Becker

Question 0

Calculation for economic value added

Answer 0

Cost of investment x capital=required return

Income after required economic taxes - return=value added

Question 1

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

Answer 1

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

Question 2

Calculation for expected cost savings

Answer 2

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

Question 3

Calculation for margin of safety percentage

Answer 3

Margin of safety in dollars/total sales

Question 4

Calculation for margin of safety (in dollars)

Answer 4

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

Question 5

Formulas for return on investment

Answer 5

Income/investment capital
Or
Profit margin x investment turnover

Question 6

Calculation for APR of quick payment discount

Answer 6

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

Question 7

Overhead variances

Answer 7

Actual vs. Budget on actual hours

Budget on actual hours vs. Budget on standard hours

Budget on standard hours vs. Overhead applied

Question 8

What are the 4 strategic business units?

Answer 8

Cost
Revenue
Profit
Investment

Question 9

What are the 4 designs for financial scorecards

Answer 9

“AT US”

Accurate, timely, understandable, specific accountability

Question 10

Calculation for market size variance

Answer 10

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

Question 11

Calculation for sales price variance

Answer 11

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

Question 12

Calculation for sales volume variance

Answer 12

Actual sold units - Budgeted sales x CM

Question 13

Calculation for profit margin?

Investment turnover?

Answer 13

Income/sales

Sales/invested capital

Question 14

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

Answer 14

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

Question 15

Formula for cost of retained earnings

Answer 15

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

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

Question 16

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

Answer 16

Krf

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

Question 17

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

Answer 17

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

Question 18

Calculation for return on assets

Answer 18

Net income / average total assets

Question 19

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

Answer 19

D0 x (1+g)

Annual stock dividend

Question 20

Formula for cost of retained earnings using discounted cash flow

Answer 20

(Div1 / P0) + g

Div1=dividend per share expected at end

P0=current market value or price of common stocks

G=constant rate of growth

Question 21

Formula for cost of preferred stock

Answer 21

Preferred stock cash dividends / net proceeds of preferred stocks

Question 22

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

Answer 22

Kps
Nps
Dps

Question 23

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

Answer 23

Kdx
Kdt
Kids

Question 24

Formula for weighted average interest rate

Answer 24

Effective annual interest payments / debt cash available

Question 25

Formula for weighted average cost of capital

Answer 25

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

Question 26

Formula for degree of combined leverage

Answer 26

% change in EPS / % change in sales Or DOL x DFL

Question 27

Formula for degree of financial leverage

Answer 27

% change in EPS / % change in EBIT

Question 28

Formula for degree of operating leverage (DOL)

Answer 28

% change in EBIT / % change in sales

Question 29

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

Answer 29

Market rate | Yield to maturity

Question 30

Calculation for net cost of debt

Answer 30

Effective interest rate x (1-T)

Question 31

Equation for absorption approach

Answer 31

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

Question 32

Calculation for break even point in units

Answer 32

Total fixed costs / contribution margin per unit

Question 33

Contribution approach equation

Answer 33

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

Question 34

Calculation for number of units to be purchased

Answer 34

DM needed + desired ending inventory - beginning inventory

Question 35

Calculation for unit contribution margin

Answer 35

Unit sales price - unit variable cost

Question 36

Compute contribution margin ratio

Answer 36

Total fixed costs / contribution margin ratio

Question 37

Calculation for sales volume for target profit

Answer 37

Sales = fixed cost + profit / contribution margin ratio

Question 38

Calculation for direct materials used

Answer 38

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

Question 39

Calculation for cost of goods sold

Answer 39

COGM + beginning finished goods - ending finished goods = COGS

Question 40

Comparison for price variance

Answer 40

Actual quantity purchased x actual price Vs. Actual quantity purchased x standard price

Question 41

Comparison for quantity usage variance

Answer 41

Actual quantity used x standard price Vs. Standard quantity allowed x standard price

Question 42

Efficiency variance comparison

Answer 42

Actual hours x standard rate Vs. Standard hours allowed x standard rate

Question 43

Rate variance comparison

Answer 43

Actual hours x actual price Vs. Actual hours x standard rate

Question 44

What is the formula for total cost

Answer 44

Fixed cost + (VC per unit x volume)

Question 45

Formula for budgeted production

Answer 45

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

Question 46

Calculation for contribution margin ratio

Answer 46

Contribution margin / revenue

Question 47

How is the application of overhead accomplished

Answer 47

Calculate overhead rate: budgeted overhead costs / estimated cost driver Applied overhead = standard cost driver for actual level of activity x overhead rate ( step 1 )

Question 48

What is the 3 way variance

Answer 48

Spending Efficiency Volume

Question 49

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

Answer 49

Absorption costing | Variable costing

Question 50

Y= X= A= B=

Answer 50

Dependent variable Independent variable Y - intercept Slope

Question 51

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

Answer 51

Product cost | Period cost

Question 52

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

Answer 52

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

Question 53

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

Answer 53

Target profit after tax / (1- tax rate)

Question 54

Computation for target cost

Answer 54

Market price - required profit

Question 55

Steps to compute difference between absorption and variable net income

Answer 55

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

Question 56

Calculation for discounted annual depreciation tax shield

Answer 56

1) depreciable cost / useful life 2) depreciation expense x tax rate 3) amount depreciation tax shield x annuity rate

Question 57

Calculation for annual savings needed to make investment

Answer 57

PV cash savings / inflows = PV net cash outflows

Question 58

Calculation for after tax present value using discount factor

Answer 58

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

Question 59

Calculation for overall discounted cash flow impact

Answer 59

Cash flow driver x PV interest factor

Question 60

Calculation for internal rate of return

Answer 60

Net incremental investment / net annual cash flows

Question 61

Calculation for payback period

Answer 61

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

Question 62

Calculation for profitability index

Answer 62

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

Question 63

Computation for net present value methods

Answer 63

1) calculate after tax cash flows 2) multiply result by appropriate present value of an annuity 3) subtract initial cash outflow

Question 64

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

Answer 64

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

Question 65

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

Answer 65

1) pre-tax cash inflow x ( 1-tax rate ) +2) depreciation x tax rate

Question 66

Calculation of for asset sale

Answer 66

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 )