BEC (Financial Management) Flashcards
Incremental Costs
Incremental costs are those that are different between two or more alternatives under consideration. In this case, the incremental cost is the difference between the direct costs of taking one action ($400,000) versus another ($500,000
Capital Asset Pricing Model (CAPM)
The capital asset pricing model does consider the time value of money through the use of the risk-free rate of return. Therefore, failure to consider the time value of money is not a limitation of the model.
The Black-Scholes option pricing model
The Black-Scholes option pricing model does not accommodate options when the price of the underlying stock changes significantly and rapidly. The Black-Scholes model assumes that the stock for which the option is being valued increases in small increments.
Value of business (formula)
Annual earnings/Required rate of return.
P/E ratio
Market Price per share divided by earnings per share
Delphi Method
The Delphi method is a qualitative forecasting method that involves development of a consensus by a group of experts using a multi-stage process to converge on a forecast. Time series models are not a qualitative forecasting method, but a quantitative method.
Time Series Model
Time series models are not a qualitative forecasting method. Time series models are quantitative forecasting methods that use patterns in past data to predict future values.
Qualitative and quantitative methods
Qualitative methods are subjective in nature while quantitative methods are objective in nature.
Exponential smoothinh
reduces random fluctuation (time series model)
Field Warehosue
inventory remains with borrower but placed under 3rd party control
Chattel Mortgage agreement
Borrower retains the inventory but can not sell it without the approval.
floating lien agreement
can sell and replace inventory but used as collateral (noit placed in 3rd party control)
Net-Lease and Net-Net Lease agreement
Under a net lease, the lessee assumes the executory costs associated with the asset during the lease, including such elements as maintenance, taxes and insurance. In a net-net lease, the lessee assumes responsibility for the executory costs during the life of the lease, as well as for a residual value at the end of the lease
Identure
Terms of bond contract
Debenture Bonds
Debenture bonds are unsecured bonds. Because they are unsecured, they are likely to have a higher coupon rate (interest rate) than comparable secured bonds.
Is preferred stock a debt?
Since preferred stock is not debt, there will be no effect on long-term debt; however, since preferred stock is equity, the debt-to-equity ratio will decrease.
Historic rate of return of common stock
(Dividends + change in price) divided by beginning price
Cash Conversion Cycle
The time between paying cash for raw materials and collecting cash from the sale of products made with those raw materials is called cash conversion cycle
Risk/Reward Ratio (Sharpe Ratio)
Mean Return/Standard Deviation
Materials Requirement planning
The materials requirement planning approach to manufacturing and inventory management focuses on a set of procedures to determine inventory levels for demand-dependent inventory types such as work-in-process and raw materials. Under this approach, inventories are maintained at every level in the process (as raw materials, work-in-process and finished goods) as buffer against unexpected increases in demand. The alternative approach, just-in-time inventory, seeks to eliminate excess raw material, work-in-process and finished goods inventories
