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IIA CIA Exam
Certified Internal Auditor Exam (Page 18 )

Updated On: 12-Jan-2026
Page 18 of 342
PDF with 1702 Questions

The most direct way to prepare a cash budget for a manufacturing entity is to include

  1. Projected sales, credit terms, and net income.
  2. Projected net income, depreciation, and goodwill amortization.
  3. Projected purchases, percentages of purchases paid, and net income.
  4. Projected sales and purchases, percentages of collections, and terms of payments.

Answer(s): D

Explanation:

The most direct way of preparing a cash budget requires incorporation of sales projections and credit terms. collection percentages, estimated purchases and payment terms, and other cash receipts and disbursements. In other words, preparation of the cash budget requires consideration of both inflows and outflows.



All other things held constant, external capital requirements are lower for entities with which one of the following characteristics?

  1. Lower retention ratios_
  2. Higher sales growth rates.
  3. Lower capital intensity ratios.
  4. Lower profit margins.

Answer(s): C

Explanation:

The capital intensity ratio is the amount of assets required per dollar of sales. External financial requirements are lower if the capital intensity ratio is low because sales can grow rapidly without much outside capital, other things held constant.



The degree of financial leverage of B, to two decimal places, is

  1. 1 03
  2. 1 05
  3. 12
  4. 1.25

Answer(s): B

Explanation:

The degree of financial leverage for B. may be calculated as profit before interest and taxes (PBIT), divided by PBIT minus interest. PBIT is 200 95 profit 10 interest 95 tax expense). Thus, the DFL is 1.05 [200 - 200 - 10)].



The economic value of an entity will rise following an increase in

  1. Net cash flow.
  2. Systematic risk.
  3. Unsystematic risk.
  4. The discount rate.

Answer(s): A

Explanation:

Net cash flow represents the numerator in the formula used to derive the value of the entity. Therefore, the economic value of the entity will increase as net cash flow increases. Presented below are partial year-end financial statement data for entities.



If all else is equal, entities with higher profit margins require less additional financing for any sales growth rate. If the profit marlin of an entity increased, the funds-needed line would shift

  1. Up and become less steep
  2. Up and become more steep
  3. Down and become less steep.
  4. Down and become more steep.

Answer(s): C

Explanation:

A higher profit margin would reduce the additional financing needed, shifting the funds needed line down.



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