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31 Cards in this Set
- Front
- Back
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How are restructuring costs classified under U.S. GAAP? |
An unusual or infrequent items (NOT an extraordinary item) |
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How does an increase in the tax rate effect a DTA? |
It increases the DTA |
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How do you calculate double declining depreciation? |
1. Purchase price x 0.5 2. (Purchase price - accum. Dep) x 0.5 3. Repeat over life of asset until salvage value is reached. |
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A company builds a new operating facility and finances it. Under GAAP, should the interest be expensed or capitalized? |
Capitalized. When specific borrowing can be identified to pay for the building work, then interest costs are usually capitalized. |
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Under US GAAP, how are interest expense and dividends paid classified, respectably? |
Interest expenses are classified as an operating cash flow while dividends paid are classified as a financing cash flow. |
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Describe the CAPM equation and it's application. |
Risk-free rate + beta (market return - risk free rate) Provides the expected return for a stock or portfolio |
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What type of risk does beta measure? |
Systematic Risk |
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If a new buy order is placed that exceeds the current bid, but not the current ask, the order is said to: |
Make a new market If the buy order exceeded the ask, it would be said to "take the market" |
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Who holds the voting rights is a Sponsored Depository Receipt and an Unsponsored Depository Receipt, respectively? |
In a Sponsored Depository Receipt, the investors in the DR hold the voting rights. In an Unsponsored Depository Receipt, the depository bank retains the voting rights. |
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What is the formula for the dividend discount model (DDM) |
(Current dividend x div. growth rate) / (investors' required return - div. growth rate) Gives a FV of a stock price based on future expected dividends |
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ABC Co. purchases 100,000 units of inventory at a total cost of $500,000. It pays a deposit of 10% of the cost; the remainder of the costs will be paid in 20 days time. As a result of this transaction, assets will increase by: |
$450,000 |
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The amount of cash or cash equivalents that could be currently obtained by selling an asset in orderly disposal is called: |
Realizable value |
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Deferred revenue is another term for : |
Accounts receivable |
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A company sells $50,000 of goods, but under credit terms given to customers, payments will not be received for 30 days. The cost of goods is recorded as $35,000. As a result of this transaction, assets will change by: |
Increase by $15,000 Sale and COGS are booked on IS. Inventory reduced by $35,000 Assets increase by $50,000 Net chg in assets of $15,000 |
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If a manager is attempting to hide an expenditure for which he has paid cash, in my record a fictitious: |
Prepaid Asset |
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How do you calculate a Maintenance Margin requirement? |
[(1-initial margin)/(1-maintenance margin)] x Price of security Will give the dollar amount of security where a margin call will occur |
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What is the formula for the Price Return of an index (one time period)? |
(Ending value - Beg. value) / Beg. value
Simply a % chg Does not factor in reinvestment of income (dividends); only price change. Over multiple periods you would just multiply beg. value by 1+each period's return. |
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What is the formula for Total Return on an index (one time period)? |
(Ending value - Beg. value + Income) / Beg. value Over multiple periods you would just multiply beg. value by 1+each period's return. |
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In what type of Market is a passive investment strategy better? |
An efficient market - where prices adjust rapidly to new information An active strategy would be best in an inefficient market. |
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Differentiate weak form, semi-strong form, and strong form market efficiency |
Weak form - future returns independent of past. P0 all inclusive of historical data Semi-strong form - same as weak form but includes that returns cannot be made once material info is public Strong form - price reflects all public AND private info |
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A market anomaly is best described as a: |
A persistent deviation between the actual return for a stock and the return expected due to relevant info in the market. |
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The initial margin for a stock purchase is: |
The percentage of the transaction value that must be paid in cash, rather than borrowed. |
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Define Coefficient of Variation and formula |
Formula: STDEV / mean Risk per unit of return. Higher = worse |
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What is the objective of tactical asset allocation? |
Identify opportunities to increase returns by forecasting Market moves in the short-term |
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What measure systematic risk? |
Beta |
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If an investor has steep indifference curves, it is likely to indicate that the investor: |
Is conservative. Steep utility or indifference curve show that the investor requires a large additional return to compensate for taking on more risk, indicating they have a low risk tolerance |
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Describe the Quantity Theory of Money |
A change in the money supply at full employment will cause a proportional change in the price level |
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What are the three major steps in the portfolio management process? |
Planning, execution, and feedback |
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Describe and calculate standard error |
Standard error is the standard deviation of the distribution of sample means
STDEV / square root of n |
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Define degree of operating leverage |
% change in operating income / % change in units sold Higher number indicates more sensitivity to changes in sales. |
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Define Degree of Financial Leverage |
% change in net income / % change in operating income |
