B1 Flashcards

1
Q

Enterprise Risk Managment components

A
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2
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3
Q

ERM - GO

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4
Q

ERM - PRO

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5
Q

Inherent Risk - COSO’s ERM

A

The risk that exists to an entity when management takes no action to alter the severity of the risk

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6
Q

Residual Risk - COSO’s ERM

A

Leftover risk after taking steps to mitigate risk

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7
Q

Which type of risk is represented by obtaining more insurance in anticipation of the increased likelihood of a nature disaster?

A

Risk Sharing

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8
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9
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10
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11
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12
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13
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14
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15
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16
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17
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18
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19
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20
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21
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22
Q

Cost of Retained Earnings

Also the Cost of Common Stock.

A

(D+(1+g)/P) + g

(Dividend Plus Growth / Initial Price) + Growth

To calculate the number of shares from the CS BS FS line, remember to divide this by Par Value to find the # of shares of CS.

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23
Q

Cost of Preferred Stock

A

(Pref Dividend X Par Value Pref Stock) / MV of Pref Stock

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24
Q

After-Tax Cost of Debt

A

Pretax cost of Bonds X (1-Tax Rate)

The interest is tax deductible, so only 70% of the pretax cost of the interest rate is the after-tax cost, for example.

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Weighted Avg Cost of Capital (WACC) Often used at the hurdle rate for investments.
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Value of Equity Using Sector PE
= NI x P/E Multiple
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Default Risk Premium (DRP)
Risk that the borrower won't pay
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Credit Risk Premium
Risk that a firm will not be able to borrow more money
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Maturity Risk Premium (MRP)
Risk associated with the length of time allowed to a borrow, the longer the time before they have to pay, the increased chance they might not pay you back.
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Purchasing Power Risk Premium
Inflation risk (IP) - loss of purchasing power
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Nominal Dollars vs Real Dollars
Nominal Dollars are not adjusted for inflation Real Dollars are adjusted for inflation
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What effect does paying a current liability have of Working Capital?
None, Paying a current liability with cash reduces both equally.
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Change in Demand/Supply vs. Change in Quantity Demanded/Supplied
Change in Demand represents a shift left/right of the whole demand curve and shows a change at all price levels. Change in Quantity Demanded is a slide up/down the demand curve as price levels change.
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Price Discrimination - Customers only buying at certain prices.
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To lower due to inflation: $1,030 is adjusted for a 2% inflation by 1,030 / 1.02 To raise due to inflation $1,030 X 1.02
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