BEC (Financial Management)

Question 1

Incremental Costs

Answer 1

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

Question 2

Capital Asset Pricing Model (CAPM)

Answer 2

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.

Question 3

The Black-Scholes option pricing model

Answer 3

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.

Question 4

Value of business (formula)

Answer 4

Annual earnings/Required rate of return.

Question 5

P/E ratio

Answer 5

Market Price per share divided by earnings per share

Question 6

Delphi Method

Answer 6

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.

Question 7

Time Series Model

Answer 7

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.

Question 8

Qualitative and quantitative methods

Answer 8

Qualitative methods are subjective in nature while quantitative methods are objective in nature.

Question 9

Exponential smoothinh

Answer 9

reduces random fluctuation (time series model)

Question 10

Field Warehosue

Answer 10

inventory remains with borrower but placed under 3rd party control

Question 11

Chattel Mortgage agreement

Answer 11

Borrower retains the inventory but can not sell it without the approval.

Question 12

floating lien agreement

Answer 12

can sell and replace inventory but used as collateral (noit placed in 3rd party control)

Question 13

Net-Lease and Net-Net Lease agreement

Answer 13

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

Question 14

Identure

Answer 14

Terms of bond contract

Question 15

Debenture Bonds

Answer 15

Debenture bonds are unsecured bonds. Because they are unsecured, they are likely to have a higher coupon rate (interest rate) than comparable secured bonds.

Question 16

Is preferred stock a debt?

Answer 16

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.

Question 17

Historic rate of return of common stock

Answer 17

(Dividends + change in price) divided by beginning price

Question 18

Cash Conversion Cycle

Answer 18

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

Question 19

Risk/Reward Ratio (Sharpe Ratio)

Answer 19

Mean Return/Standard Deviation

Question 20

Materials Requirement planning

Answer 20

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