BEC CPA 3

Question 1

Intrinsic Stock Price using the dividend growth model

Answer 1

RFR+ Beta x (market - RFR) = required rate of return
internal growth rate = (ROA x retention %) / [1 - (ROA x Retention %)]
Dividend? = EPS x div. payout
Div? in year 1 = Div. x (1+ growth)
Intrinsic price = DIv. / (required rate of return - growth)

Question 2

Forward P/E based on forecasted data

Answer 2

Stock price = market cap. / shares outstanding
Add up forecasted EPS
P/E = stock price / forecasted EPS

Question 3

Justified forward P/E based on the Gordon growth model

Answer 3

Dividend payout / (required return common equity - growth rate)

Question 4

Current price using PEG ratio

Answer 4

PEG ratio x (EPS x (1+growth rate) x (growth % x 100)

Question 5

Current price-to-sales ratio

Answer 5

Market cap. / shares outstanding = P
Sales x (1 + growth) / shares =S
P / S = price to sales

Question 6

Price-to-book ratio

Answer 6

(Market cap. / shares) / (Common equity(CS +APIC+RE) / share )

Question 7

PV of an annuity due with payments beginning immediately

Answer 7

1 + PV of an ordinary annuity
i.e due in 5 years, starts in year 0 (immediately) = PV for 4 periods

Question 8

Which financial instrument generally provides the largest source of short-term credit for small firms?

Answer 8

Trade credit

Question 9

What is the purpose of cost allocation?

Answer 9

Measuring income and assets for external reporting

Question 10

Beta Coefficient equation

Answer 10

% change in stock price / % change in market price

Question 11

Which Strategic Business Unit (SBU) has the least amount of responsibility?

Answer 11

Cost SBU

Question 12

The quality program technique commonly used to determine zero defects and goalpost conformance is called?

Answer 12

Control Chart

Question 13

Normal vs. abnormal spoilage

Answer 13

Normal = necessary production and product (inventoriable) cost.
Abnormal = Unnecessary and is a period cost

Question 14

Basic assumption of activity-based costing (ABC) is?

Answer 14

Products or services require the performance of activities, and activities consume resources

Question 15

Period costs vs product costs

Answer 15

-period costs are costs that do not contribute to the manufacturing of products; admin salaries
-product costs - costs to support manufacturing, including OH, direct & indirect labor,

Question 16

Job-order vs process costing system

Answer 16

-Process costing averages product costs and applies them to a large number of products
-Job-order costing allocates cost to each individual job

Question 17

Job Cost Sheet

Answer 17

-summarizes direct materials, direct labor, and overhead for each job so you can determine final cost

Question 18

Materials Requisition Form

Answer 18

identifies the construction materials used on each individual job and feeds into the Job Cost Sheet or record

Question 19

Labor Time Tickets

Answer 19

Enable payroll expenses to be assigned to individual jobs based on the amount of time actually spend on each project

Question 20

4 critical success factors of the Balanced Scorecard

Answer 20

1. learning & growth - support employees’ growth and knowledge
2. Customer satisfaction - meeting customer requirements
3. Financial - NI, ROI, etc.
4. Production - efficiency and added value

Question 21

Partial productivity ratio (PPR

Answer 21

Quantity of production (units) / Quantity of material used

Question 22

Total factor productivity (TFP)

Answer 22

Quantity of output production / cost of raw material inputs used

Question 23

Economic value-added equation

Answer 23

NOPAT - required return (investment-i.e machine x cost of capital %)

Question 24

Prevention costs include

Answer 24

employee training, inspection expenses - preproduction, process redesign, product redesign
-Conformance costs

Question 25

Appraisal costs include

Answer 25

inspection expenses -postproduction, laboratory maintenance, product testing
-Conformance costs

Question 26

External & Internal failure includes

Answer 26

External: costs of returning goods, liability claims, warranty costs
Internal: rework, scrap, tooling changes
-these are nonconformance costs

Question 27

Total Quality Costs

Answer 27

Nonconformance (internal + external failure costs) + conformance costs (Prevention + Appraisal costs)

Question 28

Contribution Margin

Answer 28

Selling price + Direct labor + Direct materials + Variable overhead

Question 29

Return on Investment

Answer 29

Net income / invested capital

Question 30

Amount a company paid for a property using NPV

Answer 30

Investment $ / (1 + tax rate) - NPV
NPV= inflows - outflows

Question 31

valuation estimation technique start-up companies would use where earnings are very low?

Answer 31

price sales ratio