Between the lines - Revision notes

Well I open this thread hoping that by May everybody will be able print it for a quick revision .So the plan is: „« Whenever a member notice a piece of information that may be by passed by others (Important note ),he can write it in this thread in that format : FSA-LOS 2.1d : ¡K¡K¡K Finally the aim is develop our own secret sauce for the members , I will start to submit my notes by tomorrow .

ok here is my first post ,hopefully it is useful . FSA-SS6 : 1.If functional currency =reporting currency, we use temporal method. 2.If the functional currency =local currency and the appropriate we use the current rate method. 3.Under temporal method the balance sheet exposure is the net monetary position as the non monetary assets are reported at historical rates. 4.The choice of the functional currency will always effect both the balance sheet and the income statement. 5.When using the current rate method the financial ratios under this method and the local balance sheet are almost the same as long as the ratio doesn’t mix between income statement and balance sheet elements. 6.U.S. GAAP requires that the temporal method be used to deal with the “disappearing plant” syndrome. IFRS requires that the financial statements be adjusted for the effects of inflation and then translated using the current exchange rate. 7.When using LIFO .translation for inventory is made using the historical rates under the temporal method.

CF-SS8 : 1.IF two mutual exclusive projects have positive NPV but unequal lives, choose the one with the highest equivalent annual annuity. 2.Sensitivity analysis, scenario analysis, and Monte Carlo simulation can help an analyst determine the risk of the project or the capital budget, most likely measured by variance or standard deviation of mean NPV or IRR. 3.Security market line analysis is used to measure market risk 4.The NPV method is superior to IRR, however, because financial theory indicates that reinvestment at the weighted average cost of capital provides more relevant results than assuming reinvestment at the project’s IRR. 5.NPV is the optimum project selection criterion, regardless of discount rates used in the NPV analysis

CF-SS8 : 6.Multiple IRR problem cant occur when the cash flow is conventional . 7.The economic income each year is equal to the cash flow minus the economic depreciation. 8.The value of equity is equal to the present value of cash distributions to equity. 9.WACC = market weight of dept*after tax cost of new debt +market weight of equity *cost of equity