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CPA Review BEC - Becker B3
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Working Capital Financing
Short-term 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 short-term borrowing with a financial institution
Operating Lease
Long-term financing option referred to as "off balance sheet financing". It is a pure rental agreement, no change of ownership
Capital Lease
Long-term financing option, where lesee can rent to own by recording both an asset and a liability
Bonds & Debentures
Long-term financing option which is a form of indebtness whereas the borrower is to pay a rate
Preferred Stock
Long-term financing option where the stock is preferred in terms of liquidations & dividends, no voting rights
Common Stock
Long-term financing option which is basic ownership in a company
Depreciation Tax Shield Formula
Depreciation Expense x Tax Rate
After-tax Cost of Debt Formula (kdx)
Kdt x (1-Tax 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 = Risk-free Rate
bi = Beta Coefficient
PMR = Risk Premium (Market Rate - Risk-free 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 (1-Tax Rate)
2. Add Depreciation Benefit
: Depreciation x Tax Rate
3. Multiply Result by PV of Annuity
4. Subtract Initial Outflow
Author
cpaguru
ID
96372
Card Set
CPA Review BEC - Becker B3
Description
Becker CPA Review BEC B3
Updated
2011-08-08T12:10:55Z
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