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0

Compute calculation of net cash outflow at beginning of 1st year

Initial investment
+shipping
+installation
+training
+increase in working capital
-cash proceeds on sale of old (net of tax)
=net initial outflow

1

Calculation for economic value added

Cost of investment x capital=required return

Income after required economic taxes - return=value added

2

Calculation for expected cost savings

1)budgeted cost of sales/current inventory turnover=current average inventory

2)budgeted cost of sales/expected inventory turnover=expected average inventory

3)current average inventory - expected average inventory=inventory increase/decrease

4)inventory increased/decrease x interest rate=cost savings

3

Calculation for margin of safety percentage

Margin of safety in dollars/total sales

4

Calculation for margin of safety (in dollars)

Total sales (in dollars) - break even sales ( in dollars)

5

Formulas for return on investment

Income/investment capital
Or
Profit margin x investment turnover

6

Calculation for APR of quick payment discount

Disc % x 365/(100-disc%) x (pay period-disc period)

7

Overhead variances

Actual vs. Budget on actual hours

Budget on actual hours vs. Budget on standard hours

Budget on standard hours vs. Overhead applied

8

What are the 4 strategic business units?

Cost
Revenue
Profit
Investment

9

What are the 4 designs for financial scorecards

"AT US"
Accurate, timely, understandable, specific accountability

10

Calculation for market size variance

Actual market size - Expected market size x budgeted marketed share% x budgeted CM (weighted average)

11

Calculation for sales price variance

(Actual SP/Unit - Budgeted SP/Unit) x actual sold units

12

Calculation for sales volume variance

Actual sold units - Budgeted sales x CM

13

Calculation for profit margin?
Investment turnover?

Income/sales

Sales/invested capital

14

Formula for bond yield plus risk premium (BYRP) for cost of retained earnings

KDT(pretax cost of long-term debt) + PMR(risk premium)

15

Formula for cost of retained earnings

kre=krf + [bi x (km - krf)]

krf=risk free rate
Bi=beta
Km=market rate
Krf=risk free rate

16

What are the formula notations for the following
Risk free rate?
Risk premium?

Krf

Stocks beta coefficient ( bi) x the market risk premium (PMR)

17

What are the 3 methods of computing cost of retained earnings (kre)

Capital asset pricing model
Discounted cash flow
Bond yield plus risk premium

18

Calculation for return on assets

Net income / average total assets

19

Formula for dividend per share expected at the end of one year: D1

D0 x (1+g)

Annual stock dividend

20

Formula for cost of retained earnings using discounted cash flow

(Div1 / P0) + g

Div1=dividend per share expected at end

P0=current market value or price of common stocks

G=constant rate of growth

21

Formula for cost of preferred stock

Preferred stock cash dividends / net proceeds of preferred stocks

22

What letters express
Cost of preferred stock?
Net proceeds of preferred stocks?
Preferred stock cash dividend?

Kps
Nps
Dps

23

What letters express
Cost of long-term debt?
Pre-tax cost of debts?
After-tax cost of debt?

Kdx
Kdt
Kids

24

Formula for weighted average interest rate

Effective annual interest payments / debt cash available

25

Formula for weighted average cost of capital

Cost of equity multiplied by the percentage equity in capital structure + weighted average cost of debt multiplied by the percentage debt in capital structure

26

Formula for degree of combined leverage

% change in EPS / % change in sales

Or

DOL x DFL

27

Formula for degree of financial leverage

% change in EPS / % change in EBIT

28

Formula for degree of operating leverage (DOL)

% change in EBIT / % change in sales

29

What 2 rates can be used as cost of long-term debt

Market rate
Yield to maturity