BEC 2.0 - 1

Question 1

The governance and culture component of COSO’s Enterprise Risk Management Framework is supported by which principles?

Answer 1

• Exercises board oversight
• Commitment to core values
• Defines desired culture

Question 2

What is the net cash flow after tax for a project in a given year?

Answer 2

Cash inflow from sales
Less: outflows from sales (expenses)
Plus: salvage value
Times: 1- tax rate
Plus: Depreciation expense x tax rate (0 if fully depreciated)

Question 3

The annual depreciation expense on an asset reduces income taxes by an amount equal to:

Answer 3

The firm’s marginal tax rate times the depreciation amount

Question 4

Diversifying product offerings rather than elimination does what for potential risk?

Answer 4

Reduces risk

Question 5

What is the current ratio calc?

Answer 5

Current assets (cash, AR, Inventory, ST notes AR) / Current liabilities

Question 6

Intern rate of return calc?

Answer 6

Investment / cash flows = Present Value Factor
- the higher the PVF the lower the computed IRR

Question 7

What is the relationship between the allowance for doubtful accounts and working capital?

Answer 7

When bad debts expense is recorded for the period, working capital decreases

Question 8

Tax shield calc?

Answer 8

Annual depreciation
Times: tax rate

Question 9

What is a derivative?

Answer 9

A financial contract that derives its value from the performance of another asset or financial contract (interest rate. stock, asset, etc.)
- Note payable is a debt instrument whose value is from it’s own performance