CPA Business Environment and Concepts (BEC) : Financial Management Formulas
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Example Questions
Example Question #11 : Financial Management Formulas
The benefits of debt financing over equity financing are likely to be highest in which of the following situations?
Low marginal tax rates and few noninterest tax benefits
High marginal tax rates and few noninterest tax benefits
Low marginal tax rates and many noninterest tax benefits
High marginal tax rates and many noninterest tax benefits
High marginal tax rates and 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.
Example Question #3 : Capm Formula
Of the following, which would not impact the CAPM formula in determining a firm's cost of retained earnings?
Net income
Risk-free rate
Beta
Treasury yield
Net income
Treasury yield is the same as the risk-free rate, which would be included in CAPM as well as beta. Net income is not.
Example Question #1 : Calculate Discounts On Accounts Payable
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.
24.74%
36%
37.11%
31.81%
31.81%
[360 / (45 - 10)] * [3% / (100% - 3%)]
Example Question #2 : Calculate Discounts On Accounts Payable
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:
16%
24%
36%
48%
24%
[360 / (45 - 15)] * [2% / (100% - 2%)]
Example Question #3 : Calculate Discounts On Accounts Payable
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?
$9,800
$9,980
$7,000
$10,000
$9,800
A 2% discount on $10,000 = a $200 discount. $10,000 - $200 = $9,800.
Example Question #4 : Calculate Discounts On Accounts Payable
If the dollar price of the euro rises, which of the following will occur?
The dollar depreciates against the euro
The euro will buy fewer European goods
The euro will buy fewer US goods
The euro depreciates against the dollar
The dollar depreciates against the euro
If the dollar price of the euro rises, then the euro is getting more expensive, thus the dollar is getting less expensive.
Example Question #5 : Calculate Discounts On Accounts Payable
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?
1.48
2.06
0.72
1.39
1.39
2.06/1.48=1.39
Example Question #1 : Calculate Discounts On Accounts Payable
A discount on accounts payables would encourage which of the following activities?
Customers extending their due dates
Clients paying more than they owe
Clients paying their bills earlier rather than later
None of the answer choices are correct
Clients paying their bills earlier rather than later
When offering a discount to a customer for paying earlier, a firm would forfeit some income in order to increase cash on hand.
Example Question #11 : Financial Management Formulas
Future payments must be discounted in a bond valuation in order to take into account the:
Time value of money
Difference between the market rate of interest and the coupon rate
Expected interest rate on the coupon payments
Fact that the bond was sold at a premium
Time value of money
The process of accounting for time value of money is discounting.
Example Question #12 : Financial Management Formulas
The discount rate is determined in advance for which of the following capital budgeting techniques?
Net present value
Payback
Accounting rate of return
Internal rate of return
Net present value
In order to work with net present value, a discount rate must be calculated.
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