EMT Practice Test

1. Question Content...

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Question1: Company A has a Weighted Average Cost of Capital (WACC) of 12 percent. They are evaluating four different projects/investments with financial flows as described below. Available funds are limited, so they can only pursue one of the investment alternatives. Each project/investment involves an initial outflow of $1,000,000 and has an eight year life.

Which project should they select?

Question2: A researcher wants to determine the relationship between the number of sea-turtles and the depth of the ocean.

Based on the data below, select the correct columnsfor the Excel regression inputranges.
(Select all that apply.)

Question3: What is the main difference between the US Generally Accepted Accounting Principles (US GAAP) and the International Financial Reporting Standards (IFRS)?

Question4: 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:

Question5: A study was conducted to examine the effect of age, education level, number of minor legal offences, and daily alcohol consumption on annual income.

Which of the following hypothesis tests is NOT conducted in the multiple linear regression output table?

Question6: Which of the following methods for valuing and expensing inventory is NOT allowed under the International Financial Reporting Standards (IFRS)?

Question7: What is the first item that is usually forecasted when projecting financial statements?

Question8: A researcher wants to predict an individual's starting monthly salary based on the number of years of education the individual has received.

Based on the Excel output below, what is the predicted starting monthly salary for a person with 17 years of education?

Question9: A pharmaceutical company was recently awarded a 20 year patent for a new medicine it has developed. Which of the following results could be a consequence of this patent? (Select all that apply.)

Question10: Why would an entrepreneur want to operate a mobile food truck instead of a restaurant?

Question11: Which of the following statements is characteristic of all assets?

Question12: What transaction is presented in the above journal entry?

Question13: A company believes a "low-cost" strategy would help increase revenues. The company lowers the price of its product but actually sees a decrease in revenues. What information could explain this result?

Question14: Deferred Taxes can be which of the following account types? (Select all that apply.)

Question15: A company reported pretax financial statement income of $420,000 for Year 1. Taxable income for Year 1 was $300,000 due to a temporary timing difference in depreciation expenses. The income tax rate is 30 percent. In its Year 1 balance sheet, the company should record a deferred tax:

Question16: Which of the following industries has the MOST competitors?

Question17: 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?

Question18: A new weather forecast predicts a storm for Saturday. On Saturday, there will be an outdoor soccer match and an indoor basketball game played. If sports fans enjoy all types of sports, what will happen to ticket sales for both games?

Question19: ---
A student is interested in which factors affect the U.S. poverty rate and develops a model using the following independent variables:
The unemployment rate The percent of the adult (over 25) population with at least a bachelor's degree The percent of the population without health insurance
The student collects data from each of the 50 states in the U.S. and Washington D.C. for the year 2012 and runs the regression in Excel. The results of this regression are given below. Based on these results, what does the model predict the poverty rate would be for a state for which the unemployment rate is 6%, 20% of all adults over 25 have at least a bachelor's degree, and 5% of the population does not have health insurance?

(Note that all percent values are given as numbers between 0 and 1.)

Question20: Which of the following measures can reduce multicollinearity in multiple regression? (Select all that apply.)

Question21: In which situation would it be appropriate to use time-series data?

Question22: Which of the following options is an example of a biased question? (Select all that apply.)

Question23: The graph below reflects which of the following situations in the market for apples?

Question24: 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.

Question25: 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?

Question26: A dance club earns revenues by charging an entry fee and then selling drinks to attendees. This pricing scheme is MOST similar to:

Question27: Which of the following companies could expect to have the fewest competitors? (Select all that apply.)

Question28: 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?

Question29: A college bookstore sells textbooks at a 15 percent discount to professors while successfully selling the same books at full price to students. What conditions are present so that the bookstore can charge different prices? (Select all that apply.)

Question30: A manager at an internet retailer wants to determine whether a recent change in the company's supply chain strategy has affected the amount of time it takes for an order to reach a customer. The historical average amount of time from placing the order to final delivery is 5.2 days. A random sample of 60 orders taken after the implementation of the new strategy indicates an average delivery time of 4.5 days with a standard deviation of 1.4 days. The manager wishes to perform a hypothesis test at a 95% confidence level. Which option represents the correct calculation for the range of likely sample means? Please note that the function for confidence intervals in Excel is =CONFIDENCE.NORM(alpha, standard_dev, size).

Question31: A landlocked student believes that people would prefer to live near the ocean if they could afford the additional expense. To test this, the student wants to see whether states bordering an ocean are more likely to have a larger percent of wealthy families than states without an ocean coast. The student collects data from the 50 U.S. states on the percent of families making over $200,000 a year along with whether the state has an ocean coast (where 1 means the state has an ocean coast).

Based on the regression results given below, what can be said at the 95% confidence level?

Question32: A company had the following trial balance on Dec. 31, 2013:

What is the company's net income for 2013?

Question33: In the figure below, what do the two red lines represent?

Question34: 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?

Question35: A serious drought has created a shortage of food across the country. In an attempt to maximize profits, one grocery store decided to auction off its limited supply of food. Which of the following scenarios is the MOST likely to occur in this situation?

Question36: An accountant pays $30,000 for inventory purchased on credit last month. This payment will impact the accounting equation by decreasing assets and:

Question37: Two years ago, the purchasing manager at a company spent $25,000 on a new machine that would improve production efficiency at the company. The manufacturers of the machine release an updated model that costs $35,000 and that promises to further improve production efficiency. Under what conditions should the purchasing manager upgrade to the new model?

Question38: Two competing companies sell very similar products that are manufactured in plants located near each other in the United States. Company A values inventory using last-in, first-out (LIFO) and uses accelerated depreciation for plant assets. Company B values inventory using first-in, first-out (FIFO) and uses straight-line depreciation. From this information, what conclusions can an analyst draw about the gross margin reported for the two companies?

Question39: A study is conducted to determine what factors drive used car prices. The study initially examined two variables: the make of the car and the number of miles driven on the car. Not surprisingly, the group commissioning the study found that there was a strong relationship between these two variables and price. In an attempt to explain more of the variation in price the researcher added a thirdvariable:the car's age (in years).A prior study had shown that age was a significant factor in explaining used car selling prices. When added to the new model, however, the group found that although adding age explained more of the variation in price, age was no longer significant when combined with the car's make and miles. This problem is an example of:

Question40: Which of the following options is an example of revenue?

Question41: The owner of a t-shirt store on a beach sells 200 shirts per month in the summer for a price of $15.00. During the winter months, the owner reduces the price to $9.00 and sells 100
shirts per month. The store must be leased in one-year increments at $400 per month in rent. The cost of labor, materials, and utilities are an additional $600 a month. Should the store remain open during the winter months?

Question42: A chain of grocery stores operates in two neighboring towns. The store in one of the towns charges five percent more than the other store for the same products. How can the company charge different prices and remain competitive?

Question43:
The data below represent the top 25 U.S. newspapers by average daily circulation (in thousands) in 2013. Based on the output, what is the standard deviation of this sample?

Question44: A company designs and sells premium jewelry primarily to wealthy professionals living in urban centers. This market is very competitive, and consumers often develop strong brand loyalty. The CEO of the company wants to increase sales. What is the MOST effective advertising strategy?

Question45: Company A owns properties that it leases for use as plant and office space. Company A received $120,000 on June 25 from Company B as a lease payment for use of a building for six months beginning July 1. What entry would Company A make on July 31?

Question46: A shop owner wants to determine the effect of a new marketing strategy on the number of customers visiting the shop. What information should the shop owner consider when deciding whether to conduct a one-sided or two-sided hypothesis testing?

Question47: 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?

Question48: An earthquake destroys a major manufacturing plant that produces sneakers. The manufacturing plant for rubber, a complementary good to sneakers, is unaffected by the earthquake. What is the result?

Question49: Which of the following options is the measure of how long it takes from the time a business has to pay for inventory from a supplier until it collects cash from the customer from a sale?

Question50: An online music streaming company has two subscription options:
1.Listen to unlimited music with five minutes of advertisements for every hour of music.
2.Pay a monthly fee and listen to unlimited music with no ads.
If a potential customer wants to subscribe to the company but is indifferent between options 1 and 2, the customer's willingness to pay (WTP) is:

Question51: Why are ratios important when comparing different companies within the same industry?

Question52: An apparel company is negotiating a new contract with one of its fabric suppliers. Under which of the following conditions will the apparel company have power to bargain for a lower price in the negotiations?

Question53: ABC Furniture Store recently hired a new salesperson and wished to examine how that affected the store's daily furniture sales. Prior to the new salesperson's hire, the store averaged $10,000 worth of sales per day with a standard deviation of $1,500. The store's manager took a random sample of 100 days after the salesperson's date of hire and found that the store averaged $11,500 worth of sales per day. Which of the following options would correctly calculate the 95% range of likely sample means for this hypothesis test? Note that the Excel function is: =CONFIDENCE.NORM(alpha, standard_dev, size)

Question54: The management of a company is evaluating a potential capital expenditure. They are
using a discount rate of eight percent. They decide to see what the impact would be of changing the discount rate to 10 percent. Which of the following measurements would change?

Question55: 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?

Question56: Which of the following financial statements is MOST useful in determining the capital expenditures of a company during the past year?

Question57: 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?

Question58: A group of season ticket holders wants to forecast attendance at National Football League (NFL) games for the upcoming season. One ticket holder argues that using the population of the United States as the only independent variable would explain as much as using both the United States population and the percent change in disposable income (per capita) as independent variables. Another ticket holder argues that using the percent change in disposable income (per capita) asthe only independent variable would provide the most accurate forecast. Listed below are the Adjusted R2 values for three regression models. Based on these values, and keeping in mind that the ticket holders are only concerned about forecasting, what is the correct conclusion?
- NFL Attendance vs. US Population and Percent Change in Disposable Income.
Adjusted R2= 0.8964 - NFL Attendance vs. US Population: Adjusted R2= 0.8609 - NFL Attendance vs. Percent Change in Disposable Income. Adjusted R2= -0.0244

Question59: For a standard normal distribution (=0, =1), the area under the curve to the left of 0.37 is 0.6443. What is the probability of getting a value less than -0.37 or greater than 0.37?

Question60: A researcher wants to know the impact that obesity and universal health care have on the amount a country spends on healthcare as measured by the percentage of gross domestic product (GDP). The researcher collects data from 30 countries on the percentage of the population considered to be obese and whether that country offers universal health care to their citizens. A dummy variable is constructed to measure the latter: the variable is set to equal 1 for countries that offer universal health care and 0 for those that do not. The researcher wishes to set up a regression analysis to measure the effects these two variables have on health care spending. A partial view of the data is shown below.

Based on the available data, what ranges should be entered into the Excel regression dialog box for the dependent and independent variables?

Question61: An executive at an insurance company has developed a new method for determining monthly rates for drivers insured by the company. Using a regression analysis of different factors, the executive has come to the conclusion that the two most important factors are the value of the carand the number of miles the driver lives from the city. The partial regression output table provided by the data is as follows:

Given this information, how much could a driver expect to pay per month for a car worth $45,000 located three miles from the city center?

Question62: Exhibit: Based on the histogram below of 28 nations' performances in the Winter Olympic games, in which bin would the median be located?

Question63: In Dec. of 2013, a company signed a promissory note and recorded a note payable of $150,000. This note is payable in three equal annual installments beginning from Dec. of 2014. How should the company report the note payable on its Dec. 31, 2013 balance sheet?

Question64: A product manager wants to predict a sales team's performance for the upcoming year based on the average price of the products the team sells and the number of staff members on the sales team. Team performance is measured on a scale from 0 to 100. The resulting regression equation is below:
Performance = 33.50 - 0.02(product price) + 0.79(number of staff members)
What is the predicted team performance for the upcoming year, given that the average price of products sold is forecasted to be $40, and there are 25 people on the sales team?

Question65: With normally distributed data, approximately 95% of all observations fall within how many standard deviations from the mean?

Question66: In which of the following scenarios would both the price and quantity sold of paperback books decrease?

Question67: Company A has been profitable for the past five years but the Retained Earnings reported on the financial statements has not grown. Which of the following statements could explain the situation?

Question68: 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.

Question69: Why are prices typically higher when a firm has monopoly power than when firms are perfectly competitive?

Question70: Although they may vary, cash flows from financing activities in a mature company are usually:

Question71: 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?

Question72: 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?

Question73: 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?

Question74: Which of the following options BEST exemplifies an unbiased question?

Question75: As of Dec. 31, 2013, a company had current assets of $600,000 and current liabilities of
$300,000. Sales of the company are expected to increase by 10 percent for each of the next two years. If all current asset and current liability accounts increase proportionately with sales, what would be the projected current ratio of the company on Dec. 31, 2015?

Question76: Which of the following scenarios is an example of a Type I error?

Question77: In calculating cash flows, which of the following scenarios would lead to a decrease in net working capital?

Question78: Which of the following options is an example of an expense?

Question79: A company bought a piece of land in 2012 for $200,000. In 2013, the piece of land temporarily reduced in value to $150,000 but then appreciated in value to $220,000. How would the company report this piece of land on its balance sheet for 2013?

Question80: 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?

Question81: A manager learns that the government is planning to add an excise tax on the product the company sells. After researching, the manager expects that total expenditures for the good will rise. Of the following goods, which does the company MOST likely sell?

Question82: 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?

Question83: 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:

Question84: The owner of a small hardware store learns that a large competitor is opening a store nearby. The new competitor has smaller profit margins on each unit than the small store but earns profits through larger volume. Which of the following techniques would BEST help the small store remain competitive?

Question85: Which of the following activities will NOT cause total assets to increase?

Question86: Company A is a large passenger airline. As part of their annual internal budget process they do a sensitivity analysis of their revenue forecast over their existing routes and schedules. The analysis evaluates the impact of a three percent decline in passenger revenue compared to a three percent increase. Which of the following expenses would show the largest change in the analysis?

Question87: Which of the following options impact the balances shown in the investing section of the statement of cash flows? (Select all that apply.)