HA 351 Finals Prep

To be considered a growth company, a company's earnings must be increased by at least __% each year

10%

An ________ is a fixed amount of money received or paid each compounding period for a set period.

Annuity

___________ involves selling the rights to a company's brand in a specific location or market for a stated number of years.

Franchise

What has the biggest impact on determining the rate of return?

RISK!

The hurdle rate is:

The investors ROI target

The more you use financial leverage, the lower your cost of _______.

capital

Give the accounting and business definitions of working capital:

Accounting: The difference between current assets and current liabilities. Business: How much cash you need to operate a business.

____________ occurs when a business's liabilities exceed its assets and the company is unable to meet its current financial obligations.

Bankrupcy

Which of the following items is NOT an operating expense? a-cost of goods sold b-payroll c-property taxes d-energy expenses

C

___________ is a fixed obligation or liability of a business that must be paid back, with interest, over a specified period of time.

Debt (loan)

____________ is the ownership in the business that does not require immediate repayment, but a return on the capital invested is expected.

Equity

What is riskier to the investor, debt or equity? why?

Equity contains a higher risk to the investor because their money is not guaranteed- they only get paid if the business is doing well. <<This is why the percentage rate is higher for equity>>

________ the business of your company is essential to its long term success.

Expanding

T/F Capital expenses are costs related to the day-to-day operation of the business

False

T/F If the present value of an asset is less than its cost, net present value is positive and the investment is deemed favorable.

False

T/F On a balance sheet total liabilities equal total assets plus total equity

False

T/F The accounts receivable aging schedule summarizes revenues earned by each department within an operation and provides a comparison to budgeted amounts

False

T/F The cost principle states that only transactions that can be expressed in terms of money can be shown on a company's financial statements.

False

T/F The daily payroll report summarizes revenues earned by each department within an operation

False

T/F The goal of financial accounting is to provide more timely operating results related to revenues and expenses to help management maximize the operating performance of the business

False

T/F When computing the present value of an investment, the rate used to discount future cash flows is the investor's borrowing rate.

False

T/F as the discount rate increases, the present value of the investment increases

False

T/F on a balance sheet, total liabilities equal total assets, plus total equity

False

T/F Growth through diversification increases a company's risk because they are spreading out over several markets.

False (decreases)

T/F The smaller percentage credit sales are of the total sales of the business, the more working capital the business will need

False (less)

T/F The higher the risk, the more the lenders and investors want to be compensated for their capital and the lower the cost of capital

False- the higher the cost of capital

T/F The balance sheet shows the results of the operations over a period of time

False: a moment in time!

The difference between financial and managerial accounting:

Financial records the data, while managerial accounting helps the managers run the business

The Financial Accounting Standards Board and the Securities and Exchange Commission develop rules and regulation known as __________ that govern

Generally Accepted Accounting Principles

The primary goal of management is to increase __________ value.

Market

Three important components of investment analysis are the weighted average costs of capital, the discount rate, and the ________ method of valuation.

Payback

Discuss the pros and cons of growth by expansion of physical facilities, vs franchising your concept.

Physical facilities require the up front capital, where franchising funds come from the people who franchise the brand name. But franchising risks lowering the brand standards/ consistency rather than having the control over the process/ outcomes of expanding physical facilities.

__________value is the current value of cash-flowing asset based on the amount and timing of its projected cash flows.

Present

How does a company's beta relate to its risk? WHat is the risk compared to?

The higher the beta the higher the risk. The risk is compared to the market.

Briefly discuss the impact of Accounts Receivable and Accounts Payable on working capital.

The more accounts RECEIVABLE you have the more working capital needed. The more accounts PAYABLE you have the LESS working capital you need

T/F Earnings Per Share (EPS) is calculated by dividing the company's annual EBITDA by the number of shares of its common stock outstanding

True

T/F On the balance sheet equity is the amount of capital invested in a business plus retained earnings

True

T/F Share holder value is the market value of a company

True

T/F The mis of debt and equity, cost of each, and the income tax rate of the business drive the WACC

True

T/F The payback period is the amount of time a project requires to payback the initial equity investment

True

T/F The statement of cash flow presents cash flow from operations, cash flow from investing activities, and cash flow from financial activities.

True

T/F Time value of money is based on the premise that the value of money is not only it face value, but also the interest or profit that can be earned by investing it wisely.

True

T/F When a lender applies its LTV formula to the present value of your project, the higher the present value, the more money it will likely allow you to borrow.

True

Transaction: A vendor delivers meat to the restaurant, and the receiving clerk signs for it: account______ inc or dec account______ inc or dec

account inventory increases account payable increases

Transaction: Accounting receives a statement from the meat vendor and pays it. account______ inc or dec account______ inc or dec

account payable decreases account cash decreases

Transaction: A customer payes for her lunch with a Visa card account______ inc or dec account______ inc or dec

account receivable increases account sales increases

Transaction: Night audit performs room revenue. account______ inc or dec account______ inc or dec

account room sales increases account guest ledger (receivable) increases

The cap rate approach to value is calculated:

by dividing cash flow by the market cap rate to arrive at the asset's approximate market value

The lower the ______ rate used to calculate the terminal sales price of the asset, the higher the sales price.

cap

As the risk of a potential investment opportunity decreases, the discount rate used to calculate its present value would normally:

decrease

As you increase the discount rate in calculating the present value of a potential investment, the present value of the potential investment:

decreases

The mix of ____________ used to finance the asset determines the weighted average cost of capital.

equity and debt

Accounting is divided into two parts:

financial accounting and managerial accounting

What are the two primary functions of finance?

financing and investing

what order are assets listed on the balance sheet?

how easily it can be converted into cash

Retained Earnings

is prior years profits that have not been paid out to owners as dividends

The terminal selling price:

is the estimated price for which the asset could be sold at the end of the analysis period

on a balance sheet, assets are:

items of value the company owns

The riskier the investment the _______ the assets present value.

lower

The relationship between EPS and the current market price of a company's stock is referred to as its:

multiple

The full disclosure principle:

requires that all potential events that could impact a company's financial position or operating results be clearly reflected on the company's financial statements or footnotes attached to the financial statements.

the income statement presents:

revenues, operating expenses, capital expenses, and profit or loss

What is the major disadvantage of growing through management contracts?

risk of the contract being terminated

Net present value is calculated by:

subtracting its initial cost from its present value.

A hotels market value is based primarily on:

the amount of cash flow it generates or is projected to generate.

What happens to a company's stock price if the market goes down and it has a beta of 1.5 compared to the market beta of 1.0?

the company's stock price will decrease more than the market

IRR can best be defined as:

the discount rate that makes NPV equal zero

the income statement is often referred to as:

the profit and loss statement