BEC CPA 2 Flashcards
According to COSO, which group is directly responsible for the implementation and development of the risk management framework
Management
What 3 things are used to compute the required rate of return
- Maturity risk premium
- default risk premium
- Purchasing power risk premium
Annual % rate of discount terms equation
360/(net days - discount days) x discount rate/(100% - discount rate)
A Put option gives it’s owner the right to…
sell a specific security at a fixed condition of price and time
Net cost of debt equation
effective interest rate x (1- tax rate)
PEG equation
PEG = ($ per share / ESP or earnings per share) /(growth rate x 100)
Or
PEG = (P / E) / (G x 100)
Compute dividend in a subsequent year and price: equation
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)
What Approach is used when there is limited intangible asset transactions and no reliable estimates of income/cash flow
Cost Approach
Project stock price equation
P = PEG x (EPS x (1+g)) x (g x 100)
Using CAPM model, what is the cost of equity equation
Risk-free rate + Beta x (market rate - risk-free rate)
After-tax inflow equation
Annual cash after tax (sales - operating expense x (1- tax rate)) + Depreciation tax shield (depreciation x tax rate)
Annual operating cash flows equation
Pretax cash flow x (1 - tax rate) + (depreciation x tax ate)
Net present value eqaution
(Annual cash inflows x PV of an annuity) + (salvage value x PV of a single sum) - Investment
Conversion costs include
direct labor and overhead. or rather, it includes everything except direct materials
As production costs increase in a relevant range, which costs decrease
Fixed costs per unit.
fixed costs are constant in total but decrease per unit as production levels increase
A cost driver is defined as
A causal factor that increases the total cost of a cost objective
Amount of conversion costs equation
COGS + end finished goods - Beg. finished goods -material beg. - purchases + end materials
Purpose for cost allocations
Measure income and assets for external reporting
What assumption can decrease NPV
Increasing the discount rate
Effective annualized % cost of financing
(face value - issue amount + transaction costs) / Issue amount. x (days a year / days of bond)
-note the days of year isn’t always 365!
If NPV of a project is positive, it would indicate what?
The rate of return is greater than the discount % rate (hurdle rate) useed in the NPV computation
Credit Policy Change
Sales projections x credit sales ratio x Collection day ratio (75 / 365) = AR - AR with the change ( same equation as above)
Factor of the IRR equation
Net incremental investment (investment required) / Net annual cash flows
A decrease is what could increase Economic Order Quantity (EOQ)
Carrying costs
FIFO Equivalent Units
Beg. WIP (units x % to complete materials)
Plus: completed and transferred out
Less: Beg. WIP
Plus: End WIP (units x % completed materials)
Weighted-average Equivalent Units
Completed and transferred out
Plus: End. WIP (units x % complete)
Finding the bond’s price equation
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
What is the internal rate of return? explanation
A time-adjusted rate of return from an investment
Finding the COGS equation
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
Cash conversion Cycle
Inventory / (COGS /365)
Plus: AR / (Sales / 365)
Less: AP / (COGS / 365)
Actions an exporter can take to avoid foreign exchange loss
Enter into a forward contract with a bank
When estimating cash flow for use in capital budgeting depreciation is…?
Utilized in determining the tax costs or benefit
