FSA 3321 – Summer 1 (2007)
Exam 1
Moore
First Examination – Finance 3321
Summer 2007 (Moore)
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Clearly Circle the BEST response for each of the following questions:
1. Which of the following is considered a financial intermediary?
a. Accountants
b. Investment Banks
c. Financial Analysts
d. Bond Raters
e. Media
2. Which of the following is considered an information intermediary?
a. Insurance Companies
b. Investment Banks
c. Mutual Funds
d. Investment Banks
e. Financial Analysts Capitalists
3. Which of the following is an accounting strategy that can be chosen by managers?
a. Accounting conventions and regulations
b. Tax and financial accounting linkages
c. Contracting and governance
d. Supplementary disclosures
e. Third party auditing
4. Which of the following is not defined as being part of the firm’s business environment?
a. Labor markets
b. Capital market efficiency
c. Product markets
d. Customers
e. Business regulations
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FSA 3321 – Summer 1 (2007)
Exam 1
Moore
5. In the US, the accounting treatment (GAAP) for recognizing sales commissions in the
period the selling activity takes place and not necessarily in the period when commissions
are paid is determined and justified by:
a. Accrual Accounting
b. Matching Principle
c. Periodicity Principle
d. Revenue Recognition Principle
e. The IASB
6. Which is the second step in a structured equity security analysis and valuation?
a. Prospective Analysis
b. Accounting Analysis
c. Financial Analysis
d. Business Strategy Analysis
e. Implementing Valuation Models
7. Which step in a structured business valuation analysis involves forecasting future financial
performance?
a. Prospective Analysis
b. Accounting Analysis
c. Financial Analysis
d. Business Strategy Analysis
e. Implementing Valuation Models
8. One of the main reasons that firms are allowed flexible financial accounting standards
under GAAP is:
a. It provides firms a better opportunity to report the underlying economic substance of
transactions and events.
b. It gives the firms the opportunity to reduce the volatility of earnings so that investors
can provide better forecasts of future performance.
c. It allows managers to better tie earnings to performance for compensation purposes.
d. It gives firms the opportunity to mark-to-market the physical assets so that balance
sheet values are more relevant to decision makers.
e. None of the above.
9. The last possible line item reported on the income statement is:
a. Net Revenue
b. Operating Income
c. Comprehensive Income
d. Income from Continuing Operations
e. Gross Profit
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FSA 3321 – Summer 1 (2007)
Exam 1
Moore
10. Which of the following line items is reported earliest in the income statement?
a. Extraordinary Expenses
b. Operating Income
c. Comprehensive Income
d. Income from Continuing Operations
e. Gross Profit
11. Identify the proper sequence in which following items would be presented on the income
statement is:
1. Net Revenue
2. Operating Income
3. Comprehensive Income
4. Income from Continuing Operations
5. Gross Profit
a.
b.
c.
d.
e.
1,
1,
1,
1,
1,
2,
5,
3,
5,
4,
3,
2,
5,
3,
3,
4,
4,
4,
2,
5,
5
3
2
4
2
12. Which of the following statements is incorrect?
a. The SEC has the legal authority to proscribe GAAP.
b. Transparent financial reporting practices allow users to get a true and fair picture of the
firm.
c. Conservatism of financial reporting standards may reduce valuation relevance.
d. Prospective analysis involves forecasting future events and outcomes.
e. The external auditor certifies the financial statements are correct.
13. Which of the following is an element of the “Five-Forces” model?
a. Cost Leadership
b. Maintaining Competitive Advantage(s)
c. Ability to supply the same product or service at a lower cost
d. Product Differentiation
e. Threat of substitute products
14. An
a.
b.
c.
d.
e.
industry having a high degree of price competition would be characterized by:
Low Industry Concentration, Low Legal Barriers to Entry, Low Product Differentiation
Few Exit Barriers, High First mover advantage, Low Product Differentiation
Low Industry Concentration, Low Distribution Access, High Customer Switching Costs
High Concentration, Low Fixed-Variable Cost Ratio, Low Firm Switching Costs
Supply < Demand, Low Supplier Switching Costs, Steep Industry Learning Curves
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FSA 3321 – Summer 1 (2007)
Exam 1
Moore
15. Which of the following would lead to the lowest degree of industry price competition?
a. Low Industry Concentration, Low Legal Barriers to Entry, Low Product Differentiation
b. Few Exit Barriers, Low First mover advantage, High Product Differentiation
c. Low Industry Concentration, Low Distribution Access, Low Customer Switching Costs
d. High Industry Concentration, Low Fixed-Variable Cost Ratio, Low Bargaining Power of
Customers
e. Supply > Demand, High Legal Barriers to Entry, Steep Industry Learning Curves
16. Which of the following strategies would be consistent with either a pure cost leadership or
pure product differentiation strategy (but not both)?
a. Economies of scale and scope, high R&D investment, tight cost control
b. Superior product variety, lower input costs, High investment in R&D
c. Lower input costs, flexible distribution, low investment in R&D
d. High investment in brand image, Low investment in R&D, Focus on Cost Control
e. Simpler product designs, Tight cost control, focus on economies of scale or scope
17. Which of the following strategies would lead to a mixture of cost leadership and product
differentiation?
a. Economies of scale and scope, simpler product design, tight cost control
b. Superior product variety, more flexible delivery, High investment in R&D
c. Lower input costs, low-cost distribution, Low investment in R&D
d. Low investment in brand image, High investment in R&D, Focus on Creativity
e. Simpler product designs, Tight cost control, Lower Input Cost
18. Determining whether the firm currently has the resources and capabilities to deal with the
identified key success factors is an example of:?
a. Competitive Strategy Analysis
b. Differentiation Analysis
c. Analysis of the Degree of Actual and Potential Competition
d. Analysis of the Threat of Substitute Products
e. Analysis of the Bargaining Power in Input and Output Markets
19. WalMart’s ability to dictate price & delivery terms to manufacturers is an example of:
a. Bargaining power of firm over suppliers
b. Bargaining power of supplier over firm
c. Bargaining power of customers over firm
d. Bargaining power of firm over customers
e. None of the above
20. Which of the following is not used to determine the Rivalry Among Existing Firms?
a. Exit Barriers
b. Importance of Product for Costs and Quality
c. Fixed-Variable Costs
d. Excess Capacity
e. Economies of Scale
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FSA 3321 – Summer 1 (2007)
Exam 1
Moore
21. Which of the following does not necessarily create corporate value?
a. Managing the value chain
b. Maintaining a good fit between the company’s specialized resources and the portfolio of
businesses in which the company is operating.
c. Good allocation of decision rights between the headquarters office and the business
units to realize all the potential economies of scope.
d. Having internal measurement, information, and incentive systems to reduce agency
costs.
e. Investing significant resources to product advertising and marketing activities.
22. Assume the beginning of the year value of equity was $2000 with a 8% required cost of
equity set by the market. During the year, the firm generated an actual 12% return on
equity. How much value was created during the year?
a. $80
b. $160
c. $240
d. $2,160
e. $2,240
23. Assume Apple operates in a differentiated product industry. Which of the following
strategies is compatible with achieving a competitive advantage in this type of industry?
a. Economies of scope and scale
b. Investment in brand image
c. Lower input costs
d. Efficient production
e. Tight cost control systems
24. The main purpose of a firm’s financial reports is to:
a. Present Assets, Liabilities and Equity
b. Present Revenues and Expenses
c. Present Operating, Investing and Financing Cash Flows
d. Provide equity investors a means of determining the market value of the firm
e. Credibly communicate economic consequences of business activities.
25. Depreciating a classroom transparency projector over 3 years when it ultimately is used for
20 years is an example of:
a. estimation errors
b. aggressive accounting
c. fraudulent financial reporting
d. an item which would cause the auditors to not certify the financial statements
e. flexibility in GAAP
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