Theme 3 - calculations

Question 1

Gearing

Answer 1

Gearing = (non current liabilities/capital employed) x 100

Question 2

Return on capital employed

Answer 2

ROCE = (operating profit/capital employed) x 100

Question 3

Payback (payback period)

Answer 3

payback = sum invested/net cash per time period

Question 4

Average rate of return (ARR)

Answer 4

ARR = (average annual profit/initial outlay) x 100

or:

ARR = [(total net profit/no. of years)/initial outlay) x 100

Question 5

Discounted cash flow/Net present value

Answer 5

NPV = Future cash flow x appropriate discount factor

Question 6

EST and LFT - CPA

Answer 6

EST = (choose largest number) previous EST + length of activity. This is because the EST is the earliest possible time we can start the next activity which requires all preceding activities to be completed.
LFT = (choose smallest number) Previous LFT - length of activity. This is the latest time an activity can take for everything to remain on time.

Question 7

Float time - CPA

Answer 7

• The amount of time that an activity can over run if the project is to remain on time.

Float = LFT (R) of activity - duration - EST (L) of activity (data found from the following node from the activity)

Question 8

Critical path - CPA

Answer 8

The set of activities with no float time and therefore need to be completed on time in order to complete the project on schedule.

Question 9

Components of a decision tree

Answer 9

• Squares = decision to be made.
• Branches from the square to the circles represent possible options, there is always a do nothing option.
• Lines from circles indicate possibility of certain outcomes if this option is chosen, e.g. high sales 0.7/low sales 0.3.
• The number at the end of each branch shows how much money each certain outcome for each decision, will generate.
• Expected monetary value shows the money generated on average for each option.
• The net gain allows us to decide which option will generate the most profit and should therefore be pursued.

Question 10

Labour turnover

Answer 10

Labour turnover = (number of staff leaving the firm per year/average number of staff) x 100

Question 11

Absenteeism rate

Answer 11

Absenteeism = (total absence in hours or days during the time period/possible total hours or days) x 100

Question 12

Cost per unit

Answer 12

Cost of sales/output

Question 13

Labour cost per unit

Answer 13

Total labour cost/total output

Question 14

Expected monetary value (decision trees)

Answer 14

EMV = (probability 1 x money generated from outcome 1) + (probability 2 x money generated from outcome 2)…

Question 15

Net gain (decision trees)

Answer 15

Net gain = EMV - cost of option