Financial Mgmt & Capital Budgeting

Question 1

Working Capital =

Answer 1

Current Assets - Current Liabilities

Question 2

Current Ratio

Answer 2

CA/CL

Question 3

Quick Assets

Answer 3

Cash + Mkt Securities +AR

Question 4

Quick (or Acid Test) Ratio =

Answer 4

Quick Assets / CL

Question 5

CCC =

Answer 5

ICP + RCP - PDP

Question 6

Average calc

Answer 6

Begin # + end # / 2

Question 7

Inventory Conversion Period

Answer 7

Average Inventory / COGS per day (Sales

Question 8

Receivable Collection Period

Answer 8

Average AR / Credit sales per day

Question 9

Payable deferral Period

Answer 9

Average AP / purchases per day

Question 10

Average AR Turnover

Answer 10

Net Credit Sales / Avg AR

Question 11

of days of sales in avg receivables

Answer 11

360 / AR Turnover

Question 12

Reorder Point Calc

Answer 12

Avg Daily Demanded
x Avg Lead Time
= Reorder Point w/o safety stock
\+ safety stock
= reorder point w/ safety stock

Question 13

Inventory Turnover Ratio

Answer 13

COGS / Avg Inventory

Question 14

of days of supply in avg inventory

Answer 14

360 / Inventory turnover

Question 15

Payback Period

Answer 15

Initial Investment / After tax annual net cash inflows = # of years

Question 16

IRR

Answer 16

Initial Investment / Annual Cash flows = PV Factor

Question 17

Accounting Rate of Return

Answer 17

Accounting Income / Avg. Investment = ROI

Question 18

NPV

Answer 18

PV Cash inflows
- PV cash outflows
= if + good; if - bad

Question 19

disadvantages of Payback period

Answer 19

does not take into account

• profitability
• time value of money

Question 20

IRR advantages

Answer 20

uses time value of money

easy to understand

Question 21

Annual Financing Cost Calc

Answer 21

Discount % / (100% - Discount %)
x
360 / Total Pay period - discount period

Question 22

cost of compensating balance loan calc

Answer 22

Interest paid / (principle - comp balance)

Question 23

current yield calc

Answer 23

annual int paid / bond mkt price

Question 24

PV of bond interest payments

Answer 24

face value x stated rate x term = interest

interest x PV of annuity

Question 25

Degree of Operating leverage calc

Answer 25

% chg in EBIT / % chg in sales volume

Question 26

Degree of Financial Leverage calc

Answer 26

% chg in Earning per share / % chg in EBIT

Question 27

Cost of Debt calc

Answer 27

yield x (1 - effective tax rate)

Question 28

Tax is only on _______ and not on _______

Answer 28

Bonds not on Stock

Question 29

Cost of Preferred Stock Calc

Answer 29

Dividend / Net issue price

Question 30

WACC calc

Answer 30

% of debt x % rate + % of debt x % rate + % of debt x % rate

Question 31

Financial & Interest Rate Risk deal with

Answer 31

Financial leverage and the cost of debt

Question 32

Marginal Risk is the

Answer 32

Risk that is assumed by the issuer on a foreign exchange contract

Question 33

Business Risk is the

Answer 33

uncertainty associated with the ability to forecast EBIT

Question 34

The excess pv index (profitability index) is best used to

Answer 34

Evaluate different sized projects when capital budgeting funds are limited

Question 35

Excess pv index or profitability index is computed as

Answer 35

Pv of future cash flows / discounted cash flows