CPA Review BEC  Becker B3
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Working Capital Financing
Shortterm method of financing where current assets are financed with trade accounts receivable & accrued liabilities

Letter of Credit
A third party guarantee

Line of Credit
Revolving line of shortterm borrowing with a financial institution

Operating Lease
Longterm financing option referred to as "off balance sheet financing". It is a pure rental agreement, no change of ownership

Capital Lease
Longterm financing option, where lesee can rent to own by recording both an asset and a liability

Bonds & Debentures
Longterm financing option which is a form of indebtness whereas the borrower is to pay a rate

Preferred Stock
Longterm financing option where the stock is preferred in terms of liquidations & dividends, no voting rights

Common Stock
Longterm financing option which is basic ownership in a company

Depreciation Tax Shield Formula
Depreciation Expense x Tax Rate

Aftertax Cost of Debt Formula (kdx)
Kdt x (1Tax Rate)
_{Kdt = Cost of Debt}

Cost of Perferred Stock Formula (kps)
Dps / Nps
 _{Dps = PS Cash Dividends}
 Nps = PS Proceeds  Float Costs

Cost of Common Stock Formula (kre)
(D1 / P0) + g
 _{D1 = Expected Dividend}
 P0 = Current Stock Price
 g = Constant Dividend Growth Rate

CAPM Cost of Retained Earnings Formula (kre)
krf + (bi x PMR)
 _{krf = Riskfree Rate}
 bi = Beta Coefficient
 PMR = Risk Premium (Market Rate  Riskfree Rate)

Weighted Average Cost of Capital (WACC)
(kre x %kre) + (kdt x %kdt)
 _{kre = Cost of Equity}
 kdt = Cost of Debt

Discounted Cash Flow Formula (DCF)
DPS/EPS + GPS

Discounted Cash Flow for NPV Steps
 1. Calculate After Tax Inflows: Annual Cash Inflows x (1Tax Rate)
 2. Add Depreciation Benefit: Depreciation x Tax Rate
 3. Multiply Result by PV of Annuity
 4. Subtract Initial Outflow