BEC 14 Flashcards
What is the difference between a put and a call option
Call options you have the right but not the obligation to buy FCU at a specific price on a specific date
Put options - gives the buy the right, but not the obligation to sell the underlying security at the exercise price at or within a specified time
What is a measure of the volatility of an investment
Standard deviation
What are the effects when you have a JIT costing system
- materials are order in smaller batches with less inventory held
- The result is that individual orders are smaller, there are more orders placed - which increases the number of inspections and inspection costs
- If you have a backlash costing system too costs associated with recording details and costs tracked to jobs is eliminated
What is a back flush costing system
Used in JIT
This is when you postpone the assignment of costs to production until production is complete
Costs are then “flushed back” at the end of the production run and assigned to the goods.
Someone time you can wait till the inventory is sold.
The result is that standard costs are used to assign costs which ELIMINATING the need for detailed tracking of costs
what is the definition of business risk
The risk that profits may be lower than anticipated
cash flow is an example of business risk in capital structure
What is a risk premium
Risk premium is the amount added to the risk-free rate of return
Its added on
Its hazard pay for your investment
Like someone get hazard pay for performing a dangerous job, risky investments must provide an investor with the potential for larger returns to compensate for the risk of the investment
Factors that affect risk premium include:
long term investment - higher risk premium than short term due to uncertainty over a longer period of time
A relatively liquid asset ususaly has a shorter period of time for investment there fore less risky less premium
Seniority play a part to - securities that have higher seniority get paid first in the event of a liquidation - less risk premium
How do you define an investment center’s residual income
It is the center’s income less the imputed interest on its invested capital
What is the difference between the cash conversion cycle, A/R cycle , Inventory conversion period, and Accounts payable deferral period
CCC - the time period from when raw materials are paid to when receivables from sales re collected
A/R collection period- this is the average number of days required to collect A/R
Inventory conversion period - the avg number of days to convert inventory to sales
A/P Deferral Period - the avg number of days between buying inventory and paying for inventory
Which profitability ratio is used to compare the profitability of two companies of different sizes
Return on assets
This is because it evaluate net income as a percentage of average total assets
The ratios will be relative to each other
What is the quick ratio a good indicator of
It is a good indicator of solvency - their ability to pay short term obligations as they come due
What does a high debt ratio indicate
It indicates a highly leveraged potentially risky company - not desirable to creditors
What does a low inventory ratio indicate
A low inventory ratio may be indicative of obsolete inventory
What does a high number of days sales outstanding in ending trade receivables tell you
May be an indication of an ineffective collection process and not desirable to creditors
asset turnover and inventory turnover are both what type of ratios
utilization ratios
What is the optimal capital structure determined by
The optimum capital structure, which is the combination of debt and equity used to finance assets, is that structure that will result in the lowest overall cost of capital, referred to as the weighted average cost of capital.
