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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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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The discount rate is determined in advance for which of the following capital budgeting techniques?
The discount rate is determined in advance for which of the following capital budgeting techniques?
In order to work with net present value, a discount rate must be calculated.
In order to work with net present value, a discount rate must be calculated.
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Using the discounted cash flow method, estimate the cost of retained earnings for a firm with a stock price of \$30, an estimated dividend at the end of the first year of \$3 per share, and an expected growth rate of 10%.
Using the discounted cash flow method, estimate the cost of retained earnings for a firm with a stock price of \$30, an estimated dividend at the end of the first year of \$3 per share, and an expected growth rate of 10%.
$3/$30 + 10% = 20% Cost of retained earnings.
$3/$30 + 10% = 20% Cost of retained earnings.
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The length of time required to recover the initial cash outlay of a capital project is determined by using the:
The length of time required to recover the initial cash outlay of a capital project is determined by using the:
The payback method measures the time required to recover the initial investment.
The payback method measures the time required to recover the initial investment.
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Which of the following statements is true regarding the payback method?
Which of the following statements is true regarding the payback method?
The payback method determines the number of years that it will take for a company to recoup or be paid back for its investment. The payback method does not consider the time value of money.
The payback method determines the number of years that it will take for a company to recoup or be paid back for its investment. The payback method does not consider the time value of money.
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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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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 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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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:
\[360 / (45 - 15)\] * \[2% / (100% - 2%)\]
\[360 / (45 - 15)\] * \[2% / (100% - 2%)\]
Compare your answer with the correct one above
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.
\[360 / (45 - 10)\] * \[3% / (100% - 3%)\]
\[360 / (45 - 10)\] * \[3% / (100% - 3%)\]
Compare your answer with the correct one above