Under the Sarbanes-Oxley Act of 2002, which of the following statements is correct regarding an issuer's audit committee financial expert?
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1 .A firm that designs its cost structure to include a higher degree of operating fixed costs than variable costs by electing to pay salaries instead of commissions, is magnifying the impact of each additional sales dollar using the concept of:
A Operating leverage. B Fixed leverage. C Financial leverage. D Combined leverage.
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A The AICPA and state CPA societies can sanction their members and, in addition, can suspend or permanently revoke a CPA's license. B The Joint Trial Board of the AICPA can expel a member by majority vote. C The AICPA cannot suspend or terminate membership for failure to pay dues but can suspend or ...
3 .The target capital structure of Traggle Co. is 50% debt, 10% preferred equity, and 40% common equity. The interest rate on debt is 6%, the yield on the preferred is 7%, the cost of common equity is 11.5%, and the tax rate is 40%. Traggle does not anticipate issuing any new stock. What is Traggle's weighted-average cost of capital?
A 7.10% B 6.77% C 6.50% D 8.30%
4 .Which of the following bodies has the authority to suspend or revoke a CPA's license for acts discreditable to the profession?
A The Public Company Accountancy Oversight Board. B The state society of certified public accountants. C The American Institute of Certified Public Accountants. D The state board of accountancy.
5 .Larson Corp. issued USD20 million of long-term debt in the current year. What is a major advantage to Larson with the debt issuance?
A The increased financial risk resulting from the use of the debt. B The reduced earnings per share possible through financial leverage. C The relatively low after-tax cost due to the interest deduction. D The reduction of Larson's control over the company.
7 .Youngsten Electric is contemplating new projects for the next year that will require USD30,000,000 of new financing. In keeping with its capital structure, Youngsten plans to use debt & equity financing as follows:? Issue USD10,000,000 of 20-year bonds at a price of 101.5, with a coupon of 10%, and flotation costs of 2.5% of par value.? Use internal funds generated from earnings of USD20,000,000.The equity market is expected to earn 15%. U.S. treasury bonds currently are yielding 9%. The beta coefficient for Youngsten's common stock is estimated to be 0.8. Youngsten is subject to a 40% corporate income tax rate. Youngsten has a price/earnings ratio of 10, a constant dividend payout ratio of 40%, and an expected growth rate of 12%.Assume Youngsten has an after-tax cost of debt of 9% and an after-tax cost of equity of 15%. Youngsten's weighted average cost of capital is:
A 13.0% B 11.0% C 11.8% D 12.0%
8 .The Sarbanes-Oxley Act of 2002 requires that the officers of a corporation be held accountable to a code of ethics. According to the Act, codifications of ethical standards should include provisions for all of the following, except:
A Honest and ethical conduct. B Full, fair, accurate, and timely disclosure in periodic financial statements. C Prompt internal reporting of code provisions and accountability for adherence to the code. D Compliance with laws, rules, and regulations.
9 .A company has two divisions. Division A has operating income of USD500 and total assets of USD1,000. Division B has operating income of USD400 and total assets of USD1,600. The required rate of return for the company is 10%. The company's residual income would be which of the following amounts?
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10 .Arnold Astor, CPA, is a local tax practitioner who has been asked to sit on the Board of BigLarge Corporation, a multinational issuer. Astor has never had any involvement either as an employee or as an auditor with publicly traded companies but does teach an accounting principles class at the community college. Under the provisions of the Sarbanes-Oxley Act of 2002:
A The audit committee would immediately certify Astor's qualifications as a financial expert based on his CPA license and academic experience with GAAP and experience with internal control. B Astor qualifies as a financial expert based on achievement of a CPA certificate. C Astor must petition the S...
