Review 2 Flashcards
A company has income after tax of $5.4 million, interest expense of $1 million for the year, depreciation expense of $1 million, and a 40% tax rate. What is the company’s times-interest-earned ratio?
10 time
EBIT
Times interest earned is equal to earnings before interest and taxes (EBIT) divided by the amount of interest. If net income is $5.4 million with a tax rate of 40%, $5.4 million represents 60% of income before taxes, which would equal ($5.4million/60%) $9 million. With interest of $1 million, EBIT is $9 million + $1 million or $10 million and times interest earned is $10,000,000/$1,000,000 or 10 times.
A company purchases inventory on terms of net 30 days and resells to its customers on terms of net 15 days. The inventory conversion period averages 60 days. What is the company’s cash conversion cycle?
45
Which of the following methods is best suited for evaluating the performance of a firm’s capital in any given year?
Internal rate of return.
Net present value.
Economic value-added.
Payback.
Economic Value added
Economic value added (EVA) is the net operating profit after taxes less the cost of financing. None of the other measures adjust for the cost of financing as well as EVA does.
Actual overhead incurred
Variable $90,000
Fixed $62,000
Budgeted fixed overhead $65,000
Variable overhead rate (per direct labor hour) $8
Standard hours allowed for actual production 12,000
Actual labor hours used 11,000
What amount is the variable overhead efficiency variance?
(Standard hours allowed – Actual hours worked) x Standard variable overhead rate
= Variable overhead efficiency variance
(12,000 – 11,000) x $8 = $8,000 Favorable variance
A digital signature is used primarily to determine that a message is
Unaltered in transmission
.
Not intercepted en route.
Received by the intended
recipient.
Sent to the correct address.
unaltered intransmission
Digital signatures are used on files and emails to verify that the information sent is unaltered in transmission. Digital signatures can be used to verify the sender of a message and its content, but not the recipient.
