BEC-Planning & Measurement

Question 1

definition of net present value?

Answer 1

present value of cash inflows minus the net investment

Question 2

definition of internal rate of return?

Answer 2

the specific discount rate that makes the present value of the inflows equal to the net investment and forces the NPV to be equal to zero

Question 3

market value added?

Answer 3

market value of the firm minus the book value of the capital investment in the firm

Question 4

economic value added?

Answer 4

net operating profit after taxes minus the firm’s cost of capital in dollar terms

Question 5

ROA (return on assets):

Answer 5

net income divided by total assets

Question 6

ROE(return on equity):

Answer 6

net income divided by total equity

Question 7

ROIC (return on invested capital)

Answer 7

net income plus interest divided by average total invested capital. invested capital is just interest bearing debt plus owners equity

Question 8

what are the 4 elements of a balanced scorecard?

Answer 8

financial, customer, internal processes, and learning & growth

Question 9

after a performance measure has been accepted, what is the next step?

Answer 9

the current level of performance should be determined (baseline performance), a designated performance rate or a designated improvement rate should be set (targets), and actions needed to achieve those targets should be designated (strategic initiatives)

Question 10

free cash flow?

Answer 10

net operating profit after taxes (NOPAT), add in depreciation expense, then subtract money set aside for capital expenditures and any need for increasing working capital

Question 11

receivables turnover?

Answer 11

net credit sales / avg acc receivable

Question 12

number of days sales in inventory?

Answer 12

COGS divided by 365. Then divide avg inventory by the first number.

Question 13

financial planning process:

Answer 13

1) analyzing the investment and financing alternatives available to a firm, 2) forecasting the future consequences for each of the alternatives, 3) deciding which alternatives to undertake, 4) measuring subsequent performance against established goals. Measuring the subsequent performance is the final step in that process.

Question 14

what are the steps to process improvement?

Answer 14

1) design, 2) modeling (which involves simulation of the process), 3) execution (including training of personnel and testing of the process), 4) monitoring, and 5) optimization.

Question 15

what is a pareto chart?

Answer 15

a bar chart or histogram that ranks the causes of variations in a process from most to least frequent, which is intended to indicate their effects on quality

Question 16

what is a control chart?

Answer 16

measures deviations from process standards, a fishbone diagram identifies causes of defects and their effects

Question 17

steps in project management:

Answer 17

project initiation, project planning, project execution, project monitoring and control, and project closure

Question 18

a cost management system is:

Answer 18

a planning and control system that measures the cost of significant activities, identifies non value-added cost, and identifies activities.

Question 19

relevant range?

Answer 19

level of activity where fixed costs remain fixed

Question 20

diff between theoretical capacity and practical capacity?

Answer 20

Theoretical capacity assumes output is produced 100% of the time. Practical capacity adjusts theoretical capacity for non-production time such as holidays and maintenance shutdowns.

Question 21

Utilizing the expected annual capacity approach to overhead application, can result in overapplied overhead when:

Answer 21

Actual overhead costs were less than expected and/or production was higher than expected.Overhead is applied based on a calculated rate per unit. This calculated rates uses estimate overhead costs divided by an estimated activity level. If either the estimated overhead is higher than the actual overhead or the estimated activity level is lower than the actual activity level, overhead can be overapplied.

Question 22

labor rate variance?

Answer 22

actual rate paid minus standard hourly rate times the total hours worked

Question 23

labor efficiency variance?

Answer 23

number of hours worked less hours supposed to have been worked times the standard rate

Question 24

material price variance?

Answer 24

diff of total price paid and total price should have paid for the same amount

Question 25

fixed overhead spending variance

Answer 25

It is the difference between the actual overhead spending and the budgeted overhead spending.

Question 26

when doing weighted avg cost of capital calculations, what needs to have taxes removed?

Answer 26

the cost of capital for DEBT must be computed net of the tax benefit provided by the deductibility of the interest expense

Question 27

how to find effective rate of interest on a compensating balance question?

Answer 27

cost of borrowing / funds available for useIf you have 500,000 at 8% interest that equals 40,000 in interest expense. but if you can only use 400,000, then the calculation is 40k/400k for an effective rate of 10%, not 8%

Question 28

required rate of return for an investment:

Answer 28

riskfree rate + beta(expected rate - riskfree rate)

Question 29

diff in financial structure and capital structure:

Answer 29

financial structure includes all items of liabilities and owners equity, and capital structure includes LONG-TERM liabilities and owners equity.

Question 30

what time series model reduces random fluctuations in data?

Answer 30

exponential smoothing

Question 31

what source of new capital usually has the lowest after tax costs?

Answer 31

bonds. less risk to investors so they're cheaper than equity, and the interest payments are tax deductible

Question 32

what states the terms of a bond?

Answer 32

an indenture

Question 33

what is the profitability index used for?

Answer 33

to rank potential investments by taking into account both the time value of money and the initial cost of the project

Question 34

what is commercial paper?

Answer 34

short term, unsecured promissory notes

Question 35

calculate profitability index of a project?

Answer 35

divide present value of annual after tax cash flows by the original cash invested in the project

Question 36

what is residual income that remains after the cost of all capital, including equity capital, has been deducted?

Answer 36

economic value added. it measures economic profit, not accounting profit. NOPAT minus cost of capital

Question 37

accounting rate of return?

Answer 37

dividing accrual based net income by the initial cost of the project