FM - Financial Management , Economic Environment Theory

Which THREE of the following methods of financing the purchase of a non-current asset have an impact on the gearing ratio of a business?

1. Short-term bank loan

2. Surplus cash from the business bank account

3. Ten year finance lease

4. Introduction of new ordinary share capital

5. Seven year Eurobond

• 1, 3, 5

• 2, 3, 4

• 1, 2, 3

• 3, 4, 5

Which THREE of the following will adversely affect the reported earnings per share of a profit-seeking company for an accounting period?

1. A larger than expected tax liability for the period.

2. Interest payable to creditors is higher than expected.

3. A larger than usual dividend declared for ordinary shareholders.

4. The company issues some 7% preference shares at the beginning of the accounting period.

5.The reversal of a provision made in the previous accounting period.

• 1,2,5

• 2,4,5

• 1,2,4

• 2,3,4

A manufacturing company has credit sales of $10 million. It has a gross profit margin of 65%. Payable days is 25 days (assume 365 days per year), Receivables days is 42 days and the operating cycle is 80 days.

What is the level of inventory?

• $124,658

• $604,110

• $1,121,918

• $1,726,027

Which TWO of the following statements are correct?

1. Financial accounting is concerned with providing financial information to aid day to day control and decision making.

2. Management accounting is concerned with future analysis of costing data to assist with decision making.

3. Financial accounting is concerned with providing information about the results of past plans and decisions.

4. Financial strategy is concerned with raising finance and allocating resources to achieve corporate objectives.

• 1,2

• 2,3

• 3,4

• 1,4

A government has adopted a contractionary fiscal policy.

How would this typically affect businesses?

• Higher interest rates and higher inflation

• Lower taxes and higher government subsidies

• Higher taxes and lower government subsidies

• Lower inflation and lower interest rates

A government follows an expansionary monetary policy.

How would this typically affect businesses?

• Higher demand from customers, lower interest rates on loans and increased availability of credit

• A contraction in demand from customers, higher interest rates and less available credit

• Lower taxes, higher demand from customers but less government subsidies/available contracts

• Lower interest rates, lower exchange rates and higher tax rates

As the economy booms and approaches the limits of productivity at a point in time, a manufacturing business would typically feel which one of the following effects?

• Increased inflation (higher sales prices and higher costs), difficulty in finding suitable candidates to fill roles and higher interest rates

• High export demand, increasing growth rates, high inflation and high interest rates

• Reducing inflation, falling demand, reducing investment, increasing unemployment

• Higher government spending, lower tax rates, high inflation and low unemployment

Which one of the following statements is INCORRECT?

• Money markets are markets for long-term capital

• Money markets are operated by banks and other financial institutions

• Money market instruments include interest-bearing instruments, discount instruments and derivatives

• Money market instruments are traded over the counter between institutional investors

Which of the following organisations is most likely to benefit from a period of high price inflation?

• An organisation which has a large number of long term payables

• An exporter of goods to a country with relatively low inflation

• A supplier of goods in a market where consumers are highly price sensitive and substitute imported goods are available

• A large retailer with a high level of inventory on display and low rate of inventory turnover

Governments have a number of economic targets as part of their fiscal policy.

Which of the following government actions relate predominantly to fiscal policy?

1. Decreasing interest rates in order to stimulate consumer spending

2. Reducing taxation while maintaining public spending

3. Using official foreign currency reserves to buy the domestic currency

4. Borrowing money from the capital markets and spending it on public works

• 1 only

• 1 and 3

• 2 and 4 only

• 2, 3 and 4