FSA IFRS Test Questions

8/16/2019 FSA IFRS Test Questions

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Chapter 1 – A Framework for Business Analysis andValuation Using Financial Statements

Chapter 1 Qui

Your score is 55%.Questions answered correctly first time: 6/16

You a!e com"leted te exercise.

#ow $uestions one y one

1. &emons "rolems arise in ca"ital mar'ets wen

(. ) *ana+ers are etter informed aout te !alue of teir usiness ideastan in!estors

,. ) *ana+ers a!e an incenti!e to understate te !alue of teir usinessideas

-. ) *ana+ers and in!estors a!e conflictin+ interests

. ) ( , and -

0. ( and -

2. -onsider te followin+ statement: 3In countries wit a model of stron+ le+al"rotection of in!estors4 ri+ts information intermediaries "lay a i++er role in"re!entin+ lemons "rolems tan in countries wit a model of wea' le+al"rotection of in!estors4 ri+ts. is statement is:

(. :78 rue

,. 9alse

. *andatory "ulication of audited financial statements is an im"erfect solutionto incenti!e and information "rolems etween mana+ers and in!estorsecause:


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(. ) (ccountin+ "rofits are ty"ically less informati!e aout firms4economic "erformance tan cas flows

,. e accountin+ standards +o!ernin+ te "re"aration of suc

financial statements are ty"ically too loosely defined

-. :78 *ana+ers unintentionally as well as strate+ically introduce noiseinto re"orted accountin+ "erformance trou+ teir accountin+decisions

. ;one of te ao!e

. ic of te followin+ items is not a re$uired com"onent of 0uro"ean "ulic

firms4 financial statements

(. ) ( com"reensi!e income statement or statement of total reco+ni?edincome and ex"ense8

,. ) (n income statement

-. ) ( cas flow statement or statement of cas flows8

. ) ( alance seet or statement of financial "osition8

0. (ll of te ao!e items are re$uired com"onents

5. -onsider te followin+ statement: 3(n economic resource wose futureenefits cannot e measured wit a reasonale de+ree of certainty is notconsidered to e an asset for accountin+ "ur"oses. is statement is:

(. :78 rue

,. 9alse

6. ic of te followin+ statements is correct

(. ) @e!enues cannot e reco+ni?ed efore cas is collected.


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,. ) 0x"enses cannot e reco+ni?ed efore te cas outflow asoccurred.

-. :78 @e!enues cannot e reco+ni?ed if cas collection is uncertain.

. 0x"enses will always e reco+ni?ed efore or wen te casoutflow occurs.

0. ;one of te ao!e.

A. -onsider te followin+ statement: 3e extent to wic financial statementsaccurately reflect te conse$uences of mana+ers4 o"eratin+ in!estment andfinancin+ decisions is a function of caracteristics of te accountin+

en!ironment and mana+ers4 accountin+ strate+y. is statement is:

(. :78 rue

,. 9alse

B. -onsider te followin+ statement: 3(ccountin+ con!entions and re+ulations

tat lea!e mana+ement no accountin+ discretion lead to more useful financialstatements tan accountin+ con!entions and re+ulations tat do +rantaccountin+ discretion. is statement is:

(. ) rue

,. 9alse

C. -onsider te followin+ statement: 39inancial re"orts of "ulicly listed firms are"re"ared usin+ accrual accountin+ rater tan cas accountin+. isstatement is:

(. :78 rue

,. 9alse


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1D.ic of te followin+ statements is true

(. ) e im"lementation of te 0i+t -om"any &aw irecti!e in te0uro"ean Enion as remo!ed all systematic differences in teeffecti!eness of external auditin+ across countries.

,. :78 Fne of te oGecti!es of te 0i+t -om"any &aw irecti!e in te0uro"ean Enion is to set minimum standards for "ulic audits tatim"ro!e auditor inde"endence.

-. (ll audits of "ulic firms witin te 0uro"ean Enion must ecarried out in accordance wit te set of Henerally (cce"ted (uditin+#tandards as "romul+ated y te ulic -om"any (ccountin+

F!ersi+t ,oard.

. ;one of te ao!e

11. ic of te followin+ statements is true

(. ) *ana+erial le+al liaility re+imes are e$ually strict across te

memer states of te 0uro"ean Enion.

,. ) Ender a strict le+al liaility re+ime mana+ers tend to "ro!ide moreforward7loo'in+ disclosures tan under a loose re+ime.

-. :78 *ana+erial le+al liaility re+imes are less strict in Hermany and teEJ tan in te E#.

. ;one of te ao!e

12.Fne of te "rimary tas's of te -ommittee of 0uro"ean #ecurities @e+ulatorsis to:

(. :78 Im"ro!e te consistency of "ulic enforcement acti!ities across0uro"ean countries.

,. ulicly disclose all 0uro"ean "ulic enforcement decisions.

-. e!elo" a set of International ulic 0nforcement #tandards.


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. isci"line 0uro"ean "ulic com"anies for !iolations ofInternational 9inancial @e"ortin+ #tandards.

1.-onsider te followin+ statement: 3e outcomes of usiness strate+y analysisaffect te financial and "ros"ecti!e analyses ut a!e no rele!ance for teaccountin+ analysis. is statement is:

(. ) rue

,. 9alse

1.ic of te followin+ statements is correct

(. ) e accountin+ analysis follows te financial analysis

,. ) e "ros"ecti!e analysis "recedes te strate+y analysis

-. :78 e "ros"ecti!e analysis follows te financial analysis

. e financial analysis "recedes te strate+y analysis

15.e outcomes of te strate+y analysis affect te accountin+ analysis ecause

(. ) e strate+y analysis also includes an analysis of te firm4saccountin+ strate+y

,. ) 9irms wit "oor strate+ies are more li'ely to a!e low7$ualityfinancial statements tan firms wit successful strate+ies

-. :78 ( firm4s industry and com"etiti!e strate+y affect wic accountin+coices are a""ro"riate.

. ;one of te ao!e.


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16.wo reasons for wy financial statements tend to e less useful in te analysisof "ri!ately eld usinesses tan in te analysis of "ulicly eld usinesseswitin te 0E8 is tat:

(. :78 i8 ri!ate firm4s financial statements are stron+ly influenced y taxrules and ii8 mana+ers of "ri!ate firms a!e less incenti!e to "re"areinformati!e financial statements tan mana+ers of "ulic firms.

,. ri!ate firm4s financial statements i8 do not com"ly wit tax rulesand ii8 are not "ulicly a!ailale.

-. ri!ate firm4s i8 financial re"ortin+ is unre+ulated and ii8 financialstatements are not "ulicly a!ailale.

. ;one of te ao!e.

Chapter ! – Strategy Analysis

Qui




1. Industry "rofitaility is a function of

(. ) @i!alry amon+ existin+ firms

,. ) -om"etiti!e ad!anta+e of industry memers

-. ) ,ar+ainin+ "ower of customers

. ) ( , and oter factors

0. ( - and oter factors


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2. ic of te followin+ industry factors does not affect te nature of ri!alryamon+ existin+ firms in te industry

(. ) @atio of fixed to !ariale costs

,. ) -oncentration of com"etitors

-. ) Industry +rowt

. 9irst mo!er ad!anta+e

. ic of te followin+ industry factors does not affect te treat of new firmsenterin+ te industry

(. ) &e+al arriers

,. ) @atio of fixed to !ariale costs

-. :78 rice sensiti!ity of uyers

. 9irst mo!er ad!anta+e

. ic of te followin+ industry factors does not affect te ar+ainin+ "ower ofuyers in te industry

(. ) -oncentration of uyers relati!e to te concentration of sellers

,. :78 @atio of fixed to !ariale costs

-. rice sensiti!ity of customers

. ;one of te ao!e

5. 0uro"ean airlines4 structural excess ca"acity i.e. low load factors8 ne+ati!elyaffected te a!era+e "rofitaility in te 0uro"ean airline industry etween1CC5 and 2DD. is is an exam"le of ow


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(. :78 e ri!alry amon+ existin+ firms affects industry "rofitaility.

,. e treat of new entrants affects industry "rofitaility.

-. e treat of sustitute "roducts affects industry "rofitaility.

. e ar+ainin+ "ower of uyers affects industry "rofitaility.

0. e ar+ainin+ "ower of su""liers affects industry "rofitaility.

6. e "rice sensiti!ity of customers in te otel industry

(. ) Karies de"endin+ on wat day of te wee' it is.

,. :78 Is "ositi!ely affected y te a!ailaility of we oo'in+ systems andte resultin+ "rice trans"arency in te industry.

-. Is ne+ati!ely affected y te lac' of otels in a "articular+eo+ra"ical area.

. ;one of te ao!e

A. -onsider te followin+ statement: 3iscount retailers follow a cost leadersi"strate+y. is statement is

(. :78 rue

,. 9alse

B. -onsider te followin+ statement: 3In industries wit i+ ri!alry amon+existin+ firms te o"timal com"etiti!e strate+y is to e a cost leader. isstatement is

(. ) rue

,. 9alse


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C. -onsider te followin+ statement: 3Kery few firms are successful in cominin+a cost leadersi" strate+y wit a differentiation strate+y ecause otstrate+ies re$uire different and ty"ically irreconcilale core com"etences.is statement is

(. :78 rue

,. 9alse

1D.-onsider te followin+ statement: 39irms followin+ a cost leadersi" strate+ytend to earn i+er mar+ins on teir "roducts or ser!ices tan firms followin+ a

differentiation strate+y. is statement is

(. ) rue

,. 9alse

11. *ana+ers4 coice weter or not to di!ersify acti!ities across +eo+ra"ical

areas or "roduct se+ments is "art of te

(. :78 -or"orate strate+y decision

,. -om"etiti!e strate+y decision

-. ;one of te ao!e

12.0conomic teory indicates tat te o"timal cor"orate strate+y and structureminimi?es te firm4s

(. ) roduction costs

,. ) #er!ice costs

-. ) ,oo' !alue of assets

. :78 ransaction costs


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0. ;one of te ao!e

1.e existence of con+lomerates in emer+in+ mar'ets is "artly te result of

(. ) &ow transaction costs in emer+in+ laor mar'ets

,. :78 Li+ transaction costs in emer+in+ ca"ital mar'ets

-. Li+ transaction costs in emer+in+ "roduction mar'ets

. &ow transaction costs in emer+in+ "roduction mar'ets

0. ;one of te ao!e

1.-onsider te followin+ statement: 3#in+le7se+ment usinesses a!e lowertransaction costs tan multi7se+ment usinesses. is statement is

(. ) rue

,. 9alse

15.-onsider te followin+ statement: 3( firm4s industry coice com"etiti!e"ositionin+ and cor"orate strate+y all influence te difference etween tefirm4s actual and re$uired return on ca"ital. is statement is

(. :78 rue

,. 9alse

Chapter " – #$er$iew of Accounting Analysis

Qui


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Your score is 5D%.Questions answered correctly first time: /16



1. e oGecti!e of accountin+ analysis is ty"ically not to

(. ) Identify areas in te financial statements tat are most stron+lyaffected y mana+ement4s discretionary accountin+ coices.

,. ) Identify accountin+ coices tat are most critical to a firm4saccountin+ "erformance.

-. :78 (sses weter te financial statements fully com"ly wit accountin+con!entions and re+ulations.

. Enderstand mana+ement4s re"ortin+ incenti!es and strate+y.

0. Endo te financial statements from distortions.

2. -onsider te followin+ statement: 3International 9inancial @e"ortin+ #tandardsI9@#8 are ty"ically considered to e more "rinci"les7ased tan E# Henerally

(cce"ted (ccountin+ rinci"les E# H((8. is statement is

(. :78 rue

,. 9alse

. -onsider te followin+ statement: 3e use of rules7ased standards rater

tan "rinci"les7ased standards decreases te !erifiaility of financialstatements ut increases te extent to wic financial statements reflect teeconomic sustance of a firm4s transaction. is statement is

(. ) rue

,. 9alse


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. ic of te followin+ statements is true

(. ) *ana+ers of firms tat are close to !iolatin+ accountin+7ased detco!enants a!e an incenti!e to mana+e earnin+s and wor'in+ ca"italratios downwards.

,. ) In sare7for7sare mer+ers mana+ers of te ac$uirin+ firm a!e anincenti!e to understate teir firm4s accountin+ "erformance.

-. ) ,ot statements are true.

. ;one of te ao!e statements is true.

5. ic of te followin+ statements is true

(. :78 *ana+ers a!e an incenti!e to understate accountin+ "erformancesortly efore a lar+e o"tion award is +ranted to tem.

,. *ana+ers wo a++ressi!ely mana+e teir firm4s taxes a!e anincenti!e to consistently o!erstate teir firm4s accountin+ "erformance.

-. ,ot statements are true.

. ;one of te ao!e statements is true.

6. ic of te followin+ is not a "otential 3red fla+ "ointin+ to $uestionaleaccountin+ $uality

(. ) Enex"lained transactions tat oost "rofit

,. ) Enex"ected lar+e asset write7offs

-. :78 Kolatility in te difference etween re"orted "rofits and cas flows

. oor internal +o!ernance mecanisms

0. (ll of te ao!e are "otential red fla+s


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A. ic of te followin+ is not a "otential 3red fla+ "ointin+ to $uestionaleaccountin+ $uality

(. ) (n increasin+ +a" etween a firm4s re"orted "rofit and its tax "rofit

,. ) (n increasin+ +a" etween a firm4s re"orted "rofit and its cas flowfrom o"eratin+ acti!ities

-. ) Enusual increases in in!entories in relation to sales increases

. :78 e use of accelerated de"reciation metods

0. (ll of te ao!e are "otential red fla+s

B. Ender I9@# firms can classify teir o"eratin+ ex"enses in te incomestatement eiter y function or y nature. ic of te followin+ twostatements aout o"eratin+ ex"ense classification is true

#tatement I: Ender te classification y nature firms distin+uis 3cost of salesfrom 3sellin+ +eneral and administrati!e #HM(8 ex"enses.

#tatement II: e International 9inancial @e"ortin+ #tandards re$uire tat

firms classifyin+ teir o"eratin+ ex"enses y nature in te income statementdisclose teir o"eratin+ ex"enses y function in te notes to te financialstatements.

(. ) #tatement I is trueN statement II is not true.

,. ) #tatement I is not trueN statement II is true.

-. ) ,ot statements are true.

. ,ot statements are not true.

C. ic of te followin+ accountin+ "olicies is most li'ely to e a 'ey accountin+"olicy of -arrefour one of te world4s lar+est retailers

(. ) (ccountin+ for "ayales


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,. ) (ccountin+ for le+al claims

-. ) (ccountin+ for re!enues

. (ccountin+ for "ro"erty

1D.ic of te followin+ factors is not rele!ant in e!aluatin+ a firm4s accountin+strate+y

(. ) *ana+ement4s incenti!es to mana+e earnin+s

,. :78 e "resence of mandatory can+es in accountin+ "olicies

-. (!era+e accountin+ coices in te industry

. (ccuracy of "ast accountin+ estimates

0. e "resence of !oluntary can+es in accountin+ "olicies

11. -onsider te followin+ statements aout standardi?ation of financial

statements.

#tatement I: e income statement items 3@esult from associate com"aniesor 30$uity income from associates must e classified as 3*inority Interest.

#tatement II: e alance seet item 3ro!ision for "ost7em"loyment enefitsmust e classified as 3;on7current det.

(. ) #tatement I is trueN statement II is not true.

,. :78 #tatement I is not trueN statement II is true.

-. ,ot statements are true.

. ,ot statements are not true.

12.ic of te followin+ statements is correct


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(. :78 3Heneral and (dministrati!e 0x"ense is an income statement lineitem tat firms use under a classification of o"eratin+ ex"enses yfunction.

,. 3@aw *aterials is an income statement line item tat firms useunder a classification of o"eratin+ ex"enses y function.

-. 3*ar'etin+ and #ellin+ 0x"ense is an income statement line itemtat firms use under a classification of o"eratin+ ex"enses y nature.

. 3-ost of #er!ices is an income statement line item tat firms useunder a classification of o"eratin+ ex"enses y nature.

1.ic of te followin+ relationsi"s etween income statement line item andstandard income statement account is correct

(. :78 #er!icin+ and maintenance > #HM( y function8

,. i!idend income > Interest income

-. (sset im"airments > -ost of sales y function8

. #are7ased "ayments > In!estment income

1.ic of te followin+ relationsi"s etween alance seet line item andstandard alance seet account is correct

(. ) (mounts due from affiliates > rade recei!ales

,. ) Hoodwill > ;on7current tan+ile assets

-. :78 or'7in7"ro+ress > In!entories

. ro!ision for "ost7em"loyment enefits > Fter current liailities

15.ic of te followin+ relationsi"s etween cas flow statement line item andstandard cas flow statement account is correct


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(. ) e"reciation and amorti?ation > ;on7o"eratin+ losses +ains8

,. :78 eferred tax ex"ense > ;on7current o"eratin+ accruals

-. #toc' onus awards > ;et in!estments in o"eratin+ wor'in+ca"ital

. -a"ital ex"enditures > ;et in!estments in o"eratin+ wor'in+ca"ital

16.O(out (""endix (P en firms ado"t I9@# International 9inancial @e"ortin+#tandards8 for te first time tey a""ly te new standards retros"ecti!ely. isim"lies tat tey

(. ) Ese I9@# only for transactions tat occurred durin+ te "rior andcurrent year

,. ) Ese I9@# only for transactions tat occurred durin+ te current year

-. :78 Ese I9@# for all "ast transactions i.e. a""ly I9@# as if tey ada""lied I9@# all alon+ wit some exce"tions8

. ;one of te ao!e

Chapter % – &mplementing Accounting Analysis

Qui

Your score is 5D%.Questions answered correctly first time: /1



1. -om"any (4s non7current assets a!e a residual !alue of ?ero a e+innin+oo' !alue of 5DDD and an initial cost of 1DDDD. -om"any ( uses anannual de"reciation "ercenta+e of 1D%. Its statutory and effecti!e8 tax rate isD "ercent. at adGustments would an analyst ma'e to com"any (4se+innin+ e$uity and non7current assets if se assumes tat com"any (4s

de"reciation "ercenta+e sould e 12%


17/51

(. ) ecrease non7current assets y 1DDDN decrease e$uity y 1DDD

,. ) ecrease non7current assets y 2DDDN decrease e$uity y 2DDD

-. :78 ecrease non7current assets y 1DDDN decrease e$uity y ADD

. ecrease non7current assets y 2DDDN decrease e$uity y 1DD

2. -om"any (4s non7current assets a!e a residual !alue of ?ero a e+innin+oo' !alue of 5DDD and an initial cost of 1DDDD. -om"any ( uses anannual de"reciation "ercenta+e of 1D%. Its statutory and effecti!e8 tax rate isD "ercent. at adGustments would an analyst ma'e to com"any (4s current

year4s tax ex"ense if se assumes tat com"any (4s de"reciation "ercenta+esould e 12%

(. :78 ecrease tax ex"ense y 6D

,. Increase tax ex"ense y 6D

-. ecrease tax ex"ense y D

. Increase tax ex"ense y D

0. ;o adGustment

. (n analyst ma'es an adGustment for understated de"reciation increasin+-om"any (,-4s (ccumulated e"reciation on M08 y an amount of 1Dmillion. e -om"any4s tax rate is D "ercent. In te financial statements tisadGustment

(. ) ecreases net non7current assets y 1D million and decreasese$uity y 1D million.

,. ) Increases net non7current assets y 1D million and increases e$uityy 1D million.

-. :78 ecreases net non7current assets y 1D million decreases e$uityy 6 million and decreases oter non7current liailities y million.


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. ecreases net non7current assets y 1D million decreases e$uityy 6 million and decreases net det y million.

. Incorrectly treatin+ finance leases as o"eratin+ leases in te financialstatements el"s firms to

(. ) F!erstate asset turno!er and o!erstate le!era+e

,. ) F!erstate "rofit mar+ins and understate asset turno!er

-. ) Enderstate asset turno!er and o!erstate le!era+e

. F!erstate asset turno!er and understate le!era+e

5. ( "armaceutical com"any s"ends 5DDD 6DDD and DDD on researc in2DDB 2DDC and 2D1D res"ecti!ely. (ssume tat researc in!estments a!ean ex"ected life of two years and occur e!enly trou+out te year. If ananalyst decides to ca"itali?e all researc ex"enditures and uses te strai+t7line metod to amorti?e researc assets er estimate of te oo' !alue of te"armaceutical4s researc asset at te end of 2D1D e$uals

(. ) 15DDD

,. ) 1DDDD

-. :78 5DD

. D

6. ( "armaceutical com"any s"ends 5DDD 6DDD and DDD on researc in2DDB 2DDC and 2D1D res"ecti!ely. (ssume tat researc in!estments a!ean ex"ected life of two years and occur e!enly trou+out te year. If ananalyst decides to ca"itali?e all researc ex"enditures and uses te strai+t7line metod to amorti?e researc assets er estimate of te "armaceutical4sresearc amorti?ation ex"ense in 2D1D e$uals

(. ) DDD


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,. ) 5DDD

-. ) 52DD

. 525D

A. ( car manufacturer reco+ni?es te sale of DDDD cars in its income statement.e cars a!e a total sellin+ "rice of 5DDDD and a total cost of 5DDDD. (llcars a!e een "re"aid ut not yet si""ed to te customer. e carmanufacturer4s statutory and effecti!e tax rate is D "ercent. e reco+nition oftis sale leads to te followin+ distortions:

(. ) ;o o!erstatement/understatement of net "rofit and e$uityNo!erstatement of total assets and total liailities y 5DDDD.

,. ) F!erstatement of net "rofit and e$uity y 1DDDDDN o!erstatement of total assets y 5DDDDN o!erstatement of total liailities y 25DDDD.

-. ) F!erstatement of net "rofit and e$uity y 1DDDDDN o!erstatement of total assets y 1DDDDD.

. F!erstatement of net "rofit and e$uity y 1DDDDDN

understatement of total assets y 5DDDDN understatement of totalliailities y 5DDDD

B. Fn ecemer 1 2D1D a com"any re"orted te followin+ !alues for itsallowances for doutful accounts:

(llowance for doutful accounts 1/12/2D1D,alance at te e+innin+ of te year DDDDro!ision for ad dets =ad det ex"ense8 2DDD

rite7offs 5DDD,alance at te end of te year 2ADDD

Hross trade recei!ales on ecemer 1 2D1D and Ranuary 1 2D1D were BDDDD and 1DDDDD res"ecti!ely. e com"any4s tax rate e$uals D"ercent. If an analyst decides tat te com"any4s allowance for doutfulaccounts sould a!e een 25 "ercent of +ross trade recei!ales on 1ecemer 2D1D and 1 Ranuary 2D1D te adGustments to te incomestatement would e to


20/51

(. ) Sero

,. :78 ecrease te ad det ex"ense y 2DDD increase te taxex"ense y 6DD and increase net "rofit y 1DD.

-. Increase te ad det ex"ense y 5DDD decrease te taxex"ense y 15DD and decrease net "rofit y 5DD.

. Increase te ad det ex"ense y DDD decrease te taxex"ense y CDD and decrease net "rofit y 21DD.

C. (n analyst as decided to ca"itali?e te o"eratin+ leases of -om"any (.Esin+ information in te notes to te com"any4s 2D11 financial statements se

as determined tat te "resent !alue of future minimum lease "ayments at adiscount rate of 1D "ercent on ecemer 1 2D11 e$uals 5DD million. (lllease contracts last anoter 5 years on ecemer 1 2D11. (s ex"ected atte e+innin+ of te year te com"any re"orts an o"eratin+ lease ex"ense inits income statement for 2D12 of BD million. e com"any4s tax rate e$ualsD "ercent. e com"any does not en+a+e in any new o"eratin+ leases in2D12. e followin+ information is also a!ailale from -om"any (4s financialstatements all ratios use e+innin+7of7te7year alance seet !alues8

;et det to net ca"ital at e+innin+ of 2D128 D.55@eturn on e+innin+ e$uity in 2D12 D.1D

;et assets at e+innin+ of 2D128 DD million

e effect of ca"itali?in+ -om"any (4s o"eratin+ leases on its le!era+e rationet det to net ca"ital8 e$uals

(. :78 (n increase from D.55 to D.61 rounded8.

,. (n increase from D.55 to D.A rounded8.

-. (n increase from D.55 to D.B2 rounded8.

. ( decrease from D.55 to D.51 rounded8.

1D.(n analyst as decided to ca"itali?e te o"eratin+ leases of -om"any (.Esin+ information in te notes to te com"any4s 2D11 financial statements seas determined tat te "resent !alue of future minimum lease "ayments at adiscount rate of 1D "ercent on ecemer 1 2D11 e$uals 5DD million. (lllease contracts last anoter 5 years on ecemer 1 2D11. (s ex"ected at

te e+innin+ of te year te com"any re"orts an o"eratin+ lease ex"ense in


21/51

its income statement for 2D12 of BD million. e com"any4s tax rate e$ualsD "ercent. e com"any does not en+a+e in any new o"eratin+ leases in2D12. e followin+ information is also a!ailale from -om"any (4s financialstatements all ratios use e+innin+7of7te7year alance seet !alues8

;et det to net ca"ital at e+innin+ of 2D128 D.55@eturn on e+innin+ e$uity in 2D12 D.1D;et assets at e+innin+ of 2D128 DD million

e effect of ca"itali?in+ -om"any (4s o"eratin+ leases on its return one+innin+ e$uity e$uals

(. ) (n increase from D.1D to D.15 rounded8.

,. ) (n increase from D.1D to D.1 rounded8.

-. :78 ( decrease from D.1D to D.DA rounded8.

. ( decrease from D.1D to D.D5 rounded8.

11. -om"any , reduces te discount rate it uses to estimate its "ost7em"loymentenefit oli+ation from B "ercent at te e+innin+ of fiscal year 2DDC8 to A

"ercent at te e+innin+ of fiscal year 2D1D8. (nalysts followin+ com"any ,elie!e tat tis reduction is unGustified. (ccordin+ to tese analysts com"any,

(. :78 Enderstates its 2D1D interest cost o!erstates its 2D1D ser!ice costNo!erstates te cumulati!e actuarial +ains at te e+innin+ of 2D1D.

,. Enderstates its 2D1D interest cost o!erstates its 2D1D ser!icecostN o!erstates te fair !alue of "lan assets at te e+innin+ of 2D1D.

-. F!erstates its 2D1D interest cost understates its 2D1D ser!icecostN understates te cumulati!e actuarial +ains at te e+innin+ of2D1D.

. Enderstates its 2D1D interest cost understates its 2D1D ser!icecostN understates te fair !alue of "lan assets at te e+innin+ of 2D1D.

12.Ender I9@# te "ension ex"ense reco+ni?ed in te income statement may not

e e$ual to te economic cost of te "ost7em"loyment enefit "lan ecause


22/51

(. :78 9irms can reco+ni?e of current actuarial +ains or losses in otercom"reensi!e income.

,. 9irms can reco+ni?e "ast ser!ice cost in oter com"reensi!e

income.

-. 9irms can reco+ni?e unex"ected "lan contriutions in otercom"reensi!e income.

. ,ot ( and , are correct

0. ,ot ( and - are correct

1.@ecent international rules I9@# C8 for te reco+nition of fair !alue +ains orlosses on e$uity securities wic re"lace I(# C im"ly tat +ains or lossesare no lon+er recycled. is means tat

(. ) 9air !alue +ains or losses tat a!e een reco+ni?ed in net "rofit canno lon+er e re!ersed in later "eriods.

,. :78 9air !alue +ains or losses will no lon+er e reco+ni?ed incom"reensi!e income wile ein+ unreali?ed and reco+ni?ed in net

"rofit u"on reali?ation.

-. ;one of te ao!e

Chapter ' – Financial Analysis

Qui




1. o assess te efficiency of a firm4s in!estment mana+ement an analyst wouldanaly?e te firm4s


23/51

(. ) ;et "rofit mar+in

,. :78 F"eratin+ asset turno!er

-. 9inancial s"read

. ;et financial le!era+e

2. o assess te efficiency of a firm4s o"eratin+ mana+ement an analyst wouldanaly?e te firm4s

(. :78 ;et "rofit mar+in

,. F"eratin+ asset turno!er

-. 9inancial s"read

. ;et financial le!era+e

. Fne difference etween te traditional and te alternati!e a""roac to

decom"osin+ return on e$uity is tat

(. ) e traditional a""roac defines le!era+e as det7to7e$uity wereaste alternati!e a""roac defines le!era+e as assets7to7e$uity.

,. ) Fnly te traditional a""roac ex"licitly sows te im"act of financials"read on return on e$uity.

-. :78 e a""roaces use different definitions of "rofit mar+ins and asset

turno!er.

. Fne a""roac uses e+innin+7of7year alance seet items tocalculate ratios wereas te oter a""roac uses end7of7year alanceseet items.

. (t te end of fiscal year 2D12 com"any S discloses te followin+ alanceseet:

(ssets


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-as 5DDDDD;on7cas current assets BDDDDD;on7current assets 1DDDDD*inority 0$uity In!estments DDDDD

otal 2CDDDDD

0$uity and &iailities-urrent det DDDDDFter current liailities ADDDDD;on7current et 1DDDDDeferred tax liaility 15DDDD0$uity 5DDDDotal 2CDDDDD

e com"any needs a cas alance of DDDDD for its o"erations. -om"any

S4s net non7current o"eratin+ assets e$ual

(. ) 1DDDDD

,. ) 1DDDDD

-. :78 115DDDD

. 2CDDDDD

5. (t te end of fiscal year 2D12 com"any S discloses te followin+ alanceseet:

(ssets-as 5DDDDD;on7cas current assets BDDDDD;on7current assets 1DDDDD*inority 0$uity In!estments DDDDD

otal 2CDDDDD

0$uity and &iailities-urrent det DDDDDFter current liailities ADDDDD;on7current et 1DDDDDeferred tax liaility 15DDDD0$uity 5DDDDotal 2CDDDDD

e com"any needs a cas alance of DDDDD for its o"erations. -om"anyS4s o"eratin+ wor'in+ ca"ital and in!estment assets e$ual


25/51

(. :78 DDDDD and 5DDDDD res"ecti!ely

,. 1DDDDD and 5DDDDD res"ecti!ely

-. DDDDD and DDDDD res"ecti!ely

. 1DDDDD and DDDDD res"ecti!ely

6. (t te end of fiscal year 2D1D com"any ) discloses te followin+ incomestatement:

#ales 6.5DDDDDF"eratin+ ex"ense BDDDDD8

Interest income 6DDDDDInterest ex"ense CDDDDD8ax ex"ense CDDDD8;et "rofit C1DDDD

-om"any )4s interest ex"ense after tax and net o"eratin+ "rofit after taxese$ual

(. :78 5B5DDD and 11D5DDD res"ecti!ely

,. 1C5DDD and 11D5DDD res"ecti!ely

-. DDDDD and C1DDDD res"ecti!ely

. DDDDD and 11D5DDD res"ecti!ely

A. -om"any ( discloses te followin+ information:

7 @eturn on e$uity = 15 "ercent7 ;et o"eratin+ and in!estment "rofit after taxes ;F( T ;I(8 = 5DDDDD7 ,usiness assets = DDDDDD7 0ffecti!e interest rate after tax = B "ercent

-om"any (4s financial le!era+e det7to7e$uity ratio8 is

(. ) ,etween D and C.C "ercent

,. :78 ,etween 5D and 5C.C "ercent


26/51

-. ,etween 6D and 6C.C "ercent

. ,etween AD and AC.C "ercent

B. -om"any , discloses te followin+ information:

7 @eturn on o"eratin+ assets = 1D "ercent7 ;et o"eratin+ "rofit after taxes = 5DDDDD7 #ales = DDDDDD7 0$uity = 2DDDDDD

-om"any ,4s o"eratin+ asset turno!er is

(. ) ,etween D and C.C "ercent

,. ) ,etween 5D and 5C.C "ercent

-. :78 ,etween 6D and 6C.C "ercent

. ,etween AD and AC.C "ercent

C. Industry "eers - and disclose te followin+ information:

-om"any - -om"any F"eratin+ asset turno!er 5.6 2.@eturn on o"eratin+ assets 1D "ercent 1D "ercent

ic of te two com"anies is more li'ely to follow a cost leadersi" strate+y

(. -om"any -

,. ) -om"any

1D.-om"any 0 discloses te followin+ information:

7 In!entories = BDDDDD7 -ost of sales = 5DDDDD7 ,usiness assets = DDDDDD


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-om"any 04s days4 in!entories is

(. ,etween D and C.C days

,. ,etween D and C.C days

-. ,etween 5D and 5C.C days

. :78 ,etween 6D and 6C.C days

11. If a firm4s return on e$uity is 2D "ercent its return on usiness assets is 1"ercent its sales +rowt rate is 15 "ercent and its di!idend "ayout ratio is 5D"ercent its sustainale +rowt rate e$uals

(. A "ercent

,. A.5 "ercent

-. :78 1D "ercent

. ) 15 "ercent

12.(t te end of fiscal year 2D1D com"any Y discloses te followin+ information:

;et o"eratin+ and in!estment "rofit after taxes ;F( T ;I(8 11DDDDDInterest ex"ense after tax = interest "aid8 5DDDDD;et in!estment in o"eratin+ wor'in+ ca"ital increase8 ADDDDD;et in!estment in non7current assets increase8 CDDDDD

;on7o"eratin+ losses CDDDDe"reciation and amorti?ation ex"ense C1DDDDIncrease in det 55DDDDi!idends "aid DDDDD

-om"any Y4s free cas flow a!ailale to det and e$uity is

(. 2DDDDD "ositi!e8

,. 1D5DDDD "ositi!e8


28/51

-. 5DDDDD "ositi!e8

. :78 5DDDDD8 ne+ati!e8

1.(t te end of fiscal year 2D1D com"any Y discloses te followin+ information:

;et o"eratin+ and in!estment "rofit after taxes ;F( T ;I(8 11DDDDDInterest ex"ense after tax = interest "aid8 5DDDDD;et in!estment in o"eratin+ wor'in+ ca"ital increase8 ADDDDD;et in!estment in non7current assets increase8 CDDDDD;on7o"eratin+ losses CDDDDe"reciation and amorti?ation ex"ense C1DDDDIncrease in det 55DDDD

i!idends "aid DDDDD

-om"any Y4s free cas flow a!ailale to e$uity is

(. 2DDDDD "ositi!e8

,. :78 5DDDD8 ne+ati!e8

-. ) 5DDDDD8 ne+ati!e8

. 5DDDDD "ositi!e8

Chapter ( – )rospecti$e Analysis* Forecasting

Qui

Your score is 2%.Questions answered correctly first time: 1/A



1. ic of te followin+ items are re$uired to "roduce a forecasted futurecondensed income statement


29/51

(. ) ax rateN ;F( mar+inN sales +rowtN interest rate on endin+ det

,. ) ax rateN asset turno!erN ;F( mar+inN sales +rowt

-. ) ;F( mar+inN sales +rowtN return on e+innin+ in!estment assetsNinterest rate on e+innin+ detN le!era+e ratio

. ax rateN ;F( mar+inN sales +rowtN return on e+innin+in!estment assetsN interest rate on e+innin+ det

2. -onsider te followin+ statement: 3#ales +rowt tends to re!ert faster to itseconomy7wide a!era+e tan o"eratin+ asset turno!er. is statement is

(. rue

,. ) 9alse

. -onsider te followin+ statement: 3@eturn on o"eratin+ assets tends to re!ertfaster to its economy7wide a!era+e tan financial le!era+e. is statement is

(. rue

,. ) 9alse

. -onsider te followin+ statement: 39inancial le!era+e tends to re!ert faster toits economy7wide a!era+e tan financial s"read. is statement is

(. rue

,. :78 9alse

5. In cyclical industries sales +rowt

(. ends to mo!e in line wit economy7wide +rowt


30/51

,. ) ends to a""roac ?ero

-. ) ends to e ne+ati!e durin+ economic u"turns

. ) -onsistently exceeds economy7wide +rowt

6. -om"any ( re"orts te followin+ series of $uarterly earnin+s: Q1 = D.25DN Q2= D.DDN Q = D.2BDN Q = D.2ADN Q5 = D.25DN Q6 = D.2DN QA = D.2CDN QB =D.2B5. (n analyst assumes tat com"any (4s $uarterly earnin+s "erfectlyfollow te time7series "rocess descried y te 9oster model. Ender tisassum"tion te analyst4s forecast of $uarter C earnin+s is

(. ) D.255D

,. D.225

-. D.2A5D

. :78 D.2625

A. -onsider te followin+ statement: 3e 9oster model does not ta'e intoaccount tat $uarterly earnin+s may exiit a seasonal "attern. isstatement is

(. ) rue

,. 9alse

Chapter + – )rospecti$e Analysis* Valuation ,heory andConcepts

Qui

Your score is B%.Questions answered correctly first time: 2/1

You a!e com"leted te exercise.#ow $uestions one y one


31/51

1. (n analyst "roduces te followin+ series of annual di!idend forecasts forcom"any (: 0x"ected di!idend end of8 year tT1 = 1DN 0x"ected di!idendend of8 year tT2 = 2DN 0x"ected di!idend end of8 year tT = 1D. eanalyst furter ex"ects tat com"any (4s di!idends will e ?ero after year tT.

-om"any (4s cost of e$uity e$uals 1D "ercent. Ender tese assum"tions teanalyst4s estimate of com"any (4s e$uity !alue at te end of year t is

(. ) 1.16

,. :78 .1

-. 6.6

. D

2. (n analyst "redicts tat com"any ,4s di!idend at te end of year tT1 will e$ual 1D. e analyst furter ex"ects tat after year tT1 com"any ,4s di!idends will+row indefinitely at a rate of 2 "ercent. -om"any ,4s cost of e$uity e$uals A"ercent. Ender tese assum"tions te analyst4s estimate of com"any ,4se$uity !alue at te end of year t is

(. ) 1DD.DD

,. 111.11

-. 12.B6

. :78 2DD.DD

. (n analyst "roduces te followin+ set of forecasts for com"any -:

Year tT1 Year tT2 Year tT;et "rofit 1DD 12D 6D0ndin+ oo' !alue of usiness assets 1DD 1D6D 1DDD0ndin+ oo' !alue of det A2D AD BDD

(t te end of year t com"any -4s oo' !alues of usiness assets and detare 1DDD and ADD res"ecti!ely. e analyst ex"ects tat after year tT net"rofit will e D and te oo' !alues of usiness assets and det will remainconstant i.e. at teir year tT le!els8. -om"any -4s cost of e$uity is 1D


32/51

"ercent. Ender tese assum"tions te analyst4s estimate of com"any -4se$uity !alue at te end of year t is

(. 22B.1A

,. ) 21.C

-. :78 DA.C6

. ) 5.5

. (n analyst "roduces te followin+ set of forecasts for com"any :

Year tT1 Year tT2 Year tT;F( 25D 22D 1DD0ndin+ oo' !alue of o"eratin+ assets BDD B6D BDD

(t te end of year t te oo' !alue of com"any 4s o"eratin+ assets is CDDand te mar'et !alue of its net det is DD. -om"any as no in!estmentassets. e analyst ex"ects tat after year tT ;F( will e D and te oo'!alue of o"eratin+ assets will remain constant i.e. at its year tT le!el8.-om"any 4s (-- is B "ercent. Ender tese assum"tions te analyst4s

estimate of com"any 4s e$uity !alue at te end of year t is

(. 2BB.26

,. ) 6B.6A

-. ) CC.B

. ) 5BB.26

5. -onsider te followin+ statement: 3e anormal earnin+s +rowt !aluationmodel differs from te free cas flow and anormal earnin+s !aluation modelsin tat it is not matematically e$ui!alent to te di!idend discount model. isstatement is

(. ) rue


33/51

,. 9alse

6. -onsider te followin+ statement: 3e discounted anormal ;F( +rowtmodel defines te !alue of o"eratin+ assets as te sum of te ca"itali?ed next7"eriod ;F( forecast and te "resent !alue of forecasted ;F( eyondte next "eriod. is statement is

(. rue

,. ) 9alse

A. -onsider te followin+ information aout com"any 04s "erformance andfinancial "osition in year t:

;et "rofit = 5D,e+innin+ oo' !alue of usiness assets = DD,e+innin+ oo' !alue of e$uity = CD-ost of e$uity = 1D "ercent

-om"any 04s anormal earnin+s in year t are

(. ) 5D

,. 5

-. :78 1

. ) 2D

B. -onsider te followin+ statement: 3( disad!anta+e of te anormal earnin+s!aluation model is tat it "roduces lower e$uity !alue estimates for firms tatuse conser!ati!e accountin+ "olicies suc as accelerated de"reciation8 tanfor firms tat use a++ressi!e accountin+ "olicies suc as strai+t7linede"reciation8. is statement is

(. ) rue


34/51

,. 9alse

C. (n analyst "roduces te followin+ set of forecasts for com"any 9:

Year tT1 Year tT2 Year tT;et "rofit 1DD 1DD 1DDi!idend "ayout ratio 5D% 5D% 5D%

(t te end of year t te oo' !alue of com"any 94s e$uity is 5DD. -om"any 9as no det and its cost of e$uity is 1D "ercent. e analyst ex"ects tat inyear tT com"any 9 will li$uidate all its assets at teir oo' !alues and "ayout te "roceeds to its e$uity olders. Ender tese assum"tions te analyst4sestimate of com"any 94s e$uity !alue at te end of year t is

(. ) 112.AD

,. ) 2C.6C

-. :78 612.AD

. 1D56.66

1D.-onsider te followin+ information aout com"any H4s "erformance andfinancial "osition in year t and tT1:

;et "rofit year t = 6DN net "rofit year tT1 = BD,e+innin+ oo' !alue of e$uity year t = CDDi!idend year t = 2DN di!idend year tT1 = 5D-ost of e$uity = 1D "ercent

-om"any H4s anormal earnin+s +rowt in year tT1 is

(. ) AD8

,. :78 16

-. 2D

. D


35/51

11. -om"any L4s current return on e+innin+8 e$uity is 12 "ercent. (n analystassumes tat te com"any4s @F0 will +row indefinitely at a rate of 2 "ercent.-om"any L4s cost of e$uity is 1D "ercent. Ender tese assum"tions teanalyst4s estimate of com"any L4s e$uity !alue7to7oo' multi"le is

(. ) 1.DD

,. ) 1.1D

-. ) 1.12

. 1.25

12.In te current year com"any I4s net "rofit is 2D its e+innin+ oo' !alue ofe$uity is 1DD and its endin+ oo' !alue of e$uity is 11D. (n analyst "redictstat com"any I4s next year4s net "rofit will e 5D. e analyst furter assumestat com"any I4s cost of e$uity is 1D "ercent and its anormal earnin+s +rowtfollows te followin+ "rocess:

(normal earnin+s +rowt in year tT1 = D.5 x anormal earnin+s +rowt inyear t

Ender tese assum"tions te analyst4s estimate of com"any I4s e$uity !alueis

(. ) 5DD.DD

,. ) 515.B

-. :78 A1.6A

. 25CD.DD

1.-onsider te followin+ information aout tree industry "eers:

@F0 rice7to7oo' ratio rice7earnin+s ratioeer 1 2D% D.2 5eer 2 1D% 1 1Deer 25% 1 5

ic of te followin+ statements aout tese industry "eers is correct


36/51

(. :78 In!estors ex"ect tat te return on e$uity of te currently est"erformin+ "eer is not sustainale in te future.

,. In!estors ex"ect tat te return on e$uity of te currently worst

"erformin+ "eer will im"ro!e in te future.

-. In!estors ex"ect tat "eer 14s future anormal earnin+s +rowt wille "ositi!e.

. #tatements ( and - are correct.

0. ;one of te ao!e statements is correct.

1.-onsider te followin+ statement: 3e e$uity !alue7to7oo' ratio is a functionof a8 future returns on e$uity 8 future oo' !alue of e$uity +rowt rates andc8 te cost of e$uity. is statement is

(. :78 rue

,. 9alse

Chapter - – )rospecti$e Analysis* Valuation&mplementation

Qui

Your score is 61%.Questions answered correctly first time: /12You a!e com"leted te exercise.


1. ( lar+e 0uro"ean det7free com"any as an estimated e$uity eta of 1.. eris'7free rate and te mar'et ris' "remium in te com"any4s ome country are "ercent and 5 "ercent res"ecti!ely. is com"any4s cost of e$uity is

(. ) 5 "ercent


37/51

,. ) C "ercent

-. :78 11 "ercent

. 12 "ercent

2. #ome researcers ar+ue tat te firm si?e effect on te cost of e$uity ca"italas disa""eared. is would im"ly tat

(. ) e cost of e$uity ca"ital of small firms is no lon+er systematicallylower tan tat of lar+e firms.

,. ) e e$uity eta of small firms is no lon+er systematically +reatertan tat of lar+e firms.

-. ) e e$uity eta of small firms is no lon+er systematically lower tantat of lar+e firms.

. ;one of te ao!e

. -om"any (4s mar'et !alues of det and e$uity are 15D and 2DDres"ecti!ely. e com"any as a statutory and effecti!e tax rate of D "ercentan e$uity eta of 1.5 and an infinitely low "roaility of an'ru"tcy. ,ased ontis information com"any (4s usiness asset eta is

(. ) D.B6

,. :78 D.CB

-. 1.D1

. 2.2C

. -om"any ,4s current e$uity eta det eta and cost of e$uity are 1.6 1.Dand 12 "ercent res"ecti!ely. e current and ex"ected future8 tax rate andris'7free rate are 5 "ercent and "ercent res"ecti!ely. -om"any , currentlyas a det7to7e$uity ratio of 5D "ercent. e com"any "lans to increase itsdet7to7e$uity ratio to 1DD "ercent lea!in+ its det eta uncan+ed8. (fter tis

increase in le!era+e com"any ,4s cost of e$uity will e


38/51

(. ) 1D.D "ercent

,. ) 12.DD "ercent

-. :78 1.C6 "ercent

. 2D.DD "ercent

5. -om"any -4s cost of e$uity and cost of det are 12 and B "ercentres"ecti!ely. e current tax rate is D "ercent. -om"any - as a det7to7e$uity ratio of 5D "ercent. -om"any -4s wei+ted a!era+e cost of ca"ital is

(. ) B.D "ercent

,. :78 C.6D "ercent

-. 1D.DD "ercent

. 1D.6A "ercent

6. (n analyst "roduces te followin+ series of annual di!idend forecasts forcom"any : 0x"ected di!idend end of8 year tT1 = 1DN 0x"ected di!idendend of8 year tT2 = 2DN 0x"ected di!idend end of8 year tT = 1D. eanalyst furter ex"ects tat com"any 4s di!idends will +row indefinitely at arate of 2 "ercent after year tT. -om"any 4s cost of e$uity e$uals 1D "ercent.Ender tese assum"tions te analyst4s estimate of com"any 4s e$uity !alueat te end of year t is

(. :78 12B.C

,. 12D.22

-. 1DB.26

. 6.6

A. (n analyst "roduces te followin+ set of forecasts for com"any 0:

Year tT1 Year tT2 Year tT


39/51

;et "rofit 1DD 12D 6D0ndin+ oo' !alue of usiness assets 1DD 1D6D 1DDD0ndin+ oo' !alue of det A2D AD BDD

(t te end of year t com"any 04s oo' !alues of usiness assets and det are 1DDD and ADD res"ecti!ely. e analyst ex"ects tat after year tTcom"any 0 will reac a com"etiti!e e$uilirium i.e. will earn ?ero anormalearnin+s. -om"any 04s cost of e$uity is 1D "ercent. Ender tese assum"tionste analyst4s estimate of com"any 04s e$uity !alue at te end of year t is

(. ) DA.C6

,. ) .2D

-. :78 5B.2

. 5DA.C6

B. (n analyst "roduces te followin+ set of forecasts for com"any 9:

Year tT1 Year tT2 Year tT;et "rofit 1DD 1DD 1DD

i!idend "ayout ratio 5D% 5D% 5D%

(t te end of year t te oo' !alue of com"any 94s e$uity is 5DD. -om"any 9as no det and its cost of e$uity is 1D "ercent. e analyst ex"ects tat inand after year tT com"any 9 will earn anormal earnin+s on te sales it adin year tT ut earn ?ero anormal earnin+s on incremental sales eyond tatle!el. Ender tese assum"tions te analyst4s estimate of com"any 94s e$uity!alue at te end of year t is

(. ) 12.A5

,. ) B5.CD

-. :78 1.22

. 512.AD

C. -onsider te followin+ information aout com"any H4s "erformance and

financial "osition in year t and tT1:


40/51

;et "rofit year t = 6DN net "rofit year tT1 = BD,e+innin+ oo' !alue of e$uity year t = CDDi!idend year t = 2DN di!idend year tT1 = 5D

-ost of e$uity = 1D "ercent

If an analyst assumes tat com"any H4s anormal earnin+s will e ?ero inyear tT2 and eyond er estimate of te com"any4s terminal e$uity8 !alue atte end of year tT1 under te anormal earnin+s +rowt !aluation metod is

(. D

,. 1

-. 1D8

. :78 1D

1D.-onsider te followin+ information aout com"any H4s "erformance andfinancial "osition in year t and tT1:

;et "rofit year t = 6DN net "rofit year tT1 = BD

,e+innin+ oo' !alue of e$uity year t = CDDi!idend year t = 2DN di!idend year tT1 = 5D-ost of e$uity = 1D "ercent

If an analyst assumes tat com"any H4s anormal earnin+s will remainconstant in year tT2 and eyond er estimate of te com"any4s terminale$uity8 !alue at te end of year tT1 under te anormal earnin+s +rowt!aluation metod is

(. :78 D

,. 1

-. 1D8

. 1D

11. e !alue of -om"any J4s o"eratin+ assets e$uals 55 million te !alue of

its in!estment assets e$uals 5 million te "resent !alue of its tax sield on


41/51

det e$uals 6 million and te !alue of its det e$uals 25 million. isim"lies tat te !alue of -om"any J4s e$uity is

(. BCC million

,. :78 DC million

-. ) 5 million

. DD million

12.-onsider te followin+ statements:

#tatement I: 3(n indirect8 asset7ased a""roac to !aluin+ e$uity always"roduces te same e$uity !alue estimate as a direct8 e$uity7ased a""roacto !aluin+ e$uity.

#tatement II: 3(n indirect8 asset7ased a""roac to !aluin+ e$uity is moreaccurate tan te e$uity7ased a""roac if a8 discount rates are eldconstant ut 8 le!era+e is ex"ected to can+e si+nificantly o!er te forecastori?on.

(. Fnly statement I is true

,. Fnly statement II is true

-. :78 ,ot statements are false

Chapter . – /0uity Security Analysis

Qui

Your score is 2%.Questions answered correctly first time: 2/B




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1. ic of te followin+ statements aout collecti!e in!estment funds is correct

(. ) Income funds ty"ically in!est in com"anies tat +enerate i+anormal earnin+s.

,. ) Hrowt funds ty"ically in!est in com"anies wit i+ sales +rowt.

-. :78 *ar'et neutral funds ty"ically old security "ortfolios wit etasclose to ?ero.

. ( , and - are correct.

2. -onsider te followin+ statement: 3(ccordin+ to te 0fficient *ar'etsLy"otesis in!estment strate+ies tat are "urely ased on "ulicly a!ailaleinformation cannot systematically +enerate "ositi!e anormal returns. isstatement is

(. rue

,. ) 9alse

. -onsider te followin+ statement: 3(cti!e "ortfolio mana+ement relies moreea!ily on financial statement analysis tan "assi!e "ortfolio mana+ement.is statement is

(. :78 rue

,. 9alse

. -onsider te followin+ statement: 3ecnical security analysis relies moreea!ily on financial statement information tan fundamental security analysis.is statement is

(. rue

,. :78 9alse


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5. -onsider te followin+ statement: 3In contrast wit formal !aluation metodsinformal !aluation metods i+nore financial statement information. isstatement is

(. ) rue

,. 9alse

6. Fn Ranuary 1 2D1D -om"any S4s sare "rice is 11.25 "er sare. ecom"any4s oo' !alue of e$uity "er sare is 5 ex"ected net "rofit "er sarefor fiscal year 2D1D is 5 and te cost of e$uity is 1D "ercent. at are te

mar'et4s ex"ectations aout te lon+7term anormal earnin+s +rowt rate forcom"any S

(. ) D "ercent

,. ) 1 "ercent

-. :78 2 "ercent

. "ercent

A. ic of te followin+ statements is not correct @esearc as sown tat

(. (nalysts4 forecasts and recommendations tend to esystematically iased

,. (nalysts tend to e more accurate in forecastin+ near7term"erformance tan in forecastin+ lon+7term "erformance

-. (nalysts4 forecasts are +enerally more accurate tan time7seriesforecasts

. :78 (nalysts4 o"timism in forecasts and recommendations8 assustantially increased durin+ te late 1CCDs

0. ) ;one of te ao!e


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B. -onsider te followin+ statement: 3ast researc findin+s a!e consistentlysown tat collecti!e in!estment and "ension funds systematically out"erformte mar'et index. is statement is

(. ) rue

,. 9alse

Chapter 1 – Credit Analysis and 2istress )rediction

Qui




1. ic of te followin+ industries is te least det intensi!e industry

(. :78 armaceutical industry

,. (ir trans"ortation industry

-. 0lectric ser!ices industry

. Lotel industry

2. -onsider te followin+ statement: 3&ar+e firms tend to a!e i+er le!era+etan small firms ecause tey a!e lower usiness ris's on a!era+e8. isstatement is

(. :78 rue

,. 9alse


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. *ulti"le an' orrowin+ is

(. ) *ost common in countries wit stron+ le+al "rotection of creditors.

,. :78 *ost common in countries wit wea' le+al "rotection of creditors.

-. ;ot associated wit te de+ree of le+al "rotection of creditors.

. #u""lier financin+ is

(. ) *ost common in countries wit stron+ le+al "rotection of creditors.

,. :78 *ost common in countries wit wea' le+al "rotection of creditors.

-. ;ot associated wit te de+ree of le+al "rotection of creditors.

5. -onsider te followin+ statement: 3Fne mecanism tat commercial lendersuse to reduce credit ris' is to len+ten te maturity of te loans tey extend.

is statement is

(. rue

,. :78 9alse

6. In cases were a orrower4s cas needs are difficult to antici"ate it is mostli'ely to ma'e use of

(. ) erm loans

,. ) &ease financin+

-. :78 F"en lines of credit

. *ort+a+e loans


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A. ic of te followin+ ty"es of collateral is +enerally te most desirale formof security

(. In!entory

,. @eal estate

-. 0$ui"ment

. :78 @ecei!ales

B. -onsider te followin+ information aout com"any (4s "erformance andfinancial "osition in year t:

0arnin+s efore interest and taxes = C5Ne"reciation = 5Interest = 5axes = 2Areference di!idends = Det re"ayment = 2D

-om"any (4s fund flow co!era+e ratio in year t e$uals:

(. .DD

,. ) .BD

-. ) .6D

. :78 2.CB

C. ic of te followin+ is not a financial co!enant tat is commonly used inloan contracts

(. ) *aintenance of a minimum fund flow co!era+e ratio

,. ) *aintenance of a maximum ratio of total liailities to net wort

-. :78 *aintenance of a minimum return on assets


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. *aintenance of a minimum net wor'in+ ca"ital alance

1D.-onsider te followin+ statement: 3e numer of 0uro"ean firms tatrecei!es an U(4 ratin+ ty"ically exceeds te numer of 0uro"ean firms tatrecei!es an U((4 ratin+. is statement is

(. :78 rue

,. 9alse

11. ic of te followin+ !ariales is "ositi!ely associated wit a firm4s detratin+

(. ) ;et det to net ca"ital

,. ) 9irm si?e

-. ) ;F( to net ca"ital

. ) ( , and -

0. , and -

12.-om"any ) as a si+nificantly lower (ltman S score tan com"any Y. isim"lies tat

(. :78 -om"any )4s an'ru"tcy "roaility exceeds com"any Y4san'ru"tcy "roaility

,. -om"any Y4s an'ru"tcy "roaility exceeds com"any )4san'ru"tcy "roaility

Chapter 11 – 3ergers and Ac0uisitions


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Qui

Your score is D%.Questions answered correctly first time: 2/1D



1. -onsider te followin+ statement: 3( mer+er etween a "armaceutical firmwit a stron+ researc de"artment and a "armaceutical firm wit a stron+sales force is a ty"ical exam"le of mer+ers tat aim to ta'e ad!anta+e ofeconomies of scale. is statement is

(. ) rue

,. 9alse

2. -onsider te followin+ statement: 3*er+ers tat el" to "ro!ide low7costfinancin+ to a financially constrained tar+et are more li'ely to occur if tede+ree of information asymmetry etween te tar+et4s mana+ement and"ulic ca"ital mar'ets is i+. is statement is

(. :78 rue

,. 9alse

. -onsider te followin+ statement: 3In te 0E mer+ers tat increase "roduct7mar'et rents are more li'ely to e disallowed y te 0uro"ean -ommissiontan mer+ers tat do not. is statement is

(. :78 rue

,. 9alse

. ic of te followin+ moti!ations for mer+ers is ty"ically not !alued y teac$uirer4s sareolders


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(. ) -a"turin+ tax enefits tat arise from o"eratin+ tax losscarryforwards

,. ) Im"ro!in+ tar+et mana+ement

-. ) Increasin+ "roduct7mar'et rents

. @educin+ usiness ris' trou+ di!ersification of o"erations

5. ic of te followin+ statements is not correct

(. ) (c$uisition "remiums tend to e +reater in ostile ta'eo!ers tan infriendly ta'eo!ers

,. :78 (c$uisition "remiums tend to e +reater in sare7for7sare mer+ersi.e. e$uity7financed ta'eo!ers8 tan in cas7financed ta'eo!ers

-. (c$uisition "remiums tend to e +reater if te tar+et com"any islocated in a country wit strict ta'eo!er rules tan if te tar+et com"anyis located in a country wit wea' ta'eo!er rules

6. -onsider te followin+ statement: 3(n ad!anta+e of usin+ "rice7earnin+smulti"les to estimate te !alue of a tar+et to te ac$uirer is tat it focuses onte near7term enefits of te mer+er. is statement is

(. ) rue

,. 9alse

A. (c$uisitions financed wit det or sur"lus cas are more li'ely to occur if

(. ) e ac$uirin+ firm is close to financial distress

,. ) ere is low information asymmetry re+ardin+ te ac$uisitionenefits etween te ac$uirer4s mana+ement and its sareolders


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-. :78 If te ac$uirin+ firm as a "rimary sareolder wo controlsetween D and 6D "ercent of te e$uity !otes

. ;one of te ao!e

B. -onsider te followin+ statement: 3( "otential ac$uisition is more li'ely to ecom"leted if te tar+et com"any as not im"lemented +olden "aracutes forits mana+ement. is statement is

(. ) rue

,. 9alse

C. ic of te followin+ mecanisms can e used as ta'eo!er defenses

(. ) ( !otin+ ca"

,. ) e issuance of de"ository recei"ts

-. ) #$uee?e7out rules

. ) ( , and -

0. ( and ,

1D.ic of te followin+ rules a!e een included in te 0E a'eo!er irecti!eto "re!ent mana+ement entrencment and "rotect minority sareolders

durin+ 0uro"ean ta'eo!ers

(. ) e oard7neutrality rule

,. ) e e$ual7treatment rule

-. ) e maximum7id rule

. :78 ( and ,


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0. ( and -

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