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BEC - Final Exam > Financial Mgmt. & Capital Budgeting > Flashcards

Financial Mgmt. & Capital Budgeting Flashcards

1
Q

Formula: Working Capital

A

Current Assets - Current Liabilities

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2
Q

Formula: Current Ratio

A

CA / CL

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3
Q

Formula: Quick / Acid Test Ratio

A

(Cash + marketable securities + Net A/R) / Current Liabilities

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4
Q

What is the Cash Conversion Cycle?

What is the Formula?

A
  • time from when a company pays for Materials and Labor to the time they receive their Cash from Sales

CCC = ICP + RCP - PDP

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5
Q

Formula: Inventory Conversion Period (ICP)

A

Avg. Inventory / COGS per day

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6
Q

Formula: Receivables Collection Period (RCP)

A

Avg. Rec / Credit Sales Per Day

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7
Q

Formula: Accts. Payable Deferral Period (PDP)

A

Avg. Payables / Purchases per day

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8
Q

Formula: A/R Turnover Ratio

A

Net Credit Sales / Avg. A/R

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9
Q

Formula: # of Days of Sales in Avg. Receivables

A

360 / AR Turnover

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10
Q

What is Materials Requirement Planning

A

MRP - computer system that uses forecasts to manage finished goods and raw material inventory

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11
Q

Formula: Economic Order Qty.

What does the EOQ tell you?

A

square root of : 2AP / S

A: annual usage of inventory
P: cost to place an order
S: cost to store individual Unit of inventory for one period

How much you should order or purchase

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12
Q

Formula: Reorder Point

A

Avg. Daily Demand
x Avg. lead time
= REORDER POINT w/o safety stock

+ safety stock
= reorder point WITH safety stock

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13
Q

Formula: Inventory Turnover Ratio

A

COGS / Avg. Inventory

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14
Q

Formula: # of Days supply in Avg. Inventory

A

360 / Inventory Turnover

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15
Q

What is the BACKFLUSH approach?

A
  • costs are not tracked in as much detail

- costs are charged directly to COGS since little or no inventory should exist

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16
Q

What is JUST IN TIME inventory and when is it good to use it?

A 
- order only when you need something
Use when:
1. Non-value storing costs are high
2. Lead times are Low
3. need for Safety stock is Low 
4. costs per purchase order are also low
17
Q

What are the Four methods used for CAPITAL BUDGETING?

A
  1. Payback Period
  2. Internal Rate of Return
  3. Accounting Rate of Return
  4. Net Present Value
18
Q

Formula: Payback Period ?

A

Investment / Annual Cash Flows

19
Q

Payback Period: Advantages / Disadvantages

A

Advantages
- easy to calculate

Disadvantages

  • no present value
  • no profitability
  • Stops once # of years to payback is identified
20
Q

Formula: Internal Rate of Return

A
  • use the # of years that come from payback calculation

- go to PV table and locate the % based off of # of years

21
Q

Internal Rate of Return (Advantages/ Disadvantages)

A

Adv.

  • Cash Flows
  • uses Pres. Value

Disadvantages

  • Some patterns yield multiple IRR
  • Could yield “0”
22
Q

Formula: Accounting Rate of Return

A

Acct. Income / Avg. Investment

23
Q

Accounting Rate of Return (Advantages/ Disadvantages)

A

Adv.

  • easy to calculate
  • No Present Value

Disadvantages

  • results affected by depreciation
  • No Present Value
  • No adjustment to project risk
24
Q

Formula: Net Present Value

A

PV of Inflows / PV of Outflows

25
Q

Net Present Value (Advantages/ Disadvantages)

A

Adv

  • results in $ that is easily understood
  • Adjusts for the time value of money
  • Total profit of project

Disadvantages

  • not simple
  • not consider mgmt. flexibility
26
Q

Annual Financing Cost

FORMULA:
“Cost for NOT taking Discount’’

Ex: 2/10 net 30

A
  1. 2% / (100%-2%)

X

  1. 360 / (30-10)

= 36%

27
Q

Compensating Balance (cost of Financing)

Define and Formula

A
  • amount that bank makes you keep in the account while you are paying on the loan

Interest Paid / Net Funds

net funds = principle - compensating balance

28
Q

Debt Financing (Pros/Cons)

A 
Pros:
Interest Tax Deductible 
Fixed Terms
No loss of control
Less costly than equity

Cons:
Fixed payments whether company is performing good/bad
Can’t control change of Interest rates
Debt covenants

29
Q

Equity Financing (Pros/Cons)

A

Pros:
Pay dividends or not
More equity less risk to investors

Cons:
Cost of issuing stock higher than issuing debt
current owner shares get diluted

30
Q

Formula: Degree of Operating Leverage

A

% of change in EBIT / % Change in Sales Volume

31
Q

Formula: Degree of Financial Leverage

A

% Change in EPS / % Change in EBIT

How much does q business rely on DEBT FINANCING

32
Q

Formula: Cost of Capital

2 ways

A

(interest exp. - tax deduction for int.exp) / Carry Value of Debt

yield to maturity X (1 - eff. tax rate)

33
Q

Formula: Cost of New Common Stock

A

(Next expected div.) / (cur. Stock price - float costs)

+

Expected Earnings Growth

34
Q

Formula: Cost of Existing Stock

A

Risk Free Rate
CAPM = risk free rate
+
(expected mkt. rate - risk free rate)

35
Q

Formula: Gordon Growth Model

Div. Yield + Growth Rate

A

(Next expected div. / Curr. Stock Price)

+

Expected Growth in Earnings

36
Q

WACC (remember)

A

• take out tax (1 - Tax Rate)
when calculating the average for BONDs

% of in relation to total debt × interest rate

37
Q

Asset Valuation

A
  1. Comparing actual to actual
  2. comparing similar within the same market
  3. Estimated future Cash Flows
38
Q

Types of Mergers

A

Horizontal: merge w/ Competitor

Vertical: acquire Supply Chain

Conglomerate: business acquires another business that is in an UNRELATED Market

39
Q

Bonds: how do you know when selling at a PREMIUM / DISCOUNT

A

Stated Rate > Market Rate = Premium

Stated Rate < Market Rate = Discount

BEC - Final Exam (12 decks)

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