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ABA CTFA Exam Practice Questions (P. 5)

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Question #41
Cash surplus divided by net income (after tax); indicates relative amount of cash surplus achieved during a given period is:
  1. A
    Solvency ratio
  2. B
    Liquidity ratio
  3. C
    Savings ratio
  4. D
    Debt service ratio

Correct Answer:
C

Question #42
Total monthly loan payments divided by monthly gross (before-tax) income; provides a measure of the ability to pay debts promptly is:
  1. A
    Solvency ratio
  2. B
    Liquidity ratio
  3. C
    Savings ratio
  4. D
    Debt service ratio

Correct Answer:
D

Question #43
A cash budget is the valuable money management tool that helps you EXCEPT:
  1. A
    Maintain the necessary information to monitor and control your finances
  2. B
    Decide how to allocate your income to reach your financial goals
  3. C
    Implement a system of disciplined spending-as opposed to just existing from one paycheck to the next
  4. D
    Enhance needles spending so you can increase the funds allocated to savings and investments

Correct Answer:
D

Question #44
Budget control schedule is:
  1. A
    A summary that shows how actual income and expenses compare with the various budget categories
  2. B
    A summary that shows how actual income and expenses compare with the various budget categories and where variances (surplus or deficit) exist
  3. C
    A graphical presentation of cash flows
  4. D
    The interest earned each year

Correct Answer:
B

Question #45
"Shareholder wealth" in a firm is represented by:
  1. A
    The number of people employed in the firm
  2. B
    The book value of the firm's assets less the book value of its liabilities
  3. C
    The amount of salary paid to its employees
  4. D
    The market price per share of the firm's common stock

Correct Answer:
D

Question #46
The long-run objective of financial management is to:
  1. A
    Maximize earnings per share
  2. B
    Maximize the value of the firm's common stock
  3. C
    Maximize return on investment
  4. D
    Maximize market share

Correct Answer:
B

Question #47
What are the earnings per share (EPS) for a company that earned $100,000 last year in after-tax profits, has 200,000 common shares outstanding and $1.2 million in retained earning at the year end?
  1. A
    $100,000
  2. B
    $6.00
  3. C
    $0.50
  4. D
    $6.50

Correct Answer:
C

Question #48
A single, overall cost of capital is often used to evaluate projects because:
  1. A
    It avoids the problem of computing the required rate of return for each investment proposal
  2. B
    It is the only way to measure a firm's required return
  3. C
    It acknowledges that most new investment projects have about the same degree of risk
  4. D
    It acknowledges that most new investment projects offer about the same expected return

Correct Answer:
A

Question #49
The cost of equity capital is all of the following Except:
  1. A
    The minimum rate that a firm should earn on the equity-financed part of an investment
  2. B
    A return on the equity-financed portion of an investment that, at worst, leaves the market price of the stock unchanged
  3. C
    By far the most difficult component cost to estimate
  4. D
    Generally lower than the before-tax cost of debt

Correct Answer:
D

Question #50
If the following are balance sheet changes:
$5,005 decrease in accounts receivable
$7,000 decrease in cash
$12,012 decrease in notes payable
$10,001 increase in accounts payablea "use" of funds would be the:
  1. A
    $7,000 decrease in cash
  2. B
    $5,005 decrease in accounts receivable
  3. C
    $10,001 increase in accounts payable
  4. D
    $12,012 decrease in notes payable

Correct Answer:
D

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