Flashcards in Becker Deck (67):

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