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CFA L1 Study Plan Material > Corporate Finance > Flashcards

Corporate Finance Flashcards

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CFA flashcards
1
Q

average accounting rate of return calculation

A

AAR = average net income / average book value

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2
Q

profitability index calculation

A

PI = 1 + (NPV / IO)

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3
Q

capital budgeting decision rules

A

invest if
NPV is greater than 1
IRR is greater than r
PI is greater than 1

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4
Q

in calculating WACC, debt…

A

is calculated on after-tax basis. multiply by (1-t)

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5
Q

CAPM formula

A

Er = Rf + beta (Rm -Rf)

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6
Q

pure-play method, unlevered beta calculation

A

Bu = BlC / [ 1 + (1 - Tc)(Dc /Ec)]

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7
Q

lever the beta calculation

A

BlProject = BuC [1 + (1-Tp)(Dp / Ep)

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8
Q

Country equity premium calculation

A

= sovereign yield spread (annualized sd of equity index / annualized sd of sovereign bond market in terms of developed market currency)

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9
Q

DDM calculation

A

= D1/P0 + g

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10
Q

growth rate calculation

A

= (1 - D/EPS)*ROE

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11
Q

DOL calculation

A

= (Q(P-V)) / (Q(P-V) -F)

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12
Q

DFL calculation

A

= [Q(P-V) -F] / [Q(P-V) - F - C)

C is fixed financing cost

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13
Q

a DOL of x means

A

a 1% change in units sold results in a 1% * x change in operating income

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14
Q

a DFL of x means

A

a 1% increase in operating income would result in a 1 * x percent increase in net income

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15
Q

using financial leverage generally increases…

A

the variability of ROE

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16
Q

DFL is not affected by

A

tax rate

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17
Q

DOL tells of the sensitivity of

A

operating income to changes in revenue

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18
Q

DFL tells of the sensitivity of

A

net income to changes in operating income

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19
Q

DTL calculation

A

DOL * DFL

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20
Q

breakeven point

A

the number of units produced and sold at which the companys NI is zero (revenues equal costs)

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21
Q

breakeven calculation

A

= (F + C) / (P - V)

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22
Q

operating breakeven includes

A

only operating costs

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23
Q

operating breakeven calculation

A

= F / (P-V)

24
Q

major drags on liquidity

A

uncollected receivables, obsolete inventory, tight credit

25
Q

major pulls on liquidity

A

making payments early, reduced credit limits, limits on short-term lines of credit, low liquidity positions

26
Q

operating cycle calculation

A

= DOH + DSO

27
Q

net operating cycle aka…

A

cash conversion cycle

28
Q

MMY calculation

A

= [(F-P) / P] * [360 / days to maturity]

29
Q

BEY calculation

A

= [(F-P) / P] * [365 / days to maturity]

30
Q

Discount Basis Yield calculation

A

= [(F-P) / F] * [360 / days to maturity]

31
Q

short term fund mgmt. investment returns should be expressed as…

A

BEY’s, to allow for comparability

32
Q

captive finance subsidiary

A

wholly owned subsidiary of the company that is established to provide financing of the sales of the parent company

33
Q

float factor

A

float is the amount of money that is in transit between payments made by customers and the funds that are usable by the company. only measures how long it takes for checks to clear, not how long to receive, deposit

34
Q

float factor calculation

A

= average daily float / (total amt of checks deposited / # of days)

35
Q

costs of borrowing calculation

A

= (interest + dealers commission + backup costs) / (loan amount - interest)

divide by net proceeds only when interest rate is stated as “all inclusive”

36
Q

developing country firm cost of equity using CAPM calculation

A

Cost of equity = Risk-free rate + Equity beta × (Equity risk premium + Country risk premium)

37
Q

external analysts should rely on what value for components of current capital structure

A

market value, not book value

38
Q

utilizing incremental cash flows arising from a project..

A

analyzed on an after-tax basis, externalities should be considered/included, financing costs and sunk costs excluded

39
Q

independent directors must not have…

A

material relationships with the company with regard to employment, ownership, or remuneration

40
Q

ESG investing. single factor

A

= thematic

41
Q

ESG investing. best ESG scoring companies

A

= best in class

42
Q

ESG investing. targeted social or environmental objectives

A

= impact

43
Q

employee representatives are…

A

on supervisory boards (not management) and elected by employees

44
Q

additional calculation for net profit margin

A

= ROA/asset turnover

45
Q

additional calculation for financial leverage

A

= ROE/ROA

46
Q

liquidity

renegotiating debt contracts

A

secondary source

47
Q

liquidity

liquidating long term assets

A

secondary source

48
Q

liquidity

trade credit

A

primary source

49
Q

liquidity

centralized cash mgmt systems

A

primary source

50
Q

operating cycle calculation

A

= DOH x DSO

no payables

51
Q

when equity decreases by half, ROE…

A

would double

52
Q

when net income decreases by x%, adjusted ROE would be

A

ROE (1-x)

53
Q

affect on cash conversion cycle for receiving an increase in their number of days payable

A

reduce the cash conversion cycle by that many days

54
Q

purchases calculation

A

= (changeInventory + COGS)

55
Q

cost of borrowing. bankers acceptance

A

=(interest/net proceeds) * 12

divide interest for period

56
Q

cost of borrowing. line of credit

A

=(interest + commitment fee)/usable loan amount *12

divide interest for period

57
Q

cost of borrowing. commercial paper

A

=(interest + dealers commission + backup costs)/net proceeds * 12
divide interest for period

CFA L1 Study Plan Material (7 decks)

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