Free CPA BAR (Business Analysis & Reporting) Business Analysis Practice Questions
Business analysis on the CPA BAR discipline exam covers financial ratio analysis, cost-volume-profit analysis, budgeting and forecasting techniques, variance analysis, and economic value added (EVA). BAR is the most general-purpose discipline section.
Sample Questions
Question 1
Easy
Which of the following best describes prescriptive analytics?
Solution
B is correct.
Prescriptive analytics goes beyond describing or predicting outcomes; it recommends specific actions to achieve desired results using optimization models, simulations, and decision analysis. It answers the question: what should we do? The four types form a hierarchy: descriptive, diagnostic, predictive, prescriptive.
Prescriptive analytics goes beyond describing or predicting outcomes; it recommends specific actions to achieve desired results using optimization models, simulations, and decision analysis. It answers the question: what should we do? The four types form a hierarchy: descriptive, diagnostic, predictive, prescriptive.
Question 2
Medium
A pro forma projects total assets of $5,200,000. Management targets a debt-to-equity ratio of 0.60. How much debt and equity should be projected?
Solution
D is correct.
D = 0.60E and D + E = 5,200,000, so 1.60E = 5,200,000; E = 3,250,000; D = 1,950,000. Check: 1,950,000 / 3,250,000 = 0.60.
D = 0.60E and D + E = 5,200,000, so 1.60E = 5,200,000; E = 3,250,000; D = 1,950,000. Check: 1,950,000 / 3,250,000 = 0.60.
Question 3
Hard
Clearwater Inc. projects FCFs of $2,000,000 per year for 5 years. Terminal growth rate is 3%, WACC is 9%. PV annuity factor (5 yrs, 9%) = 3.8897. (1.09)^5 = 1.5386. What is total enterprise value?
Solution
A is correct.
PV of 5-year FCFs = 2,000,000 x 3.8897 = 7,779,400. Terminal value at Year 5 = 2,000,000 x 1.03 / (0.09 - 0.03) = 2,060,000 / 0.06 = 34,333,333. PV of TV = 34,333,333 / 1.5386 = 22,315,000. Enterprise value = 7,779,400 + 22,315,000 = $30,094,400.
PV of 5-year FCFs = 2,000,000 x 3.8897 = 7,779,400. Terminal value at Year 5 = 2,000,000 x 1.03 / (0.09 - 0.03) = 2,060,000 / 0.06 = 34,333,333. PV of TV = 34,333,333 / 1.5386 = 22,315,000. Enterprise value = 7,779,400 + 22,315,000 = $30,094,400.