Free Online CFA Level 1 Mock Exam 6

4. Which of the following is least likely to be a valuation ratio?

A. Quick ratio.

B. P/E ratio.

C. Diluted EPS.

Correct Answer: A

Answer Explanation:

The quick ratio is a liquidity ratio and not a valuation ratio.

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5. If leases were classified as operating leases rather than finance leases under U.S. GAAP, EBITDA and asset turnover would:

A. the same.

B. lower.

C. higher.

Correct Answer: B

Answer Explanation:

Earnings before interest, taxes, depreciation and amortization (EBITDA) margins would be lower because lease expenses are classified as operating expenses rather than interest and amortization. Asset turnover would be lower because the total assets under operating leases are higher because ROU assets are amortized more slowly in the initial years.

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Corporate Issuers

6. A company decreasing its credit terms for customers from 1/10, net 35, to 1/10, net 20, will least likely experience:

A. an decrease in cash on hand.

B. a lower level of uncollectible accounts.

C. an decrease in the average collection period

Correct Answer: A

Answer Explanation:

Lower credit conditions will lead to an increase in cash on hand.

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