What are the two basic sources of funds for all businesses?
Question 1 What are the two basic sources of funds for all businesses?
Debt
Equity
Both debt and equity
None of the above
Question 2 True or False
Working capital management is the management of current assets, such as inventory, and current liabilities, such as money owed to suppliers.
True
False
Question 3 What are the forms of business organization discussed in the readings for this week?
Sole Proprietorship
Partnership
Corporation
All of the above
MGMT640 Financial Decision Making for Managers
Homework 2
Question 1Trevi Corporation recently reported an EBITDA of $31,400 and $9,700 of net income. The company has $6,700 interest expense, and the corporate tax rate is 35 percent. What was the company’s depreciation and amortization expense? Round to the nearest cent.
Question 2Working capital: Winston Electronics reported the following information at its annual meetings. The company had cash and marketable securities worth $1,236,091, accounts payables worth $4,160,029, inventory of $7,122,896, accounts receivables of $3,489,587, notes payable worth $1,152,267, and other current assets of $121,558. What is the company’s net working capital?
Question 3The difference between FIFO and LIFO is FIFO refers to the practice of firms, when making sales, assuming that the inventory that came in last (at a higher price) is being sold first. LIFO implies that a firm is selling the lower cost, older inventory first, leaving the higher cost, newer inventory on the balance sheet.
True
False
MGMT640 Financial Decision Making for Managers
Homework 3
Question 1Soaring Eagles Corp. has total current assets of $11,114,000, current liabilities of $5,512,000 and a quick ratio of 0.88.What is its level of inventory?
Question 2Boulder Mountain Ski Company has total assets of $452,700,000 and a debt ratio of 0.30. Calculate the company’s debt-to-equity ratio. Round to two decimal places.
Question 3The Timber Ridge Company has the following relationships:
Sales/Total assets = 3.75; ROA = 0.1020
What is Timber Ridge’s net profit margin? Round to 3 decimal places.
MGMT640 Financial Decision Making for Managers
Homework 4
Question 1Under which of the following discounting methods will the present value of an investment be the highest, assuming the same annual interest rate?
Yearly
Monthly
Continuous
Quarterly
Question 2Future value: Larry James is planning to invest $25,100 today in a mutual fund that will provide a return of 0.10 each year. What will be the value of the investment in 10 years? Round to two decimal places.
Question 3The future value of an annuity is typically used when analyzing the price of common stock.
retirement plans.
loan amortization schedules.
alternative capital budgeting proposals.
MGMT640 Financial Decision Making for Managers
Homework 5
Question 1You have chosen biology as your college major because you would like to be a medical doctor. However, you find that the probability of being accepted into medical school is about 10 percent. If you are accepted into medical school, then your starting salary when you graduate will be $300,000 per year. However, if you are not accepted, then you would choose to work in a zoo, where you will earn $40,000 per year. Without considering the additional educational years or the time value of money, what is your expected starting salary as well as the standard deviation of that starting salary?
Expected Salary $42,000; Std. Deviation $81,000
Expected Salary $54,000; Std. Deviation $78,000
Expected Salary $66,000; Std. Deviation $78,000
None of the above
Question 2Given the returns and probabilities for the three possible states listed here, calculate the covariance between the returns of Stock A and Stock B. For convenience, assume that the expected returns of Stock A and Stock B are 0.12 and 0.15, respectively. (Round your answer to 4 decimal places. For example .1244)
Probability
Return(A)
Return(B)
Good
0.35
0.30
0.50
OK
0.50
0.10
0.10
Poor
0.15
-0.25
-0.30
Question 3In order to fund her retirement, Michele requires a portfolio with an expected return of 0.11 per year over the next 30 years. She has decided to invest in Stocks 1, 2, and 3, with 25 percent in Stock 1, 50 percent in Stock 2, and 25 percent in Stock 3. If Stocks 1 and 2 have expected returns of 0.11 and 0.11 per year, respectively, then what is the minimum expected annual return for Stock 3 that will enable Michele to achieve her investment requirement? Round to two decimal places.
MGMT640 Financial Decision Making for Managers
Homework 6
Question 1Quick Sale Real Estate Company is planning to invest in a new development. The cost of the project will be $23 million and is expected to generate cash flows of $14,000,000, $11,750,000, and $6,350,000 over the next three years. The company’s cost of capital is 20 percent. What is the internal rate of return on this project? (Round to the nearest percent.)
20%
24%
22%
28%
Question 2Muncy, Inc., is looking to add a new machine at a cost of $4,133,250. The company expects this equipment will lead to cash flows of $818,822, $863,275, $937,250, $1,018,612, $1,212,960, and $1,225,000 over the next six years. If the appropriate discount rate is 15 percent, what is the NPV of this investment? Round to two decimal places.
Question 3Given the following cash flows for a capital project, calculate the IRR using a financial calculator
Year
0
1
2
3
4
5
Cash Flows
($50,467)
$12,746
$14,426
$21,548
$8,580
$4,959
8.41%
8.05%
8.79%
7.9%
MGMT640 Financial Decision Making for Managers
Homework 8
Question 1Which of the following is true about the differences between financial and managerial accounting?
Managerial accounting presents less non-monetary information than financial accounting
Managerial accounting cannot deviate from generally accepted accounting principles
Managerial accounting places more emphasis on the future
Managerial accounting presents information in a highly summarized form
Question 2Elroy Rocket is entering his senior year as an accounting major and has a number of options for his summer break. His options for the 3 month break follow:
(1) Work full time at a local accounting firm making $2,900 per month.
(2) Take a summer class which will cost $800 and work half time making $1,100 per month.
(3) Take a class at a cost of $800 and not work at all during the summer.
Elroy’s incremental profit or loss if he chooses option 2 over option 1 would be
Round to two decimal places.
Question 3Triton Company’s copy department, which does almost all of the photocopying for the sales department and the administrative department, budgets the following costs for the year, based on the expected activity of copies:
Salaries (fixed) $95,000
Employee benefits (fixed) 10,000
Depreciation of copy machines (fixed) 10,000
Utilities (fixed) 5,000
Paper (variable, 1 cent per copy) 50,000
Toner (variable, 1 cent per copy) 50,000
The costs are assigned to two cost pools, one for fixed and one for variable costs. The costs are then assigned to the sales department and the administrative department. Fixed costs are assigned on a lump-sum basis, 40 percent to sales and 60 percent to administration. The variable costs are assigned at a rate of 2 cents per copy.
Assuming the following copies were made during the year, 2,826,750 for sales and 2,882,000 for administration, calculate the copy department costs allocated to sales.
Round to two decimal places.
MGMT640 Financial Decision Making for Managers
Homework 9
Question 1Thomas Train has collected the following information over the last six months.
Month Units produced Total costs
March 10,000 $25,600
April 12,000 26,200
May 20,000 28,800
June 13,000 26,450
July 12,000 26,000
August 15,000 26,500
Using the high-low method, what is the variable cost per unit?
Round to two decimal places.
Question 2Rooter’s Cleaning Services provided data concerning the costs incurred to clean hotel rooms for which hotel customers pay $150 per night. Data for the past 7 months are as follows:
January February March April May June July
Number of rooms cleaned 250 160 200 150 270 170 260
Cleaning cost $6,450 $4,060 $5,100 $4,100 $6,640 $4,200 $6,530
How much are estimated monthly variable costs using the high-low method?
Round to two decimal places.
Question 3A cost is $3,600 at 1,000 units, $7,000 at 2,000 units, and $9,200 at 3,000 units. This cost is a
mixed cost
step cost
variable cost
fixed cost
MGMT640 Financial Decision Making for Managers
Homework 10
Question 1Motorcade Company has three service departments (S1, S2, and S3) and two production departments (P1 and P2). The following data relate to Motorcade’s allocation of service department costs:
Round to two decimal places.
Budgeted Costs
Nbr of Employees
S1
$3,320,000
75
S2
2,100,000
50
S3
1,000,000
25
P1
150
P2
225
Service department costs are allocated by the direct method. The number of employees is used as the allocation base for all service department costs
Calculate the total service department cost allocated to production department P1
Question 2El Dorado Company has two production plants. Recently, the company conducted an ABM study to determine the cost of activities involved in processing orders for parts at each of the plants. How might an operations manager use this information to manage the cost of processing orders?
Set up an ABC costing system
Identify benchmarks
Compare the cost to process an order at each plant and the nature of the orders to determine if costs are out of control. If out of control, investigate
Close down the plant with the highest cost to increase profits
Question 3Infinity Designs, an interior design company, has experienced a drop in business due to an increase in interest rates and a corresponding slowdown in remodeling projects. To stimulate business, the company is considering exhibiting at the Home and Garden Expo. The exhibit will cost the company $12,000 for space. At the show, Infinity Designs will present a slide show on a PC, pass out brochures that are printed previously, (the company printed more than needed), and show its portfolio of previous jobs.
The company estimates that revenue will increase by $36,000 over the next year as a result of the exhibit. For the previous year, profit was as follows:
Revenue $201,000
Less:
Design supplies (variable cost) $16,500
Salary of Samantha Spade (owner) 80,000
Salary of Kim Bridesdale (full time employee) 55,000
Rent 18,000
Utilities 6,000
Depreciation of office equipment 3,600
Printing of advertising materials 700
Advertising in Middleton Journal 2,500
Travel expenses other than depreciation of autos (variable cost) $2,800
Depreciation of company cars 9,000
Required:
Calculate the impact of the exhibit on company profit.
Round to two decimal places.
MGMT640 Financial Decision Making for Managers
Homework 11
Question 1Tory Company sells a single product. Troy estimates demand and costs at various activity levels as follows:
Units Sold Price Total Variable Costs Fixed Costs
120,000 $48 $3,000,000 $1,000,000
153,000 $45 $3,500,000 $1,000,000
160,000 $40 $4,000,000 $1,000,000
180,000 $35 $4,500,000 $1,000,000
200,000 $30 $5,000,000 $1,000,000
How much profit will Troy have if a price of $45 is charged?
Round to two decimal places.
Question 2The Falling Snow Company is considering production of a lighted world globe that the company would price at a markup of 0.30 above full cost. Management estimates that the variable cost of the globe will be $70 per unit and fixed costs per year will be $240,000.
Assuming sales of 1,200 units, what is the full selling price of a globe with a 0.30 markup?
Round to two decimal places.
Question 3A company believes it can sell 5,000,000 of its proposed new optical mouse at a price of $11.00 each. There will be $8,000,000 in fixed costs associated with the mouse. If the company desires to make a profit $2,000,000 on the mouse, what is the target variable cost per mouse?
Round to two decimal places.
MGMT640 Financial Decision Making for Managers
Midterm Exam Part 1
Question 1Which of the following cannot be engaged in managing the business?
a limited partner
a general partner
a sole proprietor
none of these
Question 2One reason for the existence of agency problems between managers and share holders is that:
managers know how to manage the firm better than shareholders.
there is a separation of ownership and control of the firm.
shareholders have unreasonable expectations about managerial performance.
none of these.
Question 3On June 23, 20X8, Mikhal Cosmetics sold $250,000 worth of its products to Rynex Corporation. The goods were shipped to Rynex on July 2. The payment from Rynex was received on September 20. Under the “cash basis of accounting” revenue should be recorded on:
June 23, 20X8.
July 2, 20X8.
September 20, 20X8.
none of the above
MGMT640 Financial Decision Making for Managers
Midterm Exam Part 2
Question 1What is the future value of $1,100, placed in a saving account for four years if the account pays 6.00%, compounded quarterly? (Your answer should be correct to two decimal places.)
Question 2Your brother, who is 6 years old, just received a trust fund that will be worth $23,000 when he is 21 years old. If the fund earns 0.10 interest compounded annually, what is the value of the fund today? Round to two decimal places.
Question 3If you were to borrow $9,000 over five years at 0.14 compounded monthly, what would be your monthly payment? Round to two decimal places.
MGMT640 Financial Decision Making for Managers
Final Exam Part 1
Question 1A typical use of managerial accounting is to:
help investors and creditors assess the financial position of the company.
help management get a clean audit report
help the marketing manager decide which product promotion to implement
help the SEC decide whether management is in compliance of its policies.
Question 2Three costs incurred by Pitt Company are summarized below:
1,000 units 2,000 units
Cost A $10,000 $15,000
Cost B $21,000 $21,000
Cost C $16,000 $32,000
Which of these costs are variable?
A, B, and C
A and B
A only
C only
Question 3True or False: Revenues and costs that differ are relevant and should be considered in incremental analysis.
True
False
MGMT640 Financial Decision Making for Managers
Final Exam Part 2
Question 1Maxx Inc. has provided the following data from its activity-based costing system:
Activity Cost Pools Total Cost Total Activity
Designing products $377,800 6,320 product design hours
Setting up batches $52,678 7366 batch set-ups
Assembling products $25,122 4,018 assembly hours
The activity rate for the “designing products” activity cost pool is:
Round to two decimal places.
Question 2Sasha Company allocates the estimated $184,800 of its accounting department costs to its production and sales departments since the accounting department supports the other two departments particularly with regard to payroll and accounts payable functions. The costs will be allocated based on the number of employees using the direct method. Information regarding costs and employees follows:
Department Employees
Accounting 4
Production 29
Sales 16
How much of the accounting department costs will be allocated to the production?
Question 3Medusa Company allocates costs from the payroll department (S1) and the maintenance department (S2) to the molding (P1), finishing (P2), and packaging (P3) departments. Payroll department costs are allocated based on the number of employees in the department and maintenance department costs are allocated based on the number of square feet which the production department occupies within the factory. Information about the departments is presented below:
Number of Number of Square
Department Costs Employees Feet Occupied
Payroll (S1) $133,000 2 2,000
Maintenance (S2) $220,000 8 64,000
Molding (P1) 67 100,000
Finishing (P2) 40 60,000
Packaging (P3) 25 40,000
Medusa uses the direct method to allocate costs. Round all answers to the nearest dollar.
What amount of the payroll department costs will be allocated to the molding department?
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