Question: Which ratios would a banker be most

> If an optimal capital structure exists, what are the reasons why too little debt is as undesirable as is too much debt?

> What is an LBO? What are the risks for the equity investors and what are the potential rewards?

> Give two examples of types of companies that would be best able to handle high debt levels.

> Compare and contrast the book value and liquidation value per share for common stock. Is one method more reliable? Explain.

> How are financial trades made on an organized exchange?

> What is the relationship between a bond's market price and its promised yield to maturity? Explain.

> Explain the difference between the discounted free cash flow models as it is applied to the valuation of common equity and as it is applied to the valuation of complete businesses.

> Answer the following questions about the discounted free cash flow model illustrated in Figure 12-4: a. What are “free cash flows?” b. Explain the terminal value calculation at the end of the forecast period. Why is it necessary? c. Explain the term “pre

> How do opportunity costs affect the capital budgeting decision-making process?

> How and why does working capital affect the incremental cash flow estimation for a proposed large capital budgeting project? Explain.

> What are the advantages and disadvantages of the internal rate of return method?

> How do we calculate the payback period for a proposed capital budgeting project? What are the main criticisms of the payback method?

> Explain how using a risk-adjusted discount rate improves capital budgeting decision making compared to using a single discount rate for all projects?

> Why is the coefficient of variation a better risk measure to use than the standard deviation when evaluating the risk of capital budgeting projects?

> Explain how to resolve a “ranking conflict” between the net present value and the internal rate of return. Why should the conflict be resolved as you explained?

> Explain why accounting profits and cash flows are not the same thing.

> What is capital rationing? Should a firm practice capital rationing? Why?

> Provide three examples of mutually exclusive projects.

> What is a marginal cost of capital schedule (MCC)? Is the schedule always a horizontal line? Explain.

> What is the investment opportunity schedule (IOS)? How does it help financial managers make business decisions?

> If dividends paid to common stock holders are not legal obligations of a corporation, is the cost of equity zero? Explain your answer.

> Suppose you are planning to make regular contributions in equal payments to an investment fund for your retirement. Which formula would you use to figure out how much your investments will be worth at retirement time, given an assumed rate of return on y

> What is compound interest? Compare compound interest to discounting.

> Why does money have time value?

> Which formula would you use to solve for the payment required for a car loan if you know the interest rate, length of the loan, and the borrowed amount? Explain.

> If you are doing PVA and FVA problems, what difference does it make if the annuities are "ordinary annuities" or "annuities due"?

> List and explain the three financial factors that influence the value of a business.

> How does continuous compounding benefit an investor?

> Explain the risk–return relationship.

> What is risk aversion? If common stockholders are risk averse, how do you explain the fact that they often invest in very risky companies?

> Discuss risk from the perspective of the Capital Asset Pricing Model (CAPM).

> Given that risk-averse investors demand more return for taking on more risk when they invest, how much more return is appropriate for, say, a share of common stock, than is appropriate for a Treasury bill?

> What is non-diversifiable risk? How is it measured?

> What does it mean when we say that the correlation coefficient for two variables is -1? What does it mean if this value were zero? What does it mean if it were +1?

> Why does the riskiness of portfolios have to be looked at differently than the riskiness of individual assets?

> What is the difference between business risk and financial risk?

> Why is the coefficient of variation often a better risk measure when comparing different projects than the standard deviation?

> What is the basic goal of a business?

> What is the primary assumption behind the experience approach to forecasting?

> Why do businesses spend time, effort, and money to produce forecasts? Explain.

> What do financial managers look for when they analyze pro forma financial statements?

> Explain the significance of the term additional funds needed.

> Explain how management goals are incorporated into pro forma financial statements.

> Explain how the cash budget and the capital budget relate to pro forma financial statements.

> Why do analysts calculate financial ratios?

> What is a financial ratio?

> Why would an analyst use the Modified Du Pont system to calculate ROE when ROE may be calculated more simply? Explain.

> Under what circumstances would market to book value ratios be misleading? Explain.

> Describe the duties of the financial manager in a business firm.

> What are the time dimensions of the income statement, the balance sheet, and the statement of cashflows? Hint: Are they videos or still pictures? Explain.

> Why do total assets equal the sum of total liabilities and equity? Explain.

> Indicate in which section the following balance items belong (current assets, fixed assets, currentliabilities, long-term liabilities, or equity).

> Why do financial managers calculate the marginal tax rate?

> What are retained earnings? Why are they important?

> Define depreciation expense as it appears on the income statement. How does depreciation affect cash flow?

> What can a financial institution often do for a deficit economic unit (DEU) that it would have difficulty doing for itself if the DEU were to deal directly with an SEU?

> What can a financial institution often do for a surplus economic unit that it would have difficulty doing for itself if the surplus economic unit (SEU) were to deal directly with a deficit economic unit (DEU)?

> Define intermediation.

> List and describe the three career opportunities in the field of finance.

> Compare and contrast a defined benefit and a defined contribution pension plan.

> Which type of insurance company generally takes on the greater risks: a life insurance company or a property and casualty insurance company?

> Who owns a credit union? Explain.

> Compare and contrast mutual and stockholder-owned savings and loan associations.

> What are a bank's primary reserves? When the Fed sets reserve requirements, what is its primary goal?

> What is a security?

> Would there be positive interest rates on bonds in a world with absolutely no risk (no default risk, maturity risk, and so on)? Why would a lender demand and a borrower be willing to pay, a positive interest rate in such a no-risk world?

> What is the role of a broker in security transactions? How are brokers compensated?

> How are financial trades made in an over-the-counter market? Discuss the role of a dealer in the OTC market.

> Compare and contrast the potential liability of owners of proprietorships, partnerships (general partners), and corporations.

> How is finance related to the disciplines of accounting and economics?

> Orlando Metals manufactures tin. During the process, a byproduct— scrap metal—is obtained and placed in stock. The estimated sales value of the scrap metal produced during the month of April is $2,000. Assume that the value of the by-product is treated a

> Seymour Brothers Products, Inc., manufactures a liquid product in one department. Due to the nature of the product and the process, units are regularly lost at the beginning of production. Materials and conversion costs are added evenly throughout the pr

> Materials often represent a substantial portion of a company’s assets; therefore, they should be controlled from the time orders are placed to the time finished goods are shipped to the customer. What are the control procedures used for safeguarding mate

> Clark Kent, Inc., buys crypton for $0.80 a gallon. At the end of processing in Dept. 1, crypton splits off into products A, B, and C. Product A is sold at the split-off point with no further processing. Products B and C require further processing before

> In P3-11, prepare the entries to distribute the weekly payroll and the costs and liabilities related to the bonus, vacation, and holiday pay, assuming that the fringe benefits of the direct laborers are charged to the individual jobs worked on during the

> What are the advantages and disadvantages of the scattergraph method as compared to the high-low method?

> What effect does a change in volume have on total variable, fixed, and semi variable costs?

> Bristol Manufacturing, Inc., uses the job order cost system of accounting. The following information was taken from the company’s books after all posting had been completed at the end of May: a. Prepare the journal entries to charge t

> When a product’s cost is composed of both fixed and variable costs, what effect does the increase or decrease in production has on per unit cost?

> What are the distinguishing characteristics of variable, fixed, and semi variable factory overhead costs?

> What are three categories of factory overhead expenses? Give examples of each.

> What are factory overhead expenses, and what distinguishes them from other manufacturing costs? What other terms are used to describe factory overhead expenses?

> What are two ways that an under- or over applied factory overhead balance can be disposed of at the end of a fiscal period? How can one decide which method to choose?

> If the factory overhead control account has a debit balance of $1,000 at the end of the first month of the fiscal year, has the overhead been under- or overapplied for the month? What are some probable causes for the debit balance?

> Distinguish between volume-related and non-volume-related overhead costs.

> The factory payroll for the week is $200,000, consisting of $140,000 earned by 100 direct laborers and $60,000 earned by 30 indirect laborers. The total of factory bonuses to be received at year-end is estimated at $400,000. All factory workers receive a

> What steps must a company take to successfully employ activity-based costing?

> How does activity-based costing differ from traditional methods of applying overhead to products?

> Under what conditions would it be desirable for a company to use more than one method to apply factory overhead to jobs or products?

> After a product is inspected, some units may be classified as spoiled and others as defective. What distinguishes a product as being spoiled or defective?

> What factory operating conditions and data are required for each of the traditionally used methods for applying factory overhead to products? Discuss the strengths and weaknesses of each method.

> What are three methods traditionally used for applying factory overhead to jobs? Discuss the allocation base used in each method.

> What are the two types of budget data needed to compute predetermined overhead rates?

> What are the shortcomings of waiting until the actual factory overhead expenses are known before recording such costs on the job cost sheets?

> When using the step-down method of distributing service department costs, if a service department receives services from other service departments, will those costs be allocated back to it even though it was the first service department distributed?

> What are the two most frequently used methods of distributing service department costs to production departments?

> Giovanni Construction Company uses the job order cost system. In recording payroll transactions, the following accounts are used: Cash Administrative Salaries Wages Payable Miscellaneous Administrative Expense FICA Tax Payable Sales Salaries Federal Une

> What are two types of departments found in a factory? What is the function or purpose of each?

> What is the function and use of each of the two types of factory overhead analysis spreadsheets?

> How does accounting for factory overhead differ in small enterprises versus large enterprises?