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BEC EXAM B2 QUESTIONS & ANSWERS 2024/2025
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BEC EXAM B2 QUESTIONS & ANSWERS 2024/2025 Define capital structure - ANSWERSmix of LT & ST debt and equity (common and preferred) used to raise money for a company WACC is often times called the - ANSWERShurdle rate Define hurdle rate - ANSWERSthe minimum rate that a company expects to e...

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  • August 11, 2024
  • 14
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers

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  • bec exam b2 questions answers

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BEC EXAM B2 QUESTIONS & ANSWERS
2024/2025

Define capital structure - ANSWERSmix of LT & ST debt and equity (common and preferred) used to raise
money for a company



WACC is often times called the - ANSWERShurdle rate



Define hurdle rate - ANSWERSthe minimum rate that a company expects to earn off of an investment



FORMULA:



WACC - ANSWERS(% equity)(%cost of equity) + (% debt)(%cost of debt)




REMEMBER THIS DEBT IS AFTER TAX



Debt financing:



ST debt - ANSWERSST notes payables, commercial paper, line of credit arrangements



What are notes? - ANSWERSsame as a bond but with shorter maturity



What is commercial paper? - ANSWERSextremely short term notes with maturity of less than a month



Debt financing:



LT debt - ANSWERSLT notes payable, debentures, bonds, capital leases

, What are bonds? - ANSWERSwhen you buy a bond you are lending money to a company. It is a promise
from the company to repay you on a certain date with regular interst



What are debentures? - ANSWERSunsecure notes/bonds meaning they aren't back with anything other
than the promise to pay



What is a capital lease? - ANSWERStreated like an asset on the B/S - think of it as if we own the property,
counted as debt and depreciate for LT. ratios are weaker but leads to high CFs




To be a capital lease one of the following must be true

1. ownership transfer at end of lease

2. option to purchase at end of the lease

3. term of lease > 75% of useful life of the asset

4. PV of lease payment is > 90% of assets FMV



What are the 3 methods of computing retained earnings? - ANSWERSCAPM

DCF

BYRP



FORMULA:



CAPM - ANSWERSRFR + beta (MR - RFR)



What is beta in the CAPM formula? - ANSWERSthe volatility (risk ) of the stock relative to the volatility of
the market



FORMULA:

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