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Practice Test 11 - CPA Bar

20 questions. Answer them in any order, then submit to see your score and every explanation.

  1. Clearview Division Y reports NOI of $180,000, operating assets of $900,000, and a required rate of return of 12%. What is Division Y's residual income?
  2. A project has an NPV of $25,000 at a 10% discount rate and an NPV of -$8,000 at a 15% discount rate. Using linear interpolation, what is the approximate IRR?
  3. A company's IT department has unrestricted access to modify transaction records in the accounting system with no review, logging, or approval requirement. This represents which type of control risk?
  4. A company's WACC is 9% and a proposed project has an expected IRR of 12%. An analyst endorses the project. A second analyst notes the project has unconventional cash flows: a large positive cash flow in Year 1 followed by large negative cash flows in Years 2-4. Which concern does the second analyst raise?
  5. A company has ROE of 18% and a dividend payout ratio of 35%. Using the approximate sustainable growth rate formula (ROE x retention ratio), what is the sustainable growth rate?
  6. Analysis shows 30% of SKUs generate 85% of revenue and 90% of gross profit, while 70% of SKUs generate 15% of revenue and 10% of gross profit but consume 60% of operational overhead. Which recommendation is best supported by this data?
  7. A public company, Vertex Medical Devices, reports profitability ratios while launching a new product subject to initial warranty claims. Gross margin (FY2023: 54%; FY2024: 52%; FY2025: 49%) and operating margin (FY2023: 18%; FY2024: 16%; FY2025: 11%). Research and development expense as a percent of sales increased from 9% to 12% over the period. What does the trend in profitability ratios suggest about company performance?
  8. A manufacturing plant produces a new line of custom notebooks. Machine depreciation for the binding machine is $4,000 per month and does not change with units produced within normal capacity. For product cost classification, what is the correct classification of this depreciation cost with respect to the notebook line?
  9. A budget model is highly sensitive to market growth: at 8% growth, operating income is $2,000,000; at 4% growth, it falls to $800,000; at 0% growth, it becomes a $400,000 loss. Which analytical response is most appropriate?
  10. A company's current ratio improved from 1.1 to 2.8 in a single quarter. The improvement was achieved by drawing on a long-term revolving credit facility maturing in 36 months to pre-pay long-term debt that had been reclassified as current due to a covenant violation. Which concern does this raise?
  11. A manufacturer relies on a single supplier for a critical component, produced in one factory in a hurricane-prone region. Which action most directly addresses this supply chain concentration risk?
  12. You are a newly licensed CPA at a governmental entity performing an operational performance evaluation of a permit-processing unit. Historical monthly average days to issue permits over the last 12 months decreased from 18 to 12 days, while staffing levels remained stable; management asks whether the improvement is sustained to inform a service-level commitment. Based on the data provided, which trend analysis conclusion is most accurate?
  13. An analyst benchmarks a company against its industry and finds: current ratio above average, inventory turnover below average, and DSO above average, with gross margin in line with peers. Which interpretation is most analytically cohesive?
  14. Using the same base case (revenue $3,000,000, fixed costs $700,000), if the variable cost ratio increases from 60% to 65% while all other assumptions remain constant, what is operating income?
  15. After its risk assessment, a company determines that a potential new venture in a politically unstable country has an unacceptably high level of risk. The company's board of directors decides to cancel the project entirely before any significant investment is made. This risk response is best described as:
  16. A company consistently reports large unfavorable direct labor efficiency variances each period despite no unusual operational disruptions. Investigation reveals the current standard was derived from time-and-motion studies conducted under ideal conditions with no machine downtime or material delays. Which of the following corrective actions is most appropriate?
  17. What is the minimum selling price per unit that Davenport should accept for this special order to increase its overall profit?
  18. The primary purpose of internal management reports is:
  19. A public media company is evaluating a new debt issuance and wants to compare leverage to peers. Selected year-end data (in millions): Total liabilities 420; Total equity 350. Debt-to-equity is 420/350 = 1.20; industry benchmark is 0.80. How does the debt-to-equity ratio reflect the company's solvency position?
  20. A company has a customer acquisition cost (CAC) of $120 and an average customer lifetime value (LTV) of $480. What is the LTV-to-CAC ratio?

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