D076 OA Exam practice Questions and Answers

D076 OA Exam practice Questions and Answers What does the term legal describe? Encourage manipulation of accounting procedures to optimize the company's profit Release managers who do not attempt to maximize immediate shareholder value Set strict covenants that the company cannot uphold if it chooses a risky project An action that is in accordance with the laws and rules set by an authority. - Answer-An action that is in accordance with the laws and rules set by an authority. What does high inventory turnover relative to the industry and competitors indicate? Models are required by the SEC when a firm plans to issue additional stock on the public market. The firm holds too much inventory and its successful selling its good and services. Models allow users to see the complex relationships between sales and other aspects of the business. EMILLECT 2024/2025 ACADEMIC YEAR ©2024 EMILLECT. ALL RIGHTS RESERVED. FIRST PUBLISH OCTOBER 2024. Page 2/34 The firm does not hold enough inventory and is making its customers wait longer to receive their purchased goods. - Answer-The firm does not hold enough inventory and is making its customers wait longer to receive their purchased goods. What is the ratio that tells you on average how long it takes for a firm to collect accounts receivable. Average Benchmarking Opportunity cost Average collection period Leading indicator - Answer-Average collection period Three different names are used for interest rate for different purposes and perspectives: Discount rate, required rate, and cost of capital. Required rate, correlated indicator, opportunity cost Cost of capital, interest rate, and renew rate required rate, discount method, cost of interest - Answer-Discount rate, required rate, and cost of capital. What is the main purpose of charging interest? EMILLECT 2024/2025 ACADEMIC YEAR ©2024 EMILLECT. ALL RIGHTS RESERVED. FIRST PUBLISH OCTOBER 2024. Page 3/34 interest can be a good tool because it summarizes the required return, but it is a detriment because it requires a larger cost of capital. The higher risk an investor takes, the higher return the investor expects to receive. Compounding interest can be a good tool to understand the time value of money, but it is a detriment because it does not take inflation into account. It allows borrowers to pay to use the assets of another entity to accomplish their own goals. - Answer-It allows borrowers to pay to use the assets of another entity to accomplish their own goals. The required rate of return is also known as the BLANK in the context of corporate finance. Inflation Hurdle rate Opportunity cost Risk - Answer-Hurdle rate. The BLANK is the rate of return or compensation that an investor or lender will accept for investments such as stocks, bonds, or loans. EMILLECT 2024/2025 ACADEMIC YEAR ©2024 EMILLECT. ALL RIGHTS RESERVED. FIRST PUBLISH OCTOBER 2024. Page 4/34 Hurdle rate Inflation Opportunity cost Required rate of return - Answer-Required rate of return BLANK Is the possibility that the realized or actual return will differ from the expected return? Hurdle rate. Inflation Opportunity cost Risk - Answer-Risk Which components of an interest rate is an indicator of inflation and opportunity cost? Capital growth rate Risk-free rate Sustainable growth rate Sales growth rate - Answer-Risk-free rate What is the name for the interest rate expressed on an annual basis? EMILLECT 2024/2025 ACADEMIC YEAR ©2024 EMILLECT. ALL RIGHTS RESERVED. FIRST PUBLISH OCTOBER 2024. Page 5/34 Sustainable growth rate Historical regression Annual percentage rate Annual Percent of sales - Answer-Annual percentage rate Why is the required rate of return also known as the hurdle rate? It is simple and helps ensure that users do not spend more than the cash that they have available. It is the minimum rate that a firm must surpass to accept a project. It enables users to connect bank and credit card accounts to automatically update income and expenses. It is the maximum rate that a firm must surpass to deny a project. - Answer-It is the minimum rate that a firm must surpass to accept a project. You want to buy a house, so you obtain a mortgage for which you can afford the monthly mortgage payment. What process have you engaged in as part of your financial decision making? EMILLECT 2024/2025 ACADEMIC YEAR ©2024 EMILLECT. ALL RIGHTS RESERVED. FIRST PUBLISH OCTOBER 2024. Page 6/34 Profit turnover Gross margin Financing Accounts receivable turnover - Answer-Financing What area of finance involves deciding which assets to invest in to create wealth in the future? Financial forecasting Ratio analysis Accounting Investments - Answer-Investments Hannah is the financial manager. A project approved and will cost $5million. Since the company does not have enough cash on reserve, she must figure out how to raise enough money to start the project. She can choose bonds, new stocks, a mortgage loan, or some combo. What task is Hannah performing in this scenario? Making financing decisions Managing working capital Making investment decisions EMILLECT 2024/2025 ACADEMIC YEAR ©2024 EMILLECT. ALL RIGHTS RESERVED. FIRST PUBLISH OCTOBER 2024. Page 7/34 Managing interdepartmental loans - Answer-Making a financing decision Maria and Mateo are setting financial goas. They decide that they need to save $200 each month to reach their goal of taking their kids to Spain next summer. What is the objective of setting such a goal? - Answer-To maximize individual utility. Which professional works with individuals to help them achieve their financial goals? financial manager Financial forecaster Financial planner Accountant - Answer-Financial planner Omar is about to purchase a new car for $30,000. He knows he wants to buy the car, but he is still trying to decide how to pay for it. He has barely over $30,000 in his bank account. He can either take out an auto loan or use a mix of cash and auto loan. In this scenario, what is Omar doing? Financing a goal providing loans Risk diversification EMILLECT 2024/2025 ACADEMIC YEAR ©2024 EMILLECT. ALL RIGHTS RESERVED. FIRST PUBLISH OCTOBER 2024. Page 8/34 investing a goal - Answer-Financing a goal What are the purposes of financial markets? To Increasing the asset usage efficiency of the firm To Decreasing the debt financing of the firm To provide liquidity and determine prices. To provide the profitability of the firm - Answer-To provide liquidity and determine prices. In which financial market are securities such as stocks and bonds are traded after their initial issuance? Money market Efficient market Secondary market Primary market - Answer-Secondary market. What kind of market primarily allows institutions to borrow and lend in the short term? Money market EMILLECT 2024/2025 ACADEMIC YEAR ©2024 EMILLECT. ALL RIGHTS RESERVED. FIRST PUBLISH OCTOBER 2024. Page 9/34 Efficient market Secondary market Primary market - Answer-Money Market A local start-up company just hit its five-year anniversary and is planning an initial public offering sometime this year, in order to issue public stock, which market will the company use? Money market Efficient market Secondary market Primary market - Answer-Primary market.