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ACC202 > FINAL > Flashcards

FINAL Flashcards

1
Q

Return on Investment (ROI)

A

NOI / Avg. Operating assets

OR

Margin * Turnover

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2
Q

operating assets include

*does not include

A

cash, A/R, inventories, current assets, plant and equip, inventory.

*NOT investment assets: idle land, or investments in other companies

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3
Q

NOI is

*Does not include:

A

income before interest and taxes
Sales less:
variable op. exp
fixed op. exp

*Does NOT include non operating income:
investment income (interest & dividend income)
interest expense
unrealized and realized gains/losses on sales of capital assets

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4
Q

Most companies use Net Book Value: __________ of depreciable assets to calculate avg. op. costs

A

(acquisition costs - accumulated depreciation)

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5
Q

avg. operating assets:

A

(Beg Asset + ending asset) / 2

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6
Q

margin

A

NOI / Sales

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7
Q

Turn over

A

Sales/ Avg. Op. Assets

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8
Q

Any increase in ROI must involve

A

increased sales
reduced op. expense
reduced op. assets

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9
Q

Sales and NOI remain the same, ROI (increase/decrease) if turnover decreases.

A

decrease

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10
Q

Used in evaluating segments

A

ROI and residual income

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11
Q

Residual income

A

NOI - (AOA * min required rate of return)

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12
Q

drawback of residual income

A

cannot be used to compare the performance of divisions of different sizes

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13
Q

relevant costs are

A

incremental, differential, marginal
& therefore, AVOIDABLE
opp. costs are relevant, but hard to measure

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14
Q

Irrelevant costs are UNAVOIDABLE

A

sunk costs

future costs

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15
Q

differential approach
vs
total cost approach

A

-only relevant costs are considered
vs
- All the revenue and costs are displayed on the income statement, then the difference in NOI between two alternatives is compared.

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16
Q

drop or retain a segment decision rule

A

drop segment if its avoidable fixed costs exceed its CM

17
Q

vertically integrated

A

when company is involved in more than one activity in the value chain

18
Q

make or buy decision

A

alternative that has the greater net incremental revenue over incremental costs

19
Q

Accept a special order decision

A

accept a special order if its incremental revenue exceeds the incremental expense of producing it
*assume fixed costs are unaffected by the order and that variable marketing costs must be incurred on special order.

20
Q

utilization of constrained resources

A

given a bottleneck, emphasize the products w/ the greatest CM per unit of contained resource.

21
Q

contraint

bottleneck

A

anything that prevents an organization from satisfying demand.
when a constraint resource is a machine or work center

22
Q

joint product

A

continue to process a joint product after the split-off point if the incremental revenue after further processing exceeds the incremental costs of more processing.

23
Q

Capital budgeting decisions:
screening decision-
preference decision-

A

does project meet or exceed hurdle rate

for projects that do meet/exceed hurdle rate, which one is best

24
Q

considers time value of money:

does not consider time value of money:

A
  • NPV, IRR, Profitability index

- payback period, accounting rate of return

25
Q

Net present value (NPV)

A

pv of cash inflows - pv of cash outflows

26
Q

profitability index

A

NPV / investment

*higher the index, the more desirable the project

27
Q

least cost decision

A

choose the investment with the lowest NPV

28
Q 
IRR factor (internal rate of return)
*rate of return promised by an investment project over its useful life
A

investment / net annual cash flow

  • accept proposal if the IRR is greater than the minimum required rate of return
  • greater IRR factor = less return annually
29
Q

payback period

*ignores the time value of cash flows

A

investment required / net annual cash inflow

30
Q

simple rate of return
*ignores time value of cash flows

*Numerator: cash inflow - outflow - depreciation

A

annual incremental net operating income / initial investment

***reduce initial investment by any salvage value from the sale of the old equipment and then divide by years to get DEPRECIATION

31
Q

how to get depreciation

how to get salvage value

A
  • initial investment - salvage / life of investment

- initial investment / useful life

32
Q

After-Tax Cost of any tax-deductible cash expense

net cash outflow

A

After - Tax Cost = (1 - tax rate) * tax-deductible cash expense

33
Q

Depreciation acts as a tax shield by doing what

A

reducing net income, so less income is taxed trigging a savings

34
Q

tax shield =

A

tax * deductible expense

35
Q

w/ tax

w/o tx

A
  • use depreciation (inflow)

- don’t use depreciation

ACC202 (7 decks)

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