BEC CPA 2

Question 1

According to COSO, which group is directly responsible for the implementation and development of the risk management framework

Answer 1

Management

Question 2

What 3 things are used to compute the required rate of return

Answer 2

1. Maturity risk premium
2. default risk premium
3. Purchasing power risk premium

Question 3

Annual % rate of discount terms equation

Answer 3

360/(net days - discount days) x discount rate/(100% - discount rate)

Question 4

A Put option gives it’s owner the right to…

Answer 4

sell a specific security at a fixed condition of price and time

Question 5

Net cost of debt equation

Answer 5

effective interest rate x (1- tax rate)

Question 6

PEG equation

Answer 6

PEG = ($ per share / ESP or earnings per share) /(growth rate x 100)
Or
PEG = (P / E) / (G x 100)

Question 7

Compute dividend in a subsequent year and price: equation

Answer 7

Current price (Pt) = Dividend 1 yr. after period “t” (D(t+1) / (required return - Growth rate)
e.g D(t-1) = $20 current yr. div x (1.05)(1.05) - 2 years = 22.05
Pt = (22.05 x 1.05) / (.10(discount rate) - .05)

Question 8

What Approach is used when there is limited intangible asset transactions and no reliable estimates of income/cash flow

Answer 8

Cost Approach

Question 9

Project stock price equation

Answer 9

P = PEG x (EPS x (1+g)) x (g x 100)

Question 10

Using CAPM model, what is the cost of equity equation

Answer 10

Risk-free rate + Beta x (market rate - risk-free rate)

Question 11

After-tax inflow equation

Answer 11

Annual cash after tax (sales - operating expense x (1- tax rate)) + Depreciation tax shield (depreciation x tax rate)

Question 12

Annual operating cash flows equation

Answer 12

Pretax cash flow x (1 - tax rate) + (depreciation x tax ate)

Question 13

Net present value eqaution

Answer 13

(Annual cash inflows x PV of an annuity) + (salvage value x PV of a single sum) - Investment

Question 14

Conversion costs include

Answer 14

direct labor and overhead. or rather, it includes everything except direct materials

Question 15

As production costs increase in a relevant range, which costs decrease

Answer 15

Fixed costs per unit.
fixed costs are constant in total but decrease per unit as production levels increase

Question 16

A cost driver is defined as

Answer 16

A causal factor that increases the total cost of a cost objective

Question 17

Amount of conversion costs equation

Answer 17

COGS + end finished goods - Beg. finished goods -material beg. - purchases + end materials

Question 18

Purpose for cost allocations

Answer 18

Measure income and assets for external reporting

Question 19

What assumption can decrease NPV

Answer 19

Increasing the discount rate

Question 20

Effective annualized % cost of financing

Answer 20

(face value - issue amount + transaction costs) / Issue amount. x (days a year / days of bond)
-note the days of year isn’t always 365!

Question 21

If NPV of a project is positive, it would indicate what?

Answer 21

The rate of return is greater than the discount % rate (hurdle rate) useed in the NPV computation

Question 22

Credit Policy Change

Answer 22

Sales projections x credit sales ratio x Collection day ratio (75 / 365) = AR - AR with the change ( same equation as above)

Question 23

Factor of the IRR equation

Answer 23

Net incremental investment (investment required) / Net annual cash flows

Question 24

A decrease is what could increase Economic Order Quantity (EOQ)

Answer 24

Carrying costs

Question 25

FIFO Equivalent Units

Answer 25

Beg. WIP (units x % to complete materials)
Plus: completed and transferred out
Less: Beg. WIP
Plus: End WIP (units x % completed materials)

Question 26

Weighted-average Equivalent Units

Answer 26

Completed and transferred out
Plus: End. WIP (units x % complete)

Question 27

Finding the bond’s price equation

Answer 27

face value x coupon rate = div.
Div / (1+ interest rate) + Div /(1 + I)squared + … final year = face + Div / (1+I) to the power of years

Question 28

What is the internal rate of return? explanation

Answer 28

A time-adjusted rate of return from an investment

Question 29

Finding the COGS equation

Answer 29

Beg direct materials
Plus: Purchases
Less: returns
Plus: transport in
Less: end. direct materials
Plus: direct labor
Plus: Factory OH
Plus: Beg. WIP
Less: End. WIP
Plus: beg finished goods
Less: end. finished goods

Question 30

Cash conversion Cycle

Answer 30

Inventory / (COGS /365)
Plus: AR / (Sales / 365)
Less: AP / (COGS / 365)

Question 31

Actions an exporter can take to avoid foreign exchange loss

Answer 31

Enter into a forward contract with a bank

Question 32

When estimating cash flow for use in capital budgeting depreciation is…?

Answer 32

Utilized in determining the tax costs or benefit