HBX Core Final Exam 2024 Quizzes & Ans!!

HBX Core Final Exam 2023-2024
Net Present Value - ANSWER Is a calculation of the present values of all the cash inflows and
outflows of a project or investment.
Excel formula =NPV(E4,B3:B12)+B2
Remember,for NPV you have to manually add the negative outflow from time zero related to
the initial investment.
Asset/Expense Accounts - ANSWER Asset and expense accounts increase with debit and
decrease with credit.
Income Statement - ANSWER Shows a company's financial performance, because it shows
the accumulation of all nominal accounts over a period of time.
Gross Profit - ANSWER Sales Revenue minus COGS.
Accounts Payable Turnover - ANSWER Credit Purchases/Average Accounts Payable Balance.
Internal Rate of Return (IRR) - ANSWER The discount rate that sets the net present value
(NPV) of a project equal to zero. The IRR allows us to find the percentage rate that would be
earned for a given set of cash flows.
Gross Profit Margin Calculation - ANSWER Gross Profit/Revenue =Gross Profit Margin
Leverage Ratio Calculation - ANSWER Average Total Assets/Average Equity.
Suggested Formula =Average (B11,D5)/Average (Sum(B16:B18),D8).
Present Value Calculation - ANSWER It is calculated by multiplying the annual payment by
the present value of an annuity factor.
$18,000*6.71008=$120,781
Return on Equity (ROE) - ANSWER The return that a business generates during a period on
equity invested in the business by the owners of the business.
Measured in DuPont Framework.
Return on Investment (ROI) - ANSWER The return or profit received as a result of investing
funds.
Not measured by the DuPont Framework.
Cash Conversion Cycle (CCC) - ANSWER The number of days between when a company pays
for inventory purchases and when a company collects from customers.
Not measured by the DuPont Framework.
Interest Coverage Ratio - ANSWER The number of times a company can cover its interest
expense only using its earnings before interest and tax.
Not part of the DuPont Framework.
Deferred Tax Asset - ANSWER Arises when taxable income exceeds Income Before Taxes
due to a temporary timing difference.
When a deferred Tax Asset arises it means a company is recognizing Tax Expense now on an
amount of income that will be reflected in the financial records later.
Income Before Taxes - ANSWER The amount shown on the Income Statement after all
expenses have been taken away from the revenue for the period but before any tax expense
for the period. May also be referred to as Pretax Profit.
Profit Margin - ANSWER (Net Income/Sales ) measures the ability of a company to make a
profit relative to revenue generated during a period. A Profit Margin of 19% tells us that for
every $100 in sales, $19 ended up in Net Income.
Profit Margin - ANSWER Profit Margin (Net Income/Sales) measures the ability of a
company to make a profit relative to revenue generated during a period.
In Excel Net Income/Revenue.
Average Collection Period - ANSWER 365/AR Turnover =365/(Credit Sales/ Average AR
Balance)
Current Ratio - ANSWER The current ratio is a measure of a business' ability to pay its short
term obligations.
Quick Ratio - ANSWER measures the ability of a company to use its quick assets to pay off
its short-term debts.
Debt to Equity Ratio - ANSWER measures a company's leverage, not ability to pay off its
debts.
Indirect Method to create the Statement of Cash Flows - ANSWER A gain, an increase in
operating assets, and a decrease in operating current liabilities would all need to be
subtracted from net income in order to convert net income into operating cash flow when
using the indirect method to create the Statement of Cash Flows.
Gordon Growth Model - ANSWER A method for calculating the terminal value of an
indefinite stream of cash flows. The calculation gives the present value of infinite cash flows
by dividing the cash flow in the final year of our projection by the difference between the
discount rate and the growth rate.
Cash Conversion Cycle - ANSWER is a measure of how long it takes a business from the time
it has to pay for inventory from its suppliers until it collects cash from its customers.
It can be calculated as Days Inventory, plus the Average Collection Period, minus the Days
Purchases Outstanding.
DuPont Framework - ANSWER A framework of ratios that breaks down Return on Equity
(ROE) into the three components of Profitability, Efficiency, and Leverage.
Liabilities - ANSWER increase with a credit.
Winner's Curse - ANSWER A phenomenon that occurs in auctions in which the winner of the
auction will tend to pay more for a product or service than its true value.
Profit - ANSWER is the difference between the price and the cost.
Consumer Surplus - ANSWER is the difference between WTP and the price.
Is defined as the difference between equilibrium price and willingness to pay.
Profit + consumer surplus - ANSWER The difference between WTP and price is consumer
surplus, and the difference between price and cost is the profit.
Marginal Cost - ANSWER is the revenue from the sale of one extra unit.
Does price affect Demand? - ANSWER Changes in price affect the quantity demanded, but
cannot result in a shift in its demand curve.
Demand Curve - ANSWER The demand curve is a downward sloping line, which relates price
and quantity demanded. The negative slope results from the inverse relationship between
price and quantity demanded-as one goes up, the other goes down.
Price Elasticity of Demand - ANSWER A measure of how responsive customer demand for a
product or service is to a change in price.
Calculated as percentage change in quantity demanded for product X, divided by the absolute
value of percentage change in price product X.
Percentage changes calculated as New-Old/Old.
Cross Price Elasticity - ANSWER is the percent change in quantity demanded of one good
(-5%) divided by the percent change in price of the other good (25%). A negative cross price
elasticity indicates that the goods are complements.
A positive cross-price elasticity means the goods are substitutes.
Unrelated goods have a cross-price elasticity close to zero.
Maximizing Revenue - ANSWER Price elasticity of demand equals one.
Profit - ANSWER A firm's total revenue minus its total costs.
Revenue - ANSWER The amount of money received by a company or firm from sales of its
products or service.
Demand Curve-Shift Left - ANSWER Lower quantity demanded.
Example-bad weather for a basketball game.
Demand Curve-Shift Right - ANSWER Higher quantity demanded.
Example-price decrease.
Formula for calculating the minimum required sample size. - ANSWER n>_(z*s/m)^2. z-value
associated with 95% confidence interval is 1.96.
S is std and m is Margin of error.
R-squared - ANSWER R-squared measures how much variation in a dependent variable can
be "explained" by the variation in the independent variable(s).
Adjusted R-squared - ANSWER Adjusted R-Squared is equal to R-squared multiplied by an
adjustment factor that decreases slightly as each independent variable is added to a
regression model.
Use to compare two regression models that have a different number of independent
variables.
Multiple Regression - ANSWER A regression analysis with two or more independent
variables.
Square root of r2.
Heteroskedasticity - ANSWER exhibits a funnel
shape.
Standard deviation/Mean - ANSWER This is the formula for the coefficient of variation.
Central Limit Theorem - ANSWER If we take a large enough samples, the distribution of
sample means will be normally distributed regardless of the shape of the underlying
population.
To find P(x>115), the percent of the population has an IQ over 115. - ANSWER First compute
the cumulative probability, P(x<_115), using the Excel function Norm.DIST(x,mean,standard
_dev,TRUE).
Thus P(x>115)=1-P(x<_115)=1-0.84=0.16, or 16%.
Type 1 error - ANSWER Incorrectly rejecting a true null hypothesis (e.g. concluding that
there is a difference between two groups when there is not one); also called a false positive.
Type II error - ANSWER Incorrectly failing to reject a false null hypothesis (e.g. concluding
that there is no difference between two groups, when there is in fact, a difference); also
called a false negative.
P-value - ANSWER Can be interpreted as the probability, assuming the hypothesis is true, of
obtaining an outcome that is equal to or more extreme than the result obtained from a data
sample.
The lower the p-value, the greater the strength of statistical evidence against the null
hypothesis.
Asset Turnover - ANSWER Revenue/Average Assets
Inventory Turnover - ANSWER COGS/Average Inventory
Inventory Turnover measures the number of times inventory is sold or used in a time period.
It is an indicator of operating efficiency.
A - ANSWER
Accumulated Depreciation - ANSWER A contra-asset.
Gross Profit Margin - ANSWER Gross Profit/Sales identifies what percentage of revenue
remains to cover other expenses after COGS is eliminated.
Building an income statement. - ANSWER 1. Revenue-COGS
2. Less Operating Expenses
3. Subtract interest expense to get Income before taxes.
4. Finally subtract tax expense to get net income.