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BEC > Capital Management > Flashcards

Capital Management Flashcards

1
Q

What is the degree to which a firm uses fixed operating costs, as opposed to variable operating costs?

A

Operating leverage

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2
Q

Formula for Degree of Operating Leverage

A

% change in EBIT / % change in Sales

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3
Q

What is the degree to which a firm’s use of debt to finance the firm magnifies the effects of a given percentage change in EBIT?

A

Financial Leverage

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4
Q

Formula for Degree of Financial Leverage

A

% change in EPS / % change in EBIT

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5
Q

Formula for Combined Leverage

A

DOL x DFL; % change in EPS / % change in Sales

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6
Q

Compute Weighted-average interest rate

A

Effective annual interest payments / debt cash available

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7
Q

kdx=

A

Cost of long-term debt

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8
Q

kdt=

A

Pre-tax cost of debt

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9
Q

kps=

A

Cost of preferred stock

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10
Q

Nps=

A

Net proceeds of preferred stocks

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11
Q

Dps=

A

Preferred stock cash dividends

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12
Q

Formula for Cost of preferred stock

A

Preferred stock cash dividends / Net proceeds of preferred stocks

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13
Q

krf=

A

Risk-free rate

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14
Q

PMR=

A

Market risk premium

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15
Q

Compute risk premium

A

Beta coefficient(bi) x market risk premium(PMR)

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16
Q

Compute PMR

A

market rate - risk-free rate(krf)

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17
Q

Formula for Cost of retained earning(kre) CAPM method

A

krf + (bi x (km - krf))

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18
Q

Formula for cost of retained earning(Discounted cash flow)

A

(D1/P0) + g

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19
Q

D1=

A

Dividend per share

20
Q

G=

A

Growth rate in dividends

21
Q

P0=

A

Current market value or price

22
Q

Compute Dividend per share

A

D0 + (1+g)

23
Q

Compute cost of retained earnings(Bond yield plus risk premium)

A

kdt + PMR

24
Q

Compute Return on Investment

A

Income / Investment capital; Profit margin x investment turnover

25
Q

Compute Return on assets

A

Net income / average total assets

26
Q

Compute residual income

A

Net income - required return

27
Q

Compute required return

A

NBV x Hurdle rate

28
Q

Compute economic value added

A

Investment x cost of capital = required return; Income after taxes - required return = economic value added

29
Q

Compute working capital

A

Current assets - Current liabilities

30
Q

Compute current ratio

A

Current assets / Current liabilities

31
Q

Compute quick ratio

A

(Current assets - Inventory - Prepaids) / Current liabilities

32
Q

Compute APR of quick payment discount

A

(Disc% x 365) / (100 - Disc%) x (Disc period - Pay period)

33
Q

Formula for cash conversion cycle

A

Inventory conversion + Receivables collection - Payables deferral

34
Q

What are the 3 components of the Economic Order Quantity?

A

Annual sales, Order cost, and carrying cost per unit

35
Q

What type of leverage is the result of industry characteristics?

A

Operating leverage

36
Q

What type of leverage deals with capital structure?

A

Financial leverage

37
Q

Calculation for Weighted-Average Cost of Capital

A

(Cost of equity x %equity in capital structure) x ((after tax)cost of debt x %debt in capital structure)

38
Q

Calculation for after-tax cost of long-term debt

A

Kdt x (1 - tax rate)

39
Q

Aggressive working capital means to increase current liabilities or assets?

A

Current liabilities

40
Q

Conservative Working Capital means to increase current liabilities or assets?

A

Current assets

41
Q

Calculation for cost of factoring

A

Net cost / average amount invested

42
Q

Calculation for cost savings

A

(Cost of sales / inventory turnover) x interest rate

43
Q

Calculation for required costs to achieve target

A

Asset base x interest rate + income target - revenue forecast

44
Q

Calculation for net cost of debt

A

Effective interest rate x (1-tax rate)

45
Q

Calculation for economic value added

A

After tax income - required return

46
Q

Calculation for times interest earned

A

EBIT / Total interest

BEC (32 decks)

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