Formulas ( Important!!! )

Question 1

Gross Domestic Product

Answer 1

GDP = C + lg + G + Xn

C = Personal consumption expenditures
lg = Gross private domestic investment 
G = Government purchases
Xn = Net exports

Question 2

Times Interest Earned Ratio

Answer 2

(Net In come Before tax + Interest Expense) / Int. Expense

Question 3

Profitability Index

Answer 3

PV Benefits / Cost or

NPV / Investment

Question 4

Economic Order Quantity

Answer 4

Sq. Root of 2DS / Ci

D = demand in units per year
S = set up or during costs
C = cost per unit
i = carrying cost expressed as a percentage of inventory costs

Question 5

Price Elasticity of Demand

Answer 5

% change in Qty. Demanded / % change in Price

(was it worth Raising / Lowering Price)

> 1 elastic < 1 inelastic

Question 6

Income Elasticity of Demand

Answer 6

% change in Qty. Demanded / % change in Income

> 0 normal good
< 0 inferior good

Question 7

Cross -Elasticity of Demand

Answer 7

% change in Qty. Demanded for Product X

divided

% change in Price for Product Y

> 0 substitutes
< 0 compliments

Question 8

Economic Value Added

Answer 8

Operating Income (after tax) - (Net Assets x WACC)

Question 9

Return On Investment

Answer 9

Income / Investment

possible for the question to state net income

Question 10

Accounts Receivable Net CreditTurnover

Answer 10

Net Credit Sales / Avg. AR

Question 11

Average Collection Period

Answer 11

365 / AR Turnover

Question 12

High - Low Method

Units: 10, 20, 30
Costs: 100, 200, 300

Answer 12

30 - 10 = 20

300 - 100 = 200

200 / 20 = $10 per unit

Question 13

Return on Sales

Answer 13

Income / Sales

Question 14

Return on Equity

Answer 14

Net Income / Equity

Question 15

Safety Stock

Answer 15

(Max lead time - Min lead time) x Daily Usage