Classification of Costs and Cost Behavior LEARNING OBJECTIVE I. Classification of Costs II. Cost Behaviour Patterns III. Direct Costs and Indirect Costs I. Classification of Costs Classification is a means of analyzing costs into logical groups so that they can be summarizes into meaningful information for management use or for preparing external financial report. The criteria used for the classifications will depend
Continue reading INTRODUCTION TO MANAGEMENT INFORMATION LEARNING OBJECTIVE PURPOSE OF MANAGEMENT INFORMATION DATA AND INFORMATION THE FEATURES OF EFFECTIVE MANAGEMENT INFORMATION THE SOURCE AND CATEGORIES OF INFORMATION MANAGEMENT ACCOUNTING AND FINANCIAL ACCOUNTING RESPONSIBILITY CENTRES 1.PURPOSE OF MANAGEMENT INFORMATION Management information is used by managers to: Plan the future of the business. For example, future cash flows and whether borrowing will need to
Continue reading MA1 Management Information you researched as follows:
Continue reading Modified internal rate of return (MIRR) Modified internal rate of return (MIRR) assumes that positive cash flows are reinvested at the firm’s cost of capital. By contrast, the internal rate of return (IRR) assumes the cash flows from a project are reinvested at the IRR. PV is present value (at the beginning of the first period) FV is future value
Continue reading Adjusted present value (APV) Adjusted present value (APV), defined as the net present value of a project if financed solely by equity (so called base case) plus the present value of financing benefits. It is very similar to NPV. The difference is that it uses the cost of equity as the discount rate rather than weighted average cost of capital (WACC).
Continue reading Free cash flow (FCF) or free cash flow to firm (FCFF) Free cash flow (FCF) or free cash flow to firm (FCFF) is a measure of a company’s financial performance, calculated as operating cash flow minus capital expenditures. FCF represents the cash that a company is able to generate after spending the money required to maintain or expand its asset
Continue reading Weighted average cost of capital (WACC) Weighted average cost of capital (WACC) is a calculation of a firm’s cost of capital in which each category of capital is proportionately weighted. Companies raise money from all sources of capital, including common stock, preferred stock, bonds and any other long-term debt, are included in a WACC calculation. Different securities are expected to generate different returns. The weighted average cost of capital (WACC) is the rate
Continue reading Capital Asset Pricing Model (CAPM) The capital asset pricing model (CAPM) is a model used to determine a theoretically appropriate required rate of return of an asset, and it is related with a well-diversified portfolio. The CAPM formula is: ra = rrf + Ba (rm-rrf) where: rrf = the rate of return for a risk-free security rm = the broad market’s expected rate of return Ba = beta of the asset The model takes into account the asset’s sensitivity to
Continue reading Cost of redeemable debt Redeemable debts are those which will be repaid to the debt investors after a specific period, while irredeemable or perpetual debt is not repaid back to the debt investors—only interest on this is paid regularly. If debt is redeemable, the cost of debt is calculated as the redemption yield on the debt. The redemption yield is
Continue reading Cost of irredeemable debt Irredeemable debt is debt that has no specific redemption date or maturity period. The issuing authority or entity pays a specified interest rate periodically but provides no data on when principal will be returned. Another name for irredeemable debt is perpetual debt or consol. As long as a company or other issuing entity does not default
Continue reading