Calculations for Exam I,
Chapters 1-3, Business Finance
Practice these calculations, from which we will draw a
number of calculations comprising about 85% of the points (don’t forget your
Scripture memory and what principle it supports, as well as the three ethics
boxes) on Exam I. Note: this document deals with just the
calculations portion of Exam 1. There will also be concept questions from
Chapters 1 (primary goal of firm, agency problem, how agency problem is
overcome, definition of ethics, etc.) and 2 (interpretation of ratios,
primarily, with several questions possible on balance sheet, income statement,
and statement of cash flows) especially; there will likely be just a couple of
concept questions from Chapter 3.
Chapter 1:
Corporate tax
calculation using Table 1.3, which will be provided on your cover sheet.
Chapter 2:
No formula
is provided for net working capital (NWC = CA - CL). The fundamental
accounting equation (or accounting identity) also must be memorized and used:
TA = TL + OE. All
other calculations will be based on pages 52-70, the formulas for which will be provided. Make sure you can interpret and make
recommendations based on the numbers you calculate for each of these. Generally, higher values are better, but not
for the debt ratio or days held of inventory or collection or payment periods.
Also, see your handout on the Kohl's DuPont example to see the table format
(near bottom of that handout) that must be used regardless of whether you are
doing a time-series comparison or a cross-sectional comparison of ROE = NPM x
TAT x FLM.
Chapter 3:
- MACRS depreciation amounts using Table 3.2, which
will be provided on your cover sheet.
- Cash provided by operating activities, as part of
constructing the first portion of a Statement of Cash Flows. You do not need to be able to construct
the investing or financing parts of the Statement of Cash Flows. If I ask this, I would give you an
income statement and the current portion of a balance sheet, with the
latter including amounts for accounts receivable, inventory, and accounts
payable. Remember this formula to help you, which
is different from any formula found in Chapter 3:
See the Unit I section of our website for a handout on calculating OCF.
OCF = NI + Depreciation Expense.
+/- Current Account Changes
where you add decreases in Current Assets and subtract increases in
Current Assets (other than Marketable Securities or Cash) and you add
increases in Current Liabilities (other than Notes Payable, which you
don’t add or subtract since it belongs in financing cash flows) and
subtract decreases in Current Liabilities Another formula is
provided in the handout on calculating OCF.
- Cash Budget
- Pro Forma Balance Sheet
Items you
may wish to memorize that are not on the cover sheet, and are helpful for doing
a Pro Forma Balance Sheet:
1.
External
Financing Required = EFR = TA – (Total Liabs. + Total Equity)
2.
A/R = (Average
Collection Period / 365 ) x Sales
3.
A/P = (Average Payment Period / 365) x
Purchases
4.
When using the
percent of sales method for a given item, you can quickly get the new value by:
New
Value = Old Value x (1 + g)
Where g
is the growth rate of sales
Example: COGS is some percentage of sales. Sales will grow by 10%. This past year’s income statement had a value
of $350,000 for COGS. What is the COGS for the projected income statement for next
year?
New
COGS = Old COGS x (1 + 0.10)
New
COGS = $350,000 x (1.10)
New
COGS = $385,000