Final Exam Review

Final Exam Review - Part I Goal of the firm maximization of...

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Part I Goal of the firm: maximization of shareholder wealth Business Organization: Sole proprietorship, partnership (general and LLC), and corporation Balance Sheet: Assets, Liabilities, and Equity Market Security—very short-term investments; very liquid; cash buffer Equity: Preferred stock, common stock, and retained earnings Revenues – Cost of Goods Sold = Gross Profit; Gross Profit – Selling, General and Administrative Expenses = Operating Profit; Operating Profit – Interest Expense – Taxes = Net Income Net Income= = Retained earnings + Dividends Cash Flows: Operations Investing, Financing Cash Flow = Net income (loss) – non-cash expenses (depreciation) – change in current assets including cash + change in current liabilities Source And Use Analysis: comparison between two balance sheets Grow Stages of a firm: Emerging, Growth, Mature, Declining, Transition P. 144 and 145: suggested review Working Capital: difference between current assets and current liabilities Hedging Principle: permanent assets financed with permanent sources; temporary investments financed with temporary sources. P.151 Cash Conversion Cycle = DSO + DSI – DPO DSO = accounts receivable / (sales/365) DSI = inventories / (cost of goods sold/365) DPO = accounts payable / (cost of goods sold/365) Interest = principal * rate * time; APR = interest / (principle * time); APY = [1 + (i/m)]^m – 1 Trade Credit: 2/10 Net 30: ($.02/$.98) * [1/(20/360)] Unsecured loans: accrued wages/taxes, trade credit, unsecured bank loans (line of credit and transaction loans (notes payable)), and commercial paper Calculate APR for line of credit p. 157 and p. 159 Secured loans: Accounts Receivable Loans and Inventory Loans (collateral) Cash and marketable securities are considered liquid assets Motives for holding cash: transactions, precautionary, speculative Float: mail, processing, transit, disbursing Managing Cash Outflow: zero balance accounts, payable-through drafts, and remote disbursing. Marketable Security Alternatives: U.S. Treasury Bills, Federal Agency securities, Bankers’ Acceptances, Certificate of Deposits, Commercial Paper, Repurchase Agreements, and Money Market mutual funds. Difference between variable and fixed costs Variable cost percentage = total variable costs / total sales Contribution-margin percentage = total contribution margin / total sales = 100% - variable cost percentage
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Sales (Unit sales price * # of units) – Variable Expenses (Unit variable cost * # of units) – fixed expenses = Net Income Break even volume in units = (fixed expenses / unit contribution margin) Break even volume in dollars = (fixed expenses / contribution margin ratio) Operating Leverage: ratio of fixed to variable costs Marketing Utility: Form, place, time, possession Marketing Mix: product (design, packaging, free shipping), price (price value),
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Final Exam Review - Part I Goal of the firm maximization of...

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