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...
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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