CFIN EXAM LATEST VERSION WITH
REAL QUESTIONS AND ANSWERS
ALL CORRECT
The marginal cost of debt is - Answer-an after-tax concept & in effect, subsidized by the
government
Company A has unused production capacity and makes a product similar to Company
B. Company B acquires Company A to obtain the unused production capacity. This is
an example of - Answer-horizontal integration
The appropriate discount rate to use in discounting the cash flow of the target is -
Answer-the target's cost of equity
Which of the following items would have the greatest impact on the book value of the
firm ? - Answer-depreciation of the assets
The market price of the target's securities multiplied by the shares outstanding is called
- Answer-market capitalization
The appraised asset value less the firm's liabilities is known as - Answer-the liquidation
value
The implicit assumption behind the dilution method is that the capital markets have fairly
valued the stock. - Answer-TRUE
Earnings dilution considers the income that the target firm would add to the acquirer's
net income and computes the number of shares that could be issued without diluting the
EPS for the existing shareholders. - Answer-TRUE
The acquiror begins the negotiation with - Answer-the maximum price it can pay without
post-merger earnings per share dilution
&
the present value of the target's enhanced cash flows
Discounting the terminal value of the target involves a discount rate that is - Answer-the
target's cost of equity
The book value of the firm is a similar concept to the net worth of the individual. -
Answer-TRUE
, Capital market status is important in the issue of - Answer-timing
FRITCO - Answer-flexibility, risk, income, timing, control, other
The income step of FRICTO analysis addresses which of the following? - Answer-EPS
dilution, explicit costs, implicit costs
Breakeven EBIT calculations enable managers to assess - Answer-the point at which
EPS dilution is equal for two financing alternatives
Risk involves rare, unpredictable events - Answer-FALSE
Value can be created on the liability side of the balance sheet as well as the asset side.
- Answer-TRUE
Every financing alternative where the dilution effect on EPS of issuing new shares is
matched exactly by the dilution resulting from interest payments on new debt is called -
Answer-Breakeven point
Depreciation expense is a good example of which of the following generally accepted
accounting principles? - Answer-Matching
Although the cash flow statement using the indirect method is useful, it does not show
net income for the period. - Answer-FALSE
Depreciation is a part of - Answer-Cash flow from operating activities
The statement that shows all investments in the company and all the distributions during
a reporting period is called - Answer-the statement of owner's equity
Which ratio shows the average percentage by which sales price exceeds the cost of
goods sold? - Answer-gross margin
Matching refers to including all expenses incurred to realize the revenues reported. -
Answer-TRUE
The statement which records a firm's financial position on a single day is called the
income statement. - Answer-FALSE
Which of the following measures a firms's profitability and asset usage skill? - Answer-
Operating performance ratios
Which of the following ratios measure liquidity? - Answer-Current & Quick
The P/E ratio indicates the stock market's opinion of a company's prospects for growth
and earnings as well as the market's perception of the firm's risk. - Answer-TRUE
REAL QUESTIONS AND ANSWERS
ALL CORRECT
The marginal cost of debt is - Answer-an after-tax concept & in effect, subsidized by the
government
Company A has unused production capacity and makes a product similar to Company
B. Company B acquires Company A to obtain the unused production capacity. This is
an example of - Answer-horizontal integration
The appropriate discount rate to use in discounting the cash flow of the target is -
Answer-the target's cost of equity
Which of the following items would have the greatest impact on the book value of the
firm ? - Answer-depreciation of the assets
The market price of the target's securities multiplied by the shares outstanding is called
- Answer-market capitalization
The appraised asset value less the firm's liabilities is known as - Answer-the liquidation
value
The implicit assumption behind the dilution method is that the capital markets have fairly
valued the stock. - Answer-TRUE
Earnings dilution considers the income that the target firm would add to the acquirer's
net income and computes the number of shares that could be issued without diluting the
EPS for the existing shareholders. - Answer-TRUE
The acquiror begins the negotiation with - Answer-the maximum price it can pay without
post-merger earnings per share dilution
&
the present value of the target's enhanced cash flows
Discounting the terminal value of the target involves a discount rate that is - Answer-the
target's cost of equity
The book value of the firm is a similar concept to the net worth of the individual. -
Answer-TRUE
, Capital market status is important in the issue of - Answer-timing
FRITCO - Answer-flexibility, risk, income, timing, control, other
The income step of FRICTO analysis addresses which of the following? - Answer-EPS
dilution, explicit costs, implicit costs
Breakeven EBIT calculations enable managers to assess - Answer-the point at which
EPS dilution is equal for two financing alternatives
Risk involves rare, unpredictable events - Answer-FALSE
Value can be created on the liability side of the balance sheet as well as the asset side.
- Answer-TRUE
Every financing alternative where the dilution effect on EPS of issuing new shares is
matched exactly by the dilution resulting from interest payments on new debt is called -
Answer-Breakeven point
Depreciation expense is a good example of which of the following generally accepted
accounting principles? - Answer-Matching
Although the cash flow statement using the indirect method is useful, it does not show
net income for the period. - Answer-FALSE
Depreciation is a part of - Answer-Cash flow from operating activities
The statement that shows all investments in the company and all the distributions during
a reporting period is called - Answer-the statement of owner's equity
Which ratio shows the average percentage by which sales price exceeds the cost of
goods sold? - Answer-gross margin
Matching refers to including all expenses incurred to realize the revenues reported. -
Answer-TRUE
The statement which records a firm's financial position on a single day is called the
income statement. - Answer-FALSE
Which of the following measures a firms's profitability and asset usage skill? - Answer-
Operating performance ratios
Which of the following ratios measure liquidity? - Answer-Current & Quick
The P/E ratio indicates the stock market's opinion of a company's prospects for growth
and earnings as well as the market's perception of the firm's risk. - Answer-TRUE
