Know2Ledge Flashcards
WHAT effect would the collection of a previously uncollectible account have on the Current Ratio or Net Working Capital?
None.
WHY? - Because the results would be to increase both an asset (cash) and a contra asset (allowance for bad debts)
These transactions off-set one another hence there is NO CHANGE
WHAT is Disposable Income?
Income after taxes have been removed
i.e. Personal Income of individuals after subtraction of taxes
Equation: Personal Income - Personal Taxes
WHAT is one way to decrease the money supply in a nation’s economy?
AN increase in the Reserve Ratio
WHY? - Because this will increase the minimum amount of funds a bank must maintain
Thus, an increase in the RR decrease a nations Money Supply
How would you calculate the Average Payables Period?
Cost of Good Sold ÷ Average Accounts Payables
WHAT is the required rate of return in Capital Budgeting?
IT is also known as the “hurdle rate”
i.e. IT is the baseline rate at which potential capital projects are judged
Thus it cannot be used to evaluate investments (i.e. Individual Projects)
WHAT functions are considered part of Control Activities?
- Performance Reviews
- Physical Controls
WHAT is considered a limitation of the Profitability Index?
IT requires detailed long-term forecasts of the project’s cash flows
i.e. THIS may be difficult and costly
WHAT is the Equation for the elasticity coefficient of demand?
% Change in Demand ÷ % Change in Price
Scenario:
The spot rate for one Ja-Topian dollar is $0.92685 and the 60-day forward rate is $0.93005. Which is an accurate statement consistent with these facts?
The U.S. Dollar is trading at a forward discount with respect to the Ja-Topian Dollar
WHY? - Because the exchange rate for the Ja-Topian dollar is higher in the forward market than the spot market
WHAT can one infer about the discount rate of the Net Present Value if a proposed investment is negative?
THE Discount Rate is
- Greater than the project’s internal rate of return
WHY? - Because the higher the discount rate, the lower the NPV
Thus, if the NPV is negative, the discount rate must exceed the IRR
WHAT is a key concept regarding Capital Budgeting?
Capital budgeting is, by its nature, performed in an environment of uncertainty
i.e. IT is based on predictions of an uncertain future
Fill in the blank.
The net present value of an investment project represents the _________.
Excess of the discounted cash inflows over the discounted cash outflows
Fill in the blank.
The profitability index approach to investment analysis _________.
Always yields the same accept/reject decisions for independent projects as the net present value method
WHY? -Because it is a variation of the net present value (NPV) method and facilitates the comparison of different-sized investments
HOW do you calculate the Marginal Product?
BY dividing the change in total output at a given level of input by the change in inputs
Fill in the blank.
A capital lease is _________.
In substance, the purchase of an asset
Thus, the leased asset and the related liability are reported in the balance sheet
