Financing ratios Flashcards
1
Q
What is cost of not taking discount?
A
(Discount % / 100%-discount) x (Days in year / payment period - discount period)
2
Q
What is effective interest rate?
A
Interest expense (to be paid) / usable funds (net proceeds)
3
Q
What is total borrowings for discounted loan?
A
Amount needed / (1.0 - Stated rate)
4
Q
What is effective rate on discounted loan?
A
Stated rate / (1.0 - Stated rate)
5
Q
What is total borrowings for loans with compensating balances?
A
Amount needed / (1.0 - compensating balance %)
6
Q
What is effective rate for loans with compensating balances?
A
Stated rate / (1.0 - compensating balance %)
7
Q
What is accounting rate of return?
A
Annual cash inflow - depreciation / Initial investment
8
Q
Formula for payback period?
A
Initial investment / Annual after tax cash savings / inflows
