Day 31

Question 1

Equation: net cost of debt

Answer 1

= effective interest rate × net effect of tax

MCQ-05247

Question 2

Equation: cost of preferred stock

Answer 2

= Preferred Stock Dividend (Par × Rate) ÷ Net Proceeds of Preferred Stock

MCQ-05180

Question 3

What is needed to estimate the cost of equity capital?

Answer 3

1. Current dividends per share (D)
2. Expected growth rate in dividends (g)
3. Current market price per share of Common stock (P)

MCQ-03920

Question 4

Equation: Profitability Index of a project

Answer 4

= Present Value of Net Future Cash Inflows ÷ Present Value of Net Initial Investment

MCQ-06625

Question 5

Define: Mixed Costs

Answer 5

Includes both fixed and variable costs

MCQ-03465

Question 6

What are the characteristics of a flexible budget?

Answer 6

• Adjusts the budget amounts for different levels of activity
• Identifies volume components of variances from planned activity

MCQ-05862

Question 7

Define: Operating Budgets

Answer 7

Describe the plan for revenue and expenses and the supporting schedules that go with them

Ex: Sales, Materials, Labor, Overhead, Production

MCQ-04004

Question 8

Define: Capital Budgets

Answer 8

Plan for purchase of Capital assets

Note: Capital Budgets only affect Operational Budgets through their subsequent effect on expense via depreciation

MCQ-04004

Question 9

Equation: Investment Turnover

Answer 9

= Sales ÷ Average Investment

MCQ-06659

Question 10

What would decrease the NPV?

Answer 10

Increase the Discount Rate

MCQ-03797

Question 11

What are period Costs under variable method?

Answer 11

1. Variable SG&A
2. Fixed SG&A
3. Fixed Overhead

MCQ-07735

Question 12

When developing a Capital budget, what input would be most helpful?

Answer 12

Profit center equipment requests

MCQ-04832