# BEC Chapter 3B

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 Author: mmsmiles13728 ID: 254362 Filename: BEC Chapter 3B Updated: 2013-12-27 19:09:27 Tags: CPA Financial Concepts Folders: CPA,BEC Description: Flash Cards based on terms and formulas in the financial portion of BEC Show Answers:

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1. Degree of Operating Leverage
(DOL)
2. Degree of Financial Leverage
(DFL)
3. Degree of Combined (Total) Leverage
(DCL)
4. Weighted Average Cost of Capital (WACC) - Formula
WACC = (Cost of Equity * % of Equity in Capital Structure) + (Cost of Debt * % of Debt in Capital Structure)
5. Weighted Averaged Interest Rate
= Effective Annual Interest Payments/Debt Cash Available
6. Symbol: Cost of Debt (Pre-Tax)
• Kdt
• = Effective Interest Rate
7. Symbol: After Tax Cost of Debt
Kdx
8. Formula: After Tax Cost of Debt
9. Symbol: Cost of Preferred Stock
Kps
10. Symbol: Net Proceeds of Preferred Stock
Nps
11. Symbol: Preferred Stock Cash Dividend
Dps
12. Formula: Cost of Preferred Stock
13. Symbol: Cost of Retained Earnings
15. Symbol: Risk Free Rate
16. Symbol: The Market Rate
17. Formula: The Market Risk Premium
18. Symbol: Beta Coefficient

20. Solve for Cost of Retained Earnings using CAPM

21. Symbol: Current Market Value of Outstanding Common Stock
22. Symbol: The Dividend per share Expected at the End of the Year
23. Symbol: Constant Rate of Growth in Dividends
g
24. Solve for Cost of Retained Earnings using the DCF Model
25. Solve for Cost of Retained Earnings using BYRP Method

26. Formula: Profit Margin
Profit Margin = Income/Sales
27. Formula: Investment Turnover
Aka: Asset Turnover
Investment Turnover = Sales/Invested Capital
28. Solve for Return on Investment (ROI):
2 Formulas
1) ROI = Income/Investment Capital

2) ROI = Profit Margin * Investment Turnover
29. Formula: Required Return
2 Formulas
1) Required Return = NBV * Hurdle Rate

2) Required Return = Investment * Cost of Capital
30. Formula: Net Book Value
NBV = Historical Cost - Accumulated Depreciation
31. Formula: Solve for Residual Income
RI = Net Income - Required Return

RI = NI - (Hurdle Rate * (Historical Cost - Accumulated Depreciation))
32. Solve for Economic Value Added
2 Steps
1) Investment * Cost of Capital = Required Return

2) Income after tax - Required Return = EVA
33. Formula: Debt to Capital Ratio
Total Debt / Total Capital
34. Formula: Debt to Asset Ratio
Total Debt / Total Assets
35. Formula: Debt to Equity Ratio
Total Debt / Total Equity
36. Formula: Current Ratio
Current assets / Current Liabilities
37. Formula: Net Working Capital
Current AssetsÂ - Current Liabilities
38. Formula: Quick (Acid Test) Ratio
(Cash + Receivables + Investments)/Current Liabilities
39. APR of Quick Payment Discount

example: 1\10 net 30

40. Formula: Economic Order Quantity
(EOQ)
• E = Order Size
• S = Annual Sales (in Units)
• OÂ = Cost per Purchase Order
• C = Carrying Cost per Unit

41. Purpose of EOQ
EOQ of inventory control anticipates orders at the point where carrying costs are nearest to restocking costs

The objective is to minimize total inventory costs
42. Formula: Inventory Turnover
= COGS/Average Inventory
43. Formula: Inventory Conversion Period
44. Formula: Accounts Receivable Turnover
45. Formula: Receivable Collection Period
(Days - Sales - Outstanding)
46. Definition: The overall cost of capital is the:
Rate of return on assets that covers the costs associated with the funds employed
47. When does Financial Leverage Increase
DFL increases when the debt-to-equity ratio increases

Using a high % of debt (bonds) for future investments would increase financial leverage
48. The imputed interest rate used in the residual income approach for performance measurement and evaluation is the
Historical Weighted Average Cost of Capital for the Company
49. Formula: Cash Conversion Cycle
Inventory Conversion Period + Receivables Collection Period - Payables Deferral Period
50. Accounts Payable Turnover
51. Formula: Accounts Payable Deferral Period
52. Formula: Market rate of interest
53. Definition: Materials Requirement Planning
MRP is an inventory management technique that projects and plans inventory levels in order to control the usage of raw materials in the production process

Applies primarily to WIP and Raw Materials

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