BAR_Assessment

Question 1

What is the equation to use to calculate the difference between 2 borrowing alternatives: stocks and bonds

Answer 1

EPSS = (EBIT x (1-Tax rate)) / Shares of stock
(under shares of stock include current share + shares to be issued)

EPSB = (EBIT - Bond interest) x (1-Tax rate) / shares of stock
Bond interest = capital $ needed times interest rate
Shares of stock = current shares

Question 2

What is a characteristic of a profitability index?

Answer 2

Used to compare two or more mutually exclusive projects

Also know as benefit-cost ratio

Question 3

What are the 3 levels of interdependence in integrated planning?

Answer 3

1. Pooled
2. Sequential
3. Reciprocal

Question 4

Regulation S-X provides guidance for?

Answer 4

Format and content of financial information submitted to the SEC

Question 5

Regulation S-K

Answer 5

Contains instructions for filling the nonfinancial statement forms required by the SEC

Question 6

Regulation S-T

Answer 6

Electronic filing with SEC

Question 7

What are the 3 basic standard cost methods?

Answer 7

1. Fixed or unchanging
2. Ideal or theoretical
3. Currently attainable

Question 8

How is goodness of fit measured?

Answer 8

By R-squared (R^2)

Question 9

What is the difference between variable costing and absorption costing methods?

Answer 9

Variable costing includes only variable production costs in inventory

Absorption costing includes both variable production costs and fixed cost in inventory

Therefore, if production increases due to increase in sales, variable costing will absorb more fixed cost as expense instead of these fixed costs being allocated to inventory under the absorption method.

Question 10

How are remeasurement gains and losses for foreign currency transactions reported on the income statement?

Answer 10

They are reported directly onto the income statement as foreign currency gain or losses.

Note this is different than translation gain and losses which are reported on the balance sheet

Question 11

What are the risks that cannot be reduced by diversification?

Answer 11

Inflation
Interest rates increase
Recession

They all affect entire industries, country and the world as a whole

Question 12

What are inherent risks in an interest swap agreement?

Answer 12

1. Undesirable exchange (higher interests rates than anticipated)
2. Potential of counterparty nonperformance

Question 13

What is opportunity cost?

Answer 13

Is the amount that would be lost if another alternative is chosen (do not confuse with the difference between the 2 options)

Question 14

What is a perfect hedge?

Answer 14

No possibility of future gains or losses, removes risk

Question 15

What is a normal good?

Answer 15

Is one in which as income increases demand increases