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CPA Exam- BEC Formulas &actual answers.
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CPA Exam- BEC Formulas &actual answers.
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CPA Exam- BEC Formulas &actualanswers.
Effective Annual Interest Rate ANS -The stated interest rate adjusted for the number of compounding
periods per year
Simple Interest ANS -I=prt
Compound Interest ANS -interest calculated on both the principal and the accrued interest
Required Rate of Return ANS -Nominal RF rate + Sum of Risk Premiums
Nominal Rate of Return ANS -Real Rate of return + Inflation Premium
Weighted Average Cost of Capital (WACC) ANS -the weighted average of the cost of equity and the
aftertax cost of debt
After-Tax Cost of Debt ANS -pretax cost of debt * (1 - tax rate)
Weighted Average Interest Rate ANS -effective annual interest payments / debt outstanding
Cost of Preferred Stock ANS -Preferred Stock Dividends / Net Proceeds of Preferred Stock
Pref Stock Div= Par value * Rate
Cost of Retained Earnings (CAPM) ANS -Risk-Free Rate + [Beta * (Mkt. Return - Risk-Free Rate)]
Cost of Retained Earnings (Discounted Cash-Flows) ANS -(D1 (future dividend)/P0 (current market
price))+growth
, D1= D0 (Dividend today) * (1+growth)
Cost of Retained Earnings (Bond Yield plus Risk Premium) ANS -Pretax Cost of Long-Term Debt + Market
Risk Premium
Growth Rate ANS -(Return on Assets * Retention) / 1-(Return on Assets * Retention)
OR: ROE * Retention
Return on Sales (ROS) ANS -(Net Income - Interest Income + Interest Expense + Tax Expense) / Sales
(net)
Type of Ratio: Profitability
Return on Assets (ROA) ANS -Net Income / Avg. Total Assets
Avg. Total Assets can be Book Value or Fair Market Value
Type of Ratio: Profitability
Return on Investment (ROI) ANS -Net Income / Average Invested Capital
Avg. Invested Capital= Assets - Operating Liabilities
Type of Ratio: Profitability
Return on Equity (ROE) ANS -Net Income / Avg Total Equity
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