B2 Flashcards
What would cause an firm to increase the debt in its financial structure?
Increase in corporate income tax rate bc int is tax deductible while dividends are not
Define cost of captial
Rate of return on assets that covers costs associate with the funds employed
What are the elements included for cost of Retained earnings?
Current dividends per share, expected growth rate, current market price per share of common stock
Define a Floating Rate bonds
Bonds that automatically adjust the return on a financial instrument to produce constant market value
What type of financing will give no fixed charges, no maturity date and will increase creditworthiness?
Common stock
What would happen to a company’s total leverage if a company lost all preferred stock?
decrease in proportion to a decrease in financial leverage
What impact does the recorded of bad debt expense have on working capital?
working capital decreases
what is the greatest risk to the working capital policy?
Financing permanent current assets w/ ST debt as this creates a risk the company wont have enough to pay maturing obligations
What does the Just In Time inventory rely heavily on?
Relies on suppliers to deliver products when needed
Define a draft
Working capital technique that increases the payable float and therefore delays the outflow of cash
What is a primary benefit of JIT for RM?
eliminate non-value-added operations
Which part of the SCOR model encompasses all the activities that turn the raw materials into FG that are produced to meet a planned demand?
make
Costs related to inspections are related to what type of inventory costs?
ordering costs
What provides a spontaneous source of financing for a firm?
Accounts Payable
What 3 factors affect the optimal level of inventory?
- time required to receive inventory
- the Cost per unit of inv
- Cost of placing order
a decrease in what type of cost would result in an increase in EOQ?
Carrying Costs
What is a reason a firm would choose to finance temporary assets with short-term debt?
Matching the maturities of current asset with liabilities as they come due to reduce risk of cash shortages.
What are the 4 methods of converting AR into cash?
- Collection agencies - collect overdue AR
- Factoring AR - selling AR to a factor for cash
- Cash discounts - offering discounts to receive pmt faster
- EFT
If there are no net earnings in a company, what would be a cashflow method to give accurate valuation?
Price-sales
What is the formula for free cashflow?
Net income
+ Noncash expenses (depreciation)
- Increase in working capital
- Capital expenditures
What are the inputs to the Black Scholes model?
- Current price of underlying stock
- the option exercise price
- the risk free int rate
- time until expiration
- measure of risk to the underlying stock
If a bond is issued with a lower coupon rate than int rate what is the bond issued at… discount or premium?
Discount
Couponint rate = Premium
When calculating the replacement cost.. what is not included?
Period expenses (I.e Period expense, back-office)
If a project yields a positive NPV, what does that mean?
You should accept
What rates are used in the NPV analysis?
- Cost of Capital
- Hurdle rate
- Discount Rate
- Required ROR
What decisions are not part of Capital budgeting?
financing ST WC needs
Using NPV, what assumption are cashflows reinveted at?
the discount rate used in the analysis
What method is used when comparing capital projects needing capital rationing?
Profitability index
If the NPV is negative, what does that mean the discount rate is?
Discount rate is greater than IRR
What is a limitation of using the discounted payback method?
Ignores the cash flows after the pay back period. once the initial investment is returned, future cashflows are not considered
Define the IRR
The discount rate at which the NPV of the project = 0
