Day 42

Question 1

Define: Discount Rate

Answer 1

Is the rate the Fed charges to banks for borrowing money

If the bank pays lower interest = the banks lend more money = Increases money supply

Question 2

Factors that shift the demand curve:

WRITEN

Answer 2

• Wealth
• Related Goods
• Income
• Tastes
• Expectations
• Number of buyers

Question 3

Factors that shift the Supply Curve:

ECOST

Answer 3

• Expectations
• Production Costs
• Other Goods
• Subsidies
• Technology

Question 4

Equation: Residual Income

Answer 4

= Net Income - Required Return

Required Return = Net Book Value (Equity) × Hurdle Rate

MCQ-06657

Question 5

Equation: ROA

Answer 5

ROA = Net Income / Total Assets

ROA = Profit Margin × Asset Turnover

Profit Margin = Net Income / Sales

Asset Turnover = Sales / Assets

MCQ-1115

Question 6

During the CY, strategic business units saw an increase of costs by $2m, revenues increased by $4m, and assets decreased by $1m. What SBUs would receive favorable reviews?

Answer 6

1. Revenue SBU
2. Profit SBU
3. Investment SBU

MCQ-07731

Question 7

What transaction exposure passes the greatest risk for a country?

Answer 7

Payables dominated in foreign currency when domestic currency falls

Foreign currency appreciates while domestic currency depreciates

MCQ-07848

Question 8

What method is best suited for evaluating performance of a firms Capital in any given year?

Answer 8

Economic Value Added

= Net Operating Profit After Tax (NOPAT) - Required Return

Required Return = Investment × WACC

EVA uses NOPAT and compares it to the required return for Capital. Each component is calculated on an annual basis so it is good for any year

MCQ-04333

Question 9

What term represents the residual income that remains after all costs of capital, including equity capital have been deducted?

Answer 9

Economic Value Added

MCQ-05586

Question 10

Equation: ROE

Answer 10

= (Net Income / Sales) × (Sales / Assets) × (Assets / Equity)

= Net Profit Margin × Asset Turnover × Financial Leverage

MCQ-08378

Question 11

Equation: Cash Conversion Cycle

Answer 11

= Days in Inventory + Days Sales in AR - Days AP Outstanding

MCQ-07781

Question 12

Residual Income approach of performance measurement and evaluation is to have a division maximize it’s:

Answer 12

Income in excess of a desired minimum amount

RI is defined as - Income in excess of desired minimum return

MCQ-03447

Question 13

Using long term debt instead of short term debt to finance inventory purchases will have what effect on the Current Ratio and the Total Debt Ratio?

Answer 13

Increase & Increase

Assume the company has positive equity, so Debt is lower than Assets. So if Debt increases at the same amount of Assets, the % impact on Debt will be larger and the Total Debt will increase

MCQ-07785

Question 14

Equation: Reorder Point

Answer 14

= Safety Stock + (Lead Time × Sales During Lead Time)

MCQ-07786

Question 15

Define: Throughput Time

Answer 15

Refers to the units of goods that are produced and sold within a period of time

MCQ-03886

Question 16

Balanced Scorecard critical success factors:

“FICA”

Answer 16

• Financial
• Internal business processes
• Customer satisfaction
• Advancement of Innovation & HR

MCQ-07758

Question 17

A good reason to using RI instead of ROI?

Answer 17

Goal congruence is more likely to be promoted by using RI

ROI may cause segments that have high returns to reject investments that lower the segments rate of return

MCQ-04246

Question 18

Equation: Days Sales in AR

Answer 18

= Ending AR / (Sales / 365)

MCQ-07774

Question 19

Equation: AR Turnover

Answer 19

= Sales / Avg. AR

Question 20

Equation: AP Turnover

Answer 20

= COGS / Avg. AP

Question 21

Equation: Days of AP Outstanding

Answer 21

= Ending AP / (COGS / 365)