1. You have the opportunity to acquire an investment with the following cash flow streams. The initial investment will be $7,000 and there is no estimated salvage value. You require a rae of return of 8 percent on investment. Using the following cash flow data, calculate the NPV of this investment, which is,
Year Cash Inflow Cash Outflow Net Cash Inflow (Outflow)
2003 $ 4,500 $ 3,000 $ 1,500
2004 6,500 4,000 2,500
2005 7,000 4,200 2,800
2006 7,000 4,200 2,800
Select one:
a. $ 813
b. $9,600
c. $000
d. $10,100
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Stang Sports Equipment Company made 44,000 basketballs in a given year. Its manufacturing costs were $316,800 variable and $95,000 fixed. Assume that no price changes occur in the following year and that no changes in production methods are applicable. Compute the budgeted cost for producing 50,000 basketballs in the following year. Total budgeted costs are:
Select one:
a. $455,000
b. $411,800
c. $421,500
d. $467,955
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The amount, and relative propostions, of long-term debt and equity capital used by a firm to meet its asset acquisition and ongoing operating funding needs is commonly called:
Select one:
a. Funding considerations
b. Cash flow from financing operations
c. Working capital management
d. Capital structure
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Bugle Corporation produces two products Alpha and Beta. The following information is available for these two products:
Firm Alpha Beta
Selling price per unit $7.00 $5.00
Variable cost per unit $6.00 $3.00
Total fixed costs $5,000
Total production capacity 10,000 units
–If at least 10,000 units of either Alpha and/or Beta can be sold it is best to:
Select one:
a. Produce Beta only.
b. Produce Alpha only.
c. Produce 2,500 units of Alpa and 7,500 units of Beta.
d. Produce 5,000 units of Alpha and 5,000 units of Beta.
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Jeff is manager of a shopping mall. In this position, he is responsible for attracting new stores, collecting rents, paying bills, managing staff, and managing all aspects of the mall’s premises and equipment. In fact, Jeff helped select the mall location and mall floor plan. Jeff’s boss indicates that the mall’s ROI is currently the benchmark rate of 15%. Based on this information, it is likely that Jeff’s mall is considered to be:
Select one:
a. Cost center
b. Profit center
c. Investment center
d. Both a cost and profit center
The financial budget includes,
Select one:
a. Only the capital budget and the cash budget
b. Only the capital budget and the budgeted balance sheet
c. The capital budget, the cash budget, and the budgeted balance sheet
d. The cash budget, the budgeted statement of cash flows, and the retained earnings budget
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The statement of cash flows is useful to decision makers. Each of the following is a section in this statement, except:
Select one:
a. Cash flow from financing activities
b. Cash flow from accounting activities
c. Cash flow from operating activities
d. Cash flow from investing activities
e. All of the above are sections on the statement of cash flows
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Which of the following is NOT a major benefit of budgeting?
Select one:
a. It compels managers to think ahead.
b. It provides definite expectations that are the best framework for judging subsequent performance.
c. It aids managers in coordinating their efforts, so that the objectives of the organization as a whole match the objectives of its parts.
d. It allows managers to operate day to day, reacting to current events rather than planning for the future.
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The salary foregone by a person who quits a job to start a business is an example of a ,
Select one:
a. Sunk cost
b. Opportunity cost
c. Depreciable cost
d. Outlay cost
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Tootsie Roll sets financial, customer, internal progress, and employee growth and learning performance indicators as components then management control. This is an example of:
Select one:
a. Kaplan and Norton’s Management Scorecard
b. Kaplan and Norton’s Balanced Scorecard
c. Drucker’s Concept of Responsibility Center Reporting
d. Dean Childs’ idea of Value Driven Management
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In the Block article on capital budgeting techniques at small firms, the most commonly used method of incorporating risk considerations into the capital budgeting analysis is:
Select one:
a. Expected Cash Flow Analysis
b. Probability Analysis
c. Subjective Risk Assessment
d. Adjusting the Required Rate of Return
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Top sales executives normally direct the preparation of sales forecasts. Each of the following are considered by forecasters in this effort except for:
Select one:
a. Changes in product mix.
b. Competitors’ actions in the marketplace.
c. Accounting department ideas.
d. General economic conditions
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Decisions on whether to acquire an asset, a project, a company, or a product line are know as,
Select one:
a. Financing decisions
b. Accounting decisions
c. Capital budgeting decisions
d. Payback decisions
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In the Lyles et al. article on formalized planning in small businesses, the overall conclusion that evolved from this study is that:
Select one:
a. There is no ROE performance advantage for formalized planners over non-formal planners, but formal planners do realize a higher level of growth in sales.
b. There is an ROE performance advantage for formalized planners over non-formal planners.
c. A high percentage of non-formal planners went bankrupt.
d. This study did not assess the impact of planning on performance.
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Sharp Company has three product lines, AA, BB, and CC. The following infomation is available:
AA BB CC
Sales $90,000 $57,000 $31,500
Variable costs 57,000 31,500 22,500
Contribution Margin $33,000 $25,500 $9,000
Fixed costs:
Avoidable 15,000 13,500 3,000
Unavoidable 10,500 18,000 2,250
Operating Income $7,500 $(6,000) $3,750
–Sharp is thinking of dropping product line BB because it is reporting a loss. Assuming Sharp drops line BB and does not replace it, the operating income will:
Select one:
a. Increase $6,000.
b. Decrease $12,000.
c. Decrease $31,500.
d. Not change.
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In the Shrader et al. article on operational planning (budgeting) in small firms, the overall conclusion flowing out of the research is that:
Select one:
a. Operational planning is not done in small firms.
b. Operational planning is important to the successful operation of small firms.
c. Operational planning is not important to the successful operation of small firms.
d. All small firms conduct operational planning on an annual basis.
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Which of the following is an example of a favorable variance?
Select one:
a. Actual revenues are less than expected
b. Actual epenses are less than expected
c. Material prices are greater than expected
d. Expected labor costs are less than actual costs
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In the Block article on capital budgeting techniques used in small businesses, the most commonly used technique used by firms is:
Select one:
a. Net Present Value
b. Internal Rate of Return
c. Payback
d. Accounting Rate of Return
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You calculate both the net present value and payback for investment alternatives A and B. Alternative A has a payback of 4.0 years and a NPV of $40,000. Alternative B has a payback of 3.0 years and a NPV of $25,000. Both alternatives have five year expected lives. Considering the decision making value of each method, from a financial perspective the most attractive alternative is:
Select one:
a. Alternative A is the more attractive choice
b. Alternative B is the more attractive choice
c. Neither A nor B are attractive investments
d. Both A and B are equally attractive
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The amount of cash flow available to investors—the providers of debt (lenders) and equity (owners)—after the firm has met all operating needs and paid for net investments in fixed assets and current assets is called:
Select one:
a. Cash flow from operating activities
b. Operating cash flow
c. Free cash flow
d. Imprisoned cash flow
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The DuPont ROE formulation is a valuable analysis tool. You are using it in your planning efforts in order to raise your firm’s ROE from 15% to 17%. Which of the following will help you accomplish this increase in ROE?
Select one:
a. Increase financial leverage
b. Lower ROS
c. Reduce asset turnover
d. All of the above will result in an increase in ROE
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The automatic rejection of one investment upon the acceptance of another investment, as used in capital budgeting, is the definition of,
Select one:
a. Inflation
b. Differential analysis
c. Unequal time periods
d. Mutually exclusive
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Which of the folowing factors would be considered irrelevant when evaluating equipment replacement decisions?
Select one:
a. The book value of the old machine
b. Manufacturing costs
c. Variable overhead costs
d. Product production costs
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Thames Company is considering replacing a machine that is presently used in the production of its product. The following data are available:
Old Machine Replacing Machine
Original cost $180,000 $140,000
Useful life in years 10 5
Current age in years 5 0
Book value $100,000 —
Disposal value now $32,000 —
Disposal value in 5 years 0 0
Annual cash operating costs $28,000 $16,000
–Which of the data provided in the table is a sunk cost?
Select one:
a. The disposal value of the old machine.
b. The original cost of the old machine.
c. The annual cash operating costs of the old machine.
d. The annual cash operating costs of the repleacement machine.
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Moline Corporating has the following information:
Month Budgeted Purchases
August $35,000
September $38,000
October $43,500
November $36,500
December $46,000
Purchases are paid for in the following manner:
-20% in the month of purchase
-50% in the month after purchase
-30% two months after purchase
What are the estimated cash disbursements in December from October purchases?
Select one:
a. $21,750.
b. $8,700.
c. $13,050.
d. $9,200.
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The expected average future cost of capital over the long run; found by weighting the cost of each specific type of capital by its proportion in the firm’s capital structure is called:
Select one:
a. Weighted average cost of capital
b. Simple average cost of capital
c. The weighted capital asset multiplier
d. The weight present value of normal costs of capital
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When choosing among several investment alternatives,
Select one:
a. The one with the greatest net present value is the most desireable
b. The one with the largest negative present value should be chosen
c. Risk should not be a factor
d. The cost of capital (discount rate) is irrelevant
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The prediction of sales under a given set of conditions is known as,
Select one:
a. A predictive budget
b. A sales budget
c. A budget forecast
d. A sales forecast
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Cost behavior is an important concept in managerial accounting. Within a relevant range, which of the following is not a normal cost behavior experienced by firms:
Select one:
a. As output increases, total fixed costs will average down on a per unit basis
b. As output increases, variable costs per unit will average down
c. Total variable costs will increase as output increases
d. All of the above are cost behaviors within a defined relevant range
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The Gordon growth model is Po = D1/(rs – g). This model suggests that the market value of a share of common stock (Po) is:
Select one:
a. The future value of all the dividends to be paid by the firm
b. The summed value of all the dividends paid to date
c. The market’s assessment of the firm’s operating model
d. The present value of all future dividends
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