Theory

Question 1

What is goodwill?

Answer 1

-Overpayment
-Expectations of future cash inflows resulting from synergies
-Recognized as an asset

Question 2

Disagio

Answer 2

-Bank outpayment smaller than repayment amount
-Interest payment at start of contract

Question 3

Accounting for Borrowing

Answer 3

Bank/ Bank liability
Diasgio/
-Disagio amortization: Interest expense/ Disagio
-Interest accrual of coupon: Interest expense/ Other liabilities

Question 4

Hurdle Rates

Answer 4

-Pfofitability comparison methods
= min. required rae of return that investment should have to be profitable
-Net profitability: min. rate = 0
-Gross profitability: min. rate = interest rate

Question 5

EAA

Answer 5

-Converst NPVS of series of payments into equal payments
-use if projects don’t have same maturity
-EAA > 0 profitable

Question 6

IRR

Answer 6

-Discount rate at which NPV = 0
-IRR > market interest profitable
-Problems using IRR when projects have different maturities or unequal cashflows

Question 7

Financing through Equity v Debt

Answer 7

-Equity: Fianncing through selling shares of the company
-Debt: Liability, external obligation to 3rd party

Question 8

Increasing debt = increasing return on equity?

Answer 8

Not always, if interest rate of debt is higher than return on assets, return on equity depreciates
-> Negative leverage effect

Question 9

What is capital structure?

Answer 9

-Financing of company
-Equity financed (unlevered) or debt financed (leveraged)

Question 10

Irrelevance of Capital Structure

Answer 10

Value of company does not depend on capital structure, but on the assets

Question 11

Principal-Agent-Theory

Answer 11

-Principal provides funds and delegates decision making to agent
-Principal must ensure that agent acts in their interest
-> agency costs, e.g. covenants

Question 12

Factors limiting company to take on debt

Answer 12

-Debt limitation through bond covenants
-Consideration of insolvency costs

Question 13

Conditions for financing from depreciation assets to have financing effect?

Answer 13

-Capital release and capacity increase effect
-Increasing capacity per period
-Unchanged total capacity

Question 14

Deferred tax expense v asset

Answer 14

Expense -> tax on income, for recognition of self generated assets e.g. development cost/ software
Asset -> tax deducted from loss, for provisions for onerous contracts, disagio, amortization, tax loss carryforward, impairment

Question 15

Accounting for Deferred Taxes

Answer 15

German GAAP > Tax accounts 0
-> taxable temporary difference
-Tax assets: recognition option

Journal:
Deferred tax expense/ Deferred tax liability
Deferred tax asset/ Deferred tax income

Use of provision (asset):
Deferred tax expense/ Deferred tax asset
and Provision/ …

Question 16

Accounting for Capital Increase

Answer 16

Bank / Nominal capital
/Additional paid in capital

Cost of capital increase:
Other expenses/ Bank

Question 17

Tied up (employed) capital calculation

Answer 17

C2C = 360/ turnover
Tied up capital (funding requirement) = Costs/ C2C

Question 18

Decisions under Uncertainty

Answer 18

-Maximin: Best outcome in worst scenario
-Maximax: Best outcome in best scenario
-Hurwicz: Weigh best outcome of alternative with α and worst with (1-α)
-Laplace: Highest average outcome

Question 19

Leverage Effect

Answer 19

ra= Net result/ Equity
ra> interest rate = positive leverage effect
ra< interest rate = negative leverage effect

Question 20

Capacity Increasing Effect

Answer 20

-Increased capacity per period
-Unchanged total capacity
-Effect can be estimated with capacity extension multiplicator:
KEM = 2x (ND/ND +1)

Question 21

What is ROIC?

Answer 21

-Return on invested capital, indicator for value creation
-Vallue created if ROIC>WACC

Question 22

What is EVA?

Answer 22

-Economic value added, extent to which ROIC was greater than cost
-Maximize EVA by maximizing ROIC (increase revenue or decrease cost)
-and minimzing WACC (optimal capital structure)

Question 23

Internal Hedging Strategies

Answer 23

1. Setting off cash inflows and outflows
2. Leading and lagging
3. Diversification
4. Denomination of contracts
5. Transfer FX risk to customer
6. Local production

Question 24

External Hedging Strategies

Answer 24

-FX-Borrowing: borrow in foreign currency
-Financial derivates: FX forward: At fixed date, defined volumes of 2 currencies exchanged at FX rate

Question 25

Accounting of sales transaction

Answer 25

Sale:
Acc receivable/ Revenue
Payment:
Bank/ Acc. receivable