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CPA BAR Financial Management
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Avg score: 75% • Most missed: “Which of the following would have no effect on the current ratio?”
Key Topics in BAR Financial Management Financial Statement Analysis: Evaluating, comparing, and analyzing financial data, including Ratio Analysis and variance analysis between actual and budgeted results. Data Analytics & Performance Management: Utilizing data to assess performance and making strategic business decisions. Technical Accounting Topics: Handling complex areas such as business combinations, stock compensation, derivatives, and hedge accounting, as well as revenue recognition and lease accounting. Financial Risk Management: Identifying financial risks and applying mitigation... Show more
CPA BAR Financial Management
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14 Questions

1. Which of the following can be defined as the degree to which a firm uses debt to finance the firm?
I. Financial leverage
II. Operating leverage
2. Which of the following would have no effect on the current ratio?
I. Sale of equipment
II. Declaration of a stock dividend
3. Which of the following would be an advantage of using the net present value method of analyzing capital budgeting decisions?
I. The net present value method can be used when there is a different rate of return for each year of the project.
II. The net present value method indicates whether an investment will earn the hurdle rate of return.
4. Which of the following methods of calculating investment return in dollars involves taking net income per the income statement and comparing it to the required rate of return?
I. Return on investment
II. Residual income
5. Which of the following methods would NOT be useful for determining total project profitability?
I. Discounted payback method
II. Net present value
6. Company A experiences an increase in sales of 6% and an increase in earnings before interest and taxes of 18%. Company B experiences an increase in earnings before interest and taxes of 10% after a 5% increase in sales. Which of the following would be correct?
I. Company A has a higher degree of operating leverage than company B.
II. Company A has relatively lower variable operating costs and higher fixed operating costs compared to company B.
7. In this form of capital budgeting, project cash flows are discounted based upon a predetermined discount rate and compared to the investment in the project to arrive at a positive or negative dollar amount.
I. Net present value
II. Internal rate of return
III. Accounting rate of return
8. When calculating return on investment for two different companies, which of the following should be used to value the average assets (denominator) so as to minimize the effect of the age of each company’s assets and different depreciation methods used?
9. Which of the following describe the net present value method?
I. It assumes that positive cash flows are reinvested at the hurdle rate.
II. It measures the value of capital investments in dollars and considers the time value of money.
III. It uses the accrual basis, not the cash basis.
10. Which of the following methods could be used to calculate the cost of common equity capital?
I. Capital asset pricing model
II. Discounted cash flow model
11. Limitations of the net present value method and the internal rate of return include which of the following?
I. They rely on the forecasting of future data.
II. They consider the time value of money.
12. Which of the following would be an advantage of the payback method?
I. It is easy to understand.
II. It does NOT consider the time value of money.
13. When a firm has a relatively high degree of operating leverage:
I. a small increase in sales can lead to a large increase in profit because fixed costs remain the same over a relevant range
II. variable operating costs are high relative to fixed operating costs
14. The weighted average cost of capital is the average cost of which of the following given a firm’s existing assets and operations?
I. Debt financing
II. Equity financing

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