asgdd Flashcards
contribution margin
sales- variable costs
contribution margin ratio
contribution margin/sales
break even
fixed costs / contribution margin ratio
margin of safety
current sales - break even sales
Assumptions of economic order quantity analysis include the following
Periodic demand for the good is known.
Total carrying costs vary with quantity ordered.
Costs of placing an order are unaffected by quantity ordered.
Purchase costs per unit are not affected by quantity discounts.
times interest earned
net income before taxes + interest expense / interest expense
formula to calculate cost of preffered stock
ks = D1 / (PO - u - f)
Where:
D1 = Annual preferred dividends PO = Current market price of the stock u = Underpricing per share, if any f = Flotation costs paid the investment banker
working capital
current assets- current liabilities
cost of common equity
(dividend/price) + growth percentage
Next
dividend
Ks = ——————— + G
Price (1 - Flotation)
degree of operating leverage
change in net operating income/ change in sales
or
contribution margin/ contribution margin - fixed costs
Degree of financial leverage
% change in net income / % change in operating income
or
EBIT/ EBIT -interest
or, if there are preferred dividends,
EBIT/EBIT - interest expense -(preferred dividends/ 1- tax)
total leverage
degree of combined leverage
% change in net income/ %change in net sales
or
DOL x DFL
cost of debt
cost of debt (1- marginal tax rate)
cost of preferred stock
preferred dividend/ price of preferred stock
or with flotation costs;
Preferred dividend/ ( 1- flotation cost) price of preferred stock
cost of equity using the dividend growth model
(dividend x new stock price (1- flotation costs)) + dividend growth rate
required return on cost of equity using capital asset pricing model
n
Required rate of return for equity
Risk-free rate + beta(LT average risk premium for the market - Risk-free rate)
times interest earned
income before interest and taxes / interest expense.
indicates the “cushion” related to a firm’s ability to pay interest on debt.
time
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