Financial Management Formulas - CPA Auditing and Attestation (AUD)
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If a firm's credit terms require payment within 45 days but allow a discount of 2 percent if paid within 15 days (using a 360 day year), the approximate cost/benefit of the trade credit terms is:
If a firm's credit terms require payment within 45 days but allow a discount of 2 percent if paid within 15 days (using a 360 day year), the approximate cost/benefit of the trade credit terms is:
\[360 / (45 - 15)\] * \[2% / (100% - 2%)\]
\[360 / (45 - 15)\] * \[2% / (100% - 2%)\]
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If a retailer's terms of trade are 3/10, net 45 with a particular supplier, what is the cost on an annual basis of not taking the discount? Assume a 360 day year.
If a retailer's terms of trade are 3/10, net 45 with a particular supplier, what is the cost on an annual basis of not taking the discount? Assume a 360 day year.
\[360 / (45 - 10)\] * \[3% / (100% - 3%)\]
\[360 / (45 - 10)\] * \[3% / (100% - 3%)\]
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A firm purchased $10,000 of merchandise inventory on May 1. The terms of the purchase were 2/10, net 30. The company would pay what amount on May 9?
A firm purchased $10,000 of merchandise inventory on May 1. The terms of the purchase were 2/10, net 30. The company would pay what amount on May 9?
A 2% discount on $10,000 = a $200 discount. $10,000 - $200 = $9,800.
A 2% discount on $10,000 = a $200 discount. $10,000 - $200 = $9,800.
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If the dollar price of the euro rises, which of the following will occur?
If the dollar price of the euro rises, which of the following will occur?
If the dollar price of the euro rises, then the euro is getting more expensive, thus the dollar is getting less expensive.
If the dollar price of the euro rises, then the euro is getting more expensive, thus the dollar is getting less expensive.
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One euro will buy US $1.48 and a British pound will buy US $2.06. What is the cross rate of euros per pound?
One euro will buy US $1.48 and a British pound will buy US $2.06. What is the cross rate of euros per pound?
2.06/1.48=1.39
2.06/1.48=1.39
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A discount on accounts payables would encourage which of the following activities?
A discount on accounts payables would encourage which of the following activities?
When offering a discount to a customer for paying earlier, a firm would forfeit some income in order to increase cash on hand.
When offering a discount to a customer for paying earlier, a firm would forfeit some income in order to increase cash on hand.
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Which of the following rates is most commonly compared to the internal rate of return to evaluate whether to make an investment?
Which of the following rates is most commonly compared to the internal rate of return to evaluate whether to make an investment?
WACC is used as the hurdle rate within capital budgeting techniques. Investments that provide a return that exceeds the WACC should continuously add to the value of the firm.
WACC is used as the hurdle rate within capital budgeting techniques. Investments that provide a return that exceeds the WACC should continuously add to the value of the firm.
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Which one of the following factors might cause a firm to increase the debt in its financial structure?
Which one of the following factors might cause a firm to increase the debt in its financial structure?
Interest on debt financing is tax-deductible whereas dividends from equity are not. An increase in tax rates might cause a firm to increase debt financing.
Interest on debt financing is tax-deductible whereas dividends from equity are not. An increase in tax rates might cause a firm to increase debt financing.
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The marketable securities with the least amount of default risk are:
The marketable securities with the least amount of default risk are:
Default risk is the risk that the security will not be paid. US Treasury securities are issued by the Treasury Department which has no risk of non payment.
Default risk is the risk that the security will not be paid. US Treasury securities are issued by the Treasury Department which has no risk of non payment.
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Which of the following measurement models is being used if a calculation includes risk-free rate, beta coefficient, rate of return, and required rate of return?
Which of the following measurement models is being used if a calculation includes risk-free rate, beta coefficient, rate of return, and required rate of return?
These factors are included in the calculation of CAPM.
These factors are included in the calculation of CAPM.
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Which of the following would never be included in the WACC formula?
Which of the following would never be included in the WACC formula?
Risk is not assessed in calculating the WACC. WACC is used to determine the cost of financing for a firm.
Risk is not assessed in calculating the WACC. WACC is used to determine the cost of financing for a firm.
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Which one of a firm's sources of new capital usually has the lowest after-tax cost?
Which one of a firm's sources of new capital usually has the lowest after-tax cost?
Debt is a cheaper source of financing than equity. In addition, there is a tax deduction for interest paid on debt.
Debt is a cheaper source of financing than equity. In addition, there is a tax deduction for interest paid on debt.
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Which of the following phrases could be used to describe the Discounted Cash Flow formula?
Which of the following phrases could be used to describe the Discounted Cash Flow formula?
The Discounted Cash Flow formulas involving dividends, price, and growth is also known as the cost of retained earnings.
The Discounted Cash Flow formulas involving dividends, price, and growth is also known as the cost of retained earnings.
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The overall cost of capital is the:
The overall cost of capital is the:
Firms must at least earn a rate of return on investments equal to their cost of capital, otherwise the investments are losing money and decreasing value.
Firms must at least earn a rate of return on investments equal to their cost of capital, otherwise the investments are losing money and decreasing value.
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ABC company is determining how to finance some long term debt projects. ABC has decided it prefers the benefits of no fixed charges, no fixed maturity date, and an increase in the creditworthiness of the company. Which of the following would best meet ABC's financing requirements?
ABC company is determining how to finance some long term debt projects. ABC has decided it prefers the benefits of no fixed charges, no fixed maturity date, and an increase in the creditworthiness of the company. Which of the following would best meet ABC's financing requirements?
Common stock does not require payment, does not mature, and decreases the debt to equity ratio as there is no debt incurred.
Common stock does not require payment, does not mature, and decreases the debt to equity ratio as there is no debt incurred.
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Using the capital asset pricing model, the required rate of return for a firm with a beta of 1.25 when the market return is 14% and the risk-free rate is 6% is:
Using the capital asset pricing model, the required rate of return for a firm with a beta of 1.25 when the market return is 14% and the risk-free rate is 6% is:
Cost of retained earnings=6% + 1.25 (14% - 6%) = 16%
Cost of retained earnings=6% + 1.25 (14% - 6%) = 16%
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The cost of debt most frequently is measured as:
The cost of debt most frequently is measured as:
Actual interest rates minus tax savings is the most frequently used measure for cost of debt.
Actual interest rates minus tax savings is the most frequently used measure for cost of debt.
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The benefits of debt financing over equity financing are likely to be highest in which of the following situations?
The benefits of debt financing over equity financing are likely to be highest in which of the following situations?
The benefits of debt financing over equity financing are likely to be highest if marginal tax rates are high and if there are few noninterest tax benefits.
The benefits of debt financing over equity financing are likely to be highest if marginal tax rates are high and if there are few noninterest tax benefits.
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Of the following, which would not impact the CAPM formula in determining a firm's cost of retained earnings?
Of the following, which would not impact the CAPM formula in determining a firm's cost of retained earnings?
Treasury yield is the same as the risk-free rate, which would be included in CAPM as well as beta. Net income is not.
Treasury yield is the same as the risk-free rate, which would be included in CAPM as well as beta. Net income is not.
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Future payments must be discounted in a bond valuation in order to take into account the:
Future payments must be discounted in a bond valuation in order to take into account the:
The process of accounting for time value of money is discounting.
The process of accounting for time value of money is discounting.
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