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BEC > B2 > Flashcards

B2 Flashcards

1
Q

What would cause an firm to increase the debt in its financial structure?

A

Increase in corporate income tax rate bc int is tax deductible while dividends are not

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2
Q

Define cost of captial

A

Rate of return on assets that covers costs associate with the funds employed

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3
Q

What are the elements included for cost of Retained earnings?

A

Current dividends per share, expected growth rate, current market price per share of common stock

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4
Q

Define a Floating Rate bonds

A

Bonds that automatically adjust the return on a financial instrument to produce constant market value

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5
Q

What type of financing will give no fixed charges, no maturity date and will increase creditworthiness?

A

Common stock

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6
Q

What would happen to a company’s total leverage if a company lost all preferred stock?

A

decrease in proportion to a decrease in financial leverage

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7
Q

What impact does the recorded of bad debt expense have on working capital?

A

working capital decreases

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8
Q

what is the greatest risk to the working capital policy?

A

Financing permanent current assets w/ ST debt as this creates a risk the company wont have enough to pay maturing obligations

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9
Q

What does the Just In Time inventory rely heavily on?

A

Relies on suppliers to deliver products when needed

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10
Q

Define a draft

A

Working capital technique that increases the payable float and therefore delays the outflow of cash

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11
Q

What is a primary benefit of JIT for RM?

A

eliminate non-value-added operations

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12
Q

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?

A

make

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13
Q

Costs related to inspections are related to what type of inventory costs?

A

ordering costs

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14
Q

What provides a spontaneous source of financing for a firm?

A

Accounts Payable

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15
Q

What 3 factors affect the optimal level of inventory?

A
  1. time required to receive inventory
  2. the Cost per unit of inv
  3. Cost of placing order
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16
Q

a decrease in what type of cost would result in an increase in EOQ?

A

Carrying Costs

17
Q

What is a reason a firm would choose to finance temporary assets with short-term debt?

A

Matching the maturities of current asset with liabilities as they come due to reduce risk of cash shortages.

18
Q

What are the 4 methods of converting AR into cash?

A
  1. Collection agencies - collect overdue AR
  2. Factoring AR - selling AR to a factor for cash
  3. Cash discounts - offering discounts to receive pmt faster
  4. EFT
19
Q

If there are no net earnings in a company, what would be a cashflow method to give accurate valuation?

A

Price-sales

20
Q

What is the formula for free cashflow?

A

Net income
+ Noncash expenses (depreciation)
- Increase in working capital
- Capital expenditures

21
Q

What are the inputs to the Black Scholes model?

A
  1. Current price of underlying stock
  2. the option exercise price
  3. the risk free int rate
  4. time until expiration
  5. measure of risk to the underlying stock
22
Q

If a bond is issued with a lower coupon rate than int rate what is the bond issued at… discount or premium?

A

Discount

Couponint rate = Premium

23
Q

When calculating the replacement cost.. what is not included?

A

Period expenses (I.e Period expense, back-office)

24
Q

If a project yields a positive NPV, what does that mean?

A

You should accept

25
Q

What rates are used in the NPV analysis?

A
  1. Cost of Capital
  2. Hurdle rate
  3. Discount Rate
  4. Required ROR
26
Q

What decisions are not part of Capital budgeting?

A

financing ST WC needs

27
Q

Using NPV, what assumption are cashflows reinveted at?

A

the discount rate used in the analysis

28
Q

What method is used when comparing capital projects needing capital rationing?

A

Profitability index

29
Q

If the NPV is negative, what does that mean the discount rate is?

A

Discount rate is greater than IRR

30
Q

What is a limitation of using the discounted payback method?

A

Ignores the cash flows after the pay back period. once the initial investment is returned, future cashflows are not considered

31
Q

Define the IRR

A

The discount rate at which the NPV of the project = 0

BEC (12 decks)

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