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Exam (elaborations)

D076 OA Questions and Correct Answers the Latest Update

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  • D076 OA
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  • D076 OA

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...

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  • October 26, 2024
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  • 2024/2025
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  • D076 OA
  • D076 OA
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D076 OA Questions and Correct
Answers the Latest Update
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.

✓ 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.

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The firm does not hold enough inventory and is making its customers wait

longer to receive their purchased goods.

✓ 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

✓ 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




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✓ Discount rate, required rate, and cost of capital.



What is the main purpose of charging interest?




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.

✓ 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


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✓ 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.




Hurdle rate

Inflation

Opportunity cost

Required rate of return

✓ 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

✓ Risk



Which components of an interest rate is an indicator of inflation and

opportunity cost?

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