WALL STREET PREP PREMIUM EXAM:
(LATEST 2026/2027 UPDATE) QUESTIONS
AND VERIFIED ANSWERS| 100% CORRECT|
GRADE A
WALL STREET PREP PREMIUM
Wall Street Prep Premium Exam 2026/2027 – 100 Questions with Answers
& Rationales
Question 1:
What is generally not considered to be a pre-tax non-recurring (unusual or
infrequent) item?
a) Restructuring charges
b) Extraordinary gains/losses
c) Asset impairments
d) Legal settlements
Answer: b) Extraordinary gains/losses
Rationale: Extraordinary gains and losses are after-tax items, not pre-tax. Pre-tax
non-recurring items include unusual charges like restructuring costs, impairments, and
legal settlements that affect operating profit before tax. Recognizing this distinction is
important for accurate pro forma modeling and financial analysis.
Question 2:
Which of the following statements about depreciation and amortization is false?
a) Depreciation reduces the book value of tangible assets over time
b) Amortization applies to intangible assets
c) D&A may be classified within interest expense
d) Both reduce taxable income without affecting cash
,Answer: c) D&A may be classified within interest expense
Rationale: Depreciation and amortization are non-cash operating expenses, typically
recorded in SG&A, COGS, or other operating lines. They are not part of interest
expense, which relates to financing activities. Misclassifying D&A can distort EBITDA
and operating margins, which are key metrics in valuation.
Question 3:
Company X’s current assets increased by $40 million from 2007–2008 while current
liabilities increased by $25 million over the same period. What was the cash impact of
the change in working capital?
a) Increase of $15 million
b) Decrease of $15 million
c) Increase of $65 million
d) Decrease of $65 million
Answer: b) Decrease of $15 million
Rationale: Cash impact of working capital = ΔCurrent Assets – ΔCurrent Liabilities.
Here, $40M – $25M = $15M decrease in cash. An increase in current assets consumes
cash, while an increase in current liabilities provides cash. This is critical in projecting
free cash flow in a financial model.
Question 4:
The final component of an earnings projection model is calculating interest expense.
The calculation may create a circular reference because:
a) Interest expense affects net income, which affects FCF, which affects debt
repayment, which affects interest expense
b) Interest expense does not impact net income
c) Interest expense is unrelated to debt balances
d) Interest expense is always constant
Answer: a) Interest expense affects net income, which affects FCF, which affects debt
repayment, which affects interest expense
Rationale: When projecting financial statements, interest expense is dependent on
average debt balances, which in turn depends on free cash flow (used to pay down
debt). This creates a circular calculation, often resolved using Excel’s iterative
,calculation function. Understanding this ensures accurate modeling of net income and
FCF.
Question 5:
A 10-Q financial filing has all of the following characteristics except:
a) Issued quarterly
b) Provides unaudited financial statements
c) Includes management discussion and analysis
d) Issued four times a year
Answer: d) Issued four times a year
Rationale: A 10-Q is filed three times a year (for quarters 1–3); the 10-K is filed
annually. Misunderstanding filing frequencies can lead to errors in tracking quarterly
financial performance.
Question 6:
Depreciation Expense found in the SG&A line of the income statement for a
manufacturing firm would most likely be attributable to which of the following?
a) Factory machinery
b) Computers used by accounting department
c) Delivery trucks
d) Land improvements
Answer: b) Computers used by accounting department
Rationale: SG&A depreciation relates to non-production assets such as office
equipment, IT infrastructure, and corporate assets. Manufacturing equipment
depreciation would be in COGS. Proper classification is important for calculating
operating margins and EBITDA accurately.
Question 7:
If a company has projected revenues of $10 billion, a gross profit margin of 65%, and
projected SG&A expenses of $2 billion, what is the company's operating (EBIT)
margin?
, a) 35%
b) 45%
c) 50%
d) 55%
Answer: b) 45%
Rationale: Operating profit = Gross Profit – SG&A. Gross Profit = 65% × $10B =
$6.5B. EBIT = $6.5B – $2B = $4.5B. Operating margin = $4.5B / $10B = 45%. This
demonstrates how gross margins and operating expenses directly impact profitability.
Question 8:
A company has the following information:
2014 revenues: $5 billion
2013 accounts receivable: $400 million
2014 accounts receivable: $600 million
What are the days sales outstanding (DSO)?
a) 30 days
b) 36.5 days
c) 40 days
d) 45 days
Answer: b) 36.5 days
Rationale: DSO = (Average Accounts Receivable / Revenue) × 365
Average AR = ($400M + $600M)/2 = $500M
DSO = ($500M / $5B) × 365 ≈ 36.5 days. DSO measures how quickly a company
collects cash from customers, a key liquidity metric.
Question 9:
A company has the following information:
2014 Revenues: $8 billion
2014 COGS: $5 billion
2013 Accounts Receivable: $400 million
2014 Accounts Receivable: $600 million
2013 Inventories: $1 billion
2014 Inventories: $800 million
(LATEST 2026/2027 UPDATE) QUESTIONS
AND VERIFIED ANSWERS| 100% CORRECT|
GRADE A
WALL STREET PREP PREMIUM
Wall Street Prep Premium Exam 2026/2027 – 100 Questions with Answers
& Rationales
Question 1:
What is generally not considered to be a pre-tax non-recurring (unusual or
infrequent) item?
a) Restructuring charges
b) Extraordinary gains/losses
c) Asset impairments
d) Legal settlements
Answer: b) Extraordinary gains/losses
Rationale: Extraordinary gains and losses are after-tax items, not pre-tax. Pre-tax
non-recurring items include unusual charges like restructuring costs, impairments, and
legal settlements that affect operating profit before tax. Recognizing this distinction is
important for accurate pro forma modeling and financial analysis.
Question 2:
Which of the following statements about depreciation and amortization is false?
a) Depreciation reduces the book value of tangible assets over time
b) Amortization applies to intangible assets
c) D&A may be classified within interest expense
d) Both reduce taxable income without affecting cash
,Answer: c) D&A may be classified within interest expense
Rationale: Depreciation and amortization are non-cash operating expenses, typically
recorded in SG&A, COGS, or other operating lines. They are not part of interest
expense, which relates to financing activities. Misclassifying D&A can distort EBITDA
and operating margins, which are key metrics in valuation.
Question 3:
Company X’s current assets increased by $40 million from 2007–2008 while current
liabilities increased by $25 million over the same period. What was the cash impact of
the change in working capital?
a) Increase of $15 million
b) Decrease of $15 million
c) Increase of $65 million
d) Decrease of $65 million
Answer: b) Decrease of $15 million
Rationale: Cash impact of working capital = ΔCurrent Assets – ΔCurrent Liabilities.
Here, $40M – $25M = $15M decrease in cash. An increase in current assets consumes
cash, while an increase in current liabilities provides cash. This is critical in projecting
free cash flow in a financial model.
Question 4:
The final component of an earnings projection model is calculating interest expense.
The calculation may create a circular reference because:
a) Interest expense affects net income, which affects FCF, which affects debt
repayment, which affects interest expense
b) Interest expense does not impact net income
c) Interest expense is unrelated to debt balances
d) Interest expense is always constant
Answer: a) Interest expense affects net income, which affects FCF, which affects debt
repayment, which affects interest expense
Rationale: When projecting financial statements, interest expense is dependent on
average debt balances, which in turn depends on free cash flow (used to pay down
debt). This creates a circular calculation, often resolved using Excel’s iterative
,calculation function. Understanding this ensures accurate modeling of net income and
FCF.
Question 5:
A 10-Q financial filing has all of the following characteristics except:
a) Issued quarterly
b) Provides unaudited financial statements
c) Includes management discussion and analysis
d) Issued four times a year
Answer: d) Issued four times a year
Rationale: A 10-Q is filed three times a year (for quarters 1–3); the 10-K is filed
annually. Misunderstanding filing frequencies can lead to errors in tracking quarterly
financial performance.
Question 6:
Depreciation Expense found in the SG&A line of the income statement for a
manufacturing firm would most likely be attributable to which of the following?
a) Factory machinery
b) Computers used by accounting department
c) Delivery trucks
d) Land improvements
Answer: b) Computers used by accounting department
Rationale: SG&A depreciation relates to non-production assets such as office
equipment, IT infrastructure, and corporate assets. Manufacturing equipment
depreciation would be in COGS. Proper classification is important for calculating
operating margins and EBITDA accurately.
Question 7:
If a company has projected revenues of $10 billion, a gross profit margin of 65%, and
projected SG&A expenses of $2 billion, what is the company's operating (EBIT)
margin?
, a) 35%
b) 45%
c) 50%
d) 55%
Answer: b) 45%
Rationale: Operating profit = Gross Profit – SG&A. Gross Profit = 65% × $10B =
$6.5B. EBIT = $6.5B – $2B = $4.5B. Operating margin = $4.5B / $10B = 45%. This
demonstrates how gross margins and operating expenses directly impact profitability.
Question 8:
A company has the following information:
2014 revenues: $5 billion
2013 accounts receivable: $400 million
2014 accounts receivable: $600 million
What are the days sales outstanding (DSO)?
a) 30 days
b) 36.5 days
c) 40 days
d) 45 days
Answer: b) 36.5 days
Rationale: DSO = (Average Accounts Receivable / Revenue) × 365
Average AR = ($400M + $600M)/2 = $500M
DSO = ($500M / $5B) × 365 ≈ 36.5 days. DSO measures how quickly a company
collects cash from customers, a key liquidity metric.
Question 9:
A company has the following information:
2014 Revenues: $8 billion
2014 COGS: $5 billion
2013 Accounts Receivable: $400 million
2014 Accounts Receivable: $600 million
2013 Inventories: $1 billion
2014 Inventories: $800 million
