1 BEC Flashcards
If they say “tax considerations are not an issue” does it matter to these topics in NPV and payback and IRR calculations:
depreciation
salvage value
no
yes
Company Needs to pay a $90,000 invoice. Bank has offered 8% loan on a discounted basis. How much do they need and what is the effective interest rate.
Principal Needed / (1 - Stated Rate)
90,000/.92 = 97,826
What’s the effective rate?
7826/90000 = 8.626%
BE CAREFUL HERE THE FUNDS YOU HAVE USE OF ARE THE 90,000 AND THE LOAN IS 97,826
High Hurdle Rate - What type of payback is required or cash flow is preferred?
Low Hurdle Rate - What type of pack back or cash flow is preferred?
Higher the hurdle rate, more quickly must be paid off
IRR is greater than the hurdle rate - what do you do?
Take the project, the NPV is positive.
IRR is lower than the hurdle rate - What do you do?
Reject the project - NPV is negative
Hurdle Rate is Normally What?
Weighted AVerge Cost of Capital
Residual Income Formula
Net Operating Income - Cost of Capital
Does NPV Consider Depreciation
Yes
Does the Accounting ROR Use Depreciation
Need to figure out how though, as it’s calculating income or does it add back the tax shield deal, is it cash operating income or cash flows
Yes
Does the Accounting Rate of Return focus on income or cash flows?
I have income written down, but I’m not sure could be cash flows
I have written down:
“think average investment now”
Increase in avg accounting net income - Net income = Required Investment
I have no idea what the above means, sad, I think it’s the denominator
Are Raw materials a current asset?
Yes, they are an inventory for a mfg organization
Does Activity Based Costing recognize that some fixed costs are product costs.
Yes
Activity Based Costing - What is a value added activity
Adds VAlue to the product
Design Engineering
Heat Treatment
Drill Press
Activity Based Costing - What is a non-value added activity
Storage
Better look up shipping - I think freight in is and freight out isn’t
Value Added and Non-Value Added Activities - What type of costing cares about this concept
Activity based costing
Freight Out Product or Period Cost
Product Part of General Selling and Administrative
You have this:
Wages. 325,000
Shift Work 25,000
OT Premium 10,000
What accounts do you apply the above to if it says OT and shift work are in the OH rate
It’s always between: WIP and FOH Control
WIP (Can’t draw a t account here, but debit)
DL
DM
Applied OH
FOH Control
Debit the Actual Indirect Costs
How are costs booked when manufacturing something? What two accounts:
WIP
for the actual DL and DM
then applied OH
Factory OH Control
Where you keep track of what you actually incurred for OH
Dr. Actual Indirect Costs
Application of FOH - Where is this booked
Dr. WIP
Cr. Factory OH Control
Does payback method consider income taxes and depreciation or not
Not sure I think it does unless they say not to
