VARIOUS FORMULA

Question 1

Price Elasticity of Demand

Answer 1

% Change in QD
_____________
% Change in Price

> 1 Elastic P up TR down

Question 2

Income Elasticity of Demand

Answer 2

% Change in QD
_____________
% Change in Income

+ Normal Inelastic
- Substitute Elastic

Question 3

Cross Elasticity of Demand

Answer 3

% Change in QD X
______________
% Change in P of Y

+ Substitute Inelastic
- Complement Elastic

Question 4

Price Elasticity of Supply

Answer 4

% Change in QS
_____________
% Change in P

> 1 Inelastic

Question 5

Marginal Cost

Answer 5

MC = VC per unit = AVC per unit

Question 6

Returns to Scale

Answer 6

% increase in output
________________
% change in input

Question 7

Multiplier Effect
Increase in Output
Equilibrium GDP

Answer 7

Change in Spending
________________
MPS

Question 8

Marginal Propensity to Save

Answer 8

Change in Savings
_______________
Change in Disposable Income

Question 9

Marginal Propensity to Consume

Answer 9

Change in Spending
________________
Change in Disposable Income

Question 10

Personal Disposable Income

Answer 10

MPS + MPC

Question 11

MPS

Answer 11

1 - MPC

Question 12

Total Cost Formula

Answer 12

Y= a + b(x)

FC + VC

Question 13

CAPM

Capital Asset Pricing Model

Answer 13

Rate of Return = RFR + b (ERR - RFR)

Question 14

Beta Analysis

Answer 14

b > 1 high systematic risk

b

Question 15

WACC

Answer 15

% share in Capital X Rate of Return

add all three

debt securities
PS
CS

Question 16

Binomial Option Model

Answer 16

Create a tree

% of probability (MP - EP)
____________________
1 + interest %

Question 17

Payback Period

Answer 17

Investment
_________
Annual Cash Inflows

if uneven annual cash inflows:

make a table, add inflows until it totals the investment

Question 18

Discounted Payback

Answer 18

Investment
_________________________
Discounted Annual Cash Inflows

Question 19

Accounting Rate of Return

Answer 19

Increase in Acctg Net Income
________________________
Average Investment

Average Investment = compute for the current year net of depreciation then get the average of the ending balances for both years

Accounting net income - deduct depreciation and add tax benefit

Question 20

Net Present Value

Answer 20

PV Cash Inflows - PV of Investment (same amount)

To get the total PV of cash inflows: at hurdle rate

Make a table
Get the PV for each year (use hurdle rate)
Add up all years

Positive NPV - accept
Negative NPV - reject

Question 21

Profitability Index

Answer 21

NPV
_______
Investment

Question 22

IRR or Time Adjusted Rate of Return

Answer 22

PV of Future Cash Outflows (Investment)
________________________________
Annual Cash Inflow

= PV factor

Then look for this PV factor in the table to get the % rate of return

Then compare this to the predetermined rate of return/minimum acceptable rate of return

IRR should be > or = the desired rate of return
to be acceptable

Question 23

Stated interest rate Simple

Answer 23

P x R x T

2,000 x 6% x 2 yrs = 240

Question 24

Compound Interest Rate

Answer 24

P x (R) power of time

Question 25

Effective Interest Rate

Answer 25

2,000 X 6% X 2 = 240 2000 - 240 = 1760 ERR = 240 _____ 1,760

Question 26

APR Annual Percentage Rate

Answer 26

the effective interest rate for fraction of a year

Question 27

APR formula

Answer 27

Computed as simple interest 2,000 x 6% x 90/360 (OR .25 or 4 times) = 30 APR = 30 -------- x 4 1,970 APR = 6.08%

Question 28

Ranking of interest rates

Answer 28

Stated rate 6% Compound 6.18% Effective Int 6.82% highest APR 6.08% lowest Effective APR 6.13%

Question 29

Real interest rate

Answer 29

Nominal rate + Inflation rate

Question 30

Nominal interest rate

Answer 30

Real interest rate - Inflation rate

Question 31

Inflation rate

Answer 31

Nominal - Real rate

Question 32

Annual Financing Cost on Receivables

Answer 32

% of discount 360 0r 365 _____________ X ______________ 1 - % discount total period - discount period

Question 33

Cost of the loan OR Effective Rate of the loan

Answer 33

Interest Paid ___________________________________ Net funds (Principal - compensating balance)

Question 34

Current Bond Yield

Answer 34

Annual Interest Paid ________________ Bond Market Price

Question 35

Yield to Maturity - interest rate computation

Answer 35

(1 + r/m) m power - 1

Question 36

Yield to Maturity with Floatation Cost

Answer 36

YM = Annual Interest + Face - Bond Price _______________ # of years _____________________________ .60 (Bond Price) + .40 (Face Value Bond Price = Face Value - Floatation Cost Annual interest - sb before tax

Question 37

Bond Price formula

Answer 37

Face Value - Floatation Cost

Question 38

Degree of Operating Leverage

Answer 38

% Change in Operating Income ________________________ % change in unit volume

Question 39

Degree of Financial Leverage

Answer 39

% change in EPS ______________ % change in EBIT

Question 40

Cash conversion cycle

Answer 40

ICP + RCP = PDP

Question 41

RCP = AR collection period

Answer 41

Average Receivables ________________ Ave Credit sales per day (365 days)

Question 42

Average Receivables

Answer 42

Beg + End _________ 2 OR Average credit sales per day X collection period (RCP) CREDIT SALES NOT NET!!! DO NOT DEDUCT THE DISCOUNT!!!

Question 43

ICP Inventory conversion period

Answer 43

``` Average Inventory ______________ COGS per day or Sales per day ```

Question 44

Payable Deferral Period

Answer 44

``` Average Payables _______________ Purchases per day or COGS per day ```

Question 45

Annual carrying cost of inventory formula

Answer 45

average inventory level X unit cost X cost of capital average inventory level = order size / 2

Question 46

Operating Cycle

Answer 46

ICP + RCP Inventory conversion period plus AR collection period