Mid-Term Study Guide

Alan Flury
Scheller College of Business
MGT8803 Business Fundamentals for Analytics
Mid-Term Exam Preview
Coverage: Financial Accounting 50 points
Finance 57 points
107 Total points
15 Theory and Principles (Mostly Financial Accounting) multiple choice and True/False questions. These
questions will count 1 point each

4 Ratios that will count 2 points each. Plus 1 Balance Sheet related 2-point problem

20 Short problems that will count 3 points each. Several of these are related to Balance Sheet and Income
Statement items and properly classifying accounts

2 Medium complex finance problems that count 5 points each

2 difficult (complex) finance problems that count 6 points each

NOTE: The approach to working all problems on the exam have been covered either in the video lectures or
the videoconference calls. If you can work the problems presented in the self-assessments, home works, or
video conferences you should do well on the problems component of the exam.
MGT8803 Business Fundamentals for Analytics
Mid-Term Exam Preview
Remember that new content is discussed video conference calls, so make sure that you have
reviewed all recordings prior to taking the exam. The video conference calls are an integral
part of the course just as the video lectures, self-assessments, and required readings are.

All questions will come from either the video lessons, video conference calls, and self
assessments. Only one question (regarding the DuPont ratio) will be taken directly from the
readings.

Memorizing this study guide is not a substitute for preparing to take the exam. You should
go back and look over all the self assessments and problems, the homework problems, and
the problems worked in the video conferences.

The mid-term exam is timed (210 minutes). Once you open the
exam, the timer starts and does not stop.
MGT8803 Business Fundamentals for Analytics
Know These Accounts
Account Type Statement Account Type Statement
Cash Asset* BS Goodwill Asset BS
Deferred Revenue Liability* BS Equipment Asset BS
Treasury Stock Contra-Equity BS Mortgage Payable Liability BS
Cost of Goods Sold Expense IS Licensing Revenues Revenues IS
Interest Expense Expense IS Interest Revenues Revenues IS
Sales Revenues IS * “current” Premium on Bonds Payable Liability BS
Sales Discounts Contra-Rev IS Income Tax Expense Expense IS
Sales Returns Contra-Rev IS accounts Supplies Expense Expense IS
Discounts on Bonds Payable Contra-Liab BS Supplies Inventory Asset* BS
Inventory Asset* BS Advertising Expense Expense IS
Wages Payable Liability* BS Salaries Expense (or Salaries) Expense IS
Common Stock Equity BS Current Portion of any Long-Term Debt Liability* BS
Accumulated Depreciation Contra-Asset BS Retained Earnings Equity BS
Taxes Payable Liability* BS Wages Expense Expense IS
Pre-Paid Expense Asset* BS Notes Payable Liability BS
Dividends Payable Liability* BS
Depreciation Expense Expense IS FOR THIS EXAM: Any account with “revenues” in the
Marketable Securities Asset* BS title except deferred revenues is an income statement
Allowance for Bad Debts Contra-Asset* BS account. Any account with “expenses” in the title except
Utilities (or Utilities Expense) Expense IS
Rent (or Rent Expense) Expense IS Prepaid Expenses will be an Income Statement Account.
Notes Receivable Asset BS Any account with “payables” in the title will be a liability
Buildings Asset BS account. ON THIS EXAM YOU WILL NEED TO
Land Asset BS
Bonds Payable Liability BS
KNOW HOW TO PROPERLY CONSTRUCT A
BALANCE AND INCOME STATEMENT
MGT8803 Business Fundamentals for Analytics
Formulas You Should Know
Financial Accounting

The Accounting Equation

Assets = Liabilities + Owners Equity
NOTE: Remember to subtract contra-assets from assets; contra
-liabilities from liabilities, and contra-equity from equity

Retained Earnings
Ending Retained Earnings = Beginning Retained Earnings + Net Income –
Dividends Declared

You should also know how to 1) calculate net income from a list of accounts; 2) properly
construct a balance sheet and income statement; 3) calculate preferred dividends; 4) apply
either LIFO, FIFO, or the averaging methods to inventory and cost of goods sold calculations;
and 5) calculate bad debt expense.
MGT8803 Business Fundamentals for Analytics
Formulas You Should Know
Financial Accounting
Financial Ratios

The Dupont Formula (this is a major topic in the Financial Statement and Ratio Analysis
reading in the HBSP course pack)
Return on Average Equity (Net Income/Average Equity)
Return on Average Assets (Net Income/Average Assets)
The Current Ratio (Current Assets/Current Liabilities)
The Debt Ratio (Total Liabilities/Total Assets)
The Debt/Equity Ratio (Total Liabilities/Total Stockholders’ Equity)
Asset Turnover (Sales/Average Assets)
Inventory Turnover (Cost of Goods Sold/Average inventory)
MGT8803 Business Fundamentals for Analytics
Formulas You Should Know
Finance

Weighted Average Cost of Capital

Cost of Debt = Risk Free Rate + Default Risk Premium
(use Moodys or S&P ratings to determine the default risk premium. Data will be provided
on the exam). Remember the default risk premiu is stated in basis points, 100 basis points
= 1%
Cost of Equity = Risk Free Rate + (Beta*Market Risk Premium)
(the market risk premium is the historical spread between bond yields and market returns.
Assume 6.25% in all exam problems, the beta will be provided for you)
WACC = ((Cost of Debt * (1-t)) * debt ratio) + (Cost of Equity * equity ratio)
(the debt ratio is based on the book value of debt, The equity ratio is based on the
market value of equity (the market cap)

Market Value Added (MVA)

MVA = Market Value of Equity – Book Value of Equity or
(price/share – BV/share) * # of shares outstanding (depending upon the method you
may get a slightly different answer because of roundings/trunications)
MGT8803 Business Fundamentals for Analytics
Formulas You Should Know
Finance

Know how to calculate the following. NOTE that you can use excel for these calculations
Payback Period
Discounted Payback Period
IRR
Profitability Index
NPV of Investment
Mutually Exclusive
Independent
Replacement Decision (example: The Avengers problem)
NPV of a cash flow stream (no investment (no year zero))
NPV of a cash flow stream with a tax loss carry forward
NPV of a cash flow stream with multiple growth rates and multiple discount rates
NPV of a indefinite cash flow stream (calculation of terminal value)
MGT8803 Business Fundamentals for Analytics
Formulas You Should Know
Finance
In excel know how to apply the following functions
Future Value (FV)
Present Value of an Annuity (PMT)
Net Present Value (NPV)
Internal Rate of Return (IRR)

Know your stock valuation formulas

Zero Dividend Growth P0 = Div/r
Constant Dividend Growth P0=Div1/r-g
Differential Growth (a method more than a formula – see sample problems in
videoconference calls and self-assessments)
Growth Opportunity P = (EPS/r) + NPVGO

Other
EV (enterprise value) = market value of equity + net debt (note: net debt = total debt – cash)
Know how to use an EV/EBITDA multiple to calculate company valuation
Economic Profits = Accounting Profits – Capital Charge
MGT8803 Business Fundamentals for Analytics
Mid-Term Exam Review

Key Exam Don’s:

No open books, notes, formula sheets.
No pre-programmed calculators (except for NPV and IRR calculations)
No open windows other than the exam and excel (if using web version)
No interruptions. Once you start you need to finish in one seating. You are
allowed food, drinks, and brief bathroom breaks
Key Exam Do’s
Make sure that whatever Wifi you are using is reliable.
Slot out a time and space where you can be uninterrupted for the 3-hour 30
minute exam period.
Help desk numbers (proctor track issues) are noted on the first page of the
exam