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ACCT7106 Final Exam
1
Part I – Multiple choice questions
INSTRUCTIONS
1. You need to answer all questions.
2. You are required to type your responses.
3. For numeric questions, do not include dollar/cents symbols (e.g. $/c), comma (,) or
percentage (%) in your answers. For example, 1.56 should be rounded off as 1.6;1.55 should
be rounded off as 1.6; 1.54 should be rounded off as 1.5; 10% should be written as 10.
4. Unless otherwise stated, answer questions based on the methods/theories taught in lectures.
ACCT7106 Final Exam - Semester 1, 2023
2
Question 1. Which of the following statements is INCORRECT? (1 mark)
[ ] A. Suppliers are more likely to be powerful if they offer products which are differentiated
[ ] B. Rivalry between existing competitors is likely to be higher when industry is growing
very fast
[ ] C. Suppliers are more likely to be powerful if the supplier’s industry is more concentrated
that the industry it sells to
[ ] D. None of the options
Question 2. What is the usual classification of investment in associates in the reformulated
statement of financial position? (1 mark)
[ ] A. Financial assets
[ ] B. Operating assets
[ ] C. Financial obligation
[ ] D. Operating liabilities
Question 3. A firm has P/E ratio of 15 and a price-to-sales ratio of 3. What should be the net
profit margin? (1 mark)
[ ] A. 10 %
[ ] B. 30 %
[ ] C. 5 %
[ ] D. 20 %
Question 4. Use the following information:
Net property plant and equipment (FY2021) = $ 200m
Net property plant and equipment (FY2022) = $ 190m
Depreciation expense (FY2022) = $ 40m
How much new investment in property plant and equipment was made during FY2022 if there
was no disposal, no impairment, and no revaluation of PPE during the year? (1 mark)
[ ] A. $ 50m
[ ] B. $ 40m
[ ] C. $ 10m
[ ] D. $ 30m
ACCT7106 Final Exam - Semester 1, 2023
3
Question 5. What should be the appropriate classification of accrued compensation on the
reformulated balance sheet? (1 mark)
[ ] A. Operating asset
[ ] B. Financial asset
[ ] C. Operating liability
[ ] D. Financial obligation
Question 6. Which of the following is a possible reason for the fact that for most companies,
the book value of equity is not equal to the market value of equity? (1 mark)
[ ] A. Financial statements capture future growth opportunities.
[ ] B. Some intangible assets are not recognised on the statement of financial position.
[ ] C. R&D expenditures and advertising expenditures are always capitalised.
[ ] D. None of the options
Question 7. What is the appropriate classification of preference dividends on the reformulated
income statement? (1 mark)
[ ] A. Core operating income from sales
[ ] B. Unusual operating income
[ ] C. Total net financial expenses
[ ] D. Operating OCI
Question 8. Which of the following is an unlevered figure? (1 mark)
[ ] A. Free cash flows
[ ] B. Common stockholder’s equity
[ ] C. Net transactions with shareholders
[ ] D. Comprehensive income
Question 9. Use the following information:
Common stockholders’ equity (FY2022) = $ 90m
Common stockholders’ equity (FY2021) = $ 80m
Weighted average cost of capital (WACC) = 10 %
Cost of equity = 12 %
Operating income after tax (FY2022) = $ 15m
Comprehensive income after tax (FY2022) = $ 12m
ACCT7106 Final Exam - Semester 1, 2023
4
What was the Residual Income (RI) during FY2022? (1 mark)
[ ] A. $ 1.2m
[ ] B. - $ 1.2m
[ ] C. - $ 2.4m
[ ] D. $ 2.4m
Question 10. Which of the following statements is TRUE? (1 mark)
[ ] A. Fundamental investing relies on intuition.
[ ] B. Passive investing accepts the market price as value.
[ ] C. Passive investors forecast future payoffs to discover the value of an investment.
[ ] D. None of the options
Question 11. Which of the following statements is TRUE? (1 mark)
[ ] A. The terminal growth rate for a fast-growing company is higher than the nominal GDP
growth rate of the country.
[ ] B. When using comparable company multiple approach for valuation, choice of multiple
does not make a difference in valuation if we calculate multiples from the reformulated
financial statements.
[ ] C. Value of the enterprise will be more that the current book value of net operating assets
(NOA) if the enterprise is expected to generate positive residual operating income (ReOI) in
future
[ ] D. None of the options
Question 12. A company has made a passive investment by purchasing stocks (< 20 %) of
another company. In the reformulated statement of cash flows, this item will be classified as?
(1 mark)
[ ] A. Cash flow from operations (C)
[ ] B. Cash flow from investing (I)
[ ] C. Debt financing cash flows (F)
[ ] D. Equity financing cash flows (d)
ACCT7106 Final Exam - Semester 1, 2023
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Question 13. After reformulating the statement of cash flow for a company, you notice that a
company has generated positive cash flows from operations (C), investment (I), and financing
(d + F). How will you interpret this situation? (1 mark)
[ ] A. Positive cash flows from operating, investing, and financing activities is a sign of
healthy and mature business.
[ ] B. Positive cash flows from operating, investing, and financing activities suggest that the
company is growing very fast and it is a young company.
[ ] C. Positive cash flows from operating, investing, and financing activities suggest that the
company is not generating sufficient cash to fund cash investment.
[ ] D. None of the options
Question 14. The return an investor demands to compensate for the risk that she is taking by
investing in a security is called: (1 mark)
[ ] A. Expected return
[ ] B. Required return
[ ] C. Market risk premium
[ ] D. None of the options
Question 15. Which of the following relations is INCORRECT? (1 mark)
[ ] A. FCF = OI - ∆ NOA
[ ] B. CI = NPAT - OCI
[ ] C. CI = OI - NFE
[ ] D. FCF = NFE - ∆ NFO + d
Question 16. Which of the following are ADVANTAGES of the residual operating income
model (ReOI)? (2 marks)
There can be more than one correct answer. Please select all the correct answers.
[ ] A. It can be applied to companies which do not pay dividends.
[ ] B. It can be applied using consensus analyst forecasts.
[ ] C. It does not require forecasting net dividends.
[ ] D. It does not require forecasting capital structure of the company.
ACCT7106 Final Exam - Semester 1, 2023
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Question 17. Which of the following items are usually classified as operating assets on the
reformulated statement of financial position? (2 marks)
There can be more than one correct answer. Please select all the correct answers.
[ ] A. Inventories
[ ] B. Right-of-use assets
[ ] C. Financial cash
[ ] D. Passive investment
Question 18. Which of the following items are usually classified as financial obligations on
the reformulated statement of financial position? (2 marks)
There can be more than one correct answer. Please select all the correct answers.
[ ] A. Banks overdraft
[ ] B. Employee benefit obligations
[ ] C. Lease obligations
[ ] D. Trade payable
Question 19. Which of the following items are considered in calculating net transactions with
shareholders? (2 marks)
There can be more than one correct answer. Please select all the correct answers.
[ ] A. Dividends paid
[ ] B. Shares issued
[ ] C. Operating OCI
[ ] D. Financing OCI
Question 20. In the reformulation of the statement of cash flows for JB Hi-Fi discussed in the
class, which of the following is/are TRUE regarding stock-based compensation? (2 marks)
There can be more than one correct answer. Please select all the correct answers.
[ ] A. They were ignored as they are non-cash items and will not affect the cash flows.
[ ] B. They were treated as cash outflow due to operating activities.
[ ] C. They were treated as cash inflow due to financing activities.
[ ] D. They were treated as cash outflow due to investing activities.