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BEC > FINAL B2 > Flashcards

FINAL B2 Flashcards

1
Q

What is the impact when a company has a more conservative working capital policy?

A

Increase in the ratio of current assets to noncurrent assets

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2
Q

What is the Discounted cash flow method?

A

cost of equity =

Expected dividend share price
________________________
current share price + Growth rate

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3
Q

What is the least acceptable method for determining accounting estimates of fixed assets?

A

Industry consensus

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4
Q

What is not relevant when determining the risk premium on a specific security?

A

Earnings per share

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5
Q

Define internal rate of return

A

computes rate of return where NPV =0. The method equates the initial investment with the present value of future cash flows

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6
Q

What does the payback period emphasize?

A

Liquidity

  • time period required for cash inflows to revoer the initial investment
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7
Q

If a project has a positive NPV, what is the required of return

A

ROR< IRR

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8
Q

What is the difference between the binomial (Coss-ross-Rubinstein) model and Black-Scholes option model?

A

The consideration of the option over a period of time and it can be used for stocks that pay dividends w/o model modification

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9
Q

What is the formula for the Cash conversion cycle?

A

Days in inv + Days in AR - days of payables outstanding

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10
Q

What determines the optimal capitalization

A

Lowest total WACC

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11
Q

What source has the lowest after tax cost?

A

Bonds (debt in general)

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12
Q

How is the cost of debt measured as

A

Actual int rate LESS tax savings

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13
Q

When is the implication of a bond sold at a premium?

A

The bond will sell at a premium when the stated coupon rate on the bond is greater that the market interest rate on the bond at a given date

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14
Q

How do you calculate the net cost of debt?

A

Effective int rate * net of tax

OR

Effective int rate * (1-T)

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15
Q

What is not a use for Capital budgeting decisions?

A

Financing short-term working capital needs

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16
Q

What is an advantage of the NPV method over the IRR model?

A

It can be used when there is no constant rate of return required for each year of the project

17
Q

How do you calculate the depreciation tax savings(shield)?

A

Depreciation * tax rate

18
Q

in the NPV method -> what rate are Cash flows reinvested in?

A

the discount rate used in the analysis

19
Q

What does negative NPV mean?

A

the discount rate used is greater than the IRR

20
Q

What is something that will impact net present value?

A

Proceeds from the sale of asset to be replaced

21
Q

What is a limitation of the profitability index?

A

it requires detailed Long-term forecasts of the projects cash flows

22
Q

How do you calc the total after tax cash flows?

A

(sales - Expense) * (1-T)

ADD: depreciation tax shield (dep*.tax rate)

23
Q

Define the IRR of a project

A

The discount rate at which the NPV = 0

24
Q

When is the IRR less reliable than the NPV?

A

When there are several alt periods of net cash inflows and net cash outflows

25
Q

How do you calculate IRR?

A

Net incremental investment / Net annual cash flows

26
Q

What part of the SCOR model is the following: collecting and processing vendor payments?

A

Source

27
Q

what impacts the amount of safety stock?

A

Uncertain sales forecast
Dissatisfaction of customers
Uncertain lead times

28
Q

How do you calc the cost/benefit of trade discounts?

A

360 / (difference in days) * x%/(100%-x%)

ex) 2% discount on 15 day.. required to be paid 45th day

360/(45-15) * 2%/98%

29
Q

In an inflationary environment, how should cashflows and the discount be adjusted?

A

Increase in the estimated cash flows and increase in the discount rate

30
Q

What is the formula for market capitalization?

A

Market price per share * Shares outstanding (CS/Par value per share)

31
Q

What is the CAPM formula

A

RF rate + Beta(Mkrt return - RF rate)

32
Q

What is the formula for sector P/E?

A

NI * P/E

33
Q

what is the formula for the market value of bonds?

A

Bond par value * MV of bond/1000

34
Q

What is a reason for a company to agree to a debt covenant limiting the % to its LT debt?

A

To reduce the coupon rate on the bonds being sold

35
Q

What is the IRR?

A

Rate of interest that equates the PV of cashflows and PV of cash inflows

36
Q

How to calc operating leverage?

A

Fixedcosts/Variable costs

BEC (12 decks)

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