BSNS114 Final Exam with Questions and
100% Correct Answers
Time value of money rule - Answer Receiving CFs earlier is a lot better than receiving CFs
later as TVM rule states that money generally becomes less valuable overtime due to
the effects of inflation.
ATS (After tax salvage) - Answer If you sell your assets at the end of your project & make
a profit, you have to pay taxes on it. The remaining amount is the ATS.
Salvage - Answer How much you can sell your asset for at the end of the project or the
end of its lifetime.
Accounts payable (and examples) - Answer Liability account that represents the amount
of money a company owes to its suppliers or vendors for goods/services that have been
purchased on credit but not paid for. E.g. Bills, electricity payments, taxes.
Accounts receivable - Answer Amount of money that a company is owed by its
customers for goods/services that have been sold on credit but not paid for.
Inventory - Answer Goods or products that a company has on hand & available for sale
to customers.
NWC (Net working capital) - Answer Difference between non-cash current assets
(inventory & accounts receivable) and non-debt current liabilities (accounts payable).
EBIT - Answer Earnings before interest & taxes (operating income)
, EBIAT - Answer Earnings before interest after taxes (net income)
Sunk cost - Answer FORGET THESE, don't include in FCF calculations or while analysing a
project as they're not incremental - any expenditure that has already been incurred, and
cannot be recovered (even if a project is rejected).
Cannibalisation costs or erosion (and example) - Answer TAKE THESE INTO ACCOUNT -
Eating into your own sales by competing against your own existing products with the
introduction of a new project. E.g. Apple iPhone.
Opportunity costs - Answer Value forgone as a result of an action.
ER (Expected return) - Answer Future looking mean (what your return is likely to be in
the future).
Realized - Answer The actual gains or losses that result from selling or disposing of an
asset.
HPR (Holding period return) or Change in wealth invested - Answer Total return on an
asset over a specified period of time or holding period.
Arithmetic Average - Answer Simple average of returns (written as number or %)
Geometric Average - Answer Constant single rate of return that if compounded over
multiple holding periods gives the true rate of growth in wealth (written as %). More
accurate than arithmetic in finance.
Expected return - Answer Average of the possible returns from an investment where
each return is weighted by the probability of that return occuring.
100% Correct Answers
Time value of money rule - Answer Receiving CFs earlier is a lot better than receiving CFs
later as TVM rule states that money generally becomes less valuable overtime due to
the effects of inflation.
ATS (After tax salvage) - Answer If you sell your assets at the end of your project & make
a profit, you have to pay taxes on it. The remaining amount is the ATS.
Salvage - Answer How much you can sell your asset for at the end of the project or the
end of its lifetime.
Accounts payable (and examples) - Answer Liability account that represents the amount
of money a company owes to its suppliers or vendors for goods/services that have been
purchased on credit but not paid for. E.g. Bills, electricity payments, taxes.
Accounts receivable - Answer Amount of money that a company is owed by its
customers for goods/services that have been sold on credit but not paid for.
Inventory - Answer Goods or products that a company has on hand & available for sale
to customers.
NWC (Net working capital) - Answer Difference between non-cash current assets
(inventory & accounts receivable) and non-debt current liabilities (accounts payable).
EBIT - Answer Earnings before interest & taxes (operating income)
, EBIAT - Answer Earnings before interest after taxes (net income)
Sunk cost - Answer FORGET THESE, don't include in FCF calculations or while analysing a
project as they're not incremental - any expenditure that has already been incurred, and
cannot be recovered (even if a project is rejected).
Cannibalisation costs or erosion (and example) - Answer TAKE THESE INTO ACCOUNT -
Eating into your own sales by competing against your own existing products with the
introduction of a new project. E.g. Apple iPhone.
Opportunity costs - Answer Value forgone as a result of an action.
ER (Expected return) - Answer Future looking mean (what your return is likely to be in
the future).
Realized - Answer The actual gains or losses that result from selling or disposing of an
asset.
HPR (Holding period return) or Change in wealth invested - Answer Total return on an
asset over a specified period of time or holding period.
Arithmetic Average - Answer Simple average of returns (written as number or %)
Geometric Average - Answer Constant single rate of return that if compounded over
multiple holding periods gives the true rate of growth in wealth (written as %). More
accurate than arithmetic in finance.
Expected return - Answer Average of the possible returns from an investment where
each return is weighted by the probability of that return occuring.
