PSU Test 7

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Subject: Cost Accounting (CA)

Total Number of Question: 40

Time: 41 Minutes

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The primary goal of corporate finance is to:

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Maximize earnings per share

Maximize shareholder wealth

Minimize risk

Maximize asset turnover

The Modigliani-Miller theorem primarily addresses:

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Capital budgeting

Dividend policy

Capital structure irrelevance in perfect markets

Asset pricing models

A company’s cost of capital is best described as:

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The rate of interest on its bank loans

The minimum rate of return required by investors

The average rate of all financing sources

The rate of dividend payout

A leveraged buyout (LBO) refers to:

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Buying shares from the open market

Acquisition of a company using a significant amount of borrowed funds

Investing in government securities

A merger of two companies

The weighted average cost of capital (WACC) is calculated by:

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Averaging debt and equity cost

Weighing debt and equity costs by their proportions in the capital structure

Adding debt cost to equity cost

Subtracting debt cost from equity cost

A firm’s financial leverage is directly related to its:

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Debt-to-equity ratio

Current ratio

Cash conversion cycle

Net profit margin

The payback period is best defined as the:

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Time it takes for an investment to recover its initial cost

Period after which dividend payout starts

Average duration of an investment

Capital budgeting decisions are based on:

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Short-term asset needs

Long-term investment opportunities

Dividends payable

Only financing considerations

In capital budgeting, the net present value (NPV) is used to:

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Compare the profit margins

Estimate the project’s internal rate of return

Measure profitability by comparing present value of cash inflows and outflows

Calculate the payback period

10.

When calculating NPV, the discount rate is typically:

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The project’s internal rate of return

The company’s cost of capital

The risk-free rate

The dividend growth rate

11.

The quick ratio excludes which asset from the calculation?

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Cash

Accounts receivable

Marketable securities

Inventory

12.

Which of the following ratios measures a company’s ability to pay off short-term debt with available cash?

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Debt-to-equity ratio

Acid-test ratio

Current ratio

Profit margin

13.

Return on equity (ROE) measures:

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Profitability relative to sales

Return earned on assets

Earnings generated from shareholders’ equity

Income available to shareholders

14.

A high accounts receivable turnover ratio indicates:

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Effective collection of receivables

Poor inventory management

High borrowing costs

Inefficient use of assets

15.

If a company’s debt-to-equity ratio is high, it suggests:

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Low risk in operations

A conservative financing approach

High financial leverage and potential risk

Good liquidity

16.

In cost accounting, sunk costs are:

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Relevant for decision-making

Costs that have already been incurred and cannot be recovered

Always variable costs

Future costs

17.

The break-even point is the level of sales at which:

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Total revenue equals total expenses

Total revenue is greater than total expenses

Fixed costs exceed variable costs

Net profit equals zero

18.

Which of the following costs changes in direct proportion to changes in production volume?

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Fixed costs

Variable costs

Sunk costs

Opportunity costs

19.

Contribution margin is defined as:

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Sales revenue minus fixed costs

Sales revenue minus variable costs

Variable costs minus fixed costs

Total costs minus operating income

20.

Job costing is most suitable for:

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Continuous production processes

Unique or customized orders

Mass production environments

High volume, low cost items

31.

Financial forecasting is primarily used to:

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Evaluate historical performance

Predict future financial outcomes

Manage past expenses

Track cash inflows

32.

A zero-based budgeting approach involves:

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Setting the budget to zero and justifying every expense

Basing the budget on last year’s expenses

Incremental increases in budget each year

Reducing budgets by a fixed percentage

33.

Sensitivity analysis is used to:

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Evaluate the sensitivity of financial statements

Assess the impact of changes in key assumptions on a project's outcome

Predict cash flow

Compare debt ratios

34.

The primary purpose of a balanced scorecard is to:

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Track financial performance only

Measure a company's performance from multiple perspectives

Manage inventory levels

Compare interest rates

35.

Which of the following is a non-cash expense?

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Depreciation

Interest

Rent

Utilities

36.

In financial statements, goodwill is classified as:

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A current asset

A long-term liability

An intangible asset

A non-operating expense

37.

Impairment of an asset occurs when:

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Its book value exceeds its recoverable amount

Its market value increases

It is sold for profit

It is used in production

38.

In accounting, accrued expenses represent:

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Prepaid expenses

Expenses that have been incurred but not yet paid

Expenses that have been paid in advance

Income received in advance

39.

In portfolio theory, an efficient portfolio is one that:

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Has the highest return with the lowest risk

Has the highest return with unlimited risk

Minimizes diversification

Maximizes cash flows

40.

Which of the following describes the risk-free rate?

Deselect Answer

The rate of return on high-risk stocks

The return expected on government securities like Treasury bills

The rate of return on foreign exchange transactions

The return on junk bonds

May the best brain win! Let the games begin! May knowledge be your guide, and may your answers be swift and precise.

Embrace the challenge, unleash your potential, and may the thrill of the competition ignite your passion for learning.

Good luck to you!

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