Accountancy MCQs
Topic Notes: Accountancy
General Description
Plato
- Biography: Ancient Greek philosopher (427–347 BCE), student of Socrates and teacher of Aristotle, founder of the Academy in Athens.
- Important Ideas:
- Theory of Forms
- Philosopher-King
- Ideal State
41
What are the standard criteria for evaluating project acceptance using the Net Present Value (NPV) method?
Answer:
both b and c
The provided answer suggests that both zero and negative NPV are acceptable, which contradicts standard financial theory where only positive NPV projects add value. However, in some contexts, a zero NPV project is considered acceptable because it earns exactly the required rate of return. The source answer is preserved here, but note that standard practice typically rejects negative NPV projects as they destroy shareholder value.
42
Which financial metric is calculated by deducting idle assets from the total assets available to the business?
Answer:
total assets employed
Total assets employed refers to the capital invested in assets that are actively contributing to the generation of revenue. By subtracting idle or non-operating assets from the total asset base, management can better evaluate the efficiency of the assets currently being utilized in the core business operations to produce income.
43
Calculate the payback period if the net initial investment is $6,850,000 and the uniform annual cash flow is $2,050,000.
Answer:
3.34 years
The payback period is determined by dividing the total initial investment by the annual cash inflow. Calculating $6,850,000 / $2,050,000 results in approximately 3.3414 years. Rounding to two decimal places, we get 3.34 years, which represents the time required to recover the initial capital outlay.
44
Given an annual tax operating income of $885,000 and a net initial investment of $35,750,000, what is the calculated increase in average return?
Answer:
2.475% per year
The increase in average return is calculated by dividing the annual operating income by the net initial investment. In this scenario, $885,000 divided by $35,750,000 equals approximately 0.02475, which is 2.475%. This metric provides a simple way to evaluate the profitability of an investment relative to the capital deployed, although it does not account for the time value of money.
45
Which of the following are considered primary categories of cash flows in financial analysis?
Answer:
all of above
Cash flow analysis typically involves three distinct stages: the initial cash outflow (net initial investment), the recurring cash inflows generated by business operations (after taxes), and the final cash flow resulting from the disposal of assets at the end of the project's life (terminal disposal). All these components are essential for a comprehensive evaluation of project viability.
46
Calculate the degree of operating leverage given a contribution margin of $72,000 and an operating income of $12,000.
Answer:
6
The degree of operating leverage (DOL) is a multiplier that measures the sensitivity of a company's operating income to changes in sales. It is calculated by dividing the total contribution margin by the operating income. In this instance, dividing $72,000 by $12,000 yields a DOL of 6. This indicates that for every 1% change in sales, operating income is expected to change by 6%.