Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

BEC > B3: Financial Management > Flashcards

B3: Financial Management Flashcards

1
Q

How do we calc Degree of Operating Leverage (DOL)?

A

% change in EBIT / % change in sales

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

How do we calc Degree of Operating Leverage (DOL)?

A

% change in EBIT / % change in sales

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is operating leverage?

A

degree to which a company uses fixed operating costs rather than variable operating costs (fixed costs / variable costs)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is financial leverage?

A

degree to which a company uses debt rather than equity to finance the company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

How do we calc Degree of Financial Leverage (DFL)?

A

% change in EPS / % change in EBIT

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

How do we calc degree of total leverage?

A

DOL x DFL

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

How do we calc degree of total leverage?

A

DOL x DFL

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

How do we calculate the payback period?

A

net initial investment / increase in annual net after-tax cash flow

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

How do we calculate the payback period?

A

net initial investment / increase in annual net after-tax cash flow

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

How do we calc IRR factor?

A

net incremental investment / net annual CF

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

How do we calc profitability index?

A

PV net future cash inflows / PV net initial investment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are Relevant costs?

A

costs that will change in response to the selection of different courses of action

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are Relevant costs?

A

costs that will change in response to the selection of different courses of action

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is the calc for WACC?

A

(cost of equity x % equity) + (weighted avg cost of debt x % debt)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is the calc for WACC?

A

(cost of equity x % equity) + (weighted avg cost of debt x % debt)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the calc for weighted avg interest rate?

A

Effective annual interest payments / debt cash available

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is the calc for cost of preferred stock?

A

preferred stock dividends / net proceeds of preferred stock

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is the calc for cost of preferred stock?

A

preferred stock dividends / net proceeds of preferred stock

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What are the 3 methods of computing the cost of retained earnings?

A

CAPM
DCF
BYRP

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is the CAPM cost of retained earnings formula?

A

Risk-free rate + Beta (market risk premium)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is the DCF cost of retained earnings formula?

A

D1 / Po + g

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is the DCF cost of retained earnings formula?

A

D1 / Po + g

Dividend yield + growth

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What is the BYRP cost of retained earnings formula?

A

pretax cost of LT debt (firm’s own bond yield) + market risk premium

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is the BYRP cost of retained earnings formula?

A

pretax cost of LT debt (firm’s own bond yield) + market risk premium

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

When is debt financing more favorable than equity financing?

A

High marginal tax rates and few noninterest tax benefits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

How is the net cost of debt calculated?

A

Effective annual interest rate x (1-T)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What is the calc for WACC?

A

(cost of equity x % equity) + (cost of debt (1-T) x % debt)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

How is the net cost of debt calculated?

A

Effective annual interest rate x (1-T)

29
Q

What are the two ways of calculating ROI?

A

Income / investment capital (debt + equity)

Profit margin (NI/sales) x investment turnover (sales/assets)

30
Q

What is the formula for ROA?

A

NI / avg total assets

31
Q

What is the formula for ROA?

A

NI / avg total assets

32
Q

What is the formula for ROE?

A

NI / total equity (A-L)

33
Q

What are the components of DuPont ROE?

A 
Net profit margin (NI/sales)
x
Asset turnover (sales/avg total assets)
x
Financial leverage (avg total assets/equity)

Or ROA x DFL

34
Q

How does the extended DuPont Model break out net profit margin?

A

3 distinct components:

Tax burden: NI / pretax income
x
Interest burden: Pretax income / EBIT
x
Operating income margin: EBIT / sales
35
Q

What is the residual income formula?

A

net income - required return

required return = NBV equity x hurdle rate

36
Q

How do we calculate EVA?

A

NOPAT - $WACC

same as

EBIT (1-T) - (Investment x cost of capital (WACC))

37
Q

How do we calculate EVA?

A

NOPAT - $WACC

same as

EBIT (1-T) - (Investment x cost of capital (WACC))

38
Q

What is the formula for Times Interest Earned ratio?

A

EBIT / interest expense

39
Q

What is the formula for the quick ratio?

A

cash + marketable securities + receivables / current liabilities

OR cash - inventory - prepaids / current liabilities

40
Q

What is the formula for the quick (acid-test) ratio?

A

cash + marketable securities + receivables / current liabilities

OR cash - inventory - prepaids / current liabilities

41
Q

How do we find the APR cost of a quick payment discount?

A

(360 / pay period - discount period) x (discount / 100-discount %)

42
Q

What is the cash conversion cycle?

A

inventory conversion period + receivables collection period - payables deferral period

operating cycle = # of days to sell + # of days to collect

43
Q

What is the cash conversion cycle (net operating cycle)?

A

inventory conversion period + receivables collection period - payables deferral period

operating cycle = # of days to sell + # of days to collect

44
Q

How do we calculate the inventory conversion period (# days to sell) ?

A

inventory turnover = COGS / avg inventory

inventory conversion period = 365 / inventory turnover

45
Q

How do we calculate the receivables collection period (# days to collect) ?

A

A/R turnover = sales / avg A/R

Receivables collection period = DSO = 365 / A/R turnover

46
Q

How do we calculate the payables deferral period (# days to pay) ?

A

A/P turnover = COGS / avg A/P

A/P deferral period = 365 / A/P turnover

47
Q

How is the reorder point calculated?

A

safety stock + (lead time x sales during lead time)

48
Q

What is the residual income formula?

A

net income - required return

required return = NBV x hurdle rate

49
Q

How is the reorder point calculated?

A

safety stock + (lead time x sales during lead time)

50
Q

What is the equation for EOQ?

A

E = sqrt of (2SO/C)

E = order size (EOQ)
S = annual sales (units)
O = cost per purchase order
C = carrying cost per unit
51
Q

How do we calc the operating cycle?

A

A/R turnover in days + Inventory turnover in days

52
Q

How do we calc return on common equity?

A

(NI - preferred dividends) / avg common equity

53
Q

How do we calc working capital turnover?

A

Sales / avg working capital

54
Q

How do we calculate the receivables collection period (# days to collect) ?

A

A/R turnover = sales / avg A/R

Receivables collection period = DSO = 365 / A/R turnover

55
Q

How do we calc working capital turnover?

A

Sales / avg working capital

56
Q

How do we calc the effective interest rate?

A

amt paid on loan / net proceeds

57
Q

How do we calc the effective interest rate?

A

amt paid on loan / net proceeds

58
Q

How do we find IRR?

A

internal rate of return is equal to the discount rate at which the net present value of the investment is equal to zero

59
Q

How is CF calculated from NI?

A

Add back non-cash expenses

60
Q

How do we calc working capital?

A

current assets - current liabilities

61
Q

What are 4 popular methods for converting A/R to cash?

A

collection agencies
factoring
cash discounts
EFTs

62
Q

What is the formula for computing cost/benefit % for trade discounts?

A

360 / (total pay period - discount period) x (discount / (100-discount))

63
Q

What securities are common marketable securities?

A 
US T-bills
negotiable CDs
Banker's acceptances
Commercial paper
Equity securities
Eurodollars
64
Q

What are the 3 primary reasons for holding cash?

A

Transaction
Precaution
Speculative

65
Q

How do we calc firm’s avg receivable balance?

A

avg daily sales x avg collection period

66
Q

How do we calc DSO?

A

avg net receivables / (net credit sales / 365)

67
Q

How do we calc ROA?

A

NI / avg total assets

68
Q

What is the description of the required return in the residual income approach?

A

target return on investment set by company’s management

69
Q

What is economic value added?

A

residual income of project earnings in excess of the cost of capital associated with the invested capital

BEC (6 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions