B. Acy Bachelor of Accountancy Bachelor of Science in Accountancy: BEC 2 — Questions and Answers
Question 1: A company's weighted average cost of capital (WACC) is best described as:
- The cost of the most expensive financing source
- The minimum return a company must earn to satisfy all capital providers (Correct answer)
- The average interest rate on all outstanding debt
- The required return on equity only
Correct answer: The minimum return a company must earn to satisfy all capital providers
WACC represents the blended cost of all capital sources weighted by their proportion, serving as the minimum acceptable return on investments.
Question 2: Under the economic order quantity (EOQ) model, which pair of costs are being balanced?
- Storage costs and insurance costs
- Ordering costs and carrying costs (Correct answer)
- Purchase price and freight costs
- Setup costs and quality costs
Correct answer: Ordering costs and carrying costs
EOQ minimizes total inventory cost by finding the order quantity where ordering costs and carrying (holding) costs are equal.
Question 3: Which corporate governance body is primarily responsible for overseeing the financial reporting process and the external auditors?
- Board of directors
- Audit committee (Correct answer)
- Compensation committee
- Nominating committee
Correct answer: Audit committee
The audit committee, a subcommittee of the board composed of independent directors, oversees financial reporting integrity and external auditor relationships.
Question 4: A firm has a current ratio of 2.5 and a quick ratio of 1.0. This most likely indicates:
- The firm is highly liquid with minimal inventory
- The firm carries a large amount of inventory relative to current assets (Correct answer)
- The firm has excessive accounts receivable
- The firm has more current liabilities than current assets
Correct answer: The firm carries a large amount of inventory relative to current assets
A large gap between the current ratio and quick ratio signals that inventory makes up a substantial portion of current assets, since inventory is excluded from the quick ratio.
Question 5: In a competitive market, when supply decreases while demand remains constant, the equilibrium price will:
- Decrease and quantity will increase
- Increase and quantity will decrease (Correct answer)
- Remain unchanged while quantity increases
- Decrease and quantity will decrease
Correct answer: Increase and quantity will decrease
A leftward shift in supply (decrease) raises equilibrium price and lowers equilibrium quantity when demand is held constant.
Question 6: Which IT general control category includes user access provisioning, password policies, and segregation of duties in systems?
- Change management controls
- Physical security controls
- Logical access controls (Correct answer)
- Data backup controls
Correct answer: Logical access controls
Logical access controls govern who can access systems and data, encompassing user provisioning, authentication policies, and system-level segregation of duties.
Question 7: The net present value (NPV) decision rule states that a project should be accepted when:
- NPV equals the initial investment
- NPV is greater than zero (Correct answer)
- NPV equals the cost of capital
- NPV is less than the payback period
Correct answer: NPV is greater than zero
A positive NPV means the project's cash inflows, discounted at the required rate, exceed its costs, thereby adding value to the firm.
B. Acy Bachelor of Accountancy Bachelor of Science in Accountancy: BEC 2
A company's weighted average cost of capital (WACC) is best described as: