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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

30

Calculation for net cost of debt

Effective interest rate x (1-T)

31

Equation for absorption approach

Revenue - cost of goods sold = gross margin - operating expenses = net income

32

Calculation for break even point in units

Total fixed costs / contribution margin per unit

33

Contribution approach equation

Revenue - variable costs = contribution margin - fixed costs = net income

34

Calculation for number of units to be purchased

DM needed + desired ending inventory - beginning inventory

35

Calculation for unit contribution margin

Unit sales price - unit variable cost

36

Compute contribution margin ratio

Total fixed costs / contribution margin ratio

37

Calculation for sales volume for target profit

Sales = fixed cost + profit / contribution margin ratio

38

Calculation for direct materials used

Beg. Inventory at cost + purchasing at cost - ending inventory at cost

39

Calculation for cost of goods sold

COGM + beginning finished goods - ending finished goods = COGS

40

Comparison for price variance

Actual quantity purchased x actual price

Vs.

Actual quantity purchased x standard price

41

Comparison for quantity usage variance

Actual quantity used x standard price

Vs.

Standard quantity allowed x standard price

42

Efficiency variance comparison

Actual hours x standard rate

Vs.

Standard hours allowed x standard rate

43

Rate variance comparison

Actual hours x actual price

Vs.

Actual hours x standard rate

44

What is the formula for total cost

Fixed cost + (VC per unit x volume)

45

Formula for budgeted production

Budgeted sales + desired ending inventory - beginning inventory = budgeted production

46

Calculation for contribution margin ratio

Contribution margin / revenue

47

How is the application of overhead accomplished

Calculate overhead rate: budgeted overhead costs / estimated cost driver

Applied overhead = standard cost driver for actual level of activity x overhead rate ( step 1 )

48

What is the 3 way variance

Spending
Efficiency
Volume

49

When production is greater than sales, is profit higher in absorption costing or variable costing? Sales greater than production?

Absorption costing
Variable costing

50

Y=
X=
A=
B=

Dependent variable
Independent variable
Y - intercept
Slope

51

How is fixed factory overhead treated in absorption approach? Contribution approach?

Product cost
Period cost

52

If y was total costs, what would x be? A? B?

Total activity (or output)

Total fixed costs

Change in total costs due to a one unit change in output ( variable cost per unit )

53

Computation of target profit before tax based on the target profit after tax

Target profit after tax / (1- tax rate)

54

Computation for target cost

Market price - required profit

55

Steps to compute difference between absorption and variable net income

1) compute fixed cost per unit ( fixed man overhead / units produced )

2) compute change in income ( change I'm inventory units x fixed cost per unit )

3) determine the impact of the change in income

56

Calculation for discounted annual depreciation tax shield

1) depreciable cost / useful life

2) depreciation expense x tax rate

3) amount depreciation tax shield x annuity rate

57

Calculation for annual savings needed to make investment

PV cash savings / inflows = PV net cash outflows

58

Calculation for after tax present value using discount factor

( PV of cash inflow x annuity rate ) - PV of cash outflow x tax rate x annuity rate = after tax PV

59

Calculation for overall discounted cash flow impact

Cash flow driver x PV interest factor

60

Calculation for internal rate of return

Net incremental investment / net annual cash flows

61

Calculation for payback period

Net initial investment / increase in annual net after tax cash flow

62

Calculation for profitability index

Present value of net future cash inflow / present value of net initial investment

63

Computation for net present value methods

1) calculate after tax cash flows

2) multiply result by appropriate present value of an annuity

3) subtract initial cash outflow

64

Compute net cash flow for the final year for capital budgeting analysis

Net cash flow from sales - taxes on net sales + depreciation + salvage value ( net of tax )= net cash flow

65

How to compute after tax cash flows? ( annual operating cash in flow ) step 2

1) pre-tax cash inflow x ( 1-tax rate )

+2) depreciation x tax rate

66

Calculation of for asset sale

Net proceeds on sale of old ( net of tax ) proceeds on sale - tax paid on gain ( G x T ) + tax saved on loss ( L x T )