2009 B-3 Class Notes

2009 B-3 Class Notes - Becker CPA Review Business 3 Class...

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Becker CPA Review – Business 3 Class Notes 1 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. BUSINESS 3 CLASS NOTES Financial Management is the major topic of Lecture BEC3. Most of the material would be covered in a Managerial Finance course. The topics have a long history on the CMA exam and have only recently become part of the CPA exam. The Content Specification Outline assigns a range of 17%-23% to this area, broken down as follows: Financial modeling objectives, techniques and limitations, Financial modeling for capital decisions, Strategies for short-term and long-term financing options, and Financial statement and business implications of liquid asset management. I. FACTORS AFFECTING FINANCIAL MODELING AND DECISION-MAKING A. Decisions are generally based on incremental costs, which may be direct , prime or discretionary . B. Value chain defines each of the major activities, from R&D through customer service, that add value to the product or service. C. Relevant information may be qualitative or quantitative. D. Probability and expected value techniques are used to aid in projecting the outcome of a decision. II. FINANCIAL MODELING FOR CAPITAL DECISIONS A. Cash flows (after-tax) over the life of the project, both direct and indirect, are analyzed in the capital budgeting process. B. Future cash flows are discounted using Present Value techniques and a “hurdle” rate of return. C. The Payback Period Method simply calculates the time it will take to recover the initial investment, disregarding time value of money. The method may also use PV factors to discount the cash flows. D. The Net Present Value method compares the PV of future cash flows to initial investment. If positive NPV, it meets criteria. E. The Internal Rate of Return method computes the actual rate of return on a project using PV techniques. (NPV = 0) F. Capital Rationing attempts to spend limited funds in the most efficient manner. G.

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This note was uploaded on 02/19/2011 for the course BMGT 360 taught by Professor Spina during the Spring '07 term at Maryland.

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2009 B-3 Class Notes - Becker CPA Review Business 3 Class...

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