1 BEC

Question 1

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

Answer 1

no

yes

Question 2

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.

Answer 2

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

Question 3

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?

Answer 3

Higher the hurdle rate, more quickly must be paid off

Question 4

IRR is greater than the hurdle rate - what do you do?

Answer 4

Take the project, the NPV is positive.

Question 5

IRR is lower than the hurdle rate - What do you do?

Answer 5

Reject the project - NPV is negative

Question 6

Hurdle Rate is Normally What?

Answer 6

Weighted AVerge Cost of Capital

Question 7

Residual Income Formula

Answer 7

Net Operating Income - Cost of Capital

Question 8

Does NPV Consider Depreciation

Answer 8

Yes

Question 9

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

Answer 9

Yes

Question 10

Does the Accounting Rate of Return focus on income or cash flows?

Answer 10

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

Question 11

Are Raw materials a current asset?

Answer 11

Yes, they are an inventory for a mfg organization

Question 12

Does Activity Based Costing recognize that some fixed costs are product costs.

Answer 12

Yes

Question 13

Activity Based Costing - What is a value added activity

Answer 13

Adds VAlue to the product

Design Engineering
Heat Treatment
Drill Press

Question 14

Activity Based Costing - What is a non-value added activity

Answer 14

Storage

Better look up shipping - I think freight in is and freight out isn’t

Question 15

Value Added and Non-Value Added Activities - What type of costing cares about this concept

Answer 15

Activity based costing

Question 16

Freight Out Product or Period Cost

Answer 16

Product Part of General Selling and Administrative

Question 17

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

Answer 17

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

Question 18

How are costs booked when manufacturing something? What two accounts:

Answer 18

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

Question 19

Application of FOH - Where is this booked

Answer 19

Dr. WIP

Cr. Factory OH Control

Question 20

Does payback method consider income taxes and depreciation or not

Answer 20

Not sure I think it does unless they say not to