BAR 2 Financial Management

Question 1

Using CAPM, required rate of return ie cost of equity ie cost of retained earnings =

Answer 1

Risk free rate + Beta *(Market return - risk free rate)

Question 2

Using DCF method, cost of equity =

Answer 2

Expected dividend/ current share price + growth rate

Question 3

Debt ratio=

Answer 3

total debt ie liabilities / total assets

Question 4

Time Interest Earned =

Answer 4

EBIT (Earnings before Interest and Taxes) / Total interest expense or

Pretax income = income after tax / ( 1 - tax rate)
EBIT = pretax income + interest.. than follow regular formula

Question 5

EOQ=

Answer 5

[(2 × monthly sales × order cost)/monthly carrying cost per unit]

Question 6

In APR format, what is benefit to pay each invoice?

Answer 6

[(360 days in year /(payment terms - days when paid)) * discount % / 100% - discount %] - % rate money borrowed

Question 7

weighted-average cost of capital (WACC)

Answer 7

=Debit + Equity

Debt = debt market value $ / (debt market value + equity market value) * after-tax cost of financing of %

Equity = debt market value $ / (debt market value + equity market value) * % cost of equity capital

Question 8

Cost of preferred shares

Answer 8

= Dividends paid / Net proceeds

Dividends paid = $ par value * % dividends
Net proceeds = $ selling price - $ floatation

Question 9

Using constant growth discount mode, what is price to pay?

Answer 9

1) D(t+n)= Pt *(1+growth rate)^2

2) Pt= D(t+n) / (R-G)

Pt = Current price (price at period “t”)
D(t+1) = Dividend one year after period “t”
R = Required return
G = Growth rate

Question 10

expected return on stock

Answer 10

= ($expected rate - current $ price + $expected dividend) / current $ price

Question 11

FCF

Answer 11

= NI + noncash expenses - increase in working capital - capital expenditures

Question 12

Using zero growth model, what is price

Answer 12

Dividend / Growth rate

Question 13

P/E ratio

Answer 13

= market price / EPS