Term
How to calculate the effective interest rate on 2/10 net 30 terms? 

Definition
.02/.98 (sum to 1) x 1/20/360 that's 1 over 20/360, where 20 is the number of days that the interest is in effectno interest for 10 days, interest for 20 out of 30 days, then use 360 day year. This = 36.73% 


Term
How to calculate the PV of an annuity due from an ordinary annuity table? 

Definition
The PV of the first payment is the full amount. Then use the PV factor for the N1 row to get the multiplier for the rest of the pmts, and add these amts together. If you are GIVEN an annuity due table, just proceed normally. 


Term
How to calculate the FV of an annuity due from an ordinary annuity table? 

Definition
Here you use the N+1 row of the table and then SUBTRACT the amount of one pmt. If you are given an annuity DUE table just proceed normally. 


Term
What is the operating cycle and how is it calculated? 

Definition
The operating cycle measures the average length of time to invest cash in inventory, convert the inventory to accounts receivable, and collect the receivables. Thus, operating cycle is the sum of the co's number of days' sales in inventory plus the number of days' sales in trade accounts receivable.
Basically, this measures the number of days to go from cash through inventory and accounts receivable, back to cash. 


Term
What do I really need to watch out for in calculating receivables turnover? 

Definition
To use the NRV of the A/R and not the A/R amountsubtract out allowance for doubtful accts from A/R totals before calculating!!! 


Term

Definition
Economic value added = residual income after cost of ALL capital incl equity has been deducted. = Earnings before Interest less (k times LTdebt + SE) 


Term
If you have a FV and need to figure out payments how can you do this? 

Definition
You'll need a PV table...figure out if it's ord annuity or annuity due and divide the FV by the factor from the table to get the pmt amt 


Term
For present value, the higher the interest or discount rate, the ____ (higher/lower) the present value of a future amount. 

Definition
lower. Since the higher the interest or discount rate, the more that is counted as interest, the less there is in present value. For future value, the higher the interest rate, the greater the future value of a present amount. 


Term
How calculate accounting rate of return? 

Definition
Average Annual Incremental Revenues  Average Annual Incremental Expense ______________________________________________ Initial (or Average) Investment .
Note if they are expressly giving you the incremental change they have already taken into acct deprec and you don't have to. 


Term
What's the difference between a firm's capital structure and its financial structure? 

Definition
Financial structure = all debt & all equity; capital strucutre = just long term debt & equity 


Term
What's the difference between pledging and factoring A/R? 

Definition
In pledging of accounts receivables, the receivables are used as collateral in a financing agreement with a lender. In factoring of accounts receivables, the receivables are sold at a discount for cash to a factor. In factoring of accounts receivables, the receivables are sold at a discount for cash to a factor. 


Term
Can current A/P provide shortterm financiing? A/R? Inventory? 

Definition
All three can! A/P is through accruing payables...this allows you to put off pmt and is implicitly a type of financingeg think trade payables 


Term
Financial risk vs business riski? 

Definition
Financial risk is the additional risk a firm bears when it uses debt in addition to equity financing. Generally, firms that issue more debt would have higher (financial) risk than firms financed entirely by equity. Therefore, a firm which utilizes only equity financing would not have financial risk. B. Business risk. A firm which utilizes only equity financing would face business risk. Business risk derives from the broad, macrorisk a firm faces largely as a result of the relationship between the firm and the environment in which it operates. The extent of that risk would depend on the susceptible of the firm to changes in the overall economic climate 


Term
Systematic risk vs unsystematic risk? Which can be diversified away? 

Definition
Unsystematic risk, also called diversifiable risk, can be mitigated or eliminated through diversification of investments. Systematic risk, also called nondiversifiable risk or marketrelated risk, cannot be mitigated or eliminated through diversification of investments. This type of risk is most closely associated with elements of the macroeconomic environment in which a firm operates and would include, for example, interest rate risk and inflation risk. 


Term
What is capital budgeting? 

Definition
Capital budgeting is the process of measuring, evaluating, and selecting longterm investment opportunities 


Term
How does a company decide its hurdle/discount rate? 

Definition
Based on the rate that the company must set in order to attract funding. 


Term
If there is no risk, does that mean that there's no return? 

Definition
No, the riskfree rate is above zero and is the reward expected for deferring consumption 


Term
How calculate NPV? Acceptance rule? 

Definition
Calculate the PV of all the cash inflows associated with the projectuse aftertax income CFs, and don't forget to include the PV of the residual value if there is one. From this, subtract the cost of the original investment. Accept the project if NPV =>zero 


Term

Definition
Take investment cost divided by annual CFs and use that number as your initial estimate of the PV factor. Go to the PV table and interpolate to make your guess as to return 


Term
another name for cost/benefit ratio? how calculated? 

Definition
profitability index. NPV/project cost. Can be used to rank projects....a project may have a higher NPV but given the cost outlay a lower index. NPV and CBR are the preferred methods of evaluating projects 


Term

Definition


Term

Definition


Term

Definition


Term

Definition
ROE (NI/TSE) = PM x AT x EqMult 


Term

Definition
Income less imputed interest on invested capital (in problems), theoretcallly Net Inc less required rate of return, where required rate of return = avg invested capital x k 


Term

Definition


Term
(CS) dividend payout rate 

Definition
Cash div (to CS/h) / Net Inc (to CS/h) On a per share basis cash div per share div by EPS 


Term

Definition
div per CS div by mkt price per share 


Term

Definition
SALES over investment ... I've seen it as both over TSE & TA...which is it in the demoninator? (more often in probs seems to be TA) 


Term
Primary disadv of using ROA rather than residual income? 

Definition
Mgrs may end up rejecting projects that yield positive cash flows b/c they don't want to lower their ROA 


Term
What is the difference between participating and nonparticipating bonds? 

Definition
distinguish whether or not preferred shareholders can receive dividends in excess of the stated preference rate. 


Term
formula for price of preferred stock (based on dividend)? 

Definition
PSV = Annual Dividend divided by the Required rate of Return
essentially value is like the PV of the cash flow of dividends, assumed to exist in perpetuity 


Term
*expected* rate of return on dividend on preferred stock =? 

Definition
PSER = Annual Dividend divided by the Market Price 


Term
for which is the cost of capital more, debt or equity? 

Definition


Term
what is the hedging principle of financing? 

Definition
This guideline (also called the principle of selfliquidating debt) holds that longterm or permanent investments in assets should be financed with longterm or permanent sources of capital and shortterm needs should be financed with shortterm sources of financing. Thus, longterm assets (e.g. property, plant, and equipment, among others) and permanent amounts of current assets (e.g. level of accounts receivable and inventory generally onhand) should be financed with longterm debt or equity. 


Term
should firms with high levels of business risk use more debt or more equity in their financing? 

Definition
Firms with higher business risk have an increased chance that operating results may cause default on fixed obligations and, therefore, should use less debt financing than a firm with steady operating results. 


Term
Financing shortterm needs with longterm funds is a ______ strategy (aggressive/conservative). 

Definition
Conservative. (I don't really get this?) 


Term
value added vs non value added costs? 

Definition
In eyes of the consumer. Value added generally direct cost, nonvalue added is generally overhead 


Term
what are other names for the "constant coefficient" and the "variable coefficient" in a regression eqn? 

Definition
Constant Coefficient = intercept Variable Coefficient = slope 


Term
three overall steps in doing Process costing? 

Definition
1. Determine Equivalent Units 2. Determine Cost per EU 3. Determine CGMf 


Term
How to calculate Equivalent Units/Wtd Avg 

Definition
ONLY use Completed, Normal Spoilage, and Ending by their percent complete to do the calculation! (RP method less confusing than CPAExcel) 


Term

Definition
To value (1) Ending WIP and 2) Cost of Goods MANUFACTURED (i.e, what's still here and what went away) 


Term
two methods to use to apply process costing? 

Definition


Term

Definition
TOTAL COSTS/TOTAL Equivalent Units = Cost per unitneed to multiply by units to figure actual costs! To get EUs, use Completed @ 100%, Normal Spoilage @ 100%, & Ending at % Given. Costs = conversion costs for Beg + Started. 


Term

Definition
Costs from THIS PERIOD divided by Equivalent Units worked on THIS PERIOD gives you Cost per unit==need to multiply by # units to figure transferred costs. EUs are trickywant JUST this year so pay attention to Beg vs Started when you calc Completed. Beg you want JUST the % worked on this year, so use ** (1x%) where x% is the % complete the item came in with (everything completed is at 100%, so 1x gives you the amt completed this year); then started is at 100%. Conversion costs are JUST the ones from this year (started). 


Term
Setup to memorize for process costing 

Definition
Beginning +Started = Total Units to Account for Less Finished/Transferred Less Normal Spoilage = Ending 


Term
Check on costs transferred in process costing 

Definition
total costs (beg + started) given should equal your final allocation to ending inv plus your final allocation to transferred out 


Term
What is goal congruence and goal incongruence? 

Definition
Goal congruence are when the goals of indivs are consistent with the goals of the org; incongruence = goals of indiv (mgrs) incons w/goals of orgeg PDG, each dept head tries to max own rev so the transfer prices they arrange are not in the optimal interest of the org as a whole (relevant to transfer pricing) 


Term
What is the General Transfer Pricing Rule? 

Definition
Transfer Price per Unit = Additional Cost Outlay per unit + Opportunity Cost per unit. Additional cost outlay = variable production costs incurred plus storage, frt, sg&a. Opportunity cost per unit = sales price per unit less additional outlay cost per unit (matters if the unit is wking at capacity & selling all it produes; if not, doesn't matter b/c nothing being given up) 


Term
What is theoretical best transfer price? 

Definition


Term
Theoretical transfer price at full capacity vs less than full capacity? 

Definition
at full capacity, transfer price = market price (= sum of costs to produce units + the opportunity cost, or the difference between selling internally vs selling externally); At less than full capacity, price = just cost of add'l outlay b/c opp cost is zero 


Term
Theoretical transfer price at full capacity vs less than full capacity? 

Definition
at full capacity, transfer price = market price (= sum of costs to produce units + the opportunity cost, or the difference between selling internally vs selling externally); At less than full capacity, price = just cost of add'l outlay b/c opp cost is zero 


Term
adv/disadv of fullcost absorption & costplus pricing in transfer pricing? 

Definition
by trying to cover fixed costs, FC are treated like VC and decrease calculated profitsmay lead to dec to reject a transfer pricing when CM pricing would > accept decision 


Term
Transfer price==rule to use for less than full vs full capacity 

Definition
Following the general rule, the minimum transfer price (floor) is equal to the avoidable outlay costs, while the maximum transfer price (ceiling) is equal to the market price. However, this is only true where idle capacity exists to make the transfer. If there is no idle capacity, market price = min AND maximum 


Term
How allocate Joint Costs? 

Definition
most freq tested method is to set up 3 pts: initial to Splitoff (joint costs), then add'l proc to sales. Wk bkwds f sales: sales less add'l proc cost = joint costtotal and allocate proportionately. If one produce is a byproduct, subtract its revenue from the total costs rather than allocating 


Term
NRV of byproduct & what to do with it? 

Definition
Sales price less separable costs = NRV; subtract it from Joint Product cost rather than giving it its own COGS 


Term
NRV for price allocations of joint products? 

Definition
For purposes of allocating joint costs to joint products, the sales price at point of sale, reduced by cost to complete after splitoff 


Term

Definition
Prevention cost Appraisal cost Internal failure cost External failure cost. 


Term

Definition
Economic value Added EVA = NOPAT  WACC (Total Assets  Current Liabilities) 1. NOPAT = net operating profit after tax; WACC = weighted average cost of capital 


Term

Definition
CFROI = (CFO  ED) / cash invested  1. For CFROI, economic depreciation (ED) is defined as the annual cash investment required to replace fixed assets; CFO is cash flow from operations. 2. CFROI is a cashbased metric that is designed to compute the real internal rate of return on a company's assets and is stated as a rate. 3. CFO  ED is designed to approximate free cash flow (FCF), which is approximately equal to cash flow from operations (CFO) less net investment in fixed assets. This amount represents cash that is potentially distributable to shareholders. 4. CFROI is often used for incentive compensation, valuation, and capital budgeting. This is likely due to the emphasis on cash flow, and the wide acceptance of cash flow for these purposes 


Term
key themes of value based management? 

Definition
Accrualbased metrics are discredited , Cost of capital is increasingly emphasized , Shareholders and shareholder value as the primary element of interest is common; Relating VBM to strategy and making linkages to drivers of success is important 


Term
What do I really have to watch out for in calculating WACC 

Definition
Remember that there is a tax benefit to bonds..don't just do the straight weighted average, do the tax calc too 


Term

Definition
Net Op Inc after taxes + deprec add back  change in working capital  capital expenditures 

