Archive for August 2018

Which of the following capital budgeting techniques would allow management to justify investing in a project that could not be justified currently by using techniques that focus on expected cash flows?

Which of the following capital budgeting techniques would allow management to justify investing in a project that could not be justified currently by using techniques that focus on expected cash flows?




a. Real options.
b. Net present value.
c. Accounting rate of return.
d. Internal rate of return.


Answer: a

Andrew Corporation is evaluating a capital investment that would result in $30,000 higher contribution margin benefit with increased annual personnel costs of $20,000. In calculating the net present value of benefits and costs, income taxes would:

Andrew Corporation is evaluating a capital investment that would result in $30,000 higher contribution margin benefit with increased annual personnel costs of $20,000. In calculating the net present value of benefits and costs, income taxes would:




a. Decrease both the amount of the benefits and costs.
b. Have no net effect on either the amount of the benefits or costs.
c. Decrease the amount of the benefits but increase the amount of the costs.
d. Increase the amount of the benefits but decrease the amount of the costs.


Answer: a

A project's net present value, ignoring income tax considerations, is normally affected by the

A project's net present value, ignoring income tax considerations, is normally affected by the




a. Proceeds form the sale of the asset to be replaced.
b. Carrying amount of the asset to be replaced by the project.
c. Amount of annual depreciation on the asset to be replaced.
d. Amount of annual depreciation on fixed assets used directly on the project.


Answer: a

If an investment project has a profitability index of 1.15, then the

If an investment project has a profitability index of 1.15, then the




a. Project's internal rate of return is 15%.
b. Project's cost of capital is greater than its internal rate of return.
c. Project's internal rate of return exceeds its net present value.
d. Net present value of the project is positive.


Answer: d

According to the expectations theory, if the yield curve on the New York money market is upward sloping while that on the Tokyo money market is downward sloping, then inflation in

According to the expectations theory, if the yield curve on the New York money market is upward sloping while that on the Tokyo money market is downward sloping, then inflation in




a. The United States is expected to decrease.
b. The United States is expected to remain constant.
c. Japan is expected to decrease.
d. Japan is expected to remain constant.


Answer: c

The yield curve shown below implies that the

The yield curve shown below implies that the




a. Credit risk premium of corporate bonds has increased.
b. Credit risk premium of municipal bonds has increased.
c. Long-term interest rates have a higher annualized yield than short-term rates.
d. Short-term interest rates have a higher annualized yield than long-term rates.


Answer: c

Probability (risk) analysis is

Probability (risk) analysis is



a. Used only for situations involving five or fewer possible outcomes.
b. Used only for situations in which the summation of probability weights is greater than one.
c. An extension of sensitivity analysis.
d. Incompatible with sensitivity analysis.


Answer: c.

To assist in an investment decision, Gift Co. selected the most likely sales volume from several possible outcomes. Which of the following attributes would that selected sales volume reflect?

To assist in an investment decision, Gift Co. selected the most likely sales volume from several possible outcomes. Which of the following attributes would that selected sales volume reflect?



a. The midpoint of the range.
b. The median.
c. The greatest probability.
d. The expected value.


Answer: c.

Buff Co. is considering replacing an old machine with a new machine. Which of the following item is economically relevant to Buff's decision? (Ignore income tax consideration)

Buff Co. is considering replacing an old machine with a new machine. Which of the following item is economically relevant to Buff's decision? (Ignore income tax consideration)


Carrying amount of old machine / Disposal value of new machine



a. Yes / No
b. No / Yes
c. No / No
d. Yes / Yes


Answer: b.

Tam Co. is negotiating for the purchase of equipment that would cost $100,000, with the expectation that $20,000 per year could be saved in after-tax cash costs if the equipment were acquired. The equipment's estimated useful life is ten years, with no residual value, and would be depreciated by the straight-line method. Tam's predetermined minimum desired rate of return is 12%. Present value of an annuity of 1 at 12% for ten periods is 5.65. Present value of 1 due in ten periods at 12% is .322. In estimating the internal rate of return, the factors in the table of present values of an annuity should be taken from the columns closest to

Tam Co. is negotiating for the purchase of equipment that would cost $100,000, with the expectation that $20,000 per year could be saved in after-tax cash costs if the equipment were acquired. The equipment's estimated useful life is ten years, with no residual value, and would be depreciated by the straight-line method. Tam's predetermined minimum desired rate of return is 12%. Present value of an annuity of 1 at 12% for ten periods is 5.65. Present value of 1 due in ten periods at 12% is .322. In estimating the internal rate of return, the factors in the table of present values of an annuity should be taken from the columns closest to



a. 0.65
b. 1.30
c. 5.00
d. 5.65


Answer: c.

An organization is using capital budgeting techniques to compare two independent projects. It could accept one, both, or neither of the projects. Which of the following statements is true about the use of NPV and IRR methods for evaluating these two projects?

An organization is using capital budgeting techniques to compare two independent projects. It could accept one, both, or neither of the projects. Which of the following statements is true about the use of NPV and IRR methods for evaluating these two projects?



a. NPV and IRR criteria will always lead to the same accept or reject decision for two independent projects.
b. If the first project's IRR is higher than the organization's cost of capital, the first project will be accepted but the second project will not.
c. If the NPV criterion leads to accepting or rejecting the first project, one cannot predict whether the IRR criterion will lead to accepting or rejecting the first project.
d. If the NPV criterion leads to accepting the first project, the IRR criterion will never lead to accepting the first project.


Answer: a.

For the next two years, a lease is estimated to have an operating net cash inflow of $7,500 per annum, before adjusting for $5,000 per annum tax basis lease amortization, and a 40% tax rate. The present value of an ordinary annuity of $1 per year at 10% for two years is 1.74. What is the lease's after-tax present value using a 10% discount factor?

For the next two years, a lease is estimated to have an operating net cash inflow of $7,500 per annum, before adjusting for $5,000 per annum tax basis lease amortization, and a 40% tax rate. The present value of an ordinary annuity of $1 per year at 10% for two years is 1.74. What is the lease's after-tax present value using a 10% discount factor?



a. $2,610
b. $4,350
c. $9,570
d. $11,310


Answer: d.

Lin Co. is buying machinery it expects will increase average annual operating income by $40,000. The initial increase in the required investment is $60,000, and the average increase in required investment is $30,000. To compute the accrual accounting rate of return, what amount should be used as the numerator in the ratio?

Lin Co. is buying machinery it expects will increase average annual operating income by $40,000. The initial increase in the required investment is $60,000, and the average increase in required investment is $30,000. To compute the accrual accounting rate of return, what amount should be used as the numerator in the ratio?




a. $20,000
b. $30,000
c. $40,000
d. $60,000


Answer: c.

Tam Co. is negotiating for the purchase of equipment that would cost $100,000, with the expectation that $20,000 per year could be saved in after-tax cash costs if the equipment were acquired. The equipment's estimated useful life is ten years, with no residual value, and it would be depreciated by the straight-line method. Tam's predetermined minimum desired rate of return is 12%. The present value of an annuity of 1 at 12% for ten periods is 5.65. The present value of 1 due in ten periods at 12% is .322. Accrual accounting rate of return based on the initial investment is

Tam Co. is negotiating for the purchase of equipment that would cost $100,000, with the expectation that $20,000 per year could be saved in after-tax cash costs if the equipment were acquired. The equipment's estimated useful life is ten years, with no residual value, and it would be depreciated by the straight-line method. Tam's predetermined minimum desired rate of return is 12%. The present value of an annuity of 1 at 12% for ten periods is 5.65. The present value of 1 due in ten periods at 12% is .322. Accrual accounting rate of return based on the initial investment is




a. 30%
b. 20%
c. 12%
d. 10%


Answer: d.

Which of the following is an advantage of the accounting rate of return method of evaluating investment returns?

Which of the following is an advantage of the accounting rate of return method of evaluating investment returns?



a. The technique considers depreciation.
b. The technique corresponds to the measure that is often used to evaluate performance.
c. The technique considers the time value of money.
d. The technique considers the risk of the investment.


Answer: b.

The market price of a bond issued at a discount is the present value of its principal amount at the market (effective) rate of interest

The market price of a bond issued at a discount is the present value of its principal amount at the market (effective) rate of interest



a. Less the present value of all future interest payments at the market ( effective ) rate of interest.
b. Less the present value of all future interest payment at the rate of interest stated on the bond.
c. Plus the present value of all future interest payments at the market (effective) rate of interest.
d. Plus the present value of all future interest payments at the rate of interest stated on the bond.


Answer: c.

A company has recently purchased some stock of a competitor as part of a long-term plan to acquire the competitor. However, it is somewhat concerned that the market price of this stock could decrease over the short run. The company could hedge against the possible decline in the stock's market price by

A company has recently purchased some stock of a competitor as part of a long-term plan to acquire the competitor. However, it is somewhat concerned that the market price of this stock could decrease over the short run. The company could hedge against the possible decline in the stock's market price by




a. Purchasing a call option on that stock.
b. Purchasing a put option on that stock.
c. Selling a put option on that stock.
d. Obtaining a warrant option on that stock.


Answer: b.

Banner Electronics has subsidiaries in several international locations and is concerned about its exposure to foreign exchange risk. In countries where currency values are likely to fall, Banner should encourage all of the following EXCEPT

Banner Electronics has subsidiaries in several international locations and is concerned about its exposure to foreign exchange risk. In countries where currency values are likely to fall, Banner should encourage all of the following EXCEPT




a. Granting trade credit wherever possible
b. Investing excess cash in inventory or other real assets.
c. Purchasing materials and supplies on a trade credit basis.
d. Borrowing local currency funds if an appropriate interest rate can be obtained.


Answer: a.

Strobel Company has a large amount of variable rate financing due in one year. Management is concerned about the possibility of increases in short-term rates. Which of the following would be and effective way of hedging this risk?

Strobel Company has a large amount of variable rate financing due in one year. Management is concerned about the possibility of increases in short-term rates. Which of the following would be and effective way of hedging this risk?




a. Buy Treasury notes in the future market.
b. Sell Treasury notes in the futures market.
c. Buy an option to purchase Treasury bonds.
d. Sell an option to purchase Treasury bonds.


Answer: b.

The expected rate of return for the stock of Cornhusker Enterprise is 20%, with a standard deviation of 15%. The expected rate of return for the stock of Mustang Associates is 10%,m with a standard deviation of 9%. The riskier stock is

The expected rate of return for the stock of Cornhusker Enterprise is 20%, with a standard deviation of 15%. The expected rate of return for the stock of Mustang Associates is 10%,m with a standard deviation of 9%. The riskier stock is



a. Cornhusker because its return is higher.
b. Cornhusker because its standard deviation is higher.
c. Mustang because its standard deviation is higher.
d. Mustang because its coefficient of variation is higher.


Answer: d

A market analyst has estimated the equity beta of Modern Home Inc. to be 1.4 This data implies that the company's

A market analyst has estimated the equity beta of Modern Home Inc. to be 1.4 This data implies that the company's



a. Systematic risk is lower than that of the market portfolio.
b. Systematic risk is higher than that of the market portfolio.
c. Unsystematic risk is higher than that of the market portfolio.
d. Total risk is higher than that of the market portfolio.


Answer: b

The producer price index measures

The producer price index measures




a. The price of a basket of commodities at the point of the first commercial sale.
b. Price changes for all products sold by domestic produces to foreigners.
c. Price changes of goods purchased from other countries.
d. The price of a fixed market baskets of goods and services purchased by a typical urban consumer.


Answer: a.

If the Federal Reserve Board wanted to implement an expansionary monetary policy, which one of the following actions would the Federal Reserve Board take?

If the Federal Reserve Board wanted to implement an expansionary monetary policy, which one of the following actions would the Federal Reserve Board take?




a. Raise the reserve requirement and the discount rate.
b. Purchase additional US government securities and lower the discount rate.
c. Reduce the reserve requirement and raise the discount rate.
d. Raise the discount rate and sell US government securities.


Answer: b.

In macroeconomic terms, aggregate demand is the

In macroeconomic terms, aggregate demand is the




a. Demand for money by the community in a period of full employment.
b. Total expenditure on capital goods by entrepreneurs during a period of full employment.
c. Demand that is needed if a country's economy is to operate at optimum level and the level of investment is to be raised.
d. Total expenditures on consumer goods and investment, including government and foreign expenditures, during a given period.


Answer: d.

What percentage of the variation in quantity demanded is explained by price?

Yeager Corporation has used regression analysis to perform price elasticity analysis. In doing so management regressed the quantity demanded (y variable) against price (x variable) with the following results:
Multiple R: .86798
Adjusted R squared: .72458
Standard error: 542.33

Intercept: 56400.50
Price coefficient: -4598.20

What percentage of the variation in quantity demanded is explained by price?



a. 86.798%
b. 72.458%
c. 56.4%
d. 54.233%


Answer: b.

The market for product RK-25 is perfectly competitive. The current market price is $30, and the quantity demanded is 4 million. Due to changes in consumer tastes, a permanent increase in demand for RK-25 is expected in the near term. If nothing else changes in this market, which of the following would be the MOST feasible levels of short-term and long-term prices?

The market for product RK-25 is perfectly competitive. The current market price is $30, and the quantity demanded is 4 million. Due to changes in consumer tastes, a permanent increase in demand for RK-25 is expected in the near term. If nothing else changes in this market, which of the following would be the MOST feasible levels of short-term and long-term prices?



Short -term / Long-term
a. $39 / $35
b. $35 / $39
c. $35 / $30
d. $30 / $35


Answer: c. 

Which of the following is NOT a means by which a firm might hedge the political risk of an investment in another country?

Which of the following is NOT a means by which a firm might hedge the political risk of an investment in another country?




a. Insurance.
b. Buy futures contracts for future delivery of the country's currency.
c. Finance the operations with local-country capital.
d. Enter into joint ventures with local-country firms.


Answer: b. Political risk is the risk related to actions by a foreign government, such as enacting legislation that prevents the repatriation of a foreign subsidiary's profit or seizing a firm's asset. Answer b is correct because purchasing or selling futures contracts is designed to hedge transaction risks relating to foreign exchange rates.

Simon Corp., a US company, has made a large sale to a French company on a 120-day account payable in euros. If management of Simon wants to Hedge the transaction risk related to a decline in the value of the euro, which of the following strategies would be appropriate?

Simon Corp., a US company, has made a large sale to a French company on a 120-day account payable in euros. If management of Simon wants to Hedge the transaction risk related to a decline in the value of the euro, which of the following strategies would be appropriate?



a. Lend euros to another company for payment in 120 days.
b. Enter into a forward exchange contract to purchase euros for delivery in 120 days.
c. Enter into a futures contract to sell euros for delivery in the future.
d. Purchase euros on the spot market.


Answer: c. Selling euros in the future market, the firm has locked in the exchange rate today.

Assume that the exchange rate of US dollars to euros is $1.80 to 1 euro. How much would a US company gain or lose if the company has a 10,000 euro receivable and the exchange rate went to $1.75 to 1 euro?

Assume that the exchange rate of US dollars to euros is $1.80 to 1 euro. How much would a US company gain or lose if the company has a 10,000 euro receivable and the exchange rate went to $1.75 to 1 euro?




a. $10,000 loss.
b. $10,000 gain.
c. $500 loss.
d. $500 gain.


Answer: c

Which of the following describes a pegged exchange rate?

Which of the following describes a pegged exchange rate?




a. A currency rate that is tied to the US dollar.
b. A currency rate with its value determined by market factors.
c. A currency market in which the country's central bank keeps the rate from deviating too far from a target band or value.
d. A currency rate that is tied to the prime rate.


Answer: c.

Assuming exchange rates are allowed to fluctuate freely, which one of the following factors would likely cause a nation's currency to appreciate on the foreign exchange market?

Assuming exchange rates are allowed to fluctuate freely, which one of the following factors would likely cause a nation's currency to appreciate on the foreign exchange market?



a. A relatively rapid rate of growth in income that stimulates imports.
b. A high rate of inflation relative to other countries.
c. A slower rate of growth in income than in other countries, which causes imports to lag behind exports.
d. Domestic real interest rates that are lower than real interest rates abroad.


Answer: c.

All of the following are true about international trade EXCEPT that

All of the following are true about international trade EXCEPT that




a. The gains from international trade depend on specialization with comparative advantage.
b. Absolute advantage without comparative advantage does not result in gains from international trade.
c. Absolute advantage is defined as the ability of one nation to produce a product at a relatively lower opportunity cost than another nation.
d. Where there is reciprocal absolute advantage between two countries, specialization will make it possible to produce more of each product.


Answer: c.

The federal budget deficit is the

The federal budget deficit is the




a. Total accumulation of the federal government's surpluses and deficits.
b. Excess state, local, and federal spending over their revenues.
c. Amount by which the federal government's expenditures exceed its revenues in a given year.
d. Amount by which liabilities exceed assets on the federal government's balance sheet.


Answer: c

The Federal Reserve Board most directly influences a corporation's decision of whether or not to issue debt or equity financing when it revises the

The Federal Reserve Board most directly influences a corporation's decision of whether or not to issue debt or equity financing when it revises the



a. Corporate income tax rate.
b. Prime rate at which the Federal Reserve Bank lends money to member banks.
c. Discount rate at which the Federal Reserve Bank lends money to member banks.
d. Discount rate at which member banks lend money to their customers.


Answer: c.

The money supply in a nation's economy will decrease following

The money supply in a nation's economy will decrease following



a. Open-market purchase by the nation's central bank.
b. A decrease in the discount rate.
c. An increase in the reserve ratio.
d. A decrease in the margin requirement


Answer: c.

If an increase in government purchases of goods and services of $20 billion causes equilibrium GDP to rise by $80 billion, and if total taxes and investment are constant, the marginal propensity to consume out of disposable income is

If an increase in government purchases of goods and services of $20 billion causes equilibrium GDP to rise by $80 billion, and if total taxes and investment are constant, the marginal propensity to consume out of disposable income is



a. 0.75
b. 0.25
c. 1.25
d. 4.00


Answer: a.

Using the arc method, the price elasticity of demand for this product when the price decreases from $40 to $35 is

As the price for a particular product changes, the quantity of the product demanded changes according to the following schedule:
Total Quantity demanded / Price per unit
100 / $50
150 / 45
200 / 40
225 / 35
230 / 30
32 / 25

Using the arc method, the price elasticity of demand for this product when the price decreases from $40 to $35 is



a. 0.20
b. 0.88
c. 10.00
d. 5.00


Answer: b

Using the arc method, the price elasticity of demand for this product when the price decreases from $50 to $45 is

As the price for a particular product changes, the quantity of the product demanded changes according to the following schedule:
Total Quantity demanded / Price per unit
100 / $50
150 / 45
200 / 40
225 / 35
230 / 30
32 / 25

Using the arc method, the price elasticity of demand for this product when the price decreases from $50 to $45 is



a. 0.20
b. 10.00
c. 0.10
d. 3.80


Answer: d

Wilson Corporation has a major competitor that produces a product that is a close substitute for Wilson's good. If the coefficient of cross-elasticity of demand for Wilson's product with respect to the competitor's product is 2.00 and the competitor decreases its price by 5%, what is the expected effect in demand for Wilson's product?

Wilson Corporation has a major competitor that produces a product that is a close substitute for Wilson's good. If the coefficient of cross-elasticity of demand for Wilson's product with respect to the competitor's product is 2.00 and the competitor decreases its price by 5%, what is the expected effect in demand for Wilson's product?



a. A 5% increase in demand
b. A 5% decrease in demand
c. A 10% increase in demand
d. A 10% decrease in demand


Answer: d

Demand for a product tends to be price inelastic if

Demand for a product tends to be price inelastic if



a. The product is considered a luxury item.
b. People spend a large percentage of their income on the product
c. The population in the market area is large
d. Few good substitutes for the product are available


Answer: d


If both supply and the demand for a good increase, the market price will

If both supply and the demand for a good increase, the market price will



a. Rise only in the case of an inelastic supply function
b. Fall only in the case of an inelastic supply function
c. Not be predictable with only these facts
d. Rise only in the case of an inelastic demand function.


Answer: c.

Which of the following MOST likely represents a hash total?

An entity has the following invoices in a batch:

Invoice # / Product / Quantity / Unit price
201 / F10 / 150 / $5
202 / G15 / 200 / $10
203 / H20 / 250 / $25
204 / K35 / 300 / $30

Which of the following MOST likely represents a hash total?




a. FGHK80
b. 4
c. 204
d. 810


Answer: d

Preventing someone with sufficient technical skill from circumventing security procedures and making changes to production programs is BEST accomplished by

Preventing someone with sufficient technical skill from circumventing security procedures and making changes to production programs is BEST accomplished by




a. Reviewing reports of jobs completed.
b. Comparing production programs with independently controlled copies.
c. Running test data periodically.
d. Providing suitable segregation of duties.


Answer: d.

Output controls ensure that the results of computer processing are accurate, complete, and properly distributed which of the following is NOT a typical output control?

Output controls ensure that the results of computer processing are accurate, complete, and properly distributed which of the following is NOT a typical output control?




a. Reviewing the computer processing logs to determine that all of the correct computer jobs executed properly.
b. Matching input data with information on master files and placing unmatched items in a suspense file.
c. Periodically reconciling output reports to make sure that totals, formats, and critical details are correct and agree with input.
d. Maintaining formal procedures and documentation specifying authorized recipients of output reports, checks, or other critical documents.


Answer: b.

A company is concerned that a power outage or disaster could impair the computer hardware's ability to function as designed. The company desires off-site backup hardware facilities that are fully configured and ready to operate within several hours. The company MOST likely should consider a

A company is concerned that a power outage or disaster could impair the computer hardware's ability to function as designed. The company desires off-site backup hardware facilities that are fully configured and ready to operate within several hours. The company MOST likely should consider a




a. Cold site.
b. Cool site.
c. Warm site.
d. Hot site.


Answer: d

Many of the Web 2.0 applications rely on an XML-based application that facilitates the sharing and syndication of web content, by subscription, which of the applications below represents this XML application?

Many of the Web 2.0 applications rely on an XML-based application that facilitates the sharing and syndication of web content, by subscription, which of the applications below represents this XML application?




a. Wiki.
b. Blog.
c. RSS/Atom Feeds.
d. Twitter.


Answer: c

In traditional information systems, computer operators are generally responsible for backing up software and data files on a regular basis. In distributed or cooperative systems, ensuring that adequate backups are taken is the responsibility of

In traditional information systems, computer operators are generally responsible for backing up software and data files on a regular basis. In distributed or cooperative systems, ensuring that adequate backups are taken is the responsibility of 




a. User management.
b. Systems programmers.
c. Data entry clerks.
d. Tape librarians.


Answer: a

Where disk files are used, the grandfather-father-son updating backup concept is relatively difficult to implement because the

Where disk files are used, the grandfather-father-son updating backup concept is relatively difficult to implement because the




a. Location of information points on disks is an extremely time-consuming task.
b. Magnetic fields and other environmental factors cause off-site storage to be impractical.
c. Information must be dumped in the form of hard copy if it is to be reviewed before used in updating.
d. Process of updating old records is destructive.


Answer: d

Several language interfaces exist in a database management system. These typically include a data definition language (DDL), a data control language (DCL), a data manipulation language (DML), and a database query language (DQL). What language interface would a database administrator use to establish the structure of database tables?

Several language interfaces exist in a database management system. These typically include a data definition language (DDL), a data control language (DCL), a data manipulation language (DML), and a database query language (DQL). What language interface would a database administrator use to establish the structure of database tables?


a. DDL.
b. DCL.
c. DML.
d. DQL.


Answer: a

Another term for cloud-based storage is

Another term for cloud-based storage is




a. RAID
b. Solid state storage
c. Analog.
d. Storage-as-a-Service.


Answer: d

The systems Development Life Cycle (SDLC) is the traditional methodology for developing information systems. In which phase of the SDLC would the activity of identifying the problem(s) that need to be solved MOST likely occur?

The systems Development Life Cycle (SDLC) is the traditional methodology for developing information systems. In which phase of the SDLC would the activity of identifying the problem(s) that need to be solved MOST likely occur?




a. Analysis.
b. Implementation.
c. Planning.
d. Development


Answer: c

For the accounting system of Acme Company, the amounts of cash disbursements entered into a terminal are transmitted to the computer that immediately transmits the amounts back to the terminal for display on the terminal screen. This display enables the operator to

For the accounting system of Acme Company, the amounts of cash disbursements entered into a terminal are transmitted to the computer that immediately transmits the amounts back to the terminal for display on the terminal screen. This display enables the operator to



a. Establish the validity of the account number.
b. Verify the amount was entered accurately.
c. Verify the authorization of the disbursement.
d. Prevent the overpayment of the account.


Answer: b

Which of the following security controls would best prevent unauthorized access to sensitive data through an unattended data terminal directly connected to a mainframe?

Which of the following security controls would best prevent unauthorized access to sensitive data through an unattended data terminal directly connected to a mainframe?




a. Use of a screen saver with a password.
b. Use of workstation scripts.
c. Encryption of data files.
d. Automatic log-off of inactive users.


Answer: d

Which of the following is an essential element of the audit trail in an EDI system?

Which of the following is an essential element of the audit trail in an EDI system?



a. Disaster recovery plans that ensure proper backup of files.
b. Encrypted hash totals that authenticate messages.
c. Activity logs that indicate failed transactions.
d. Hardware security modules that store sensitive data.


Answer: c

Which of the following statements is correct concerning the security of messages in an EDI system?

Which of the following statements is correct concerning the security of messages in an EDI system?




a. When the confidentiality of data is the primary risk, message authentication is the referred control rather than encryption.
b. Encryption performed by physically secure hardware device is more secure than encryption performed by software.
c. Message authentication in EDI systems performs the same function as segregation of duties in other information systems.
d. Security at the transaction phase in EDI systems is not necessary because problems at that level will usually be identified by the service provider.


Answer: b

Which of the following statements is correct concerning internal control in an EDI system?

Which of the following statements is correct concerning internal control in an EDI system?




a. Preventive controls generally are more important than detective controls in EDI systems.
b. Control objectives for EDI systems generally are different from the objectives for other information systems.
c. Internal controls in EDI systems rarely permit control risk to be assessed at below the maximum.
d. Internal controls related to the segregation of duties generally are the most important controls in EDI systems.


Answer: a.

In a large organization, the biggest risk in not having an adequately staffed information center help desk is

In a large organization, the biggest risk in not having an adequately staffed information center help desk is




a. Increased difficulty in performing application audits.
b. Inadequate documentation for application systems.
c. Increased likelihood of use of unauthorized program code.
d. Persistent errors in user interaction with systems.


Answer: d

Which of the following is a password security problem?

Which of the following is a password security problem?



a. Users are assigned passwords when accounts are created, but do NOT change them.
b. Users have accounts on several systems with different passwords.
c. Users copy their passwords on note paper, which is kept in their wallets.
d. Users select passwords that are NOT listed in any online dictionary.


Answer: a.

Which of the following is an example of how specific controls in a database environment may differ from controls in a non database environment?

Which of the following is an example of how specific controls in a database environment may differ from controls in a non database environment?



a. Controls should exist to ensure that users have access to and can update only the data elements that they have been authorized to access.
b. Controls over data sharing by diverse users within an entity should be the same for every user.
c. The employee who manages the computer hardware should also develop and debug the computer programs.
d. Controls can provide assurance that all processed transactions are authorized, but CANNOT verify that all authorized transactions are processed.


Answer: a.

Which of the following is usually a benefit of transmitting transactions in an electronic data interchange environment?

Which of the following is usually a benefit of transmitting transactions in an electronic data interchange environment?



a. A compressed business cycle with lower year-end receivable balances.
b. A reduced need to test computer controls related to sales and collections transactions.
c. An increased opportunity to apply statistical sampling techniques to account balances
d. No need to rely on third-party service providers to ensure security.


Answer: a.

Which of the following statements MOST likely represents a disadvantage for an entity that keeps microcomputer-prepared data files rather than manually prepared files?

Which of the following statements MOST likely represents a disadvantage for an entity that keeps microcomputer-prepared data files rather than manually prepared files?



a. Random error associated with processing similar transactions in different ways is usually greater.
b. It is usually more difficult to compare recorded accountability with physical count of assets.
c. Attention is focused on the accuracy of the programming process rather than errors in individual transactions.
d. It is usually easier for unauthorized person to access and alter the files.


Answer: d.

Which of the following statements is correct concerning internal control when a client is using an electronic data interchange system for its sales?

Which of the following statements is correct concerning internal control when a client is using an electronic data interchange system for its sales?




a. Controls should be established over determining that all suppliers are included in the system.
b. Encryption controls may help to assure that messages are unreadable to unauthorized person.
c. A value-added network (VAN) must be used to assure proper control.
d. Attention must be paid to both the electronic and "paper"versions of transactions.


Answer: b.

Which of the following statements is correct regarding the Internet as a commercially viable network?

Which of the following statements is correct regarding the Internet as a commercially viable network?



a. Organizations must use firewalls if they wish to maintain security over internal data.
b. Companies must apply to the Internet to gain permission to create a homepage to engage in electronic commerce.
c. Companies that wish to engage in electronic commerce on the Internet must meet required security standards established by the coalition of Internet providers.
d. All of the above.


Answer: a.

The internal auditor is reviewing a new policy on electronic mail. Appropriate elements of such a policy would include all of the following EXCEPT:

The internal auditor is reviewing a new policy on electronic mail. Appropriate elements of such a policy would include all of the following EXCEPT:



a. Erasing all employee's electronic mail immediately upon employment termination.
b. Encrypting electronic mail messages when transmitted over phone lines.
c. Limiting the number of electronic mail packages adopted by the organization.
d. Directing that personnel do not send highly sensitive or confidential messages using electronic mail.


Answer: a.

Which of the following is likely to be a benefit of EDI?

Which of the following is likely to be a benefit of EDI?



a. Increased transmission speed of actual documents.
b. Improved business relationships with trading partners.
c. Decreased liability related to protection of proprietary business data.
d. Decreased requirements for backup and contingency planning


Answer: b.

The use of message encryption software

The use of message encryption software



a. Guarantees the secrecy of data.
b. Requires manual distribution of keys.
c. Increase system overhead.
d. Reduces the need for periodic password changes.


Answer: c.

A company using EDI made it a practice to track the functional acknowledgements from trading partners and to issue warning messages if acknowledgements did not occur within a reasonable length of time. What risk was the company attempting to address by this practice?

A company using EDI made it a practice to track the functional acknowledgements from trading partners and to issue warning messages if acknowledgements did not occur within a reasonable length of time. What risk was the company attempting to address by this practice?



a. Transaction that have not originated from a legitimate trading partner may be inserted into the EDI network.
b. Transmission of EDI transactions to trading partners may sometimes fail.
c. There may be disagreement between the parties as to whether the EDI transactions form a legal contract.
d. EDI data may not be accurately and completely processed by the EDI software.


Answer: b.

When developing a new computer system that will handle customer orders and process customer payments, a high-level systems design phase would include determination of which of the following?

When developing a new computer system that will handle customer orders and process customer payments, a high-level systems design phase would include determination of which of the following?




a. How the new system will affect current inventory and general ledger systems.
b. How the file layouts will be structured for the customer order records.
c. Whether to purchase a turn-key system or modify an existing system.
d. Whether formal approval by top management is needed for the new system.


Answer: c.

Laptop computers provide automation outside of the normal office location. Which of the following would provide the LEAST security for sensitive data stored on a laptop computer?

Laptop computers provide automation outside of the normal office location. Which of the following would provide the LEAST security for sensitive data stored on a laptop computer?




a. Encryption of data files on the laptop computer.
b. Setting up a password for the screensaver program on the laptop computer.
c. Using a laptop computer with a removable hard disk drive.
d. Using a locking device that can secure the laptop computer to an immovable object.



Answer: b.

Mill Co. uses a batch processing method to process its sales transactions. Data on Mill's sales transaction tape are electronically sorted by customer number and are subjected to programmed edit checks in preparing its invoices, sales journals, and updated customer account balances. One of the direct outputs of the creation of this tape MOST likely would be a

Mill Co. uses a batch processing method to process its sales transactions. Data on Mill's sales transaction tape are electronically sorted by customer number and are subjected to programmed edit checks in preparing its invoices, sales journals, and updated customer account balances. One of the direct outputs of the creation of this tape MOST likely would be a




a. Report showing exceptions and control totals.
b. Printout of the updated inventory records.
c. Report showing overdue accounts receivable.
d. Printout of the sales price master file.


Answer: a.

Able Co. uses an online sales order processing system to process its sales transactions. Able's sales data are electronically sorted and subjected to edit checks. A direct output of the edit checks MOST likely would be a

Able Co. uses an online sales order processing system to process its sales transactions. Able's sales data are electronically sorted and subjected to edit checks. A direct output of the edit checks MOST likely would be a



a. Report of all missing sales invoices.
b. File of all rejected sales transactions.
c. Printout of all user code numbers and passwords.
d. List of all voided shipping documents.


Answer: b.

Misstatement in a batch computer system caused by incorrect programs or data may NOT be detected immediately because

Misstatement in a batch computer system caused by incorrect programs or data may NOT be detected immediately because



a. Errors in some transactions may cause rejection of other transactions in the batch.
b. The identification of errors in input data typically is NOT part of the program
c. There are time delays in processing transactions in a batch system.
d. The processing of transactions in a batch system is NOT uniform.


Answer: c.

All of the following are methods for distributing a relational database across multiple servers EXCEPT:

All of the following are methods for distributing a relational database across multiple servers EXCEPT:



a. Snapshot (making a copy of the database for distribution).
b. Replication (creating an maintaining replica copies at multiple locations)
c. Normalization (separating the database into logical tables for easier user processing).
d. Fragmentation (separating the database into parts and distributing where they are needed.)


Answer: c.

User acceptance testing is more important in an object-oriented development process than in a traditional environment because of the implications of the

User acceptance testing is more important in an object-oriented development process than in a traditional environment because of the implications of the



a. Absence of traditional design documents.
b. Lack of a tracking system for changes.
c. Potential for continuous monitoring.
d. Inheritance of properties in hierarchies.


Answer: d.

Which of the following is LEAST likely to be considered an advantage of a database?

Which of the following is LEAST likely to be considered an advantage of a database?



a. Easy to store large quantities of information.
b. Easy to retrieve information quickly.
c. Easy to organize and reorganize information.
d. Easy to distribute information to every possible user.


Answer: d.

A database itself does not make it easy to distribute information to every possible user - information must still be distributed either electronically or physically.

MIPS stands for

MIPS stands for



a. Memory in protocol standards.
b. Millions of instructions per second.
c. Mitigating individualistic personnel standards.
d. Multiple input physical savings.


Answer: b.
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