Peregrine Business Exam Practice Questions
with Verified Answers & Rationales |
Accounting, Finance, Management,
Marketing, Economics, Business Law,
Operations, Strategy
Question 1
When a business erroneously records expenses as assets, it has violated the
measurement issue of:
A. communication
B. classification
C. valuation
D. recognition
Correct Answer
B. classification
Page 1 of 90
,Question 2
Which of the following statements is CORRECT?
A. Free cash flow (FCF) is, essentially, the cash flow that is available for interest and
dividends after the company has made the investments in current and fixed assets
that are necessary to sustain ongoing operations.
B. After-tax operating income is calculated as EBIT (1 - T) + Depreciation.
C. Two firms with identical sales and operating costs but with different amounts of
debt and tax rates will have different operating incomes by definition.
D. If a firm is reporting its income in accordance with generally accepted accounting
principles, then its net income as reported on the income statement should be equal
to its free cash flow.
Correct Answer
A. Free cash flow (FCF) is, essentially, the cash flow that is available for interest and
dividends after the company has made the investments in current and fixed assets
that are necessary to sustain ongoing operations.
Question 1: In managerial accounting, when a company evaluates the
profitability of a product line using contribution margin analysis, which
calculation correctly isolates the amount available to cover fixed costs and
generate operating income after variable costs have been subtracted from
sales revenue?
A. Gross margin minus selling and administrative expenses
B. Sales revenue minus cost of goods sold
C. Sales revenue minus all variable costs
D. Operating income plus depreciation
CORRECT ANSWER: C. Sales revenue minus all variable costs
Rationale: Contribution margin is defined as sales revenue less all variable costs
(both manufacturing and non-manufacturing). This residual amount is the figure
used to cover fixed costs and contribute to operating income, making it the correct
measure for product-line profitability analysis.
Question 2: A firm is considering a capital budgeting project that requires an
initial outlay of $500,000 and is expected to generate after-tax cash inflows of
$140,000 per year for five years. If the firm’s required rate of return is 10
percent, which decision rule correctly indicates whether the project should be
accepted when the net present value is positive?
A. Accept the project only if the internal rate of return is less than 10 percent
B. Accept the project because a positive net present value means the present value
of cash inflows exceeds the initial investment
Page 2 of 90
,C. Reject the project because payback period is the only relevant criterion
D. Accept the project only if the accounting rate of return exceeds the cost of
capital
CORRECT ANSWER: B. Accept the project because a positive net present value
means the present value of cash inflows exceeds the initial investment
Rationale: The net present value rule states that a project should be accepted when
the present value of its expected after-tax cash inflows exceeds the present value of
its cash outflows (including the initial investment). A positive NPV indicates value
creation for shareholders at the given required rate of return.
Question 3: Within the framework of classical organizational theory, which
principle asserts that each employee should receive orders from only one
superior in order to avoid conflicting instructions and maintain clear lines of
authority?
A. Span of control
B. Unity of command
C. Scalar chain
D. Division of labor
CORRECT ANSWER: B. Unity of command
Rationale: The principle of unity of command, articulated by Henri Fayol, requires
that an employee report to and receive direction from only one superior. This
prevents dual authority and the resulting confusion or conflicting directives.
Question 4: In the product life-cycle model, during which stage do sales
growth rates typically slow, competition intensify, and firms begin to
emphasize product differentiation and cost control to maintain market share?
A. Introduction
B. Growth
C. Maturity
D. Decline
CORRECT ANSWER: C. Maturity
Rationale: In the maturity stage, market saturation causes sales growth to
decelerate, competitive rivalry increases, and companies shift strategic focus toward
differentiation, brand loyalty, and operational efficiency to protect margins and
share.
Question 5: According to the law of demand in microeconomics, assuming all
other factors remain constant, what is the expected relationship between the
price of a normal good and the quantity demanded by consumers?
Page 3 of 90
, A. Price and quantity demanded move in the same direction
B. Price and quantity demanded move in opposite directions
C. Quantity demanded is unaffected by price changes
D. Quantity demanded increases only when income rises
CORRECT ANSWER: B. Price and quantity demanded move in opposite
directions
Rationale: The law of demand states that, ceteris paribus, an inverse relationship
exists between the price of a good and the quantity demanded. As price rises,
quantity demanded falls, and as price falls, quantity demanded rises.
Question 6: Under the Uniform Commercial Code (UCC) Article 2, which
governs contracts for the sale of goods, what is the primary criterion that
distinguishes a “merchant” from a non-merchant for purposes of applying
specialized rules such as the firm-offer provision?
A. Any person who enters into a single sales transaction
B. A person who deals in goods of the kind or otherwise holds himself out as having
knowledge or skill peculiar to the practices involved in the transaction
C. Only corporations with more than 50 employees
D. Any party that uses a written contract
CORRECT ANSWER: B. A person who deals in goods of the kind or otherwise
holds himself out as having knowledge or skill peculiar to the practices
involved in the transaction
Rationale: UCC § 2-104 defines a merchant as one who deals in goods of the kind or
who, by occupation, holds himself out as having knowledge or skill peculiar to the
practices or goods involved. This status triggers heightened standards and
specialized rules.
Question 7: In operations management, the economic order quantity (EOQ)
model balances which two primary categories of inventory-related costs to
determine the optimal order size that minimizes total inventory cost?
A. Ordering costs and holding (carrying) costs
B. Stockout costs and transportation costs
C. Production setup costs and marketing costs
D. Fixed facility costs and variable labor costs
CORRECT ANSWER: A. Ordering costs and holding (carrying) costs
Rationale: The classic EOQ model identifies the order quantity that minimizes the
sum of ordering (or setup) costs and inventory holding costs. As order size
increases, ordering costs decline while holding costs rise; EOQ finds the quantity at
which the two cost curves intersect at their minimum total.
Page 4 of 90
with Verified Answers & Rationales |
Accounting, Finance, Management,
Marketing, Economics, Business Law,
Operations, Strategy
Question 1
When a business erroneously records expenses as assets, it has violated the
measurement issue of:
A. communication
B. classification
C. valuation
D. recognition
Correct Answer
B. classification
Page 1 of 90
,Question 2
Which of the following statements is CORRECT?
A. Free cash flow (FCF) is, essentially, the cash flow that is available for interest and
dividends after the company has made the investments in current and fixed assets
that are necessary to sustain ongoing operations.
B. After-tax operating income is calculated as EBIT (1 - T) + Depreciation.
C. Two firms with identical sales and operating costs but with different amounts of
debt and tax rates will have different operating incomes by definition.
D. If a firm is reporting its income in accordance with generally accepted accounting
principles, then its net income as reported on the income statement should be equal
to its free cash flow.
Correct Answer
A. Free cash flow (FCF) is, essentially, the cash flow that is available for interest and
dividends after the company has made the investments in current and fixed assets
that are necessary to sustain ongoing operations.
Question 1: In managerial accounting, when a company evaluates the
profitability of a product line using contribution margin analysis, which
calculation correctly isolates the amount available to cover fixed costs and
generate operating income after variable costs have been subtracted from
sales revenue?
A. Gross margin minus selling and administrative expenses
B. Sales revenue minus cost of goods sold
C. Sales revenue minus all variable costs
D. Operating income plus depreciation
CORRECT ANSWER: C. Sales revenue minus all variable costs
Rationale: Contribution margin is defined as sales revenue less all variable costs
(both manufacturing and non-manufacturing). This residual amount is the figure
used to cover fixed costs and contribute to operating income, making it the correct
measure for product-line profitability analysis.
Question 2: A firm is considering a capital budgeting project that requires an
initial outlay of $500,000 and is expected to generate after-tax cash inflows of
$140,000 per year for five years. If the firm’s required rate of return is 10
percent, which decision rule correctly indicates whether the project should be
accepted when the net present value is positive?
A. Accept the project only if the internal rate of return is less than 10 percent
B. Accept the project because a positive net present value means the present value
of cash inflows exceeds the initial investment
Page 2 of 90
,C. Reject the project because payback period is the only relevant criterion
D. Accept the project only if the accounting rate of return exceeds the cost of
capital
CORRECT ANSWER: B. Accept the project because a positive net present value
means the present value of cash inflows exceeds the initial investment
Rationale: The net present value rule states that a project should be accepted when
the present value of its expected after-tax cash inflows exceeds the present value of
its cash outflows (including the initial investment). A positive NPV indicates value
creation for shareholders at the given required rate of return.
Question 3: Within the framework of classical organizational theory, which
principle asserts that each employee should receive orders from only one
superior in order to avoid conflicting instructions and maintain clear lines of
authority?
A. Span of control
B. Unity of command
C. Scalar chain
D. Division of labor
CORRECT ANSWER: B. Unity of command
Rationale: The principle of unity of command, articulated by Henri Fayol, requires
that an employee report to and receive direction from only one superior. This
prevents dual authority and the resulting confusion or conflicting directives.
Question 4: In the product life-cycle model, during which stage do sales
growth rates typically slow, competition intensify, and firms begin to
emphasize product differentiation and cost control to maintain market share?
A. Introduction
B. Growth
C. Maturity
D. Decline
CORRECT ANSWER: C. Maturity
Rationale: In the maturity stage, market saturation causes sales growth to
decelerate, competitive rivalry increases, and companies shift strategic focus toward
differentiation, brand loyalty, and operational efficiency to protect margins and
share.
Question 5: According to the law of demand in microeconomics, assuming all
other factors remain constant, what is the expected relationship between the
price of a normal good and the quantity demanded by consumers?
Page 3 of 90
, A. Price and quantity demanded move in the same direction
B. Price and quantity demanded move in opposite directions
C. Quantity demanded is unaffected by price changes
D. Quantity demanded increases only when income rises
CORRECT ANSWER: B. Price and quantity demanded move in opposite
directions
Rationale: The law of demand states that, ceteris paribus, an inverse relationship
exists between the price of a good and the quantity demanded. As price rises,
quantity demanded falls, and as price falls, quantity demanded rises.
Question 6: Under the Uniform Commercial Code (UCC) Article 2, which
governs contracts for the sale of goods, what is the primary criterion that
distinguishes a “merchant” from a non-merchant for purposes of applying
specialized rules such as the firm-offer provision?
A. Any person who enters into a single sales transaction
B. A person who deals in goods of the kind or otherwise holds himself out as having
knowledge or skill peculiar to the practices involved in the transaction
C. Only corporations with more than 50 employees
D. Any party that uses a written contract
CORRECT ANSWER: B. A person who deals in goods of the kind or otherwise
holds himself out as having knowledge or skill peculiar to the practices
involved in the transaction
Rationale: UCC § 2-104 defines a merchant as one who deals in goods of the kind or
who, by occupation, holds himself out as having knowledge or skill peculiar to the
practices or goods involved. This status triggers heightened standards and
specialized rules.
Question 7: In operations management, the economic order quantity (EOQ)
model balances which two primary categories of inventory-related costs to
determine the optimal order size that minimizes total inventory cost?
A. Ordering costs and holding (carrying) costs
B. Stockout costs and transportation costs
C. Production setup costs and marketing costs
D. Fixed facility costs and variable labor costs
CORRECT ANSWER: A. Ordering costs and holding (carrying) costs
Rationale: The classic EOQ model identifies the order quantity that minimizes the
sum of ordering (or setup) costs and inventory holding costs. As order size
increases, ordering costs decline while holding costs rise; EOQ finds the quantity at
which the two cost curves intersect at their minimum total.
Page 4 of 90
