B. Acy Bachelor of Accountancy Corporate Finance and Financial Management 2

Question 1

Which of the following represents the Modigliani-Miller proposition in a world with no taxes?

Accepted Answer

A firm's value is independent of its capital structure

Answer

MM Proposition I (no taxes) states that firm value is unaffected by capital structure because investors can replicate any leverage ratio through homemade leverage.

Question 2

A company has the following data: Sales = $2,000,000; Variable costs = $1,200,000; Fixed costs = $400,000. What is the contribution margin ratio?

Accepted Answer

40%

Answer

Contribution margin = Sales - Variable costs = $800,000; Contribution margin ratio = $800,000 / $2,000,000 = 40%.

Question 3

Which type of lease requires the lessee to recognize both an asset and a liability on the balance sheet?

Accepted Answer

Finance (capital) lease

Answer

A finance lease (formerly called a capital lease) requires the lessee to record a right-of-use asset and a corresponding lease liability under both old and new GAAP (ASC 842).

Question 4

The internal rate of return (IRR) rule states that a project should be accepted when:

Accepted Answer

IRR exceeds the required rate of return (hurdle rate)

Answer

A project adds value when its IRR exceeds the hurdle rate (cost of capital), meaning the project earns more than the minimum required return.

Question 5

Which ratio measures a company's ability to meet short-term obligations using only its most liquid assets (excluding inventory)?

Accepted Answer

Quick (acid-test) ratio

Answer

The quick ratio = (Cash + Marketable securities + Receivables) / Current liabilities, excluding inventory as it is the least liquid current asset.

B. Acy Bachelor of Accountancy Practice Test

B. Acy Bachelor of Accountancy Practice Test

B. Acy Bachelor of Accountancy Corporate Finance and Financial Management 2