B2 Flashcards
Capital Asset Pricing Model Formula
Risk Free Rate + (Beta * (Market Return - Risk Free Rate))
Stated Interest Rate
rate of interest charged before adjustments for compounding or market factors
Simple Interest Rate
amount of interest paid on the original principal without including compounding
Compound Interest
amount of interest earnings or expense that is based on the original principal plus unpaid interest earnings or expense
Net Proceeds Formula
Total Loan Amount - Fees and Charges - Compensating Balance
Effective Interest Rate Formula
Net Proceeds
Calculate Effective Interest Rate
Actual Interest = ( P x Rate x Time)
Net Interest Cost = Actual Interest - Interest Earned
Effective Interest Rate= Net Interest Cost/ Loan Proceeds - Additional Balance
Calculate Effective Interest Rate in form of a discounted note
Cash Proceeds = Loan Principal - Interest discounted in advance
Effective Interest Rate = Interest Charged/ Cash Proceeds Of discounted note
Calculate Effective annualized percentage cost of financing
(Face Value - Original Issue Discount ) = x
X + Transaction costs = Y
(Y/ Original Issue Discount) x number of years = Answer
Interest Paid Formula
loan amount * ( annum interest amount ) - interest earned
Weighted Average Cost of Capital (WACC)
The average cost of debt and equity financing associated with the firms existing assets and operations.
After Tax Cost of Debt Formula
Pre tax Cost of Debt x ( 1- Tax Rate)
Cost of Preferred Stock Formula
Preferred Stock Cash Dividends / Net Proceeds of Preferred Stock
Cost of Retained Earnings using CAPM formula
Risk Premium
Risk Free Rate +———————————————————
[Beta Coefficient x (Market Rate - Risk Free Rate)]
—————————————-
Market Risk Premium
Retained Earnings using Discounted Cash Flow
(Dividend per share at year end/ Current Market Value) + Constant growth rate of dividends
Retained Earnings under bond yield plus risk premium
Pretax cost of debt + Market Risk Premium
1) Operating Lease
1) Operating lessee will record (ROU) asset and a lease liability on balance sheet. ROU will be amortized and lease liability paid down over life of lease.
Finance Lease
Will record a ROU and Lease liability on balance sheet. Each lease will consist of interest (IS) and principal pay (BS) down.
1) Debenture
2) Subordinated Debenture
1) Debenture: unsecured obligation of the issuing company
2) Subordinated Debenture: bond issue that is unsecured and ranks behind senior creditors in a bankruptcy scenario
Examples of Delay Disbursement
1) Defer Payments
2) Drafts
3) Letter of Credit
4) Zero Balance Accounts
Annual Percentage rate for quick payment discounts
360 Discount %
——————————————-x —————————-
Pay Period - Discount Period 100% - Discount %
Formula for Reorder Point Inventory
Reorder Point = Safety Stock + (Lead Time x Sales During Lead Time)
Economic Order Quantity (EOQ) Formula
2 x Sales in Units x Cost per Purchase Order
\ ——————————————————————-
Carrying Cost per Unit
Motivation to hold Cash
1) Transaction Motive
2) Speculative Motive
3) Precautionary Motive