI" is.
a.Explain what ROI is and why it is a useful tool in measuring managers' performance.
b.Give an example of when ROI would not be an appropriate performance measurement.
Q2) What is really needed to measure a segment's performance is an income statement that highlights
A)Variable versus fixed costs.
B)Product versus period costs.
C)All the elements under the segment manager's control.
D)None of these ans choices are correct.
Q3) A negotiated price is one that
A)Provides the selling division with a normal profit.
B)Provides the buying division with the lowest price available from outside suppliers.
C)Is agreed to by both the buying and selling division.
D)None of these ans choices are correct.
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Chapter 11: Performance Evaluation Revisited: a Balanced Approach
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Sample Questions
Q1) A balanced scorecard
A)Integrates performance measures across four different perspectives.
B)Assists in communicating the corporate strategy throughout the organization.
C)Helps managers understand the interrelationships between various areas of an organization.
D)All of these ans choices are correct.
Q2) Delivery cycle time is the difference between
A)The start of production of a product and its delivery.
B)The start of production of a product and its shipment.
C)An order's placement and its delivery.
D)An order's placement and its shipment.
Q3) The best measures relate to corporate strategy and SMART.Which of the following is \(\textbf{ not }\) a component of SMART?
A)Measurable
B)Timeliness
C)Actionable
D)Responsibility
Q4) The balanced scorecard includes one or two measures in each of six perspectives.
A)True
B)False
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Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) The formula for return on common stockholders' equity is Net sales revenue minus preferred dividends divided by average common stockholders' equity.
A)True
B)False
Q2) Debt is not a free resource because
A)The use of debt funds is restricted as designated by the debt instrument.
B)Companies must pay interest on the borrowings.
C)Companies must restrict cash flow until the debt is repaid.
D)None of these ans choices are correct.
Q3) A form of horizontal analysis in which each year's account balance is expressed as a percentage of the base year' is called
A)Trend analysis.
B)Percentage analysis.
C)Common size analysis.
D)Quick analysis.
Q4) Last year Boxer Corporation had net income of $24,000,income tax expense of $7,200 and interest expense of $2,000.What is Boxer's times interest earned ratio?
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14
Chapter 13: Statement of Cash Flows
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Sample Questions
Q1) Using the direct method of preparing the statement of cash flows,which of the following is not an activity generating operating cash flows?
A)Collections from customers
B)Collection of notes receivable
C)Payments for income taxes
D)Payments to employees
Q2) Examining a company's statement of cash flows helps in evaluating a company's liquidity,but does not predict future cash flows.
A)True
B)False
Q3) Activities that affect a company's investments in assets other than current operating assets are called financing activities.
A)True
B)False
Q4) Which of the following cash flows results from an investing activity?
A)Making a payment on a loan
B)Receiving a cash dividend on an investment in another company
C)Selling an investment in another company
D)Receiving payment from a customer for last month's accounts receivable
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Chapter 14: Topic Focus: Process Costing
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Sample Questions
Q1) The soft drink bottler Dr.Pepper is an example of a company that would use a process costing system.
A)True
B)False
Q2) At the end of January, Monroe Industries had completed 65,000 units and left 8,000 units in Work In process, 60% complete with respect to materials and 80% complete with respect to conversion. How many equivalent units will be used to determine the cost per equivalent unit for materials?
A) 66,600
B) 68,200
C) 69,800
D) 71,400
Q3) In process costing,direct materials may be added at different points of a department's production process.
A)True
B)False
Q4) When using a process costing system, explain the steps you use in assigning costs to units completed and transferred out of a department and to ending work in process.
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Chapter 15: Topic Focus Variable and Absorption Costing
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Sample Questions
Q1) Mixed costs must be divided into which of the following components?
A)Period and product
B)Fixed and variable
C)Direct and indirect
D)Cost and profit
Q2) To make predictions about costs and income,you must first separate costs by their behavior,
A)Fixed or variable
B)Product or selling and administrative
C)Direct material,direct labor or manufacturing overhead
D)Direct or indirect
Q3) Under variable costing,subtract variable costs from sales to arrive at
A)Gross profit
B)Gross margin
C)Contribution margin
D)Net income
Q4) What managerial behavior does variable costing render ineffective?
Q5) In variable costing,fixed manufacturing overhead is treated as a product cost. A)True
B)False
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Chapter 16: Topic Focus Standard Costing Systems
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Sample Questions
Q1) When using a standard costing system,the direct materials price variance is recorded at the time direct materials are transferred to the production floor.
A)True
B)False
Q2) A costing system where all product costs are recorded at standard cost while the products are being made is referred to as
A)Normal costing
B)Variable costing
C)Full costing
D)Standard costing
Q3) The easiest way to dispose of variances at the end of the period is to A)Ignore the variances as they will cancel out during the following period.
B)Close the variances to raw materials inventory.
C)Close the variances to the appropriate raw materials inventory,work in process inventory,and finished goods inventory accounts.
D)Close the variances to the cost of goods sold account.
Q4) What is the difference between a normal costing system and a standard costing system?
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18
Chapter 17: Topic Focus Customer Profitability
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Sample Questions
Q1) Raising prices for unprofitable customers is a reflection of the cost of doing business with them.
A)True
B)False
Q2) The measure that divides customer net profit by customer revenues is referred to as
A)Customer revenue margin
B)Times revenue earned per customer
C)Customer profit margin
D)Customer net profit
Q3) If a customer \(\textbf{ cannot }\) be returned to profitability and the customer is dropped,
A)The company's overall profit will increase.
B)The company's revenue will decrease in the short-run.
C)The managers will have more resources to serve profitable customers
D)All of these ans choices are correct.
Q4) Selling expenses are expenses that are associated with only the delivery of products to the customer.
A)True B)False
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