Financial Management

Question 0

What is the formula for the PV?

Answer 0

PV= FV/(1+R)^# Yr

Question 1

What’s the formula for the cost of debt capital after tax?

Answer 1

Pretax Cost x (1-tax rate)

Question 2

In computing the FV, an annuity due earned one more period of interest than ordinary annuity.

Answer 2

TRUE

Question 3

The present value of an amount is less than the future amount.

Answer 3

True

Question 4

Formula for Effective interest rate is?

Answer 4

The cost of borrowing/Funds available for use

Question 5

What’s the formula for Real Interest Rate?

Answer 5

Real Interest = stated rate - Inflation rate

Question 6

Annualized effective interest rate without compounding on a borrowing that is for a fraction of year is called?

Answer 6

Annual Percentage Rate

Question 7

Formula for APR

Answer 7

APR = Effective interest rate for fraction of year x number of fractions in year

Fractions:
semi annual
Quarterly

Question 8

Formula for CAPM

Answer 8

RR = RFR + B(ERR - RFR)

Question 9

Formula for Capitalized Value is

Answer 9

Capitalized Value = Expected Earnings/[Discount Rate - (Growth Rate + Inflation Rate)]

Question 10

The process for value a business are:

Answer 10

1. Establishing standard and premise of valuation
2. Assessment of the economic environment of the business
3. Analysis of financial statement
4. Formulation of valuation

Question 11

Name the income approaches in business valuation:

Answer 11

1. Discounted cash flows
2. Capitalization of earnings
3. Multiples
4. Free cash flow

Question 12

What is the formula for Capitalized value

Answer 12

Capitalized value = Expected Earnings/[Discount Rate - ( Growth Rate + Inflation)]

Question 13

Formula for Enterprise multiples

Answer 13

EV/EBITDA

Question 14

Payback formula

Answer 14

Payback = investment cost/ annual cash savings

Question 15

Formula for Accounting Rate of Return

Answer 15

ARR= (Average Annual Incremental Revenues - Average Annual Incremental Expenses) / Initial (or average) Investment

Question 16

What’s the formula for IRR

Answer 16

PV factor = Investment cost/ Annual Cash Inflow (or Savings)

Question 17

Formula for PI (Profitability Index)

Answer 17

PI = NPV of project inflows/project cost

Question 18

Formula for Sharpe Ratio

Answer 18

SR = (Avg. Rate of Return - Risk Free Rate)/SD

Question 19

The discounted payback period approach takes the time value of money into account

Answer 19

True

Question 20

NPV approach considers the entire life and results of the project

Answer 20

True

Question 21

What are the 3 income approach

Answer 21

1. Discounted cash flows
2. Option pricing models
3. Earnings Capitalization

Question 22

What are the financial valuation approaches?

Answer 22

Market approach
Income Approach
Cost Approach

Question 23

What are the business valuation approaches?

Answer 23

Market approach
Income approach
Asset approach

Question 24

What are the income approaches for business valuation?

Answer 24

Discounted cash flows Capitalization of earning Multiples Free cash flow

Question 25

What's simple Capitalized Value formula for business valuation?

Answer 25

CV = Earning/RR

Question 26

What's business valuation Complex Capitalized Value formula?

Answer 26

CV = Expected Earning/[Discount Rate - (Growth Rate + Inflation)]

Question 27

What's the formula for APR when not taking advantage of discount?

Answer 27

APR = discount lost/Principal x 1/Fraction of year Ex: discount 2/10 bet 30 APR = .02/.98 x 1/(20/360) = 36.73%

Question 28

What's the formula for Current Yield?

Answer 28

CY = Annual coupon interest($)/Current Market Price

Question 29

What's the formula for Preferred Stock Value?

Answer 29

PSV = Annual Dividend/Required Rate if Return

Question 30

What the formula for Preferred Stock Expected Rate if Return?

Answer 30

PSERR = Annual Dividend/Market Price

Question 31

What's the formula for Cost of Capital of new issue share?

Answer 31

Cost of Capital = Annual Dividend (which is par value x dividend rate)/ Net proceeds per share (Which is Sale price - Cost per share issue)

Question 32

What's the formula for current value of Common Stock

Answer 32

Dividend/Required Rate Return - Growth Rate

Question 33

Formula for Historic Rate of Return

Answer 33

(Dividends + Change in Price)/ Beginning Price

Question 34

Formula for Common Stock Expected Rate if Return

Answer 34

(Dividend/Market Price) + Growth Rate

Question 35

Formula for Effective Cost of Debt

Answer 35

It's Interest Cost x (1-tax rate)

Question 36

Formula for Total Order Cost

Answer 36

Total Order Cost = # of orders x Per order cost | = (Total units for period/Order Size) x per order cost

Question 37

Formula for Total Carrying Cost

Answer 37

Total Carrying Cost = Avg. Inventory x Per unit carrying cost Avg. Inventory = Order Size/2

Question 38

Formula for Total Inventory Cost

Answer 38

Total Inventory Cost = Total Order Cost + Total Carrying Cost

Question 39

Formula for Economic Order Quantity

Answer 39

EOQ = SQR 2TO/2 Or SQR 2xAnnual Demand x Cost per order/ Carrying cost per unit

Question 40

Formula for Reorder Point

Answer 40

RP = Delivery time stock + Safety Stock