Becker Flashcards
Calculation for economic value added
Cost of investment x capital=required return
Income after required economic taxes - return=value added
Compute calculation of net cash outflow at beginning of 1st year
Initial investment \+shipping \+installation \+training \+increase in working capital -cash proceeds on sale of old (net of tax) =net initial outflow
Calculation for expected cost savings
1) budgeted cost of sales/current inventory turnover=current average inventory
2) budgeted cost of sales/expected inventory turnover=expected average inventory
3) current average inventory - expected average inventory=inventory increase/decrease
4) inventory increased/decrease x interest rate=cost savings
Calculation for margin of safety percentage
Margin of safety in dollars/total sales
Calculation for margin of safety (in dollars)
Total sales (in dollars) - break even sales ( in dollars)
Formulas for return on investment
Income/investment capital
Or
Profit margin x investment turnover
Calculation for APR of quick payment discount
Disc % x 365/(100-disc%) x (pay period-disc period)
Overhead variances
Actual vs. Budget on actual hours
Budget on actual hours vs. Budget on standard hours
Budget on standard hours vs. Overhead applied
What are the 4 strategic business units?
Cost
Revenue
Profit
Investment
What are the 4 designs for financial scorecards
“AT US”
Accurate, timely, understandable, specific accountability
Calculation for market size variance
Actual market size - Expected market size x budgeted marketed share% x budgeted CM (weighted average)
Calculation for sales price variance
(Actual SP/Unit - Budgeted SP/Unit) x actual sold units
Calculation for sales volume variance
Actual sold units - Budgeted sales x CM
Calculation for profit margin?
Investment turnover?
Income/sales
Sales/invested capital
Formula for bond yield plus risk premium (BYRP) for cost of retained earnings
KDT(pretax cost of long-term debt) + PMR(risk premium)
Formula for cost of retained earnings
kre=krf + [bi x (km - krf)]
krf=risk free rate
Bi=beta
Km=market rate
Krf=risk free rate
What are the formula notations for the following
Risk free rate?
Risk premium?
Krf
Stocks beta coefficient ( bi) x the market risk premium (PMR)
What are the 3 methods of computing cost of retained earnings (kre)
Capital asset pricing model
Discounted cash flow
Bond yield plus risk premium
Calculation for return on assets
Net income / average total assets
Formula for dividend per share expected at the end of one year: D1
D0 x (1+g)
Annual stock dividend
Formula for cost of retained earnings using discounted cash flow
(Div1 / P0) + g
Div1=dividend per share expected at end
P0=current market value or price of common stocks
G=constant rate of growth
Formula for cost of preferred stock
Preferred stock cash dividends / net proceeds of preferred stocks
What letters express
Cost of preferred stock?
Net proceeds of preferred stocks?
Preferred stock cash dividend?
Kps
Nps
Dps
What letters express
Cost of long-term debt?
Pre-tax cost of debts?
After-tax cost of debt?
Kdx
Kdt
Kids
Formula for weighted average interest rate
Effective annual interest payments / debt cash available
Formula for weighted average cost of capital
Cost of equity multiplied by the percentage equity in capital structure + weighted average cost of debt multiplied by the percentage debt in capital structure
Formula for degree of combined leverage
% change in EPS / % change in sales
Or
DOL x DFL
Formula for degree of financial leverage
% change in EPS / % change in EBIT
Formula for degree of operating leverage (DOL)
% change in EBIT / % change in sales
What 2 rates can be used as cost of long-term debt
Market rate
Yield to maturity
Calculation for net cost of debt
Effective interest rate x (1-T)
Equation for absorption approach
Revenue - cost of goods sold = gross margin - operating expenses = net income
Calculation for break even point in units
Total fixed costs / contribution margin per unit
Contribution approach equation
Revenue - variable costs = contribution margin - fixed costs = net income
Calculation for number of units to be purchased
DM needed + desired ending inventory - beginning inventory
Calculation for unit contribution margin
Unit sales price - unit variable cost
Compute contribution margin ratio
Total fixed costs / contribution margin ratio
Calculation for sales volume for target profit
Sales = fixed cost + profit / contribution margin ratio
Calculation for direct materials used
Beg. Inventory at cost + purchasing at cost - ending inventory at cost
Calculation for cost of goods sold
COGM + beginning finished goods - ending finished goods = COGS
Comparison for price variance
Actual quantity purchased x actual price
Vs.
Actual quantity purchased x standard price
Comparison for quantity usage variance
Actual quantity used x standard price
Vs.
Standard quantity allowed x standard price
Efficiency variance comparison
Actual hours x standard rate
Vs.
Standard hours allowed x standard rate
Rate variance comparison
Actual hours x actual price
Vs.
Actual hours x standard rate
What is the formula for total cost
Fixed cost + (VC per unit x volume)
Formula for budgeted production
Budgeted sales + desired ending inventory - beginning inventory = budgeted production
Calculation for contribution margin ratio
Contribution margin / revenue
How is the application of overhead accomplished
Calculate overhead rate: budgeted overhead costs / estimated cost driver
Applied overhead = standard cost driver for actual level of activity x overhead rate ( step 1 )
What is the 3 way variance
Spending
Efficiency
Volume
When production is greater than sales, is profit higher in absorption costing or variable costing? Sales greater than production?
Absorption costing
Variable costing
Y=
X=
A=
B=
Dependent variable
Independent variable
Y - intercept
Slope
How is fixed factory overhead treated in absorption approach? Contribution approach?
Product cost
Period cost
If y was total costs, what would x be? A? B?
Total activity (or output)
Total fixed costs
Change in total costs due to a one unit change in output ( variable cost per unit )
Computation of target profit before tax based on the target profit after tax
Target profit after tax / (1- tax rate)
Computation for target cost
Market price - required profit
Steps to compute difference between absorption and variable net income
1) compute fixed cost per unit ( fixed man overhead / units produced )
2) compute change in income ( change I’m inventory units x fixed cost per unit )
3) determine the impact of the change in income
Calculation for discounted annual depreciation tax shield
1) depreciable cost / useful life
2) depreciation expense x tax rate
3) amount depreciation tax shield x annuity rate
Calculation for annual savings needed to make investment
PV cash savings / inflows = PV net cash outflows
Calculation for after tax present value using discount factor
( PV of cash inflow x annuity rate ) - PV of cash outflow x tax rate x annuity rate = after tax PV
Calculation for overall discounted cash flow impact
Cash flow driver x PV interest factor
Calculation for internal rate of return
Net incremental investment / net annual cash flows
Calculation for payback period
Net initial investment / increase in annual net after tax cash flow
Calculation for profitability index
Present value of net future cash inflow / present value of net initial investment
Computation for net present value methods
1) calculate after tax cash flows
2) multiply result by appropriate present value of an annuity
3) subtract initial cash outflow
Compute net cash flow for the final year for capital budgeting analysis
Net cash flow from sales - taxes on net sales + depreciation + salvage value ( net of tax )= net cash flow
How to compute after tax cash flows? ( annual operating cash in flow ) step 2
1) pre-tax cash inflow x ( 1-tax rate )
+2) depreciation x tax rate
Calculation of for asset sale
Net proceeds on sale of old ( net of tax ) proceeds on sale - tax paid on gain ( G x T ) + tax saved on loss ( L x T )
