BEC_MISC2 Flashcards
(17 cards)
What strategy should a company follow if a particular segment of the company is continuously experiencing loss?
SPIN-OFF, which means a FRESH START OF THE BUSINESS.
What is the main objective of an INTERNATIONAL JOINT VENTURE?
To generate maximum COMPETITIVE ADVANTAGE by taking advantage of each participating firm’s comparative competitive advantage.
How does change in ENDING INVENTORY LEVEL affect ABSORPTION vs. VARIABLE costing profit?
Inventory increase: Absorption NI > Variable NI
Inventory decrease: Absorption NI < Variable NI
How do you calculate REQUIRED RETURN (COST OF RETAINED EARNINGS) in a DIVIDEND GROWTH MODEL?
COST OF RETAINED EARNINGS=D1/P0+g
Who must certify the proper internal control establishment in the financial reports?
Both:
- Principal financial officer
- Principal executive officer
Which component of COSO IC integrated framework deal with financial objectives and how?
RISK ASSESSMENT
It deals with issues such as : (1) Financial reporting objectives, (2) Fraud Risks.
What is POSITIVE PAY WITH THE BANK?
It is a tool used for fraud detection, where some important attributes of check (e.g. check number, amount and account number) are compared to an INVENTORY OF AUTHORIZED CHECKS ISSUED BY A COMPANY.
The following types of managers expect what type of return as a result of different levels of risks?
RISK AVERSE
RISK SEEKING
RISK INDIFFIRENT
Risk Averse: They deserve more return as risk increases.
Risk Seeking: They deserve low return for as risk increases .
RISK NEUTRAL/INDIFFERENT: They are indifferent about increases risk.
What is INVESTOR CERTAINTY EQUIVALENT? How does it affect investor behavior?
Investor’s certainty equivalent is a point at which an investor is indifferent to risk.
If Certainty Equivalent > Expected value of an investment…the investor is seeking lower return for stock. So he is a RISK SEEKING investor
How is BUSINESS RISK relevant to EQUITY INVESTMENT?
Business risks represent the idiosyncratic risks a company faces.** They are inherent to a firm’s operations and hence **affect shareholders considerably.
What adjustments are typically used to estimate REQUIRED RATE OF RETURN?
- Default risk premium
- Maturity risk premium
- Purchasing power risk premium
- Note: Credit risk premium is not a factor affecting required rate of return.
What are the factors to determine required rate of return?
- Default risk premium
- Maturity risk premium
- Purchasing power risk premium
- Note: Credit risk premium is not a factor affecting required rate of return.
What is the difference between real dollars and nominal dollars?
Nominal dollars are inflation rates applied to real dollars.
If with 6% interst rate the real dollar value is supposed to be $200,000, the nomial dollar amount would be:
200,000(1+.06)2
What is the objective of PARALLEL LOANS in foreign currency fluctuations?
PARALLEL LOANS are SWAP CONTRACTS for hedging long-term transaction exposures.
When the dollar value increases in terms of a foreign currency, companies of which (i.e. the US company or its foreign competitor) country gains?
A foreign company will benefit as the foreign commodity becomes cheaper in US market.
When should a US company make investment in a foreign currency and not a domestic currency?
When the US dollar value is likely to decline compared to the foreign currency.
What are the rules when the foreign currency vs. US dolar changes if the US COMPANY faces NET CASH INFLOWS VS. NET CASH OUTFLOWS?
