Level I Pop Quiz Answers

Quiz #148: Level I: Corporate Finance- Leverage, Dividends and Share Repurchases, and Working Capital Management

Question 1

The degree of operating leverage of a company is equal to 1 when:

  • The total contribution margin is equal to the earnings before interest and taxes (EBIT).
  • The fixed costs are zero.
  • The sales exceed the operating income by the amount of fixed costs.
Correct Answer B.

The degree of operating leverage is 1 when fixed costs are zero.

Incorrect
Question 2

MRM Enterprises has a current ratio of 3.0, current assets of $3,000,000, and inventory of $300,000. What is the quick ratio?

  • 0.33
  • 0.70
  • 2.70
Correct Answer C.

Current ratio = Current assets/current liabilities

Current liabilities = $3,000,000/3.0 = $1,000,000

Quick ratio = (3,000,000 – 300,000)/1,000,000 = 2.7

Incorrect
Question 3

A 270-day U.S. T-bill with a par value of $1,000 is issued at a discount of 6%. Its discount basis yield is closest to:

  • 6.28%
  • 6.00%
  • 6.37%
Correct Answer B.

Purchase price = Face value – Unannualized discount

Purchase price = 1,000 – (0.06 × 1,000 × 270/360) = $955

Discount basis yield = [(Face value – Price) / Face value] × (360 / Days till maturity)

Discount basis yield = [(1,000 – 955) / 1,000] × (360 / 270) = 6.00%

Incorrect
End of quiz

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