EMT Practice Test

1. Question Content...

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Question1: A government is considering issuing a fixed number of permits allowing firms to pollute. When would this system fail to reduce pollution?

Question2: A weight loss clinic had 1,000 clients last year. The distribution of the changes in clients' weights is shown below.

Which of the following Excel formulas would correctly calculate the 95% confidence interval for the true average change in weight? Please note that the formula for calculating confidence intervals in Excel is =CONFIDENCE.NORM(alpha, standard_dev, size).

Question3: On Valentine's Day, the price for a dozen roses typically rises 20 percent. What is the reason behind the increased price?

Question4: Many people argue that giving patents for medicines is unfair, because it prevents many people from accessing the products they need to live a healthy life. Why do governments allow patents for medicines?

Question5: In which situation would it be appropriate to use time-series data?

Question6: A city planner believes that as people's income rises, they are less likely to travel to work using public transportation or carpools. To see whether this belief is substantiated, the city planner gathers data from the 50 U.S. states on mean household income (in thousands of dollars) as well as the percent of people who take public transportation or carpool to work. The results for this regression are given below.

Which of the following Excel formulas would correctly forecast the dependent variable for a state with a mean household income of $37,000?

Question7: Exhibit:

A recent graduate is interested in investing in a stock. This individual is particularly interested in retail companies and has been following two companies closely for the past year. In order to decide which stock to invest in, this individual decides to compare monthly returns for both companies over the past year. A table of descriptive statistics is given below. What can be said about Company A regarding risk and average returns in relation to Company B?

Question8: After some recent problems regarding the anti-lock brake systems in its cars, a major automobile company decides to take a random sample of 50 cars from its manufacturing plant. To make things easier, management decides to conduct the sampling from all cars produced on a particular day. Which of the options below represents the BEST way to take this sample?

Question9: A journalist believes that it is possible to predict the number of Winter Olympic medals a country will win by analyzing the country's gross domestic product (GDP) per capita in the year prior to the Olympics. The journalist collects data on the 26 countries that won medals at the 2010 Winter Olympics and performs a regression analysis. The results for this regression are provided below.

Based on the model's coefficients, by how many thousands of dollars does GDP per capita in a country need to increase on average in order for the country to win one more Winter Olympic medal?

Question10: A financial planning software company has earned large profits for the past four years, attracting new entrants to the market. What effect does the new competition have on the original company's market?

Question11: In the figure below, what do the two red lines represent?

Question12: The data below is a sampling of the percentage of smokers in a country's population.
Suppose an additional country were added to the data with a smoking rate of 22.5%.

How would the mean and median be affected?

Question13: A recent recession greatly reduced income for many people. Which of the following goods likely saw the greatest reduction in willingness to pay (WTP)? (Select all that apply.)

Question14: Current and quick ratio formulas are similar, except that for the quick ratio an analyst will subtract which account from the numerator (current assets)?

Question15: Which of the following options is an example of an implicit transaction?

Question16: Which of the following graphs shows a negative relationship between the two variables?
A)

B)

C)

D)

Question17: After a small country begins permitting the import of automobiles, a foreign automobile manufacturer begins shipping cars to the country. This manufacturer can produce cars much more cheaply than the only manufacturer located in the country and therefore enjoys significant profits. What will erode the profits for the foreign manufacturer?

Question18: An entrepreneur starts a new business by opening a bank account in the name of this business and making a capital contribution of $10,000 from a personal savings account. This action would impact the accounting equation by increasing assets and:

Question19: A technology and design company has created a new type of keyboard with different letter placement to make typing easier and more efficient. This new design is also cheaper to manufacture, and the company is able to price the keyboard lower than its competitors. However, sales have been extremely low. What is the MOST likely explanation?

Question20: The equilibrium quantity of sugar decreases, and the equilibrium price increases. Which of the following events would definitely result in these changes in the market for sugar?

Question21: A restaurant that sells hamburgers is considering lowering prices to gain market share. The restaurant pays $3,000 a month for the building it occupies, and ingredients and labor cost $2.50 per hamburger. If the restaurant expects to sell 2,000 hamburgers a month, what is the minimum price it could charge?

Question22: When forecasting monthly cash flows, which of the following businesses would be MOST impacted by seasonality?

Question23: A professional football team is considering adding two more games to its season. Which of the following costs should team owners NOT consider when making this decision?

Question24: In finance, beta is a measure of the systematic risk of a security in comparison to the market as a whole. Beta can be found by running a regression analysis of the monthly returns of the security versus the monthly returns of the general market. The regression output table below shows the relationship between Boeing's monthly returns and the monthly returns of the Standard and Poor's 500 (S&P 500) which is a stock market index of 500 large companies.

If beta is the average change in Boeing's monthly returns as the monthly returns of the S&P 500 increase by one, what is Boeing's beta?

Question25: Which of the following options is an example of a biased question? (Select all that apply.)

Question26: The owner of a small bakery is interested in forecasting the bakery's total sales for a certain date. The owner believes that sales on a given day are influenced by the day's highest temperature (in degrees F) and whether the day falls on a weekend (Saturday or Sunday). A random sample of 60 days is taken from November 2013 to May 2014; the regression results are given below. If the high temperature for tomorrow, a Thursday, is forecasted to be 60 degrees F, what does the model predict the total sales will be?

Note that the weekend dummy variable takes a value of one for Saturday and Sunday and zero otherwise.

Question27: A producer of high-end watches has a willingness to sell of $1,000. After a recession occurs, willingness to pay (WTP) for high-end watches drops to $900. What could the watch producer do to raise WTP for its good? (Select all that apply.)

Question28: A student wants to analyze the relationship between the percentage of the population in a given city with some college experience and the newspaper circulation in that city. College experience is defined as the percentage of adults in the city that have completed high school and taken some classes at the college level. The appropriate data were collected and a regression analysis was performed, the results of which are displayed below.

Assuming a 5% significance level, what can be said about the relationship between newspaper circulation and the percent of the population with some college experience?

Question29: Individual orange farmers in a country decide to pool their advertising money and collectively release a new series of advertisements for oranges. Why would the farmers do this?

Question30: An organization focused on decreasing HIV in developing countries wishes to investigate the relationship between the prevalence of HIV and various education and economic factors. The organization collects data from 2011 for 98 different countries on the prevalence of HIV, as well as average years of schooling, gross domestic product (GDP) per capita, and health expenditures per capita, which they believe all have an impact on HIV prevalence. Which of the following options correctly runs the regression specified above?
A)

B)

C)

D)

Question31: Most patients who need organ transplants rely on donors, as the buying and selling of organs is illegal. If a country legalized the buying and selling of organs, what would be the result?

Question32: A study was conducted to examine the relationship between age, education level, number of minor legal offenses, daily alcohol consumption, and annual income.

Based on the regression output below, what is the 95% confidence interval of the variable that has the highest statistical significance?

Question33: A group of season ticket holders wants to forecast what the total attendance at National Football League (NFL) games will be next season. A study by the US Census Bureau predicts that the total US population next year will be 310.738 million and the percent change in disposable income per capita will be 1.0%.

Based on the regression output below, which of the following figures is the MOST accurate prediction for total NFL attendance next season?

Question34: Which of the following formulas is used to calculate operating income on the income statement of a manufacturing company?

Question35: A company that does business in two neighboring countries is considering setting different prices for its product in each market. Which of the following factors should it NOT consider when trying to predict whether this pricing structure will be effective?

Question36: A company's Balance Sheet for the year ended Dec. 31, 2013 is as follows:

(In millions)
The company is MOST likely in which of the following industries?

Question37: A city concerned about its youth unemployment rate decided to offer a new vocational training program in the hopes of decreasing youth unemployment. Before the program began, the youth unemployment rate was 18%. Four years after the program began, the rate had fallen to 14%.
What is the correct null and alternative hypothesis pair for this situation?

Question38: If an analyst looks at a start-up's statement of cash flows for the past three years, it is MOST likely that the analyst will find:

Question39: A company had the following liabilities on Dec. 31, 2013:

What amount should the company report as current liabilities on its Dec. 31, 2013 balance sheet?

Question40: The only bakery in a small town has introduced a new type of cookie and is not sure what demand for the cookie looks like. How could the bakery determine the marginal revenue earned by each additional cookie produced?

Question41: Which of the following items would be considered a relevant cash flow for capital budgeting purposes?

Question42: Which of the following histograms, each with nine observations, has a median of five? A)

B)

C)

D)

Question43: Why would an entrepreneur want to operate a mobile food truck instead of a restaurant?

Question44: Topic 1, Business Analytic
Exhibit:

Based on the scatterplot below, which of the following correlation coefficients BEST describes the relationship between undergraduate GPA and beginning annual salary?

Question45: The owner of a small bakery wants to analyze the effect of certain variables on total sales. The owner takes a random sample of 60 days between November 2013 and June 2014 and records the total sales for that day, the highest temperature that day, and whether that day was a Saturday or Sunday. A portion of that spreadsheet is provided below.

Which cell ranges contain the dependent and independent variables in this regression model?

Question46: The management of Company A, a consumer products company, is forecasting revenue as part of their internal budget exercise. Which of the following factors is of the LEAST value in arriving at the forecast revenue amount?

Question47: A hurricane has recently destroyed a major oil supplier's oil rig located in the Gulf of Mexico. If price elasticity of demand for oil is 0, what effect would the hurricane have on the short-term market for oil?

Question48: In order to predict an employee's probability of success at work, a company requires employees to complete a test that measures Intelligence Quotient (IQ) and Emotional Intelligence Quotient (EQ). A new manager at the company believes that the probability of being successful at work is closely related to an employee's Reputation Quotient (RQ).

Based on the two regressions outputs below, does adding the RQ component help forecast the probability of being successful at work?

Question49: A nutritional study is released that touts the benefits of eating cereal for breakfast. Concurrently, a new type of grain is invented that reduces the input costs in producing cereal. What will happen to the equilibrium price and the quantity consumed of bananas, a complement to breakfast cereal?

Question50: A company had beginning total owners' equity of $350,000. During the year, the company raised $80,000 by issuing new shares of common stock. The net income of current year is
$120,000. No dividend was declared or paid during the year. What is the amount of total owners' equity the company should report on its end-of-year balance sheet?

Question51: What is the set of accounting standards most commonly used by companies outside the US?

Question52: An on-demand taxi service guarantees that it can provide a taxi in five minutes or less. If the service has a fixed number of taxis, how can it most cheaply guarantee "five minutes or less" during busy periods?

Question53: The electric car market is expected to grow significantly over the next few years due to new technologies making electric cars more affordable. Which of the following types of companies would MOST likely benefit from the substitution of electric cars for traditional vehicles?

Question54:
Which of the following situations requires dummy variables to be used in the regression model?

Question55: A company's retained earnings on Dec. 31st, 2009 to 2013 is as follows:

On the pro-forma income statement for 2014, the net income is $10,000. The expected dividends to be paid in 2014 is $3,500. What is the projected retained earnings on Dec. 31st, 2014?

Question56: An individual has an extremely rare item and intends to sell it via an English (open outcry) auction. In which situation should the seller forgo the auction and sell the item for a fixed price?

Question57: Which of the following activities will cause assets and owner's equity to decrease?

Question58: An athletic shoe company is trying to establish a stronger brand identity with consumers. Its objective is to first understand, broadly, how consumers value its brand compared to its
competitors and then determine how much consumers value specific features of its competitors' products. Which of the following approaches would be MOST effective in gathering this information?

Question59: Which of the following businesses is LEAST likely to locate its stores close to its competitors' stores?

Question60: A company reported the following information for 2013:

During 2013, the company purchased new inventory of $160,000. What amount should the company report as cost of goods sold on its 2013 income statement?

Question61: After thorough market research, a company discovers that there are three well-defined customer segments for a new product it plans to release. Customer segment A represents young professionals, who each have a willingness to pay (WTP) of $45. Customer segment B represents college students, who each have a WTP of $25. Customer segment C represents mid-career professionals, who each have a WTP of $100. What price should the company charge for its new product in order to maximize revenues? Assume that each customer segment has the same number of individual customers.

Question62: A new smartphone is being released at a price of $100. A customer with a willingness to pay (WTP) of $105 walks to the store, sees that there is a long line, and decides to leave. Another customer with a WTP of $113 arrives at the store at the same time and decides to wait in the line. What can an observer deduce from this observation?

Question63: What is the first item that is usually forecasted when projecting financial statements?

Question64: A doctor wants to predict the probability that a woman develops breast cancer based on her age, race, and diet. Which of the following statistical tools is the MOST suitable for this study?

Question65: A company had the following trial balance on Dec. 31, 2013:

What is the company's net income for 2013?

Question66: The histogram below shows the Industrial Production Index, which measures the output of the manufacturing, mining, and utilities industries for 34 selected countries. After confirming that the data are accurate, economists studying the results are debating how to handle the value for Iceland, 187.4.

The economists are determined to present the most accurate depiction of the data for all 34 countries. Which of the recommendations below is BEST?

Question67: In an automobile manufacturing factory, selected cars are subjected to a crash test to ensure they meet baseline safety requirements. The null hypothesis of the crash test is that all cars are safe. The manufacturer aims to guarantee that all cars it sells meet the safety requirements. Which type of error is MORE serious for the automobile manufacturer?

Question68: A student gathers information and performs a regression analysis comparing a person's undergraduate GPA to that person's starting salary after college graduation.

Based on this regression, what would a student with a GPA of 3.67 expect to earn on average upon college graduation?

Question69: An individual surveys 15 people under the age of 40 and asks for their current salary. The resulting histogram is shown below.

How many of those surveyed earn less than or equal to $50,000 a year?

Question70: Why are prices typically higher when a firm has monopoly power than when firms are perfectly competitive?

Question71: Company B is evaluating whether to repair or replace a piece of plant equipment. Which of the following factors would NOT be taken into consideration when determining the relevant cash flows?

Question72: Company A is projecting a 10 percent increase in revenue for the next quarter with no significant changes to their operations. Which of the following accounting elements is the LEAST likely to mirror that increase?

Question73: A company is considering a project to develop a nascent technology to harness energy from ocean waves but wants to determine its economic viability. This 10-year project will cost the company $10 million in research and development costs and $25 million to build infrastructure. Each megawatt of energy costs $60 to produce, but the government offers a subsidy of $5 permegawatt. The price per megawatt of energy will be $56 for the next five years, and the company expects to produce 1 million megawatts per year. Ignoring the time value of money (i.e. assuming cash flows across different years are directly comparable), if costs, output, and subsidies remain constant, what will the market price of a megawatt of energy need to be in years six through ten to make this project economically viable?

Question74: A regulatory agency decides to enforce a price ceiling equal to marginal cost for a local utility provider which acts as a monopoly. Which of the following observations is true?

Question75: Which of the following scenarios is an example of a Type I error?

Question76: On an income statement, net sales minus cost of goods sold equals:

Question77: A ski coach is interested in estimating the 68% confidence interval around the mean time (in seconds) of all the gold medal winners in Olympic downhill skiing. The coach collects the data, presented below, for all of the winners from 1948 to 2014. The mean of the sample is 122.5 seconds, with a standard deviation of 23 seconds. Which Excel function below is the BEST option for determining the 68% confidence interval?

Please note that the Excel functions for confidence intervals are =CONFIDENCE.NORM(alpha, standard_dev, size) and =CONFIDENCE.T(alpha, standard_dev, size).

Question78: A DVD manufacturer is considering shutting down its production facility and only selling its movies through digital downloads. The company has signed a contract to pay $3,000 a month for its production facility for the next three years. If the company continues to sell its movies as DVDs, it is projected to earn $8,500 in revenue and spend $3,500 in variable costs each month. Variable costs for the digital downloads are 0. Under what circumstances should the company switch to selling digital downloads?

Question79: Which of the following scatterplots shows the strongest positive linear relationship? A)

B)

C)

D)

Question80: Which of the following methods for valuing and expensing inventory is NOT allowed under the International Financial Reporting Standards (IFRS)?

Question81: The government decides to set a price ceiling on corn. The price ceiling is set 10% above the equilibrium price. What would be the result of this government action?

Question82: A cafe located near a university used to only sell one type of coffee for $1.50 a cup. It decided to start selling a new premium cup for $2.50 while still keeping its standard coffee at $1.50. What recent event might have prompted this new product offering?

Question83: A bank provided a $30,000 loan to fund a start-up. After six months, the new business paid
the loan off. How would the start-up record the latter transaction in its accounting books? (Ignore interest).

Question84: In a two-sided hypothesis test for a population mean, which of the following statements provides sufficient evidence to reject the null hypothesis at the 5% significance level?

Question85: The graph below reflects which of the following situations in the market for apples?

Question86: The media discovers that an automobile manufacturer has been secretly polluting the rivers near its plants. After this discovery, the government imposes a punitive fee on the company, and a group of consumers begins to boycott the manufacturer. What will be the total effect of these simultaneous events?

Question87: Which of the following transactions is presented in the above journal entry?

Question88: The Beveridge curve displays the relationship between the unemployment rate and the job vacancy rate (the number of unfilled jobs divided by the labor force). A government official wants to forecast the job vacancy rate for next month to see whether jobs posted now are likely to be filled. The official runs a simple regression using monthly U.S. data from 20012013; the results are given below.

If the unemployment rate next month is expected to be 6.6% and the vacancy rate this month was 2.58%, by how much is the vacancy rate forecasted to change? Note that percentages are given as values between 0 and 1.

Question89: On July 1st, a company paid $12,000 for an annual insurance policy covering the month of July through the following June. Which of the following statements reflects how this payment would be recorded on July 1st under the accrual method?

Question90: A student is deciding whether to attend a two-year graduate school program. The tuition is $12,500 per year and the cost of books and supplies is an additional $1,000 per year. The studentcould work instead of going to graduate school and earn $50,000 per year. What is the economic cost of attending graduate school for the student?

Question91: A chain of coffee stores recently released a new product priced at $3.00. After a few weeks of sales data, management noticed that the new product sold out in a majority of its stores. Which of the following strategies should management use to determine an ideal price?