Deck 3 Flashcards
If a company is looking at an analysis over the average collection period of a company, what are they determining?
- ROE
- Operating Profitability
- Financing
- Liquidity
Liquidity
A company’s average collection period is used to evaluate the liquidity of the firm through the calculation of the cash conversion cycle. Liquidity measurements focus on the ability of the company to meet obligations as they come due.
Which is true:
- Supply chain management is the close linkage and coordination of the activities involved in buying, making, and moving a product.
- Supply chain management is involved with the what, when, where, and how much of product manufacturing and sale.
- Once stable supply chains are set up, they can remain unchanged for considerable periods of time.
1 and 2 are true
3 is false. Supply chains have to be constantly reengineered as products change and to increase efficiency and reduce costs.
One short term financing technique that effectively guarantees payment to creditors and is available to entities trying to access trade credit is what?
- A line of credit
- A letter of credit
A letter of credit. Letters of credit represent a third party guarantee of obligations incurred by a company. Letters of credit may be used by the company issuing debt (debt that would otherwise be unsecured) to ensure payment to creditors.
A line of credit is incorrect. A line of credit is short-term borrowing from a financial institution to ensure that an entity meets cash flow requirements. The line of credit, however, does not specifically guarantee payments on trade credit.
How would you calculate the after tax cash flows per year for the following item:
Invested in a capital project $600,000 Installation charges $40,000 Useful life 12 years No salvage value Cash flows each year $150,000 Tax rate 30%
Take the cash flow and remove the tax
=150,000 * (1-.3) = 105,000
Add back tax on depreciation (tax shield)
=600,000/12 = 50,000 * .3 = 15,000
The tax cash flows are then 120,000
How would you calculate the payback period with the following facts:
Anticipated Equipment Price $250,000 Installation cost $20,000 Useful life 9 years Pre tax cash flow $90,000 Tax Rate 30%
Net Investment = 250,000 + 20,000 = 270,000
Calculate the cash flows:
90,000*(1-.3) = 63,000
270,000/9 = 30,000 (.3) = 9,000
63,000 + 9,000 = 72,000
270,000 / 72,000 = 3.75
If there is a salvage value then in the last year you take the salvage value *(1-tax rate) and add that to the 72,000
In using a process cost system, a production report is usually generated that fully accounts for all units and costs. The physical flow of units is full accounted for by, what?
A production report is normally formatted to prove units at the beginning of the period plus units transferred in are equal to the units transferred out plus ending inventory.
Beginning units +Transferred in units =
Units transferred out + Ending inventory
For the following, do these affect demand to shift or supply to shift?
A decline in real interest rates
A sharp rise in consumer wealth
A rise in consumer confidence
A sharp rise in nominal wages
A decline in real interest rates - Demand shift
A sharp rise in consumer wealth - Demand shift
A rise in consumer confidence - Demand shift
A sharp rise in nominal wages - Supply Shift
This one also leads to a cost-push inflation.
In an effort to encourage the employment of summer teens, the federal government lowered the minimum wage from $7 per hour to $6 per hour. The equilibrium wage for such employee is $8 per hour. What effect should this change in the minimum wage have on teen employment?
The change should have no effect on teen employment because the minimum wage is set below the equilibrium wage.
A price floor is only effective when it is set above the equilibrium price. In this case, the $8 market price is already higher than both the $7 and the $6 price floors.
Employers should be willing to pay the equilibrium rate of $8, so the willingness of teens to work for $6 or $7 is irrelevant.
Under the Sarbanes-Oxley Act of 2002, internal controls must be evaluated when?
within 90 days prior to the issuer’s report.
How would you calculate the beta for the CAPM Calculation given the change in fluctuation in the stock and fluctuation in the market?
Sock fluctuation / Market fluctuation
A firm with a higher degree of operating leverage when compared to the industry implies that what?
The Firm’s profits are more sensitive to changes in sales volume
Operating leverage is the presence of fixed costs in operations, which allows a small change in sales to produce a larger relative change in profits.
Eco corporation wants to use the Economic Order Quantity to determine its optimal inventory order amount. To compute this measure, Eco will need to know each of the following, except:
Annual sales revenue
Insurance costs
Cost per purchase order
Carrying cost per unit
Annual Sales revenue
To compute the economic order quantity, take the square root of two times the annual sales (in units) times the cost per purchase order divided by the carrying cost per unit (an amount that frequently includes insurance costs). There is no need to know the annual sales revenue.
What is the calculation for price variance?
What is the calculation for the efficiency (usage) variance?
What is the calculation for OH volume variance?
Actual Units * (Standard price - Actual price)
Standard rate * (Actual usage - Standard usage)
(Standard rate * standard hours) *(Actual items - standard items)
What are repatriation restrictions?
Repatriation restrictions exist when a company invests money in a foreign company but is restricted from bringing that money back to its home country. These restrictions would affect the cash inflows expected from the investment.
What is Full employment?
The level of employment when there is no cyclical unemployment is the definition of “full employment.” Cyclical unemployment occurs because of economic cycles (expansion and contraction).
