Financial. Analysis. Course Instructions and Final Examination. Financial. Analysis 2nd Edition Steven M. Bragg

Transcription

1 Financial Analysis Course Instructions and Final Examination Financial Analysis 2nd Edition Steven M. Bragg CPE Edition Distributed by The CPE Store The CPE Store 819 Village Square Drive Tomball, TX

2 Financial Analysis Table of Contents Page Course Objectives... 3 Course Instructions... 4 Final Examination... 7

3 COPYRIGHT 2015 The CPE Store ALL RIGHTS RESERVED. No portion of this material may be reprinted, reproduced, transmitted, stored in a retrieval system, or otherwise utilized, in any form or by any means, electronic or mechanical, including photocopying or recording, now existing or hereinafter invented, nor may any part of this course be used for teaching without written permission from the publisher and the author

4 Course Objectives After completing this course, you will be able to: Determine how the performance of a business can be enhanced Recognize reasons why the result of a financial analysis recommendation may not be precise Identify what an income statement containing multiple sub-totals is known as Recognize the function of the contribution margin income statement Determine when an asset should be classified as current on the balance sheet Discern what should be included when disclosing bad debts Identify when a transaction is more likely to be recorded at net Recognize which inventory costing method is banned under IFRS Spot an example of a profitability ratio Determine the function of horizontal analysis Choose the most conservative ratio for comparison of current assets to current liabilities Recognize how to calculate the breakeven cash flow level Discern what the margin of safety is used to determine Calculate how many units a company must sell to earn a target profit Calculate a company s sales mix variance for a given situation Identify how cost plus pricing is calculated Recognize an advantage of using dynamic pricing Determine when price skimming occurs Discern when a cost should be assigned to a cost object Determine what management should do when the cost of acquiring new customers is high Recognize what the buffer is in constraint analysis Ascertain why sprint capacity is needed Identify an appropriate way to improve profits under constraint analysis Determine what the best credit rating system can achieve Identify an indicator of possible future payment delinquencies Recognize when an internal credit rating system functions best Pinpoint what factoring with recourse allows the factor to do Recognize an attribute of restricted stock Determine what financial leverage increases for a business Identify when positive leverage is most likely to turn negative Discern the definition of optimal capital structure Recognize an example of a tax shield Identify an example of a common loan covenant Recognize the formula for the dividend payout ratio Determine what a dividend payout ratio of greater than 100% indicates Identify an example of an operational hedge Pinpoint a use for a forward contract Ascertain when payment netting is used Determine what uses a standardized agreement and is marked to market every day Recognize when a call option can be used by the owner Identify a feature of an interest rate swaption Discern what should be addressed by a rolling forecast Recognize what must be manually updated in a medium-term forecast Determine what mail float is Identify what an increase in sales usually requires Recognize a common constraint on growth Discern a negative effect of a high rate of growth Identify the components of the cost of capital Recognize why preferred stock is more expensive than debt Determine the concept that discounted cash flow analysis is based on Identify what an ordinary annuity is Recognize what net present value analysis is commonly used for Recognize why the payback method may be a useful capital budgeting analysis tool Identify a basic rule of investing in a complex environment Determine what action can reduce the fair market value at which an asset can be purchased at the end of a lease term Discern the advantage of leasing from a financing perspective Ascertain when the relief-from-royalty method is used Recognize when multiples analysis will be overstated - 3 -

5 Pinpoint what the influencer price point is Determine how a company with low profitability can maximize its return on equity Identify the source of long-term shareholder value Course Instructions To fully benefit from this course, please follow all of the steps below. 1. Read each chapter in the text to get a good understanding of the material. 2. Answer the study guide problems which appear at the end of each chapter. After answering the problems, compare your answers with the correct answers to ensure that you understand the material. 3. When you feel that you have a good understanding of the material contained in the chapter, answer the questions on the final examination. 4. When you have completed the final examination, record your answers on the answer sheet provided and submit it for grading. A score of 70% or better is required to pass. Please also complete the course evaluation that accompanied the course and submit it to us along with your answer sheet. Upon passing you will receive a Certificate of Completion stating that you have successfully completed the course and earned the continuing education credit. Prerequisites and Advance Preparation No prerequisites or advance preparation are required for this course. CPE Credit This course is recommended for 20 CPE credits. Final Exam Grading Online: By Mail: By Fax: Our fastest option, with instant results. Simply go to and click the link for online grading. Just follow the instructions from there. When you finish entering your answers, you ll receive instant test results and a Certificate of Completion to print. Mail your test and course evaluation to us. We grade the tests the day we receive them and mail the results and Certificate of Completion to you the following business day. Just fax your answer sheet to If you need us to fax the Certificate of Completion back to you, please provide us with your fax number and write please fax back on your answer sheet. If you don t need the Certificate faxed back, please write no fax needed on your answer sheet. Refunds The CPE Store guarantees your satisfaction. If, for any reason, you are not completely satisfied with your purchase, return it to us unused within 30 days for a prompt refund, no questions asked. (Sorry, but shipping fees are not refundable.) Customer Service The CPE Store holds itself to the highest standards. If we have not met your expectations, something is missing, or you just have a question please contact us at or customerservice@cpestore.com

6 About Our Courses The CPE Store s courses are developed to satisfy the continuing education requirements of the American Institute of Certified Public Accountants, each state s Board of Accountancy and the National Association of State Boards of Accountancy (NASBA). If your state requires registration of sponsors, our sponsor number will appear on your Certificate of Completion. Our courses are designed to meet the continuing education requirements of accounting professionals. A great deal of care has been taken to ensure that the course material is both interesting and relevant to the practice of accounting. The information presented is, to the best of our knowledge, current and accurate. However, The CPE Store is not in the business of rendering legal, accounting or other professional advice and as such, the material presented in our courses is intended as an overview. If legal advice or other expert assistance is required, the services of a competent professional should be sought

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8 Financial Analysis 20-Credit Course Final Examination A score of 70% or higher is required to pass the exam. If you score less than 70% on your first attempt, we will allow you to take the test a second time. Chapter 1 Overview of Financial Analysis 1. Financial analysis as it relates to capital structure could include: A. Negotiating a loan package B. Investigating the capital structures of similar companies C. Participating in presentations to investors D. Calculating the cost of additional debt issuances that can be capitalized 2. The performance of a business can usually be enhanced to the greatest extent by paying attention to: A. Unit profits B. Gross sales C. Constraints D. Gross margin 3. A well thought-out recommendation regarding product terminations may include the impact: A. On dividend policy B. On a key acquisition C. On capital structure D. Of having a reduced product line 4. The result of a financial analysis recommendation may not be precise, because: A. The analyst is not sufficiently well trained B. Some variables cannot be quantified C. Management does not want an excessive level of detail D. More precision would require outsourcing the analysis work 5. When reviewing day-to-day pricing and expenditure decisions, the analyst should guard: A. Against the politics of those managers impacted by his recommendations B. Against the depredations of competing analysts C. Against the use of incorrect information D. The corporate margin Chapter 2 The Financial Statements 6. An income statement containing multiple subtotals is known as: A. A presentation by function of expense B. A presentation by nature of expense C. A single-step income statement D. A multi-step income statement 7. The contribution margin income statement: A. Identifies and separately aggregates variable and fixed expenses B. Reports profits at the individual product level C. Reports profits by subsidiary D. Contains a gross margin calculation 8. An asset is classified as current on the balance sheet when: A. It can be readily converted into cash B. It should be sold or consumed in longer than 12 months C. It should be sold or consumed within six months D. It should be sold or consumed within 12 months - 7 -

9 9. When disclosing bad debts, you should include: A. The reserve amount as of the balance sheet date B. A reconciliation of changes in the reserve account C. The amount of receivables classified as bad debts that were later paid D. The specific bad debts recognized Chapter 3 Accounting Issues Impacting the Financials 10. The accrual basis of accounting is the concept of: A. Recording revenues when paid and expenses as incurred B. Recording revenues when earned and expenses as incurred C. Recording revenues when earned and expenses when paid D. Recording revenues when paid and expenses when paid 11. A transaction is more likely to be recorded at net when: A. The supplier will bear the loss if a customer does not pay B. The business sets the price to the customer C. The business gets to select suppliers D. The business has general inventory risk 12. The inventory costing method is banned under International Financial Reporting Standards. A. First in, first out B. Last in, first out C. Weighted average D. Specific identification 13. Which of the following is not a problem with current value accounting? A. Current value information may be based on guesses B. It can be difficult to obtain current value information C. It provides information that most closely relates to current business conditions D. It takes time to accumulate current value information Chapter 4 Interpretation of Financial Statements 14. An example of a profitability ratio is: A. Fixed charge coverage B. Fixed asset turnover ratio C. Gross profit ratio D. Quick ratio 15. Horizontal analysis: A. Is the comparison of historical financial information over several reporting periods B. Focuses in particular on net profit C. Involves the detailed analysis of the components of gross sales D. Only applies to a single reporting period 16. The most conservative comparison of current assets to current liabilities is the: A. Sales to working capital ratio B. Inventory turnover ratio C. Current ratio D. Quick ratio 17. To estimate the number of days required to convert receivables and inventory into cash, use the: A. Accounts payable turnover ratio B. Liquidity index C. Fixed charge coverage ratio D. Net profit ratio - 8 -

10 18. Items included in the numerator of the fixed charge coverage ratio include: A. Net change in inventory B. Net change in cash C. Lease expense D. Operating cash flows Chapter 5 Cost-Volume-Profit Analysis 19. In order to calculate the breakeven cash flow level: A. Subtract depreciation from fixed expenses in the numerator of the breakeven formula B. Add amortization to fixed expenses in the numerator of the breakeven formula C. Use the gross margin percentage in the denominator of the breakeven formula D. Use the net after-tax profit percentage in the denominator of the breakeven formula 20. The margin of safety is used to determine: A. When cash will run out B. The decline in sales that can occur before the breakeven point is reached C. Whether the mix of products offered for sale should be changed D. The time period that will pass before a company s line of credit is fully used 21. If a company has fixed costs of $12 million, wants to earn a target profit of $2 million, and earns a contribution margin of $5,000 per unit sold, how many units must it sell? A. 2,800 units B. 2,000 units C. 4,800 units D. 2,400 units 22. A company has actual sales of 10,000 units, budgeted sales of 10,500 units, a budgeted contribution margin of $15 per unit, and an actual contribution margin of $12 per unit. Its sales mix variance is: A. -$6,000 B. -$1,500 C. -$7,500 D. $7,500 Chapter 6 Pricing Decisions 23. Cost plus pricing adds a markup percentage to: A. Direct labor only B. Direct costs and allocated overhead C. Direct materials and allocated overhead D. Direct materials only 24. is an advantage of using dynamic pricing. A. Profit maximization B. The need to monitor competitor pricing C. An expanded marketing presence D. Printed price changes 25. Premium pricing works best for the sale of: A. Commoditized products B. High-volume goods C. Products for which there are substitutes available D. Luxury products 26. Price skimming occurs: A. Only in the consumer goods industry B. Only when a product is being phased out C. During the introduction of a new product D. Is designed to keep out potential competitors - 9 -

11 Chapter 7 Cost Object Analysis 27. Which of the following items can result in a high cost for a cost object? A. Low level of complexity B. High initial investment C. High volumes D. Large lot sizes 28. Always assign a cost to a cost object when: A. The cost would otherwise go unallocated B. Most of the cost structure of the business is overhead C. Eliminating the cost object would eliminate the cost D. The cost would remain if the cost object is eliminated 29. Which of the following costs should not be assigned to a specific customer cost object? A. The cost of managing a customer call center B. The cost of returned goods C. The cost of credits taken by the customer D. Early payment discounts taken by the customer 30. When the cost of acquiring new customers is high, management should: A. Be less inclined to use alternative acquisition methods B. Spend more to acquire customers using existing acquisition methods C. Spend more to retain existing customers D. Be more willing to take on all new customers Chapter 8 Constraint Analysis 31. In constraint analysis, the buffer: A. Is inventory positioned in front of the drum operation B. Is inventory positioned behind the drum operation C. Is a sufficient amount of finished goods inventory to assure immediate fulfillment of customer orders D. Is the equivalent of safety stock in the ordering process 32. Sprint capacity is needed to: A. Fulfill large customer orders in a short period of time B. Replace manual labor with a higher degree of automation C. Have the ability to rebuild the inventory buffer D. Reduce the corporate investment in production equipment 33. Under constraint analysis, an appropriate way to improve profits is to: A. Add supplemental staff to downstream operations B. Add supplemental staff to the bottleneck operation C. Add capacity to downstream machines D. Review product quality at downstream locations 34. When using constraint analysis to decide whether to cancel a product, cancellation is only recommended when the product price: A. Is higher than the price of competing products B. Is constrained by market conditions C. Results in no throughput D. Plus a reasonable overhead allocation does not yield a profit Chapter 9 Credit Decisions 35. The best credit rating system can: A. Recommend improvements to its own rating system B. Completely automate all credit decisions C. Correctly analyze clearly acceptable or unacceptable customers D. Correctly analyze marginal customers

12 36. A large positive score in a credit rating system is most likely to be related to: A. A long record of stability B. Losses in the past year s financial statements C. An adverse legal judgment D. A bankruptcy filing 37. An indicator of possible future payment delinquencies is: A. A change to a sole proprietorship B. A change from a sole proprietorship C. An increase in order volume D. A change in ownership 38. An increase from the normal credit used to the maximum amount allowed is known as: A. Credit maximization B. A credit trigger C. Credit uptake D. Credit zeroing 39. An internal credit rating system functions best when: A. There are few customers B. There are over 1,000 customers C. There is little historical information about customers D. The system was coded internally Chapter 10 Financing Choices 40. Factoring with recourse allows the factor to: A. Increase its fee B. Absorb any bad debt losses C. Pursue the company for any unpaid customer invoices D. Pursue the company for any unpaid supplier invoices 41. Inventory financing: A. Uses inventory as collateral B. Can only be used to acquire inventory C. Involves a commitment to reduce the investment in inventory D. Does not require a lien on a company s inventory 42. Restricted stock: A. Carries a restriction statement on the face or back of the certificate B. Is always locked up C. Is freely transferable D. Is the instrument of choice for the typical investor 43. A warrant: A. Is used to take advantage of a subsequent decline in a company s stock price B. Can only be exercised by an employee C. Is a put option issued by a company on its own shares D. Is a call option issued by a company on its own shares Chapter 11 Financial Leverage 44. When profits decline as a result of debt financing: A. The market price of the company s stock has declined B. It is known as positive leverage C. It is known as negative leverage D. The company should have offered warrants to investors

13 45. Financial leverage increases the of a business. A. Equity load B. Fixed cost base C. Number of debt covenants D. Gross profit 46. Positive leverage is most likely to turn negative under the following circumstances: A. The company s incremental earnings rate is above the after-tax interest rate charged by lenders B. Lenders are willing to extend more credit to the company C. Lenders will issue loans at a fixed rate of interest D. Lenders will only issue loans at a variable rate of interest, and the market rate is increasing 47. Managers are more likely to employ massive financial leverage when: A. Their compensation includes stock grants that must vest B. Their compensation includes stock options that must vest C. Their bonus plans cover short periods of time D. Their bonus plans are based on the level of employee turnover Chapter 12 Capital Structure Analysis 48. Optimal capital structure is defined as: A. The structure that yields the lowest cost of capital B. The point where the cost of additional funds will not generate a positive net present value on additional projects C. The structure that represents the lowest level of risk D. The structure that results in the lowest interest expense 49. A capital structure analysis might be triggered by: A. An interest payment to a lender B. A prospective change to the corporate credit policy C. The need to fund an acquisition D. The presence of a loan covenant 50. An example of a tax shield is: A. Interest expense B. Revenue C. Accounts receivable D. Sales tax liability 51. An example of a common loan covenant is: A. Maintaining a minimum level of sales per person B. Maintaining a low inventory turnover ratio C. Not issuing dividends to investors during the term of the loan D. Limiting compensation levels for the production staff Chapter 13 Dividend Analysis 52. The formula for the dividend payout ratio is: A. (Total dividends paid + Appreciation in share price) Operating income B. Total dividends paid Net income C. (Total dividends paid + Appreciation in share price) Net income D. Total dividends paid Operating income 53. A dividend payout ratio of greater than 100%: A. Indicates that a company is dipping into its reserves to pay the dividend B. Indicates a low risk that the dividend will be reduced in the future C. Indicates that a company has a considerable need to reinvest funds in the business D. Is usually accompanied by a reduction in the amount of debt outstanding

14 54. When a company first issues dividends, which two events are more likely to occur? A. Stock price is less volatile and different shareholders will own the stock B. Stock price is more volatile and different shareholders will own the stock C. Stock price is less volatile and there is little change in the composition of shareholders D. Stock price is more volatile and there is little change in the composition of shareholders 55. Which of the following is not a reason to engage in a stock buyback? A. To eliminate excess shares B. To increase the earnings per share measurement C. To keep the stock price from declining D. To expand the number of investors Chapter 14 Foreign Exchange Risk Analysis 56. Transaction exposure: A. Is the risk of counterparty failure B. Only relates to transactions in a company s home currency C. Is the inability to locate a broker for a foreign exchange transaction D. Is based on changes in the exchange rate between when a transaction is booked and settled 57. An example of an operational hedge is: A. Building reserves B. The alignment of sales and purchases within the same country C. Requiring customers to pay in the company s home currency D. A forward window contract 58. A forward contract can be used to: A. Acquire a loan in a foreign currency B. Buy foreign currency on a future date, at a predetermined exchange rate C. Have an option to buy currency on a future date D. Swap currency holdings on a future date 59. Payment netting is used: A. In a gross settlement system B. Primarily between companies using the same currency C. To offset the accounts receivable and payable between two parties D. To avoid income tax issues Chapter 15 Interest Rate Risk Analysis 60. Not mitigating interest rate risk is a reasonable option when: A. All invested funds are in foreign currencies B. A company has a large amount of fixed-rate bonds outstanding C. A company has minimal amounts of debt D. A company has significant investments 61. An FRA starting in two months and ending in five months has the following designation: A. 5 2 B. 0 5 C. 3 6 D A(n) uses a standardized agreement and is marked to market every day. A. Futures contract B. Forward rate agreement C. Interest rate swap D. Call option

15 63. A call option can be used by the owner: A. To keep the effective interest rate within a narrow band of possible rates B. Solely to protect against changes in the long-term interest rate C. To protect against rising interest rates D. To protect against declining interest rates 64. An interest rate swaption: A. Requires the buyer to enter into an interest rate swap arrangement B. Gives the buyer the option to enter into an interest rate swap arrangement C. Only pays out in a foreign currency D. Contains no counterparty risk Chapter 16 Financial Forecasting 65. The production budget provides input to the: A. Financing budget B. Direct materials budget C. Administration budget D. Revenue budget 66. A rolling forecast should address: A. All expense line items B. The key variables in the business C. The detail of all sources of revenue D. All operational metrics 67. must be manually updated in a medium-term forecast. A. Cash paid for cost of goods sold items B. Seasonal costs C. Cash paid for payroll D. Cash receipts from customers 68. Mail float relates to: A. The time required for a company to internally process a check B. The time required to obtain funds from the drawee bank C. The time required for a check to reach its recipient D. The total period from check issuance to the receipt of cash Chapter 17 Managing the Rate of Growth 69. An increase in sales usually requires: A. A reduction in inventory levels B. Additional funding of accounts receivable C. A reduction in accounts payable D. Fewer fixed assets for the production line 70. A high rate of growth can be supported internally with: A. A reduced debt to equity ratio B. Increased dividend payouts C. The retention of cost objects D. A high contribution margin 71. An additional cost associated with the sale of customized products is: A. An increased level of bad debt expense B. Regional warehousing C. A production planning staff D. Longer payment terms

16 72. A common constraint on growth is: A. The hiring of highly specialized employees B. The hiring of managers C. The negotiation of terms with suppliers D. The production scrap rate 73. How can a high rate of growth have a negative effect on a business? A. Dividends increase B. Product quality slips C. Call center response times accelerate D. Inventory turnover increases Chapter 18 The Cost of Capital 74. The cost of capital is comprised of the costs of: A. Debt Working capital + Common stock B. Working capital + Common stock C. Debt + Working capital + Common stock D. Debt + Preferred stock + Common stock 75. If a company has outstanding debt at a 10% interest rate and a 35% income tax rate, its cost of debt for the purpose of calculating the cost of capital is: A. 10.0% B. 6.5% C. 3.5% D. 13.5% 76. Preferred stock is more expensive than debt because: A. Dividends paid on the shares are not tax-deductible B. Dividends paid on the shares are tax-deductible C. Investors expect the price of their shares to appreciate D. The shares must eventually be paid back to investors 77. When deriving beta, the use of a long-term time horizon: A. Tends to amplify recent swings in the stock price B. Has no impact on the calculated beta C. Tends to downplay recent stock price volatility D. Will increase the amount of calculated beta Chapter 19 Discounted Cash Flow Techniques 78. Discounted cash flow analysis is based on the concept that: A. Cash received today is more valuable than cash received later B. Cash to be received later is more valuable than cash received today C. Investors place a higher value on invested funds D. Interest rates are always higher for maturity dates further in the future 79. A consistent stream of cash flows over several periods is known as: A. The future value of 1 due in n periods B. The present value of 1 due in n periods C. A capital investment D. An annuity 80. An ordinary annuity is: A. A stream of payments where payments are made at the end of each period B. A stream of payments where payments are made at the beginning of each period C. A stream of payments always paid in the home currency D. A stream of assured payments over several periods

17 81. Net present value analysis is commonly used for: A. The evaluation of capital purchasing requests B. The granting of credit to customers C. The calculation of the future value of an ordinary annuity D. The calculation of the future value of an annuity due 82. The internal rate of return is: A. An analysis of the returns from two competing investment opportunities B. The time period required to exactly pay back the initial investment C. The rate of return at which the present value of a series of cash flows equals the present value of all associated costs D. The current value of a stream of cash flows Chapter 20 Capital Budgeting 83. The payback method may be a useful capital budgeting analysis tool because it: A. Includes discounted cash flows B. Considers long-term cash flows C. Includes an analysis of the bottleneck operation D. Is a simple calculation for how fast you will earn back your investment 84. The intent of a post installation review is to: A. Purchase additional assets B. Determine whether the installed asset should be returned to the supplier C. See if the initial expectations for a capital project were realized D. Calculate the benefits of a lease or buy decision 85. A real option refers to: A. A situation where only a single outcome is possible B. A stock option with a lengthy vesting period C. The decision options available for a tangible asset D. A type of warrant 86. A basic rule of investing in a complex environment is that: A. It is impossible to understand the full impact of the investment B. It can be fully modeled if you take enough time to develop a comprehensive model C. Factor interaction must be fully understood before you invest D. Outcomes are likely to fall within a tight tolerance range Chapter 21 The Lease or Buy Decision 87. Which of the following is not associated with an operating lease? A. The lessee records a periodic lease payment B. The lessor records the leased asset on its books as a fixed asset C. The lessee records interest expense for the leased asset D. The lessor charges depreciation against the leased asset 88. The formulation of a lease rate does not include: A. The residual value of the asset to be leased B. The interest rate to be charged to the lessee C. The cost of returning the leased asset to the lessor D. The amount of a down payment 89. What action can reduce the fair market value at which an asset can be bought out at the end of a lease term? A. Allow the lessor to set the buyout price B. Require that the fair market value be subject to arbitration C. Set the price at the fair market value as of the end of the lease term D. Avoid any buyout clause

18 90. If a company has minimal taxable income, it would be more inclined to use: A. Outsourcing to avoid the acquisition of assets B. A cash purchase C. An operating lease D. A capital lease 91. From a financing perspective, the advantage of leasing is: A. Driving down the average interest rate paid on all debt by the lessee B. Being able to used leased assets as collateral on other loans C. Reserving room on the lessee s line of credit for other purposes D. The overall lower cost of leasing in comparison to a loan Chapter 22 Acquisition Valuation 92. The relief-from-royalty method is used: A. As an exemption from taxes related to the British royal family B. On a before-tax basis C. To value an entire business D. To assign a value to an intangible asset based on what a company would pay to license it 93. Multiples analysis can involve the comparison of to market value: A. Gross margin B. Financing costs C. Sales D. Selling and administrative expenses 94. Multiples analysis will be overstated when: A. The company has transitory (one-time) revenues B. Fundamentals are better than those of the comparative companies C. There is an outlier in the analysis whose multiple is very low D. The company is larger than those used in the comparison 95. Replication value: A. Is the cost to duplicate a drug that is coming off its patent period B. Can result in the payment of an unusually low price for an acquisition C. Is the concept of estimating what it would cost to replicate a business D. Is a method for estimating the cost of an intangible asset 96. The influencer price point is: A. The maximum price point set for an acquisition by the CEO of the acquirer B. The share price at which a key decision-maker bought into a target company C. The going rate for an investment banker D. The share price at which a hostile takeover can expect to gain control of a target company Chapter 23 The Enhancement of Shareholder Value 97. A company with low profitability can still maximize its return on equity by: A. Increasing asset turnover and decreasing financial leverage B. Decreasing asset turnover and increasing financial leverage C. Decreasing asset turnover and financial leverage D. Increasing asset turnover and financial leverage 98. A(n) business is more likely to engage in a larger amount of financial leverage. A. High turnover B. Asset light C. Asset intensive D. High profitability

19 99. The economic value added measurement is designed to: A. See if a business is generating any value in excess of its cost of funds B. Determine the correct price at which to acquire a company C. Calculate the most accurate weighted average cost of capital D. Assist in the decision process for capital budgeting 100. Long-term shareholder value is derived from: A. Stock price manipulation B. Key success factors C. Excellent financial metrics D. The complete avoidance of research and development expenditures Thank you for taking our course. We hope you enjoyed it

20 Financial Analysis Course Number: B Qualifies for 20 hours of CPE credit Name as it should appear on your Certificate: License State(s): License Number: Date Course Completed: If you are mailing or faxing your test to us for grading, please fill in Member ID and Validation number. Where should we send your results? * Answer each question A, B, C, or D, as appropriate. * Be sure you are answering questions from the Final Examination, not from the Study Guide * For instant online grading, go to and click the link for Online Services Page 1 of 1

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