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Thread: Free CFA Level 1 practice question bank for June 2011 exam

  1. #111
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    long question...seems C

  2. #112
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    Q53 Ans C:

    As per US GAAP CFI includes capital expenditure, acquisition cost, investment in JV but does not include the dividends received. CFI here will be outflow of $200+$50+$100 = $350. Since net change in cash is $500, this should come from CFO and CFF.

    $500 = CFO + CFF + CFI => $500 = $250 + CFF - $350 => CFF = $600.
    You will get CFF as $620 if you mistakenly calculate CFI as $330 million.


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    Today's Question (Questions and answers provided by Knowledge Varsity)

    Q54. A firm sold a machinery having purchase price of $50,000 and accumulated depreciation of $35,000 for $25,000. The tax rate is 40%, what is the cash flow from investing due to this transaction (as per US GAAP)?

    A. $15,000
    B. $6,000
    C. $10,000

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  3. #113
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    Q54 Ans C:

    Tax paid does not come under CFI. In this the book value of the machine is 50,000

  4. #114
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    Quote Originally Posted by vbadmin View Post
    Q54 Ans C:

    Tax paid does not come under CFI. In this the book value of the machine is 50,000 – 35,000 = $15,000. The gain on investment is $25,000 - $15,000 = $10,000.

    The other answer ($6000) is calculated after considering the tax => ($10,000 – 0.4*$10,000). $15,000 is the book value.


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    Today's Question (Questions and answers provided by Knowledge Varsity)

    Q55. Ponga Cola is into beverage business, it reported a COGS of $50 million for 2007. During the year its total assets increased by $20 million, Total liabilities increased by $15 million. Its inventory declined by $5 mn but accounts payable increased by $1 million. How much cash did Ponga cola paid to its suppliers?

    A. $44 million
    B. $55 million
    C. $50 million

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    Ans Q55: A

    Cash Paid to suppliers = -COGS + decrease in inventory + increase in accounts payable
    =-50+5+1 =44 mil $

    Hence Ans A

  5. #115
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    Q 55 Ans A:

    Actual goods purchased = COGS – decline in inventory=$50-$5=$45 Mn

    Accounts payable increased by $1 million => Company paid less than it purchased by $1 million => Cash paid = $45 - $1 = $44mn

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    Today's Question (Questions and answers provided by Knowledge Varsity)


    Q 56 An analyst makes the following two statements:-

    Statement I) The most stringent test you would employ when you are concerned about the liquidity of the company is cash ratio.

    Statement II) When you are concerned whether a company can meet its near term obligation, you should focus on debt to equity ratio
    Analyst is correct with respect to:-

    A. Neither statement 1 nor statement 2
    B. Statement 2 but not statement 1
    C. Both Statement 1 and statement 2

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  6. #116
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    Ans to 56 is A

  7. #117
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    Q 56 Ans: A

    Cash ratio is only composed of cash and marketable security and hence is more conservative than current ratio or quick ratio. When you are concerned about the near term focus should be on liquidty ratio and not financial leverage ratio like debt to equity.

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    Today's Question (Questions and answers provided by Knowledge Varsity)

    Q 57 An analyst gathers the following data for a firm (amount in million dollars)

    DATA------------------------------------AMOUNT

    Net income----------------------------------------$100
    Depreciation---------------------------------------$ 15
    Gain on sale of equipment-----------------------$ 5
    Increase in account receivable------------------$ 3
    Increase in inventory-----------------------------$ 2
    Increase in accounts payable--------------------$ 10
    Proceed from issue of common stock-----------$ 15
    Capital expenditure-------------------------------$ 8

    The firm’s free cash flow to equity (FCFE) is closest to?

    A. $122
    B. $115
    C. $107

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  8. #118
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    Q 57 Ans C:

    FCFE = CFO – capital expenditure

    CFO = net income + depreciation +/– loss/gain on sale of equipment +/- accounts receivable +/- inventories +/- accounts payable

    Gain on sale of equipment is non cash and should be reduced
    Increase in A/R is use of cash => decrease
    Incrase in inventory is use of cash => decrease
    Increase in A/P is source of cash => increase

    CFO = $100 + $15 – $5 - $3 - $2 + $10 = $115
    FCFE = $115 - $8 = $107

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    Today's Question (Questions and answers provided by Knowledge Varsity)


    Q 58 An analyst makes the following two statements.

    Statement I) Inventory cost should include the storage costs for finished goods till it is sold
    Statement II) Inventory cost should include allocation of fixed production overhead
    Analyst is correct with respect to

    A. Neither statement 1 nor statement 2
    B. Statement 2 but not statement 1
    C. Both Statement 1 and statement 2

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  9. #119
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    Q 58) Ans B

  10. #120
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    Q 58 Ans: B

    Inventory cost does not include the storage cost but it does include the fixed production overhead which is incurred in the production of the inventory.

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    Today's Question (Questions and answers provided by Knowledge Varsity)

    Q 59 A firm has a current ratio of 1.5, it repays $100,000 of short-term loan, the impact of this on current ratio and cash flow from financing will be?


    Options--------------Cash flow from financing-----------Current ratio

    A------------------------------Decrease---------------------------------Increase
    B------------------------------Decrease---------------------------------Decrease
    C------------------------------Increase----------------------------------Decrease


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