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Flashcard 1428162481420

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#cfa #cfa-level-1 #economics #microeconomics #reading-13-demand-and-supply-analysis-introduction #study-session-4
Question
Economists refer to the “rules” that govern transformation of factors of production (input) as [...] .


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simplest level, production of a good consists of transforming inputs, or factors of production (such as land, labor, capital, and materials) into finished goods and services. Economists refer to the “rules” that govern this transformation as <span>the technology of production . Because producers have to purchase inputs in factor markets, the cost of production depends on both the technology and the price of those factors.<span><body><html>

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3.3. The Supply Function and the Supply Curve
between those two values, the greater is the willingness of producers to supply the good. In another reading, we will explore the cost of production in greater detail. At this point, we need to understand only the basics of cost. <span>At its simplest level, production of a good consists of transforming inputs, or factors of production (such as land, labor, capital, and materials) into finished goods and services. Economists refer to the “rules” that govern this transformation as the technology of production . Because producers have to purchase inputs in factor markets, the cost of production depends on both the technology and the price of those factors. Clearly, willingness to supply is dependent on not only the price of a producer’s output, but also additionally on the prices (i.e., costs) of the inputs necessary to produce it. For si







Flashcard 1430507883788

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#cfa #cfa-level-1 #economics #microeconomics #reading-13-demand-and-supply-analysis-introduction #study-session-4
Question
Often, economists use simple [...] to approximate real-world demand and supply functions in relevant ranges.
Answer
linear equations


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Often, economists use simple linear equations to approximate real-world demand and supply functions in relevant ranges.

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3.1. The Demand Function and the Demand Curve
y other goods, not just one, and they can be complements or substitutes.) Equation 1 may be read, “Quantity demanded of good X depends on (is a function of) the price of good X, consumers’ income, the price of good Y, and so on.” <span>Often, economists use simple linear equations to approximate real-world demand and supply functions in relevant ranges. A hypothetical example of a specific demand function could be the following linear equation for a small town’s per-household gasoline consumption per week, where P y might be the average price of an automobile in $1,000s: Equation (2)  Qdx=8.4−0.4Px+0.06I−0.01Py The signs of the coefficients on gasoline price (negative) and consumer’s income (positive) are intuitive, reflecting, respectively, an inverse and a positive relationship between those variables and quantity of gasoline consumed. The negative sign on average automobile price may indicate that if automobiles go up in price, fewer will be purchased and driven; hence less gasoline will be consumed. As will be discussed later, such a relationship would indicate that gasoline and automobiles have a negative cross-price elasticity of demand and are thus complements. To continue our example, suppose that the price of gasoline (P x ) is $3 per gallon, per household income (I) is $50,000, and the price of the average automobile (P y ) is







Flashcard 1430517583116

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#cfa #cfa-level-1 #economics #microeconomics #reading-13-demand-and-supply-analysis-introduction #study-session-4
Question
Sometimes we need to explicitly take account of all the feedback mechanisms that are going on in all markets simultaneously. When we do that, we are engaging in what is called [...] .
Answer
general equilibrium analysis


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rkets that are tangentially involved with this one. At other times, however, we need explicitly to take account of all the feedback mechanisms that are going on in all markets simultaneously. When we do that, we are engaging in what is called <span>general equilibrium analysis .<span><body><html>

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3.6. Market Equilibrium
so on, whereas the price and quantity of gasoline are being determined in the gasoline market. When we concentrate on one market, taking values of exogenous variables as given, we are engaging in what is called partial equilibrium analysis . <span>In many cases, we can gain sufficient insight into a market of interest without addressing feedback effects to and from all the other markets that are tangentially involved with this one. At other times, however, we need explicitly to take account of all the feedback mechanisms that are going on in all markets simultaneously. When we do that, we are engaging in what is called general equilibrium analysis .For example, in our hypothetical model of the local gasoline market, we recognize that the price of automobiles, a complementary product, has an impact on the demand for gasoline. If the







Flashcard 1433061952780

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#cfa #cfa-level-1 #economics #microeconomics #reading-14-demand-and-supply-analysis-consumer-demand #section-4-the-opportunity-set #study-session-4 #the-production-opportunity-set
Question
The company’s [...] shows the maximum number of units of one good it can produce, for any given number of the other good that it chooses to manufacture.
Answer
production opportunity frontier


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The company’s production opportunity frontier shows the maximum number of units of one good it can produce, for any given number of the other good that it chooses to manufacture.

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4. THE OPPORTUNITY SET: CONSUMPTION, PRODUCTION, AND INVESTMENT CHOICE
on the vertical axis, the slope is equal to –(P L /P C ) = –10/16 = –0.625. (Note: If we had chosen to measure quantity of lamb on the vertical axis, the slope would be inverted: –(P C /P L ) = −1.6.) <span>4.2. The Production Opportunity Set Companies face constraints on their production opportunities, just as consumers face limits on the bundles of goods that they can consume. Consider a company that produces two products using the same production capacity. For example, an automobile company might use the same factory to produce either automobiles or light trucks. If so, then the company is constrained by the limited capacity to produce vehicles. If it produces more trucks, it must reduce its production of automobiles; likewise, if it produces more automobiles, it must produce fewer trucks. The company’s production opportunity frontier shows the maximum number of units of one good it can produce, for any given number of the other good that it chooses to manufacture. Such a frontier for the vehicle company might look something like that in Exhibit 9. Exhibit 9. The Production Opportunity Frontier Note: The production opportunity frontier for a vehicle manufacturer shows the maximum number of autos for any given level of truck production. In this example, the opportunity cost of a truck is 0.8 autos. There are two important things to notice about this example. First, if the company devoted its entire production facility to the manufacture of automobiles, it could produce 1 million in a year. Alternatively, if it devoted its entire plant to trucks, it could produce 1.25 million a year. Of course, it could devote only part of the year’s production to trucks, in which case it could produce automobiles during the remainder of the year. In this simple example, for every additional truck the company chooses to make, it would have to produce 0.8 fewer cars. That is, the opportunity cost of a truck is 0.8 cars, or the opportunity cost of a car is 1.25 trucks. The opportunity cost of trucks is the negative of the slope of the production opportunity frontier: 1/1.25. And of course, the opportunity cost of an automobile is the inverse of that ratio, or 1.25. The other thing to notice about this exhibit is that it assumes the opportunity cost of a truck is independent of how many trucks (and cars) the company produces. The production opportunity frontier is linear with a constant slope. Perhaps a more realistic example would be to increase marginal opportunity cost. As more and more trucks are produced, fewer inputs that are particularly well suited to producing truck inputs could be transferred to assist in their manufacture, causing the cost of trucks (in terms of cars) to rise as more trucks are produced. In this event, the production opportunity frontier would become steeper as the company moved its production point away from cars and toward more trucks, resulting in a frontier that would be concave as viewed from the origin. 4.3. The Investment Opportunity Set The investment opportunity set is examined in detail in readings on investments, but it is appropriate to exa







Flashcard 1433071127820

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#cfa #cfa-level-1 #economics #microeconomics #reading-14-demand-and-supply-analysis-consumer-demand #section-4-the-opportunity-set #study-session-4 #the-production-opportunity-set
Question
The [...] is the negative of the slope of the production opportunity frontier
Answer
opportunity cost


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The opportunity cost of trucks is the negative of the slope of the production opportunity frontier

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4. THE OPPORTUNITY SET: CONSUMPTION, PRODUCTION, AND INVESTMENT CHOICE
on the vertical axis, the slope is equal to –(P L /P C ) = –10/16 = –0.625. (Note: If we had chosen to measure quantity of lamb on the vertical axis, the slope would be inverted: –(P C /P L ) = −1.6.) <span>4.2. The Production Opportunity Set Companies face constraints on their production opportunities, just as consumers face limits on the bundles of goods that they can consume. Consider a company that produces two products using the same production capacity. For example, an automobile company might use the same factory to produce either automobiles or light trucks. If so, then the company is constrained by the limited capacity to produce vehicles. If it produces more trucks, it must reduce its production of automobiles; likewise, if it produces more automobiles, it must produce fewer trucks. The company’s production opportunity frontier shows the maximum number of units of one good it can produce, for any given number of the other good that it chooses to manufacture. Such a frontier for the vehicle company might look something like that in Exhibit 9. Exhibit 9. The Production Opportunity Frontier Note: The production opportunity frontier for a vehicle manufacturer shows the maximum number of autos for any given level of truck production. In this example, the opportunity cost of a truck is 0.8 autos. There are two important things to notice about this example. First, if the company devoted its entire production facility to the manufacture of automobiles, it could produce 1 million in a year. Alternatively, if it devoted its entire plant to trucks, it could produce 1.25 million a year. Of course, it could devote only part of the year’s production to trucks, in which case it could produce automobiles during the remainder of the year. In this simple example, for every additional truck the company chooses to make, it would have to produce 0.8 fewer cars. That is, the opportunity cost of a truck is 0.8 cars, or the opportunity cost of a car is 1.25 trucks. The opportunity cost of trucks is the negative of the slope of the production opportunity frontier: 1/1.25. And of course, the opportunity cost of an automobile is the inverse of that ratio, or 1.25. The other thing to notice about this exhibit is that it assumes the opportunity cost of a truck is independent of how many trucks (and cars) the company produces. The production opportunity frontier is linear with a constant slope. Perhaps a more realistic example would be to increase marginal opportunity cost. As more and more trucks are produced, fewer inputs that are particularly well suited to producing truck inputs could be transferred to assist in their manufacture, causing the cost of trucks (in terms of cars) to rise as more trucks are produced. In this event, the production opportunity frontier would become steeper as the company moved its production point away from cars and toward more trucks, resulting in a frontier that would be concave as viewed from the origin. 4.3. The Investment Opportunity Set The investment opportunity set is examined in detail in readings on investments, but it is appropriate to exa







Flashcard 1434843483404

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#4-3-the-investment-opportunity-set #cfa #cfa-level-1 #economics #microeconomics #reading-14-demand-and-supply-analysis-consumer-demand #section-5-consumer-equilibrium #study-session-4
Question

the condition for consumer equilibrium is [...]

Answer
MRSGS = PG /PS


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Consumer Equilibrium Currently, a consumer is buying both sorbet and gelato each week. His MRS GS [marginal rate of substitution of gelato (G) for sorbet (S)] equals 0.75. The price of gelato is €1 per scoop, and the price of sorbet is €1.25 per scoop. Determine whether the consumer is currently optimizing his budget over these two desserts. Justify your answer. ​Explain whether the consumer should buy more sorbet or more gelato, given that he is not currently optimizing his budget. Solution to 1: In this example, the

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5. CONSUMER EQUILIBRIUM: MAXIMIZING UTILITY SUBJECT TO THE BUDGET CONSTRAINT
on is less than the price ratio—meaning that the price for that additional unit is above her willingness to pay. Even though she could afford bundle c, it would not be the best use of her income. EXAMPLE 5 <span>Consumer Equilibrium Currently, a consumer is buying both sorbet and gelato each week. His MRS GS [marginal rate of substitution of gelato (G) for sorbet (S)] equals 0.75. The price of gelato is €1 per scoop, and the price of sorbet is €1.25 per scoop. Determine whether the consumer is currently optimizing his budget over these two desserts. Justify your answer. Explain whether the consumer should buy more sorbet or more gelato, given that he is not currently optimizing his budget. Solution to 1: In this example, the condition for consumer equilibrium is MRS GS = P G /P S . Because P G /P S = 0.8 and MRS GS = 0.75, the consumer is clearly not allocating his budget in a way that maximizes his utility, subject to his budget constraint. Solution to 2: The MRS GS is the rate at which the consumer is willing to give up sorbet to gain a small additional amount of gelato, which is 0.75 scoops of sorbet to gain one scoop of gelato. The price ratio, P G /P S (0.8), is the rate at which he must give up sorbet to gain an additional small amount of gelato. In this case, the consumer would be better off spending a little less on gelato and a little more on sorbet. 5.2. Consumer Response to Changes in Income: Normal and Inferior Goods The consumer’s behavior is constrained by his income a







Flashcard 1435624410380

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#cfa #cfa-level-1 #economic-and-normal-profit #economics #microeconomics #reading-15-demand-and-supply-analysis-the-firm #section-2-objectives-of-the-firm #study-session-4
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Economic profit (also known as abnormal profit or supernormal profit ) may be defined broadly as accounting profit less the implicit opportunity costs not included in total accounting costs.

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2. OBJECTIVES OF THE FIRM
00 – $48,000,000 = $2,000,000. Note that total accounting costs in either case include interest expense—which represents the return required by suppliers of debt capital—because interest expense is an explicit cost. <span>2.1.2. Economic Profit and Normal Profit Economic profit (also known as abnormal profit or supernormal profit ) may be defined broadly as accounting profit less the implicit opportunity costs not included in total accounting costs. Equation (3a)  Economic profit = Accounting profit – Total implicit opportunity costs We can define a term, economic cost , equal to the sum of total accounting costs and implicit opportunity costs. Economic profit is therefore equivalently defined as: Equation (3b)  Economic profit = Total revenue – Total economic costs For publicly traded corporations, the focus of investment analysts’ work, the cost of equity capital is the largest and most readily identified implicit opportunity cost omitted in calculating total accounting cost. Consequently, economic profit can be defined for publicly traded corporations as accounting profit less the required return on equity capital. Examples will make these concepts clearer. Consider the start-up company for which we calculated an accounting profit of €300,000 and suppose that the entrepreneurial executive who launched the start-up took a salary reduction of €100,000 per year relative to the job he left. That €100,000 is an opportunity cost of involving him in running the start-up. Besides labor, financial capital is a resource. Suppose that the executive, as sole owner, makes an investment of €1,500,000 to launch the enterprise and that he might otherwise expect to earn €200,000 per year on that amount in a similar risk investment. Total implicit opportunity costs are €100,000 + €200,000 = €300,000 per year and economic profit is zero: €300,000 – €300,000 = €0. For the publicly traded corporation, we consider the cost of equity capital as the only implicit opportunity cost identifiable. Suppose that equity investment is $18,750,000 and shareholders’ required rate of return is 8 percent so that the dollar cost of equity capital is $1,500,000. Economic profit for the publicly traded corporation is therefore $2,000,000 (accounting profit) less $1,500,000 (cost of equity capital) or $500,000. For the start-up company, economic profit was zero. Total economic costs were just covered by revenues and the company was not earning a euro more nor less than the amount that meets the opportunity costs of the resources used in the business. Economists would say the company was earning a normal profit (economic profit of zero). In simple terms, normal profit is the level of accounting profit needed to just cover the implicit opportunity costs ignored in accounting costs. For the publicly traded corporation, normal profit was $1,500,000: normal profit can be taken to be the cost of equity capital (in money terms) for such a company or the dollar return required on an equal investment by equity holders in an equivalently risky alternative investment opportunity. The publicly traded corporation actually earned $500,000 in excess of normal profit, which should be reflected in the common shares’ market price. Thus, the following expression links accounting profit to economic profit and normal profit: Equation (4)  Accounting profit = Economic profit + Normal profit When accounting profit equals normal profit, economic profit is zero. Further, when accounting profit is greater than normal profit, economic profit is positive; and when accounting profit is less than normal profit, economic profit is negative (the firm has an economic loss ). Economic profit for a firm can originate from sources such as: competitive advantage; exceptional managerial efficiency or skill; difficult to copy technology or innovation (e.g., patents, trademarks, and copyrights); exclusive access to less-expensive inputs; fixed supply of an output, commodity, or resource; preferential treatment under governmental policy; large increases in demand where supply is unable to respond fully over time; exertion of monopoly power (price control) in the market; and market barriers to entry that limit competition. Any of the above factors may lead the firm to have positive net present value investment (NPV) opportunities. Access to positive NPV opportunities and therefore profit in excess of normal profits in the short run may or may not exist in the long run, depending on the potential strength of competition. In highly competitive market situations, firms tend to earn the normal profit level over time because ease of market entry allows for other competing firms to compete away any economic profit over the long run. Economic profit that exists over the long run is usually found where competitive conditions persistently are less than perfect in the market. 2.1.3. Economic Rent The surplus value known as economic rent results when a particular resource or good is fixed in supply (with a vertical su







Flashcard 1438143352076

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#analyst-notes #cfa-level-1 #corporate-finance #introduction #reading-35-capital-budgeting
Question
The "budget" is aplan which details [...] during a future period.
Answer
projected cash inflows and outflows


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Subject 1. Capital Budgeting: Introduction
ssets) whose cash flows are expected to extend beyond one year. Managers analyze projects and decide which ones to include in the capital budget. "Capital" refers to long-term assets. The "budget" is a <span>plan which details projected cash inflows and outflows during a future period. The typical steps in the capital budgeting process: Generating good investment ideas to consider. Analyzing individual pro







Flashcard 1438187916556

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#analyst-notes #cfa-level-1 #corporate-finance #introduction #reading-35-capital-budgeting
Question

  • Expansion projects projects are more [...] than [...] projects.

Answer
more complex

replacement


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ments. Expansion projects. Projects concerning expansion into new products, services, or markets involve strategic decisions and explicit forecasts of future demand, and thus require detailed analysis. These projects are <span>more complex than replacement projects. Regulatory, safety and environmental projects. These projects are mandatory investments, and are often non-revenue-producing.

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Subject 1. Capital Budgeting: Introduction
ood capital budgeting decisions can be made). Otherwise, you will have the GIGO (garbage in, garbage out) problem. Improve operations, thus making capital decisions well-implemented. <span>Project classifications: Replacement projects. There are two types of replacement decisions: Replacement decisions to maintain a business. The issue is twofold: should the existing operations be continued? If yes, should the same processes continue to be used? Maintenance decisions are usually made without detailed analysis. Replacement decisions to reduce costs. Cost reduction projects determine whether to replace serviceable but obsolete equipment. These decisions are discretionary and a detailed analysis is usually required. The cash flows from the old asset must be considered in replacement decisions. Specifically, in a replacement project, the cash flows from selling old assets should be used to offset the initial investment outlay. Analysts also need to compare revenue/cost/depreciation before and after the replacement to identify changes in these elements. Expansion projects. Projects concerning expansion into new products, services, or markets involve strategic decisions and explicit forecasts of future demand, and thus require detailed analysis. These projects are more complex than replacement projects. Regulatory, safety and environmental projects. These projects are mandatory investments, and are often non-revenue-producing. Others. Some projects need special considerations beyond traditional capital budgeting analysis (for example, a very risky research project in which cash flows cannot be reliably forecast). LOS a. describe the capital budgeting process and distinguish among the various categories of capital projects; <span><body><html>







Flashcard 1438252403980

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#analyst-notes #cfa-level-1 #corporate-finance #reading-35-capital-budgeting #study-session-10
Question
Assumptions of capital budgeting are (First 2):

  • Capital budgeting decisions must be based on [...], not [...]

  • Cash flow timing is critical.
Answer
cash flows

accounting income.


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Assumptions of capital budgeting are: Capital budgeting decisions must be based on cash flows, not accounting income. Accounting profits only measure the return on the invested capital. Accounting income calculations reflect non-cash items and ignore the tim

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Subject 2. Basic Principles of Capital Budgeting
Capital budgeting decisions are based on incremental after-tax cash flows discounted at the opportunity cost of capital. Assumptions of capital budgeting are: Capital budgeting decisions must be based on cash flows, not accounting income. Accounting profits only measure the return on the invested capital. Accounting income calculations reflect non-cash items and ignore the time value of money. They are important for some purposes, but for capital budgeting, cash flows are what are relevant. Economic income is an investment's after-tax cash flow plus the change in the market value. Financing costs are ignored in computing economic income. Cash flow timing is critical because money is worth more the sooner you get it. Also, firms must have adequate cash flow to meet maturing obligations. The opportunity cost should be charged against a project. Remember that just because something is on hand does not mean it's free. See below for the definition of opportunity cost. Expected future cash flows must be measured on an after-tax basis. The firm's wealth depends on its usable after-tax funds. Ignore how the project is financed. Interest payments should not be included in the estimated cash flows since the effects of debt financing are reflected in the cost of capital used to discount the cash flows. The existence of a project depends on business factors, not financing. Important capital budgeting concepts: A sunk cost is a cash outlay that has already been incurred and which







Flashcard 1438308502796

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#analyst-notes #cfa-level-1 #corporate-finance #reading-35-capital-budgeting #study-session-10
Question
Important capital budgeting concepts (5):

  • [...]
  • Incremental cash flow
  • [...]
  • Externalities
  • [...]
Answer
Sunk cost

Opportunity cost

Conventional versus non-conventional cash flows.


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Important capital budgeting concepts: A sunk cost is a cash outlay that has already been incurred and which cannot be recovered regardless of whether a project is accepted or rejected. Since sunk costs are not increment costs, they sho

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Subject 2. Basic Principles of Capital Budgeting
d in the estimated cash flows since the effects of debt financing are reflected in the cost of capital used to discount the cash flows. The existence of a project depends on business factors, not financing. <span>Important capital budgeting concepts: A sunk cost is a cash outlay that has already been incurred and which cannot be recovered regardless of whether a project is accepted or rejected. Since sunk costs are not increment costs, they should not be included in the capital budgeting analysis. For example, a small bookstore is considering opening a coffee shop within its store, which will generate an annual net cash outflow of $10,000 from selling coffee. That is, the coffee shop will always be losing money. In the previous year, the bookstore spent $5,000 to hire a consultant to perform an analysis. This $5,000 consulting fee is a sunk cost; whether the coffee shop is opened or not, the $5,000 is spent. Incremental cash flow is the net cash flow attributable to an investment project. It represents the change in the firm's total cash flow that occurs as a direct result of accepting the project. Forget sunk costs. Subtract opportunity costs. Consider side effects on other parts of the firm: externalities and cannibalization. Recognize the investment and recovery of net working capital. Opportunity cost is the return on the best alternative use of an asset or the highest return that will not be earned if funds are invested in a particular project. For example, to continue with the bookstore example, the space to be occupied by the coffee shop is an opportunity cost - it could be used to sell books and generate a $5,000 annual net cash inflow. Externalities are the effects of a project on cash flows in other parts of a firm. Although they are difficult to quantify, they should be considered. Externalities can be either positive or negative: Positive externalities create benefits for other parts of the firm. For example, the coffee shop may generate some additional customers for the bookstore (who otherwise may not buy books there). Future cash flows generated by positive externalities occur with the project and do not occur without the project, so they are incremental. Negative externalities create costs for other parts of the firm. For example, if the bookstore is considering opening a branch two blocks away, some customers who buy books at the old store will switch to the new branch. The customers lost by the old store are a negative externality. The primary type of negative externality is cannibalization, which occurs when the introduction of a new product causes sales of existing products to decline. Future cash flows represented by negative externalities occur regardless of the project, so they are non-incremental. Such cash flows represent a transfer from existing projects to new projects, and thus should be subtracted from the new projects' cash flows. Conventional versus non-conventional cash flows. A conventional cash flow pattern is one with an initial outflow followed by a series of inflows. In a non-conventional cash flow pattern, the initial outflow can be followed by inflows and/or outflows. Some project interactions: Indepe







Flashcard 1438498032908

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#analyst-notes #cfa-level-1 #corporate-finance #reading-35-capital-budgeting #study-session-10 #subject-2-basic-principles-of-capital-budgeting
Question

In corporate finance, managers should be primarily concerned with cash flows as opposed to profits. The purpose of cash-flow measurement is recognizing the ______.

A. risk and timing of cash flows
B. risk and size of profit
C. cash flows as being less variable than accounting profit

Answer
Correct Answer: A


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ties create costs for other parts of the firm. For example, if the bookstore is considering opening a branch two blocks away, some customers who buy books at the old store will switch to the new branch. The customers lost by the old store are <span>a negative externality. The primary type of negative externality is cannibalization, which occurs when the introduction of a new product causes sales of existing products to decline. &#13

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Subject 2. Basic Principles of Capital Budgeting
d in the estimated cash flows since the effects of debt financing are reflected in the cost of capital used to discount the cash flows. The existence of a project depends on business factors, not financing. <span>Important capital budgeting concepts: A sunk cost is a cash outlay that has already been incurred and which cannot be recovered regardless of whether a project is accepted or rejected. Since sunk costs are not increment costs, they should not be included in the capital budgeting analysis. For example, a small bookstore is considering opening a coffee shop within its store, which will generate an annual net cash outflow of $10,000 from selling coffee. That is, the coffee shop will always be losing money. In the previous year, the bookstore spent $5,000 to hire a consultant to perform an analysis. This $5,000 consulting fee is a sunk cost; whether the coffee shop is opened or not, the $5,000 is spent. Incremental cash flow is the net cash flow attributable to an investment project. It represents the change in the firm's total cash flow that occurs as a direct result of accepting the project. Forget sunk costs. Subtract opportunity costs. Consider side effects on other parts of the firm: externalities and cannibalization. Recognize the investment and recovery of net working capital. Opportunity cost is the return on the best alternative use of an asset or the highest return that will not be earned if funds are invested in a particular project. For example, to continue with the bookstore example, the space to be occupied by the coffee shop is an opportunity cost - it could be used to sell books and generate a $5,000 annual net cash inflow. Externalities are the effects of a project on cash flows in other parts of a firm. Although they are difficult to quantify, they should be considered. Externalities can be either positive or negative: Positive externalities create benefits for other parts of the firm. For example, the coffee shop may generate some additional customers for the bookstore (who otherwise may not buy books there). Future cash flows generated by positive externalities occur with the project and do not occur without the project, so they are incremental. Negative externalities create costs for other parts of the firm. For example, if the bookstore is considering opening a branch two blocks away, some customers who buy books at the old store will switch to the new branch. The customers lost by the old store are a negative externality. The primary type of negative externality is cannibalization, which occurs when the introduction of a new product causes sales of existing products to decline. Future cash flows represented by negative externalities occur regardless of the project, so they are non-incremental. Such cash flows represent a transfer from existing projects to new projects, and thus should be subtracted from the new projects' cash flows. Conventional versus non-conventional cash flows. A conventional cash flow pattern is one with an initial outflow followed by a series of inflows. In a non-conventional cash flow pattern, the initial outflow can be followed by inflows and/or outflows. Some project interactions: Indepe







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#analyst-notes #cfa-level-1 #corporate-finance #reading-35-capital-budgeting #study-session-10 #subject-2-basic-principles-of-capital-budgeting
Question

Which of the following best describes a sunk cost?

A. An important consideration in the capital budgeting process

B. A form of financing cost

C. The same thing as an opportunity cost

D. A cost that has already been incurred and cannot be removed

E. The cash flows of a new project that come at the expense of existing projects

Answer
Correct Answer: D


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ties create costs for other parts of the firm. For example, if the bookstore is considering opening a branch two blocks away, some customers who buy books at the old store will switch to the new branch. The customers lost by the old store are <span>a negative externality. The primary type of negative externality is cannibalization, which occurs when the introduction of a new product causes sales of existing products to decline. &#13

Original toplevel document

Subject 2. Basic Principles of Capital Budgeting
d in the estimated cash flows since the effects of debt financing are reflected in the cost of capital used to discount the cash flows. The existence of a project depends on business factors, not financing. <span>Important capital budgeting concepts: A sunk cost is a cash outlay that has already been incurred and which cannot be recovered regardless of whether a project is accepted or rejected. Since sunk costs are not increment costs, they should not be included in the capital budgeting analysis. For example, a small bookstore is considering opening a coffee shop within its store, which will generate an annual net cash outflow of $10,000 from selling coffee. That is, the coffee shop will always be losing money. In the previous year, the bookstore spent $5,000 to hire a consultant to perform an analysis. This $5,000 consulting fee is a sunk cost; whether the coffee shop is opened or not, the $5,000 is spent. Incremental cash flow is the net cash flow attributable to an investment project. It represents the change in the firm's total cash flow that occurs as a direct result of accepting the project. Forget sunk costs. Subtract opportunity costs. Consider side effects on other parts of the firm: externalities and cannibalization. Recognize the investment and recovery of net working capital. Opportunity cost is the return on the best alternative use of an asset or the highest return that will not be earned if funds are invested in a particular project. For example, to continue with the bookstore example, the space to be occupied by the coffee shop is an opportunity cost - it could be used to sell books and generate a $5,000 annual net cash inflow. Externalities are the effects of a project on cash flows in other parts of a firm. Although they are difficult to quantify, they should be considered. Externalities can be either positive or negative: Positive externalities create benefits for other parts of the firm. For example, the coffee shop may generate some additional customers for the bookstore (who otherwise may not buy books there). Future cash flows generated by positive externalities occur with the project and do not occur without the project, so they are incremental. Negative externalities create costs for other parts of the firm. For example, if the bookstore is considering opening a branch two blocks away, some customers who buy books at the old store will switch to the new branch. The customers lost by the old store are a negative externality. The primary type of negative externality is cannibalization, which occurs when the introduction of a new product causes sales of existing products to decline. Future cash flows represented by negative externalities occur regardless of the project, so they are non-incremental. Such cash flows represent a transfer from existing projects to new projects, and thus should be subtracted from the new projects' cash flows. Conventional versus non-conventional cash flows. A conventional cash flow pattern is one with an initial outflow followed by a series of inflows. In a non-conventional cash flow pattern, the initial outflow can be followed by inflows and/or outflows. Some project interactions: Indepe







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#rae #vocabulario
Question
Umbral

1. m. Parte inferior o escalón, por lo común de piedra y contrapuesto al dintel, en lapuerta o entrada de una casa.

2. m. Paso primero y principal o entrada de cualquier cosa.

3. m. [...]

4. m. Constr. Pieza que se atraviesa en lo alto de un vano para sostener el muroque hay encima.

Answer

Valor mínimo de una magnitud a partir del cual se produce un efecto determinado.


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Flashcard 1438902783244

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#cfa #cfa-level-1 #economics #microeconomics #reading-14-demand-and-supply-analysis-consumer-demand #section-3-utility-theory #study-session-4
Question
Because of the [...]—that MRSBW must diminish as he moves toward more bread and less wine.
Answer
convexity assumption


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Because of the convexity assumption—that MRS BW must diminish as he moves toward more bread and less wine—the MRS BW is continuously changing as he moves along his indifference curve.

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3. UTILITY THEORY: MODELING PREFERENCES AND TASTES
e. If, at some point, the slope of the indifference curve had value –2.5, it means that, starting at that particular bundle, our consumer would be willing to sacrifice wine to obtain bread at the rate of 2.5 ounces of wine per slice of bread. <span>Because of the convexity assumption—that MRS BW must diminish as he moves toward more bread and less wine—the MRS BW is continuously changing as he moves along his indifference curve. EXAMPLE 2 Understanding the Marginal Rate of Substitution Tom Warren currently has 50 blueberries and 20 peanuts. His marginal rate of substitution







Flashcard 1439258774796

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#eximbank #key-features-of-loan-guarantees #octopus #usa
Question
Guaranteed loans are fully transferable, can be securitized and are available in [...]
Answer
certain foreign currencies.


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Guaranteed loans are fully transferable, can be securitized and are available in certain foreign currencies.

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Government-Assisted Foreign Buyer Financing (Eximbank USA)
g may not be available in certain countries and certain terms for U.S. government policy reasons (for more information, see the Country Limitation Schedule posted on the Bank’s Web site, www.exim.gov, under the “Apply” section). <span>Key Features of Ex-Im Bank Loan Guarantees Loans are made by commercial banks and repayment of these loans is guaranteed by Ex-Im Bank. Guaranteed loans cover 100 percent of the principal and interest for 85 percent of the U.S. contract price. Interest rates are negotiable, and are usually floating and lower than fixed rates. Guaranteed loans are fully transferable, can be securitized and are available in certain foreign currencies. Guaranteed loans have a faster documentation process with the assistance of commercial banks. There are no U.S. vessel shipping requirements for amounts less than $20 million. Key Features of Ex-Im Bank Direct Loans Fixed-rate loans are provided directly to creditworthy foreign buyers. Direct loans supp







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Question
Access to [...] in the short run may or may not exist in the long run, depending on the potential strength of competition.
Answer
positive NPV opportunities


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Some factors (monopoly, market barriers, trademarks etc.) may lead the firm to have positive net present value investment (NPV) opportunities. Access to positive NPV opportunities and therefore profit in excess of normal profits in the short run may or may not exist in the long run, depending on the potential strength of competition.

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2. OBJECTIVES OF THE FIRM
00 – $48,000,000 = $2,000,000. Note that total accounting costs in either case include interest expense—which represents the return required by suppliers of debt capital—because interest expense is an explicit cost. <span>2.1.2. Economic Profit and Normal Profit Economic profit (also known as abnormal profit or supernormal profit ) may be defined broadly as accounting profit less the implicit opportunity costs not included in total accounting costs. Equation (3a)  Economic profit = Accounting profit – Total implicit opportunity costs We can define a term, economic cost , equal to the sum of total accounting costs and implicit opportunity costs. Economic profit is therefore equivalently defined as: Equation (3b)  Economic profit = Total revenue – Total economic costs For publicly traded corporations, the focus of investment analysts’ work, the cost of equity capital is the largest and most readily identified implicit opportunity cost omitted in calculating total accounting cost. Consequently, economic profit can be defined for publicly traded corporations as accounting profit less the required return on equity capital. Examples will make these concepts clearer. Consider the start-up company for which we calculated an accounting profit of €300,000 and suppose that the entrepreneurial executive who launched the start-up took a salary reduction of €100,000 per year relative to the job he left. That €100,000 is an opportunity cost of involving him in running the start-up. Besides labor, financial capital is a resource. Suppose that the executive, as sole owner, makes an investment of €1,500,000 to launch the enterprise and that he might otherwise expect to earn €200,000 per year on that amount in a similar risk investment. Total implicit opportunity costs are €100,000 + €200,000 = €300,000 per year and economic profit is zero: €300,000 – €300,000 = €0. For the publicly traded corporation, we consider the cost of equity capital as the only implicit opportunity cost identifiable. Suppose that equity investment is $18,750,000 and shareholders’ required rate of return is 8 percent so that the dollar cost of equity capital is $1,500,000. Economic profit for the publicly traded corporation is therefore $2,000,000 (accounting profit) less $1,500,000 (cost of equity capital) or $500,000. For the start-up company, economic profit was zero. Total economic costs were just covered by revenues and the company was not earning a euro more nor less than the amount that meets the opportunity costs of the resources used in the business. Economists would say the company was earning a normal profit (economic profit of zero). In simple terms, normal profit is the level of accounting profit needed to just cover the implicit opportunity costs ignored in accounting costs. For the publicly traded corporation, normal profit was $1,500,000: normal profit can be taken to be the cost of equity capital (in money terms) for such a company or the dollar return required on an equal investment by equity holders in an equivalently risky alternative investment opportunity. The publicly traded corporation actually earned $500,000 in excess of normal profit, which should be reflected in the common shares’ market price. Thus, the following expression links accounting profit to economic profit and normal profit: Equation (4)  Accounting profit = Economic profit + Normal profit When accounting profit equals normal profit, economic profit is zero. Further, when accounting profit is greater than normal profit, economic profit is positive; and when accounting profit is less than normal profit, economic profit is negative (the firm has an economic loss ). Economic profit for a firm can originate from sources such as: competitive advantage; exceptional managerial efficiency or skill; difficult to copy technology or innovation (e.g., patents, trademarks, and copyrights); exclusive access to less-expensive inputs; fixed supply of an output, commodity, or resource; preferential treatment under governmental policy; large increases in demand where supply is unable to respond fully over time; exertion of monopoly power (price control) in the market; and market barriers to entry that limit competition. Any of the above factors may lead the firm to have positive net present value investment (NPV) opportunities. Access to positive NPV opportunities and therefore profit in excess of normal profits in the short run may or may not exist in the long run, depending on the potential strength of competition. In highly competitive market situations, firms tend to earn the normal profit level over time because ease of market entry allows for other competing firms to compete away any economic profit over the long run. Economic profit that exists over the long run is usually found where competitive conditions persistently are less than perfect in the market. 2.1.3. Economic Rent The surplus value known as economic rent results when a particular resource or good is fixed in supply (with a vertical su







Flashcard 1442684472588

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#cfa-level-1 #microeconomics #reading-16-the-firm-and-market-structures #section-2-analysis-of-mkt-structures #study-session-4
Question
Economists define a market as a group of buyers and sellers that are aware of each other and are [...] for the exchange of goods and services.
Answer
able to agree on a price


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Economists define a market as a group of buyers and sellers that are aware of each other and are able to agree on a price for the exchange of goods and services.

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2. ANALYSIS OF MARKET STRUCTURES
in more detail. Section 2.2 completes the introduction by providing and explaining the major points to evaluate in determining the structure to which a market belongs. 2.1. Economists’ Four Types of Structure <span>Economists define a market as a group of buyers and sellers that are aware of each other and are able to agree on a price for the exchange of goods and services. While the internet has extended a number of markets worldwide, certain markets are limited by geographic boundaries. For example, the internet search engine Google operates in a worldwi







Flashcard 1442974403852

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#costs #finance #investopedia
Question
Economic profit is used extensively to determine whether a business should [...]
Answer
enter or exit a market or industry.


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Economic profit is used extensively to determine whether a business should enter or exit a market or industry.

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Explicit Cost Definition | Investopedia
actually purchased. An implicit cost is the greatest benefit that could have resulted from the use of the funds. This cost could reflect a different vehicle that could have been purchased or the benefit gained from using the funds elsewhere. <span>Economic Profit Explicit costs are also utilized in the calculation of economic profit. Economic profit is the total return a company receives based on all costs incurred to attain that revenue. These costs include all explicit and implicit costs. Economic profit is utilized for long-term decision-making. Economic profit is used extensively to determine whether a business should enter or exit a market or industry.







Flashcard 1446848630028

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#3-1-profit-maximization #cfa-level-1 #economics #microeconomics #reading-15-demand-and-supply-analysis-the-firm #section-3-analysis-of-revenue-costs-and-profit #study-session-4
Question
There are three approaches to calculate the point of profit maximization.

Second, maximum profit can also be calculated by comparing revenue and cost for [...]
Answer
each individual unit of output that is produced and sold.


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There are three approaches to calculate the point of profit maximization. Second , maximum profit can also be calculated by comparing revenue and cost for each individual unit of output that is produced and sold. A business increases profit through greater sales as long as per-unit revenue exceeds per-unit cost on the next unit of output sold. Profit maximization takes place at th

Original toplevel document

3. ANALYSIS OF REVENUE, COSTS, AND PROFITS
Total variable cost divided by quantity; (TVC ÷ Q) Average total cost (ATC) Total cost divided by quantity; (TC ÷ Q) or (AFC + AVC) Marginal cost (MC) Change in total cost divided by change in quantity; (∆TC ÷ ∆Q) <span>3.1. Profit Maximization In free markets—and even in regulated market economies—profit maximization tends to promote economic welfare and a higher standard of living, and creates wealth for investors. Profit motivates businesses to use resources efficiently and to concentrate on activities in which they have a competitive advantage. Most economists believe that profit maximization promotes allocational efficiency—that resources flow into their highest valued uses. Overall, the functions of profit are as follows: Rewards entrepreneurs for risk taking when pursuing business ventures to satisfy consumer demand. Allocates resources to their most-efficient use; input factors flow from sectors with economic losses to sectors with economic profit, where profit reflects goods most desired by society. Spurs innovation and the development of new technology. Stimulates business investment and economic growth. There are three approaches to calculate the point of profit maximization. First, given that profit is the difference between total revenue and total costs, maximum profit occurs at the output level where this difference is the greatest. Second, maximum profit can also be calculated by comparing revenue and cost for each individual unit of output that is produced and sold. A business increases profit through greater sales as long as per-unit revenue exceeds per-unit cost on the next unit of output sold. Profit maximization takes place at the point where the last individual output unit breaks even. Beyond this point, total profit decreases because the per-unit cost is higher than the per-unit revenue from successive output units. A third approach compares the revenue generated by each resource unit with the cost of that unit. Profit contribution occurs when the revenue from an input unit exceeds its cost. The point of profit maximization is reached when resource units no longer contribute to profit. All three approaches yield the same profit-maximizing quantity of output. (These approaches will be explained in greater detail later.) Because profit is the difference between revenue and cost, an understanding of profit maximization requires that we examine both of those components. Revenue comes from the demand for the firm’s products, and cost comes from the acquisition and utilization of the firm’s inputs in the production of those products. 3.1.1. Total, Average, and Marginal Revenue This section briefly examines demand and revenue in preparation for addressing cost. Unless the firm is a pu







Flashcard 1447151668492



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Question
This graphically displays the [...].
Answer
revenue data from perfect competition


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Exhibit 5. Total Revenue, Average Revenue, and Marginal Revenue under Perfect Competition
Exhibit 5 graphically displays the revenue data from perfect competition. For an individual firm operating in a market setting of perfect competition, MR equals AR and both are equal to a price that stays the same across all levels of output. Because price i







Flashcard 1449965522188

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#cfa-level-1 #fra-introduction #reading-22-financial-statement-analysis-intro #study-session-7
Question
An analyst may value shares of a company using forecasted future earnings as direct or indirect inputs into [...] of valuation.
Answer
discounted cash flow models


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Earnings are also frequently used by analysts in valuation. For example, an analyst may value shares of a company by comparing its price-to-earnings ratio (P/E) to the P/Es of peer companies and/or may use forecasted future earnings as direct or indirect inputs into discounted cash flow models of valuation.







Flashcard 1450263842060

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#cfa-level-1 #microeconomics #reading-15-demand-and-supply-analysis-the-firm
Question
Quasi-fixed cost examples would be certain [...] and [...] that could be avoided or be lower when output is zero but would assume higher constant values over different production ranges.
Answer
utilities

administrative salaries


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Quasi-fixed cost examples would be certain utilities and administrative salaries that could be avoided or be lower when output is zero but would assume higher constant values over different production ranges. Normal profit is considered to be a fixed cost because it

Original toplevel document

Costs
rate of change in total variable cost. In Exhibit 13, TC at 5 units is 400—of which 300 is variable cost and 100 is fixed cost. At 10 units, total costs are 1,650, which is the sum of 1,550 in variable cost and 100 in fixed cost. <span>Total fixed cost (TFC) is the summation of all expenses that do not change when production varies. It can be a sunk or unavoidable cost that a firm has to cover whether it produces anything or not, or it can be a cost that stays the same over a range of production but can change to another constant level when production moves outside of that range. The latter is referred to as a quasi-fixed cost , although it remains categorized as part of TFC. Examples of fixed costs are debt service, real estate lease agreements, and rental contracts. Quasi-fixed cost examples would be certain utilities and administrative salaries that could be avoided or be lower when output is zero but would assume higher constant values over different production ranges. Normal profit is considered to be a fixed cost because it is a return required by investors on their equity capital regardless of output level. At zero output, total costs are always equal to the amount of total fixed cost that is incurred at this production point. In Exhibit 13, total fixed cost remains at 100 throughout the entire production range. Other fixed costs evolve primarily from investments in such fixed assets as real estate, production facilities, and equipment. As a firm grows in size, fixed asset expansion occurs along with a related increase in fixed cost. However, fixed cost cannot be arbitrarily cut when production declines. Regardless of the volume of output, an investment in a given level of fixed assets locks the firm into a certain amount of fixed cost that is used to finance the physical capital base, technology, and other capital assets. When a firm downsizes, the last expense to be cut is usually fixed cost. Total variable cost (TVC), which is the summation of all variable expenses, has a direct relationship with quantity. When quantity increases, total variable cost increases







Flashcard 1450646572300

Tags
#cfa-level-1 #microeconomics #reading-15-demand-and-supply-analysis-the-firm
Question
When a firm downsizes, the last expense to be cut is usually [...]
Answer
fixed cost.


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When a firm downsizes, the last expense to be cut is usually fixed cost.

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Costs
rate of change in total variable cost. In Exhibit 13, TC at 5 units is 400—of which 300 is variable cost and 100 is fixed cost. At 10 units, total costs are 1,650, which is the sum of 1,550 in variable cost and 100 in fixed cost. <span>Total fixed cost (TFC) is the summation of all expenses that do not change when production varies. It can be a sunk or unavoidable cost that a firm has to cover whether it produces anything or not, or it can be a cost that stays the same over a range of production but can change to another constant level when production moves outside of that range. The latter is referred to as a quasi-fixed cost , although it remains categorized as part of TFC. Examples of fixed costs are debt service, real estate lease agreements, and rental contracts. Quasi-fixed cost examples would be certain utilities and administrative salaries that could be avoided or be lower when output is zero but would assume higher constant values over different production ranges. Normal profit is considered to be a fixed cost because it is a return required by investors on their equity capital regardless of output level. At zero output, total costs are always equal to the amount of total fixed cost that is incurred at this production point. In Exhibit 13, total fixed cost remains at 100 throughout the entire production range. Other fixed costs evolve primarily from investments in such fixed assets as real estate, production facilities, and equipment. As a firm grows in size, fixed asset expansion occurs along with a related increase in fixed cost. However, fixed cost cannot be arbitrarily cut when production declines. Regardless of the volume of output, an investment in a given level of fixed assets locks the firm into a certain amount of fixed cost that is used to finance the physical capital base, technology, and other capital assets. When a firm downsizes, the last expense to be cut is usually fixed cost. Total variable cost (TVC), which is the summation of all variable expenses, has a direct relationship with quantity. When quantity increases, total variable cost increases







Flashcard 1450677767436

Tags
#cfa #cfa-level-1 #economics #reading-15-demand-and-supply-analysis-the-firm #section-3-analysis-of-revenue-costs-and-profit
Question
Average total cost is often referenced as [...] and is frequently called [...].
Answer
per-unit cost

average cost


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Average total cost is often referenced as per-unit cost and is frequently called average cost. The minimum point on the average total cost curve defines the output level that has the least cost. The cost-minimizing behavior of the firm would

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cost. However, the minimum point on the AVC does not correspond to the least-cost quantity for average total cost. In Exhibit 13, average variable cost is minimized at 2 units, whereas average total cost is the lowest at 3 units. <span>Average total cost (ATC) is calculated by dividing total costs by quantity or by summing average fixed cost and average variable cost. For instance, in Exhibit 13, at 8 units ATC is 125 [calculated as (1,000 ÷ 8) or (AFC + AVC = 12.5 + 112.5)]. Average total cost is often referenced as per-unit cost and is frequently called average cost. The minimum point on the average total cost curve defines the output level that has the least cost. The cost-minimizing behavior of the firm would dictate operating at the minimum point on its ATC curve. However, the quantity that maximizes profit (such as Q 3 in Exhibit 17) may not correspond to the ATC-minimum point. The minimum point on the ATC curve is consistent with maximizing profit per-unit, but it is not necessarily consistent with maximizing total profit. In Exhibit 13, the least-cost point of production is 3 units; ATC is 75, derived as [(225 ÷ 3) or (33.3 + 41.7)]. Any other production level results in a higher ATC. Marginal cost (MC) is the change in total cost divided by the change in quantity. Marginal cost also can be calculated by taking the change in total variable cost and divi







Flashcard 1450703719692



Tags
#cfa #cfa-level-1 #economics #has-images #reading-15-demand-and-supply-analysis-the-firm #section-3-analysis-of-revenue-costs-and-profit
Question
If the firm operates below the short-run supply curve point (for example between C and A), it [...] because of its [...].
Answer
shuts down

inability to cover variable costs in full.


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pan>The firm’s short-run supply curve is the bold section of the marginal cost curve that lies above the minimum point (point A) on the average variable cost curve. If the firm operates below this point (for example between C and A), it shuts down because of its inability to cover variable costs in full.<span><body><html>

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Exhibit 17 displays the firm’s supply curve, shutdown point, and breakeven level of operation under perfect competition in the short run. The firm’s short-run supply curve is the bold section of the marginal cost curve that lies above the minimum point (point A) on the average variable cost curve. If the firm operates below this point (for example between C and A), it shuts down because of its inability to cover variable costs in full. Between points A and B, the firm can operate in the short run because it is meeting variable cost payments even though it is unable to cover all of its fixed costs. In the long run, how







Flashcard 1450757983500



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#cfa #cfa-level-1 #economics #has-images #reading-15-demand-and-supply-analysis-the-firm #section-3-analysis-of-revenue-costs-and-profit
Question
(Keep in mind that [...] as an implicit cost is included in ATC as a fixed cost.)
Answer
normal profit


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(Keep in mind that normal profit as an implicit cost is included in ATC as a fixed cost.)

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es are first established, there is an initial period where losses occur at low quantity levels. In Exhibit 17, the breakeven quantity occurs at output Q BE , which corresponds to point B where price is tangent to the minimum point on the ATC. <span>(Keep in mind that normal profit as an implicit cost is included in ATC as a fixed cost.) Exhibit 18 shows the breakeven point under perfect competition using the total revenue–total cost approach. Actually, there are two breakeven points—lower (point E) and upp







Flashcard 1450781314316



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#cfa #cfa-level-1 #economics #has-images #reading-15-demand-and-supply-analysis-the-firm #section-3-analysis-of-revenue-costs-and-profit
Question
Breakeven points, profit regions, and economic loss ranges are influenced by [...] conditions.
Answer
demand and supply

which change frequently according to the market behavior of consumers and firms.


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Breakeven points, profit regions, and economic loss ranges are influenced by demand and supply conditions, which change frequently according to the market behavior of consumers and firms.

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gins to reach the limits of physical capacity, resulting in diminished productivity and an acceleration of costs. Obviously, the firm would not produce beyond Q max because it is the optimal production point that maximizes profit. <span>Breakeven points, profit regions, and economic loss ranges are influenced by demand and supply conditions, which change frequently according to the market behavior of consumers and firms. A high initial breakeven point is riskier than a low point because it takes a larger volume and, usually, a longer time to reach. However, at higher output levels it yields more return







Flashcard 1454991609100

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#48-laws-of-power #interpretation #law-1-never-outshine-the-master #observance-of-the-law
Question
What did the Medici cared about in the example?
Answer
They do not care about science or empirical truth or the latest invention ; they care about their name and their glory.


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In one stroke, Galileo gained more with his new strategy than he had in years of begging. The reason is simple: All masters want to appear more brilliant than other people. They do not care about science or empirical truth or the latest invention ; they care about their name and their glory. Galileo gave the Medicis infinitely more glory by linking their name with cosmic forces than he had by making them the patrons of some new scientific gadget or discovery. Sci

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Flashcard 1455309327628

Question

Free cash flow (FCF) is a measure of a company's financial performance, calculated as [...] minus [...].

Answer
operating cash flow

capital expenditures


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What is 'Free Cash Flow - FCF' Free cash flow (FCF) 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 base. FCF is important because i

Original toplevel document

Free Cash Flow - FCF Definition | Investopedia
<span>What is 'Free Cash Flow - FCF' Free cash flow (FCF) 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 base. FCF is important because it allows a company to pursue opportunities that enhance shareholder value. BREAKING DOWN 'Free Cash Flow - FCF' FCF is an assessment of the amount of cash a company generates after accounting for all capital expenditures, su







Flashcard 1461353319692

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#cfa-level-1 #economics #reading-15-demand-and-supply-analysis-the-firm #section-3-analysis-of-revenue-costs-and-profit
Question
Aproach:
  • the revenue value of the output from the last unit of input employed equals [...]
Answer
  • the cost of employing that input unit


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Aproach: the revenue value of the output from the last unit of input employed equals the cost of employing that input unit The third method compares the estimated cost of each unit of input to that input’s contribution with projected total revenue. If the increase in projected total revenue comi

Original toplevel document

3.1.4. Output Optimization and Maximization of Profit
ore units because each successive unit adds more to total revenue than it does to total costs. If MC is greater than MR, total profit is decreased when additional units are produced. The point of profit maximization occurs where MR equals MC. <span>The third method compares the estimated cost of each unit of input to that input’s contribution with projected total revenue. If the increase in projected total revenue coming from the input unit exceeds its cost, a contribution to total profit is evident. In turn, this justifies further employment of that input. On the other hand, if the increase in projected total revenue does not cover the input unit’s cost, total profit is diminished. Profit maximization based on the employment of inputs occurs where the next input unit for each type of resource used no longer makes any contribution to total profit. <span><body><html>







Flashcard 1474165345548

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#cfa-level-1 #reading-22-financial-statement-analysis-intro
Question
[...] are also provided by the company either semiannually or quarterly, depending on the applicable regulatory requirements.
Answer
Interim reports


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Interim reports are also provided by the company either semiannually or quarterly, depending on the applicable regulatory requirements.

Original toplevel document

3.2. Other Sources of Information
ments. Public companies often provide this information in proxy statements, which are statements distributed to shareholders about matters that are to be put to a vote at the company’s annual (or special) meeting of shareholders. <span>Interim reports are also provided by the company either semiannually or quarterly, depending on the applicable regulatory requirements. Interim reports generally present the four basic financial statements and condensed notes but are not audited. These interim reports provide updated information on a company’s performan







Flashcard 1474534968588

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#cfa-level-1 #reading-23-financial-reporting-mechanics
Question
The actual accounts used in a company’s accounting system will be set forth in a [...] .


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ings that provide meaningful summarization of voluminous data but retain enough detail to facilitate decision making and preparation of the financial statements. The actual accounts used in a company’s accounting system will be set forth in a <span>chart of accounts . Generally, the chart of accounts is far more detailed than the information presented in financial statements.<span><body><html>

Original toplevel document

3.1. Financial Statement Elements and Accounts
ount for each of its ovens, with the accounts named “Oven-1” and “Oven-2.” In its financial statements, these accounts would likely be grouped within long-term assets as a single line item called “Property, plant, and equipment.” <span>A company’s challenge is to establish accounts and account groupings that provide meaningful summarization of voluminous data but retain enough detail to facilitate decision making and preparation of the financial statements. The actual accounts used in a company’s accounting system will be set forth in a chart of accounts . Generally, the chart of accounts is far more detailed than the information presented in financial statements. Certain accounts are used to offset other accounts. For example, a common asset account is accounts receivable, also known as “trade accounts receivable” or “trade receivab







Flashcard 1477061250316

Question
Nobody, doesnt matter how bad they are, [...]
Answer
blame theirselves for anything.


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Nobody, doesnt matter how bad they are, blame theirselves for anything.

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Flashcard 1477997628684

Tags
#cfa-level-1 #reading-23-financial-reporting-mechanics
Question
Accrual entries occur due to timing differences between cash movements and accounting recognition

Cash movement occurs at the same time as the revenue/expense

Cash movement
occurs [...]
Answer
before or after accounting recognition.

And you need accruals


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ting recognition of revenue or expense, there are only a 2 possibilities. First, cash movement and accounting recognition can occur at the same time, in which case there is no need for accruals. Second, cash movement may <span>occur before or after accounting recognition, in which case accruals are required.<span><body><html>







Flashcard 1478143380748

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#cfa-level-1 #reading-23-financial-reporting-mechanics
Question
The correct usage of “ [...] ” and “ [...] ” in an accounting context differs from how these terms are used in everyday language.
Answer
debit

credit


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Question
Because analysts typically will not have access to the accounting system or individual entries, they will need to [...] what transactions were recorded by examining the financial statements.
Answer
infer


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Because analysts typically will not have access to the accounting system or individual entries, they will need to infer what transactions were recorded by examining the financial statements.

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7. USING FINANCIAL STATEMENTS IN SECURITY ANALYSIS
ysts may need to make adjustments to reflect items not reported in the statements (certain assets/liabilities and future earnings). Analysts may also need to assess the reasonableness of management judgment (e.g., in accruals and valuations). <span>Because analysts typically will not have access to the accounting system or individual entries, they will need to infer what transactions were recorded by examining the financial statements. 7.1. The Use of Judgment in Accounts and Entries Quite apart from deliberate misrepresentations, even efforts to faithfully represent the economic perfo







Flashcard 1478670552332

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#cfa-level-1 #reading-23-financial-reporting-mechanics
Question
Valuation adjustments to assets or liabilities are made so that the accounting records reflect the [...] rather than the [...].
Answer
current market value

historical cost


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Valuation adjustments are made to a company’s assets or liabilities—only where required by accounting standards—so that the accounting records reflect the current market value rather than the historical cost.

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ved and the corresponding liability to deliver newsletters) and, subsequently, 12 future adjusting entries, the first one of which was illustrated as Transaction 12. Each adjusting entry reduces the liability and records revenue. <span>In practice, a large amount of unearned revenue may cause some concern about a company’s ability to deliver on this future commitment. Conversely, a positive aspect is that increases in unearned revenue are an indicator of future revenues. For example, a large liability on the balance sheet of an airline relates to cash received for future airline travel. Revenue will be recognized as the travel occurs, so an increase in this liability is an indicator of future increases in revenue. <span><body><html>







Flashcard 1481589525772

Tags
#cfa-level-1 #expense-recognition #reading-25-understanding-income-statement
Question
[...] expenses are an example of period costs.
Answer
Administrative


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4.1. General Principles
goods sold in the same period as revenues from the sale of the goods. Period costs , expenditures that less directly match revenues, are reflected in the period when a company makes the expenditure or incurs the liability to pay. <span>Administrative expenses are an example of period costs. Other expenditures that also less directly match revenues relate more directly to future expected benefits; in this case, the expenditures are allocated systematically with the passage







Flashcard 1601903136012

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#conversation-tactics
Question
If someone makes a joke at your expense, simply agree with them and [...]
Answer
really exaggerate it


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If someone makes a joke at your expense, simply agree with them and exaggerate it to the 10 th degree.

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Flashcard 1603695676684

Tags
#excel-stuff
Question
How do you make an hipervinculo in from one sheet to another?
Answer
Le picas insertar hipervinculo y en documentos


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Flashcard 1614387481868

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#excel
Question
Como le hago para que no arrastre el autofill?
Answer
Le picas alt cuando pones el cursor en la esquina de abajo y aparece una crucesita negra arriba de la +


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Flashcard 1614485261580

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Question
Como le hago para que cuando pongo un número autofill los siga en secuencia?
Answer
Le picas alt para jalarla


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Flashcard 1614714637580

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Question
Como le hago para que cuando pongo un número autofill los siga en secuencia? (sin alt)
Answer
pones 1 en una celda 2 en la otra, los highlighteas los dos y ahi usas autofill


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Flashcard 1614946635020

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#excel
Question
como aumento el tamaño al necesario de muchas columnas a la vez?
Answer
Highlighteas todas y das doble click en la pared


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Flashcard 1614948470028

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Question
Como hago una secuencia de fecha? ej. trimestral
Answer
Pones una fecha en una celda, otra fecha a tres meses en la de al lado, highlighteas las dos y autofill.


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Flashcard 1614951091468

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#excel
Question
Como oculto una hoja en Excel?
Answer
Click derecho y ocultar


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Flashcard 1614953450764

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Question
De que me sirve agrupar hojas?
Answer
Lo que le muevas a una se le mueve a todas (escribir, formato etc.)


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Flashcard 1614955285772

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Question
Como agrupas hojas en excel?
Answer
Dejas presionado cmd y picas las que quieres agrupar


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Question
Como agrego headers and footers en una hoja?
Answer
Le pones la vista dividida y ahi se pone arriba y abajo


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Question
Como agrego numeros de pagina como footers?
Answer
Picas en el footer y escoges #de paginas (va a poner &[Página])


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Flashcard 1614961052940

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Question
Como pongo en footer 5 páginas de 10?
Answer
&[Página] de &[Páginas]

Nota el plural y singular


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Flashcard 1614963936524

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Question
Para que sirven las vistas personalizadas?
Answer
Hacer diferentes vistas y despues accesar rápido a ellas.


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Flashcard 1614967606540

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Question
Como saltas de un libro a otro que estén abiertos?
Answer
Ventana y hasta abajo salen los libros


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Flashcard 1614969441548

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Question
Como puedo ver dos hojas del mismo libro en la pantalla al mismo tiempo?
Answer
Dejas solo ese libro abierto, le picas en ventana----> nueva ventana y se abre una copia simultanea


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Flashcard 1614971276556

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Question
Como arreglo dos libros abiertos?
Answer
Ventana-----> Organizar y escoges como lo quieres


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Flashcard 1614975733004

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Question
Para que sirve la funcion Max?
Answer
Te da el valor mas alto de un rango de celdas


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Flashcard 1614977568012

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Question
Para que sirve la funcion Contar?
Answer
De un rango de celdas te dice cuales tienen numeros


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Flashcard 1614980713740

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#excel
Question
Para que sirve la funcion Contara?
Answer
De un rango de celdas te dice cuales tienen numeros o letras (alfanumérico)


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Flashcard 1614982548748

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Question
Para que sirve la funcion Contar.blanco?
Answer
De un rango de celdas te dice cuantas celdas estan en blanco


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Flashcard 1614989888780

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Question
Para que sirve la función redondeo?
Answer
Redondea a los digitos que quieras.

Hay hacia arriba y hacia abajo.


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Flashcard 1614993034508

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Question
Donde esta Auto Sum?
Answer
Pestaña de Formulas


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Flashcard 1614995655948

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Question
Que hace el boton Auto Sum?
Answer
Suma, promedia o lo que le pidas de las celdas seleccionadas y lo pone hasta abajo.


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Flashcard 1615001160972

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Question
Como haces referencia absoluta a una celda en mac? (que se trabe pa cuando arrastras la formula)
Answer
cmd + T


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Flashcard 1615136427276

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Question
Como le cambias de nombre a una celda?
Answer
En el cuadro arriba a la izquierda en el que aparece el nombre actual (A1)


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Flashcard 1615138524428

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Question
Al cambiarle el nombre a una celda la referencia es absoluta o relativa?
Answer
Absoluta


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Flashcard 1615140883724

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Question
Como abro el name manager en mac?
Answer
⌘ + fn + F3


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Flashcard 1615142980876

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Question
Se puede nombrar un rango de celdas?
Answer
Si


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Flashcard 1615145078028

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Question
Como sumo un rango de celdas que tengan nombre?
Answer
=suma(nombre)

funciona con promedios y todo el pez


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Flashcard 1615151369484

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Question
Como se que celdas tienen formulas?
Answer
Te vas a formulas y le picas mostrar formulas


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Flashcard 1615153204492

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Question
Como se que celdas tienen que ver con una formula de forma gráfica?
Answer
Formula-----> Rastrear precedentes


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Flashcard 1615155039500

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Question
Como puedo saber si un numero en una celda esta siendo usado en alguna formula?
Answer
Formula-----> Rastrear dependientes


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Flashcard 1615157136652

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Question
Como puedo hacer que no haga los calculos automaticos y para que puede servir?
Answer
Formulas-----> Configuración-----> Calcular manualmente

Sirve cuando tienes muchos datos para que no se haga lento.


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Flashcard 1615159495948

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Question
Como funciona la función SI?
Answer
Prueba logica, Valor si si (poner entre comillas), valor si no (poner entre comillas)


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Question
Que es una funcion SI anidada?
Answer
Una prueba lógica con más de dos opciones de respuesta.


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Question
Como hago una funcion SI que tenga mas de una prueba lógica que cumplir para devolver verdadero o falso?

ej. mayor de 20 pero menor que 40
Answer
=SI(Y(prueba logica, prueba logica) valor si verdadero, valor si falso)


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Flashcard 1615954578700

Question
[...] method shows operating cash receipts and payments.
Answer
The direct method


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Subject 2. Preparing the Cash Flow Statement
ncome) and operating cash outflows by use (e.g., cash paid to suppliers, cash paid for interest) in the operating activities section of the cash flow statement. It adjusts each item in the income statement to its cash equivalent. <span>It shows operating cash receipts and payments. More cash flow information can be obtained and it is more easily understood by the average reader. The indirect method reconciles net income to net cash flow from operating activities by adjusting net income for all non-cash items and the net changes in the op







Flashcard 1621183040780

Tags
#cashflow-statement
Question
FCInv = Capex - [...]
Answer
sales of fixed assets.


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Subject 3. Cash Flow Statement Analysis
olders, and Interest expense net of the related tax savings was deducted in arriving at net income. The add-back is after-tax, because the discount rate in the FCFF model (WACC) is also calculated on an after-tax basis. <span>FCInv: Investment in fixed capital. It equals capital expenditures for PP&E minus sales of fixed assets. WCInv: Investment in working capital. It equals the increase in short-term operating assets net of operating liabilities. Example







Flashcard 1622701378828

Tags
#excel
Question
Que pasa cuando le picas alt y vas a hacer autofill?
Answer
aparece una crucesita negra arriba de la +


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Flashcard 1625097374988

Tags
#excel
Question
Para que sirve la funcion countif?
Answer
Para devolver el numero de celdas que tienen una palabra específica


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Flashcard 1625099209996

Tags
#excel
Question
Como debe de escribirse el criterio en la funcion countif?
Answer
entre comillas


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Flashcard 1625101045004

Tags
#excel
Question
En la funcion countif la palabra (criteria) es sensible a mayusculas?
Answer
no


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Flashcard 1641064303884

Tags
#reading-8-statistical-concepts-and-market-returns
Question
In an odd-numbered sample of n items, the median occupies the [...] position.
Answer
(n + 1)/2


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Flashcard 1641157102860

Tags
#reading-8-statistical-concepts-and-market-returns
Question
Unless all the observations in a data set have the same value, the [...] is less than the geometric mean
Answer
harmonic mean


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Flashcard 1641163132172

Tags
#has-images #quantitative-methods-basic-concepts #statistics
Question
The special cases of n = 2 Harmonic Mean

Answer


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Harmonic Mean The harmonic mean of n numbers x i (where i = 1, 2, ..., n) is: The special cases of n = 2 and n = 3 are given by: and so on. For n = 2, the harmonic mean is related to arithmetic mean A and geometric mea

Original toplevel document

Subject 4. Measures of Center Tendency
, therefore, is not recommended for use as the only measure of central tendency. A further disadvantage of the mode is that many distributions have more than one mode. These distributions are called "multimodal." <span>Harmonic Mean The harmonic mean of n numbers x i (where i = 1, 2, ..., n) is: The special cases of n = 2 and n = 3 are given by: and so on. For n = 2, the harmonic mean is related to arithmetic mean A and geometric mean G by: The mean, median, and mode are equal in symmetric distributions. The mean is higher than the median in positively skewed distributions and lower than the median in negatively skewed dist







Flashcard 1641191705868

Tags
#reading-8-statistical-concepts-and-market-returns
Question

The formula for the position of a percentile in an array with n entries sorted in ascending order is

Ly = [...]

Answer
(n+1) y/100


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Flashcard 1641204550924

Tags
#reading-8-statistical-concepts-and-market-returns
Question

Linear interpolation for a value of 12.75 for Py

Py[...]

Answer
X12 + (12.75 − 12) (X13X12).


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Flashcard 1644509924620

Question

An exponent of 1/2 is equivalent to [...]

Answer
The square root


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Flashcard 1644574149900

Tags
#reading-8-statistical-concepts-and-market-returns
Question

The term n / [(n − 1)(n − 2)] in Skewness formula corrects for a [...]

Answer
downward bias in small samples.


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Flashcard 1645096340748

Tags
#baii
Question
Con que letras se representa la desviación estandar de una muestra?
Answer
Sx


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Flashcard 1645287705868

Tags
#reading-9-probability-concepts
Question
Cual era la tonteria que estabas haciendo en probabilidad?
Answer
Multiplicar P (AB) en eventos dependientes


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Flashcard 1645882772748

Tags
#math-shit
Question
How many digits can the leaves of a stemplot have?
Answer
only one digit.


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Parent (intermediate) annotation

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The stem of a stemplot can have as many digits as needed, but the leaves should contain only one digit.

Original toplevel document

Stem-and-leaf graph
Suppose you have the following set of numbers (they might represent the number of home runs hit by a major league baseball player during his career). 32, 33, 21, 45, 58, 20, 33, 44, 28, 15, 18, 25 <span>The stem of a stemplot can have as many digits as needed, but the leaves should contain only one digit. To create a stemplot to display the above data, you must first create the stem. Since all of the numbers have just two digits, start by arranging the tens digits from







Flashcard 1646437207308

Tags
#reading-9-probability-concepts
Question
E(X) = [...]
Answer
P(x1) x1 + P(x2) x2 + ... + P(xn) xn


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Subject 6. Expected Value, Variance, and Standard Deviation of a Random Variable
ccurring, in order to determine the overall result. The more probable outcomes will have a greater weighting in the overall calculation. For a random variable X, the expected value of X is denoted E(X). <span>E(X) = P(x 1 ) x 1 + P(x 2 ) x 2 + ... + P(x n ) x n In investment analysis, forecasts are frequently made using expected value, for example, the expected value of earnings per share, dividend per share, rate of return, etc.







Flashcard 1646888881420

Tags
#has-images #reading-9-probability-concepts
Question
Given two random variables, Ri and Rj, the covariance between the two variables is:

Cov (Ri,Rj)= [...]
Answer


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Subject 7. Covariance and Correlation
, what is the relationship between the performance of the S&P 500 and that of U.S. long-term corporate bonds? We can use covariance and correlation to measure the degree to which two random variables are related to each other. <span>Given two random variables, R i and R j , the covariance between the two variables is: Facts about covariance: Covariance of returns is negative if, when the return on one asset is above its expected value, the return o







Flashcard 1646915357964

Tags
#has-images #reading-9-probability-concepts
Question
The correlation between two random variables, Ri and Rj, is defined as:

p(Ri,Rj) = [...]
Answer


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Subject 7. Covariance and Correlation
ame time. We know that this is the case because both returns are higher in favorable conditions and lower in unfavorable conditions. Had we obtained a negative answer, logic would have told us that we had made an error somewhere. <span>The correlation between two random variables, R i and R j , is defined as: Alternative notations are corr(R i , R j ) and ρ ij . Properties of correlation: Correlation is a number between -1 and







Flashcard 1647791181068

Tags
#reading-9-probability-concepts
Question
Variance summarized proceedure equation:

Var(X)=
Answer

\(\sigma^2 = {P(Xi)}\left\{Xi-E(Xi)\right\}^2\)


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Flashcard 1652357205260

Tags
#reading-8-statistical-concepts-and-market-returns #skewness
Question

In calculations of variance we do not know whether large deviations are likely to be positive or negative, hence the [...] in return distributions.

Answer
degree of symmetry


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Open it
In calculations of variance we do not know whether large deviations are likely to be positive or negative, hence the degree of symmetry in return distributions.







Flashcard 1710323272972

Tags
#reading-1-ethics-and-trust-in-the-investment-profession
Question

Values are [...]

Answer
things we consider to have worth.


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