CPA Business Environment and Concepts (BEC) : CPA Business Environment and Concepts (BEC)
Study concepts, example questions & explanations for CPA Business Environment and Concepts (BEC)
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Example Questions
Example Question #3 : Calculate Discounts On Accounts Payable
A firm purchased $10,000 of merchandise inventory on May 1. The terms of the purchase were 2/10, net 30. The company would pay what amount on May 9?
$7,000
$10,000
$9,980
$9,800
$9,800
A 2% discount on $10,000 = a $200 discount. $10,000 - $200 = $9,800.
Example Question #4 : Calculate Discounts On Accounts Payable
If the dollar price of the euro rises, which of the following will occur?
The euro depreciates against the dollar
The euro will buy fewer US goods
The dollar depreciates against the euro
The euro will buy fewer European goods
The dollar depreciates against the euro
If the dollar price of the euro rises, then the euro is getting more expensive, thus the dollar is getting less expensive.
Example Question #5 : Calculate Discounts On Accounts Payable
One euro will buy US $1.48 and a British pound will buy US $2.06. What is the cross rate of euros per pound?
0.72
2.06
1.48
1.39
1.39
2.06/1.48=1.39
Example Question #1 : Calculate Discounts On Accounts Payable
A discount on accounts payables would encourage which of the following activities?
Clients paying more than they owe
None of the answer choices are correct
Clients paying their bills earlier rather than later
Customers extending their due dates
Clients paying their bills earlier rather than later
When offering a discount to a customer for paying earlier, a firm would forfeit some income in order to increase cash on hand.
Example Question #1 : Discounted Cash Flow Formula
Future payments must be discounted in a bond valuation in order to take into account the:
Time value of money
Difference between the market rate of interest and the coupon rate
Fact that the bond was sold at a premium
Expected interest rate on the coupon payments
Time value of money
The process of accounting for time value of money is discounting.
Example Question #2 : Discounted Cash Flow Formula
The discount rate is determined in advance for which of the following capital budgeting techniques?
Accounting rate of return
Payback
Internal rate of return
Net present value
Net present value
In order to work with net present value, a discount rate must be calculated.
Example Question #3 : Discounted Cash Flow Formula
Using the discounted cash flow method, estimate the cost of retained earnings for a firm with a stock price of $30, an estimated dividend at the end of the first year of $3 per share, and an expected growth rate of 10%.
11%
12.20%
21.10%
20%
20%
$3/$30 + 10% = 20% Cost of retained earnings.
Example Question #4 : Discounted Cash Flow Formula
The length of time required to recover the initial cash outlay of a capital project is determined by using the:
Accounting rate of return
Discounted cash flow method
Net present value method
Payback method
Payback method
The payback method measures the time required to recover the initial investment.
Example Question #21 : Financial Management Formulas
Which of the following statements is true regarding the payback method?
It is the time required to recover the investment and earn a profit.
It does not consider the time value of money.
It is a measure of how profitable one investment project is compared to another.
The salvage value of old equipment is ignored in the event of equipment replacement.
It does not consider the time value of money.
The payback method determines the number of years that it will take for a company to recoup or be paid back for its investment. The payback method does not consider the time value of money.
Example Question #1 : Discounted Cash Flow Formula
Which of the following phrases could be used to describe the Discounted Cash Flow formula?
Cost of debt
Cost of retained earnings
Cost of cash flow
None of the answer choices are correct
Cost of retained earnings
The Discounted Cash Flow formulas involving dividends, price, and growth is also known as the cost of retained earnings.
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