Bec 3 - Cpa Exam

Reviewed by Editorial Team
The ProProfs editorial team is comprised of experienced subject matter experts. They've collectively created over 10,000 quizzes and lessons, serving over 100 million users. Our team includes in-house content moderators and subject matter experts, as well as a global network of rigorously trained contributors. All adhere to our comprehensive editorial guidelines, ensuring the delivery of high-quality content.
Learn about Our Editorial Process
| By Thames
T
Thames
Community Contributor
Quizzes Created: 6820 | Total Attempts: 9,511,149
| Questions: 28
Please wait...
Question 1 / 28
0 %
0/100
Score 0/100
1. What is the formula for calculating working capital?

Explanation

The correct formula for calculating working capital is to subtract current liabilities from current assets. Working capital provides a measure of a company's operational efficiency and short-term financial health.

Submit
Please wait...
About This Quiz
Bec 3 - CPA Exam - Quiz

2011 notes

2. What are relevant cash flows?

Explanation

Relevant cash flows refer to the cash flows that are essential for decision-making and are typically the cash flows that will actually be received or expended by the company.

Submit
3. Describe the treatment of an asset sale.
Submit
4. What are some methods used in Discounted Cash Flow (DCF) valuation?
Submit
5. Describe the net present value calculation.

Explanation

The correct answer provides a step-by-step guide on how to calculate the net present value, taking into account after-tax cash flows, depreciation benefits, and the present value of an annuity. The incorrect answers either provide a general misunderstanding of NPV or incorrectly state the calculation method.

Submit
6. What is a limitation of the Discounted Cash Flow method?

Explanation

The correct answer highlights a key limitation of the DCF method, which is the unrealistic assumption of a constant growth rate. The incorrect answers provide statements that do not accurately reflect the challenges associated with using DCF for decision-making in finance.

Submit
7. What does the payback period method measure?

Explanation

The payback period method is specifically used to determine the time it will take for an investment to recoup the initial cost. It focuses on liquidity and recovery of investment rather than profitability, debt levels, or market share.

Submit
8. When is the payback period method typically used?

Explanation

The payback period method is mainly employed to assess investments based on the time it takes to recover the initial investment, making it particularly useful for evaluating risky investments.

Submit
9. What are the advantages and limitations of the Payback Method?
Submit
10. What is the objective of the Net Present Value Method (NPV)?
Submit
11. What is a hurdle rate?

Explanation

The hurdle rate is a critical concept in finance used by companies to determine the minimum acceptable rate of return on investment projects. It helps management make informed decisions about allocating capital for different investments.

Submit
12. How does the NPV method handle changes in risk?

Explanation

The NPV method allows for flexibility in adjusting discount rates for different time periods based on changes in risk, making it a valuable tool for evaluating investments with varying levels of risk.

Submit
13. What are the advantages and limitations of the NPV method?
Submit
14. What are the steps to calculate the internal rate of return?
Submit
15. What are the limitations of IRR?

Explanation

The limitations of IRR include unreasonable reinvestment assumption, inflexible cash flow assumptions, and evaluating alternatives solely based on interest rates. This means IRR does not always provide a clear choice between investments, is affected by the size of the initial investment, and does not consider the risk involved.

Submit
16. What is the Profitability Index used for?

Explanation

The Profitability Index is specifically used to evaluate potential capital investments by comparing the present value of net future cash inflow to the present value of net initial investment. This ratio helps in prioritizing projects based on their profitability.

Submit
17. What are the steps needed to reach a decision?

Explanation

The steps provided in the correct answer ensure a thorough and systematic approach to decision-making, considering strategic issues, analyzing costs, identifying alternatives, selecting the best course of action, and evaluating performance for feedback. The incorrect answers go against these principles by advocating for hasty decisions, overlooking alternatives, and disregarding analysis.

Submit
18. What is the relevant data concept?

Explanation

The relevant data concept in decision-making involves considering future revenues and costs that change based on different alternatives, as these are the key factors influencing choices. The incorrect answers provided do not align with the correct understanding of relevance in data analysis.

Submit
19. What are the relevant costs?

Explanation

Relevant costs are those costs that are applicable to a specific decision and can be directly traced to a particular activity. Direct costs, prime costs, and discretionary costs are examples of relevant costs, while sunk costs, fixed costs, and variable costs are not considered relevant in decision-making.

Submit
20. Define direct costs.

Explanation

Direct costs are costs that can specifically be attributed to a particular cost object and are usually variable in nature.

Submit
21. Define Prime Costs.

Explanation

Prime costs specifically refer to direct costs of production, such as direct material and direct labor, and are directly related to the production process.

Submit
22. Define Discretionary Costs.
Submit
23. Define avoidable costs.

Explanation

Avoidable costs are costs that can be eliminated by choosing a particular course of action. They are relevant for decision-making purposes as they can be changed by selecting an alternative option. Not relevant costs, sunk costs, and absorption costs are not considered avoidable costs because they are either non-essential, historical, or allocated fixed manufacturing overhead costs.

Submit
24. Define Objective probability.

Explanation

Objective probability differs from subjective probability as it relies on concrete data and historical evidence rather than individual perspectives or opinions. The incorrect answers provide contrasting examples to highlight the distinction.

Submit
25. Define Subjective Probability.

Explanation

Subjective probability differs from objective probability in that it is based on personal beliefs rather than scientific evidence. Conditional probability and statistical probability are distinct concepts within the realm of probability theory, having specific conditions or datasets respectively.

Submit
26. Define Expected Value.

Explanation

Expected value represents the average outcome when an experiment is repeated multiple times. It is calculated by multiplying each possible outcome by its probability of occurrence and summing up these values.

Submit
27. How is the Expected Value calculated?

Explanation

The correct way to calculate the Expected Value is by multiplying the probability of each outcome by its payoff and then summing the results. This takes into account both the probabilities and payoffs of different outcomes to determine the overall expected value.

Submit
28. What are the advantages/disadvantages of Short term and Long term debt?

Explanation

This question tests the understanding of the advantages and disadvantages of short term and long term debt, requiring knowledge of the differences in terms of repayment periods, interest rates, and flexibility.

Submit
View My Results

Quiz Review Timeline (Updated): Aug 4, 2025 +

Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.

  • Current Version
  • Aug 04, 2025
    Quiz Edited by
    ProProfs Editorial Team
  • Aug 04, 2025
    Quiz Created by
    Thames
Cancel
  • All
    All (28)
  • Unanswered
    Unanswered ()
  • Answered
    Answered ()
What is the formula for calculating working capital?
What are relevant cash flows?
Describe the treatment of an asset sale.
What are some methods used in Discounted Cash Flow (DCF) valuation?
Describe the net present value calculation.
What is a limitation of the Discounted Cash Flow method?
What does the payback period method measure?
When is the payback period method typically used?
What are the advantages and limitations of the Payback Method?
What is the objective of the Net Present Value Method (NPV)?
What is a hurdle rate?
How does the NPV method handle changes in risk?
What are the advantages and limitations of the NPV method?
What are the steps to calculate the internal rate of return?
What are the limitations of IRR?
What is the Profitability Index used for?
What are the steps needed to reach a decision?
What is the relevant data concept?
What are the relevant costs?
Define direct costs.
Define Prime Costs.
Define Discretionary Costs.
Define avoidable costs.
Define Objective probability.
Define Subjective Probability.
Define Expected Value.
How is the Expected Value calculated?
What are the advantages/disadvantages of Short term and Long term...
Alert!

Advertisement