CPA Business Environment and Concepts (BEC) Free Practice Test

Question 1

When applying value chain analysis, a firm sends its production manager to visit the operations of its
major supplier in an attempt to determine if there are cost-savings capabilities that could be implemented
at the supplier's warehouse. The firm is performing which form of value chain analysis?

A. Internal costs analysis.

B. Vertical linkage analysis.

C. Internal differentiation analysis.

D. None of the above.

Correct Answer: B

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Question 2

The amount of inventory that a company would tend to hold in stock would increase as the:

A. Variability of sales decreases.

B. Cost of running out of stock decreases.

C. Cost of carrying inventory decreases.

D. Length of time that goods are in transit decreases.

Correct Answer: C

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Question 3

All of the following items are included in discounted cash flow analysis, except:

A. Future operating cash savings.

B. The future asset depreciation expense.

C. The current asset disposal price.

D. The tax effects of future asset depreciation.

Correct Answer: B

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Question 4

A divisional manager receives a bonus based on 20% of the residual income from the division. The
results of the division include: Divisional revenues, $1,000,000; divisional expenses, $500,000; divisional
assets, $2,000,000; and the required rate of return is 15%. What amount represents the manager's
bonus?

A. $100,000

B. $200,000

C. $140,000

D. $40,000

Correct Answer: D

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Question 5

When a firm finances each asset with a financial instrument of the same approximate maturity as the life
of the asset, it is applying:

A. Working capital management.

B. Financial leverage.

C. Operating leverage.

D. Return maximization.

Correct Answer: A

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Question 6

Carr Corp. declared a 7% stock dividend on its common stock. The dividend:

A. Requires a vote of Carr's stockholders.

B. Must be registered with the SEC pursuant to the Securities Act of 1933.

C. Is includable in the gross income of the recipient taxpayers in the year of receipt.

D. Has no effect on Carr's earnings and profits for federal income tax purposes.

Correct Answer: D

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Question 7

The net present value method of capital budgeting assumes that cash flows are reinvested at:

A. The risk-free rate.

B. The rate of return of the project.

C. The discount rate used in the analysis.

D. The cost of debt.

Correct Answer: C

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Question 8

The three elements needed to estimate the cost of equity capital for use in determining a firm's weighted
average cost of capital are:

A. Current dividends per share, expected growth rate in dividends per share, and current market price per
share of common stock.

B. Current dividends per share, expected growth rate in earnings per share, and current market price per
share of common stock.

C. Current earnings per share, expected growth rate in earnings per share, and current book value per
share of common stock.

D. Current earnings per share, expected growth rate in dividends per share, and current market price per
share of common stock.

Correct Answer: A

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Question 9

Factors internal to the organization that impact strategy and are sources of strengths and weaknesses
include all of the following, except:

A. Innovation of product lines.

B. Regulations and laws.

C. Competence of management.

D. Marketing effectiveness.

Correct Answer: B

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Question 10

Which of the following statements is correct if there is an increase in the resources available within an
economy?

A. The economy will be capable of producing more goods and services.

B. More goods and services will be produced in the economy.

C. The technological efficiency of the economy will improve.

D. The standard of living in the economy will rise.

Correct Answer: A

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Question 11

A company with $4.8 million in credit sales per year plans to relax its credit standards, projecting that this
will increase credit sales by $720,000. The company's average collection period for new customers is
expected to be 75 days; and the payment behavior of the existing customers is not expected to change.
Variable costs are 80 percent of sales. The firm's opportunity cost is 20 percent before taxes. Assuming a
3 60-day year, what is the company's benefit (loss) on the planned change in credit terms?

A. $120,000

B. $126,000

C. $28,800

D. $144,000

Correct Answer: A

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AICPA CPA Business Environment and Concepts (BEC) Free Practice Test