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36 Cards in this Set

  • Front
  • Back

When making decisions, managers should consider

revenues that differ between alternatives

when companies are price setters, their products and services

tend to be unique

in deciding whether to drop its electronics product line, smith co should consider

- the costs it could save

- the revenue it would lose

- the affect it would have on other sales

in deciding which product lines to emphasize when a production constraint exsits, should focus on the product line that has the highest

contribution margin per unit of the constraining factor

when deciding whether to sell as is or process a product further, managers should ignore

the costs of processing the product thus far

the following method does not consider the investments profitablity


your rich aunt has promised to give you $2000 a year at the end of each of the next four years to help you pay for college. using a discount rate of %12 the present value of the gift can be stated as

PV= $2000 (Annuity PV factor, I=12%, n=4)

companies should always choose the investment with the...

- the highsest ARR

- shortest payback

- highest NPV

TRUE OR FALSE regarding capital rationing decisions?


the interest rate at which the NPV of the investment is zero


which analysis involves a percentage increase or decrease in the item?

horizontal analysis

which analysis involves a percentage of an item?


inventory turnover formula

cogs /

avg merchandise inventory
<(beg + end merch inventory)/2>

days sales in inventory formula

365 days/inventory turnover

gross profit percentage

gross profit/net sales revenue

accounts recivebale ratio

net credit sales/

avg net accts recievable

<(beg+end ar)/2>

days sales in average recieveables

365/accts receivable turnover ratio

acid-test(quick) ratio

cash + short term investmnts + net current recvbls/ total current liabs

cash ratio

cash + cash equivalents (money market or us securities)/

total current liabs

current ratio

total current assets/ total current liabilities

avg annual operating income

total net cash inflow

- less total depreciation

= total op inc during op life/ op years = avg annual op income

average amount invested

(amount invested + residual value) /2


(average rate of return)

avg annual op income/avg amount invested

in making short term special decisions you should

separate variable from fixed costs

what is relevant to's decision to accept a special order at a lower sale price from a large customer in china

the cost of shipping the order to the customer

costs that are irrelevant to business decisions

sunk costs

when pricing a product or service, managers consider

- period costs

- manufacturing costs

- variable costs

when making outsourcing decisions

the variable cost of producing in-house is relevant

what is the first step in capital budgeting

identifying potential projects

affects the present value of an investment

- the type of investment

- the number of time periods

- the interest rate

irrelevant IRR factor


the most reliable method for making capital budgeting decisions

NPV method

what part of the annual report is written by the company and could present a biased view of financial conditions and results

managements discussion and analysis (MD&A)

times-interest-earned ratio

net income + income tax expense + interest expense/ interest expense

rate of return on common stockholders equity

net income - preferred dividends/

avg common stockholders equity

earnings per share

net income - preferred dividends/

weighted avg number of common shares outstanding

an item for the extraordinary items section must be

unusual and infrequent