CPFM General Practice Test 3

Question 1

The weighted average cost of capital (WACC) is used most appropriately as the discount rate for projects with:

Accepted Answer

Risk similar to the firm's overall risk

Answer

WACC reflects the firm's blended financing cost and fits average-risk projects.

Question 2

Under accrual accounting, revenue is recognized when it is:

Accepted Answer

Earned, regardless of cash receipt

Answer

Accrual accounting recognizes revenue when earned, not when cash changes hands.

Question 3

An increase in a company's days sales outstanding (DSO) generally signals:

Accepted Answer

Slower collection of receivables

Answer

Rising DSO means customers are taking longer to pay their invoices.

Question 4

Which capital budgeting method ignores the time value of money?

Accepted Answer

Payback period

Answer

The simple payback period sums undiscounted cash flows until recovery.

Question 5

A firm with high operating leverage will experience what effect on operating income when sales rise?

Accepted Answer

A magnified increase in operating income

Answer

High fixed costs amplify the impact of sales changes on operating income.

CPFM Practice Test