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1) Management that wanted to increase financial leverage of its firm would:

i) Raise extra capital by selling common stock

ii) Use excess cash to buy favoured stock for treasury

iii) Raise extra capital by selling fixed interest rate long-term bonds

iv) Try to increase its ROI by increasing asset turnover

2) When firm has financial leverage:

i) ROI will be greater than ROE

ii) ROI will generally be less than it would be without leverage

iii) Risk is greater than if there is not any leverage

iv) Firm will always have higher ROE than it would without leverage

3) Knowledge about behaviour pattern of cost is significant to understanding effect on net income of change in sales volume as sales volume changes:

i) Net income will change proportionately

ii) Effect on net income will depend on the behaviour pattern of various costs

iii) Fixed costs will rise proportionately

iv) Variable costs will not change

4) Management accounting is:

i) Highly technical subject that people in personnel or engineering muts not be expected to understand

ii) Performed by individuals who rarely work with people in other functional areas of organization

iii) Principal activity involved in finding goals and objectives of entity

iv) Activity which gets involved with virtually all of other functional areas of the organization

5) When cost behaviour pattern has been identified as fixed at certain volume of activity:

i) Any change in volume will most likely cause cost to change

ii) It is suitable to express cost on per unit of activity basis

iii) Total cost will not change even if the volume of activity changes substantially

iv) Total cost may change if the volume of activity changes substantially

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M916582

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