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FSA 559 Sample MCQ Questions

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1. Which of the following items is not a required component of public firms financial statements?
A. ? A comprehensive income statement (or statement of total recognized income
and expense)
B. ? An income statement
C. ? A cash flow statement (or statement of cash flows)
D. ? A balance sheet (or statement of financial position)
E. ? All of the above items are required components
2. Which of the following statements is correct?
A. ? Revenues cannot be recognized before cash is collected.
B. ? Expenses cannot be recognized before the cash outflow has occurred.
C. ? Revenues cannot be recognized if cash collection is uncertain.
D. ? Expenses will always be recognized before or when the cash outflow occurs.
E. ? None of the above.
3. Which of the following industry factors does not affect the bargaining power of buyers in the
industry?
A. ? Concentration of buyers relative to the concentration of sellers
B. ? Ratio of fixed to variable costs
C. ? Price sensitivity of customers
D. ? None of the above
4. Consider the following statement: Discount retailers follow a cost leadership strategy. This
statement is
A. ? True
B. ? False
5. The objective of accounting analysis is typically not to
A. ? Identify areas in the financial statements that are most strongly affected by
managements discretionary accounting choices.
B. ? Identify accounting choices that are most critical to a firms accounting
performance.
C. ? Asses whether the financial statements fully comply with accounting conventions
and regulations.
D. ? Understand managements reporting incentives and strategy.
E. ? Undo the financial statements from distortions.
FSA 559 Sample MCQ Questions
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6. Which of the following accounting policies is most likely to be a key accounting policy of
Carrefour, one of the worlds largest retailers?
A. ? Accounting for payables
B. ? Accounting for legal claims
C. ? Accounting for revenues
D. ? Accounting for property
7. An analyst makes an adjustment for understated depreciation, increasing Company ABCs
Accumulated Depreciation (on PP&E) by an amount of 10 million. The Companys tax rate is
40 percent. In the financial statements, this adjustment
A. ? Decreases net non-current assets by 10 million and decreases equity by 10
million.
B. ? Increases net non-current assets by 10 million and increases equity by 10
million.
C. ? Decreases net non-current assets by 10 million, decreases equity by 6 million,
and decreases other non-current liabilities by 4 million.
D. ? Decreases net non-current assets by 10 million, decreases equity by 6 million,
and decreases net debt by 4 million.
8. Incorrectly treating finance leases as operating leases in the financial statements helps firms
to
A. ? Overstate asset turnover and overstate leverage
B. ? Overstate profit margins and understate asset turnover
C. ? Understate asset turnover and overstate leverage
D. ? Overstate asset turnover and understate leverage
9. To assess the efficiency of a firms investment management, an analyst would analyze the
firms
A. ? Net profit margin
B. ? Operating asset turnover
C. ? Financial spread
D. ? Net financial leverage
10. At the end of fiscal year 2010, company X discloses the following income statement:

Sales 6.500,000
Operating expense (4,800,000)
Interest income 600,000
Interest expense (900,000)
FSA 559 Sample MCQ Questions
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Tax expense (490,000)
Net profit 910,000

Company Xs interest expense after tax and net operating profit after taxes equal
A. ? 585,000 and 1,105,000, respectively
B. ? 195,000 and 1,105,000, respectively
C. ? 300,000 and 910,000, respectively
D. ? 300,000 and 1,105,000, respectively
11. Consider the following statement: Sales growth tends to revert faster to its economy-wide
average than operating asset turnover. This statement is
A. ? True
B. ? False
12. Company A reports the following series of quarterly earnings: Q1 =0.250; Q2 =0.300; Q3 =
0.280; Q4 =0.270; Q5 =0.250; Q6 =0.320; Q7 =0.290; Q8 =0.285. An analyst assumes
that company As quarterly earnings perfectly follow the time-series process described by the
Foster model. Under this assumption, the analysts forecast of quarter 9 earnings is
A. ? 0.2550
B. ? 0.2425
C. ? 0.2750
D. ? 0.2625
13. An analyst produces the following set of forecasts for company C:

Year t+1 Year t+2 Year t+3
Net profit 100 120 60
Ending book value of business assets 1,030 1,060 1,000
Ending book value of debt 720 740 800

At the end of year t, company Cs book values of business assets and debt are 1,000 and
700, respectively. The analyst expects that after year t+3 net profit will be 0 and the book
values of business assets and debt will remain constant (i.e., at their year t+3 levels).
Company Cs cost of equity is 10 percent. Under these assumptions, the analysts estimate of
company Cs equity value at the end of year t is
A. ? 228.17
B. ? 321.94
C. ? 307.96
D. ? 345.45
FSA 559 Sample MCQ Questions
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14. Consider the following statement: The discounted abnormal NOPAT growth model defines
the value of operating assets as the sum of the capitalized next-period NOPAT forecast and
the present value of forecasted NOPAT beyond the next period. This statement is
A. ? True
B. ? False
15. A large European, debt-free company has an estimated equity beta of 1.4. The risk-free rate
and the market risk premium in the companys home country are 4 percent and 5 percent,
respectively. This companys cost of equity is
A. ? 5 percent
B. ? 9 percent
C. ? 11 percent
D. ? 12 percent
16. An analyst produces the following series of annual dividend forecasts for company D:
Expected dividend (end of) year t+1 =10; Expected dividend (end of) year t+2 =20;
Expected dividend (end of) year t+3 =10. The analyst further expects that company Ds
dividends will grow indefinitely at a rate of 2 percent after year t+3. Company Ds cost of
equity equals 10 percent. Under these assumptions, the analysts estimate of company Ds
equity value at the end of year t is
A. ? 128.93
B. ? 120.22
C. ? 108.26
D. ? 36.36
17. Consider the following statement: Technical security analysis relies more heavily on financial
statement information than fundamental security analysis. This statement is
A. ? True
B. ? False
18. On J anuary 1, 2010, Company Zs share price is 11.25 per share. The companys book
value of equity per share is 5, expected net profit per share for fiscal year 2010 is 5, and
the cost of equity is 10 percent. What are the markets expectations about the long-term
abnormal earnings growth rate for company Z?
A. ? 0 percent
B. ? 1 percent
C. ? 2 percent
D. ? 3 percent
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19. Consider the following statement: One mechanism that commercial lenders use to reduce
credit risk is to lengthen the maturity of the loans they extend. This statement is
A. ? True
B. ? False
20. In cases where a borrowers cash needs are difficult to anticipate, it is most likely to make use
of
A. ? Term loans
B. ? Lease financing
C. ? Open lines of credit
D. ? Mortgage loans


















FSA 559 Sample MCQ Questions
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Answers:
1. E
2. C
3. B
4. A
5. C
6. D
7. C
8. D
9. B
10. A
11. A
12. D
13. C
14. A
15. C
16. A
17. B
18. C
19. B
20. C