2/28 Flashcards
(31 cards)
Any business firm that has the ability to control the price of the product it sells
-faces a downward-sloping demand curve
-does not have any entry or exit barriers in its industry
-has a supply curve that is horizontal
-has a demand curve that is horizontal
faces a downward sloping demand curve
In a competitive market, an increase in demand for a product causes
-reduction in purchases by consumers
-reduction in the number of buyers
-increase in product supply
-increase in the price of the product
increase in the price of the product.
specifically when demand increases and supply has not increased.
Brewster has the following financial info
FC 20,000 VC 60% sales price 50
What amount of sales is required to achieve 15% return on sales.
S - .6S - 20000 = .15S
S - .6s -.15s = 20000
.25S = 20000
S = 20000 / .25
S = 80000
A corporation has 50k in equity and a debt ratio of .5. If the firm wants to reduce this ratio to .2 by selling new stock and using the proceeds to pay down debt. What amount of additional equity is needed to obtain this objective?
if the company has 50k in equity and a ratio of .5 that means total eq and liab is 100k. Which means debt is 50k.
If you issue 30k new eq then equity goes to 80k (50 + 30)
Debt goes to 20k (50 - 30)
DE ratio would be .2 (20k / 20k + 80k)
The coefficient of determination, R squared, in a multiple regression equation is the
-measure of the proximity of actual to estimate
-percentage of variation in the dependent variable by the variation in the independent variable
-coefficient of the independent variable divided by the standard error of regression coefficient.
-percentage of variation in the independent variables explained by the variation in the dependent variables
percentage of variation in the dependent variable explained by the variation in the independent variable
Which of the following is not a characteristic of TQM
-continuous improvement
-customer focus
-quality circles
-waste reduction
waste reduction
TQM focuses on customer needs, continuous improvement, and quality circles.
Waste reduction is a characteristic of lean manufacturing.
A fishbone diagram describes a
process, the contributions to the process and the potential problems in each phase.
commonly used to analyze the source of problems and their location within a process.
What method should be used if capital rationing needs to be considered when comparing capital projects
profitability index.
profitability index is the ratio of pv of net future cash inflows to the pv of net initial investment.
The inputs of the Black-Scholes Model include
the current price of the underlying stock, the option exercise price, risk free interest rate, time until expiration, measure of risk tied to the underlying stock.
The primary objective of data security controls is to
ensure that data is subject to authorization prior to access, change or destruction.
Quality assurance occurs in the
(lean manufacturing)
implementation process, after the standard of quality has been identified.
waste reduction
continuous improvement (kaizen)
Process improvement / activity based management - cost identification, implementation.
A company with 4.8m credit sales per year plan to relax its credit standards, projecting that this will increase sales by 720k. The avg collection period will become 75 days. Variable costs are 80%. The firms opportunity costs are 20% before taxes. Assuming a 360 day year, what is the benefit on the planned credit terms.
720k x .8 = 576
576k x (75/360) = 120k
720 - 576 = 144
120 x .2 = 24
144 - 24 = 120k benefit
Beg WIP 16,000
Unit started 100,000
Units completed 92000
Ending WIP 24000
Beg inventory was 60% complete for materials and 20% complete for conversion. Ending inv was 90% complete for materials and 40% complete for conversion.
Beg inv costs - mats 54560, DL 20320, OH 15240
costs incurred - mats 468000, DL 182880, OH 391160.
Using FIFO, the total costs in the ending WIP inventory is.
Material equiv units.
16000 x .4 = 6400
92000 - 16000 = 76000
24000 x .9 = 21600
6400 + 76000 + 21600 = 104000 equiv units produced.
Cost of materials 468000 / 104000 = 4.50
Conversion equiv units
16000 x .8 = 12800
92000 - 16000 = 76000
24000 x .4 = 9600
12800 + 76000 + 9600 = 98400
costs of conversion
DL 182880 + OH 391160 = 574040
574040 / 98400 = 5.83
Value of ending inv.
mats 21600 x 4.5 = 97200
conv 9600 x 5.83 = 55968
97200 + 55968 = 153,168
Which of the following is an example of internal failure costs?
-testing
-preventive maintenance
-lost customers
-tooling changes
tooling changes
testing is appraisal
preventive maintenance is prevention
lost customers is external failure
When preparing a performance report for a cost center using flexible budgeting techniques, the “planned cost” column should be based on the
-budget adjusted to the planned level of activity for the period being reported.
-cost incorporated in the master budget
-budgeted amount in the original budget prepared before the beginning of the year.
-budget adjusted to the actual level of activity for the period bein report
budget adjusted to the actual level of activity for the period.
Dividends are $5 and the current share price is 50. Dividends are expected to grow at 2% forever. According to the dividend growth model, what is the investor’s required rate of return?
(Growth dividend / beg price) + growth rate
5 x 1.02 = 5.1 / 50 = .102 + .02 = .122
Which of the following network devices assigns IP addresses?
-routers
-servers
-switches
-gateways
routers
Activity based costing refines product cost information because the cost system:
emphasizes long term product analysis (when fixed costs become variable costs)
Projections indicate that the economy is entering a slowdown. What is the expected outcome in the near future?
-inflationary pressures
-wage hikes
-increasing demand for credit
-a drop in interest rates
a drop in interest rates
the government will drop the interest rate which will increase the money supply and stimulate growth.
A is incorrect as a slowdown will decrease demand. you need an increase in demand for inflation.
B is incorrect as wage hikes occur during periods of growing demand.
C is incorrect as a slowdown would decrease the demand for credit.
Each of the following is correct regarding the impact of exchange rates except:
-an appreciation of the DC hurts domestic importers and imported goods cost more.
-a depreciation of the DC results in higher prices for imported goods.
-an appreciation of DC raises the price of domestic goods relative to foreign.
-a depreciation of the DC lowers the price for domestic goods relative to foreign.
an appreciation of DC hurts domestic importers and consumers because imported goods cost more.
An appreciation of DC would help importers as the appreciation of the DC means it can buy more foreign goods for less DC.
The appreciation would hurt domestic exporters as they would receive less DC for the same foreign currency.
Which of the following refers to a performance measure that is calculated as an investments after tax income minus the product of its total assets times the WACC?
-Profitability index
-Net realizable value
-Economic Value added
-Return on investment
Economic value added
profitability index is net future cash inflows divided by pv of net initial investment
net realizable value is an estimate of what the company thinks it will receive.
Return on investment is income divided by capital investment
calculate the cost of retained earnings
current dividend .363
common stock is currently trading at 4.70
historic growth rate is 4.1 %
can use the dividend growth model
d1 / p0 + g
.363 x 1.041 = .377883 / 4.7 = .0804 + .041 = .1214
calculate the cost of preferred stock
12% preferred stock
trading at $12
par value $10
10 x .12 = 1.20
1.20 / 12 = 10%
Calculate the after tax cost of debt
pretax cost of debt is 6.86%
tax rate is 30%
.0686 x .7 = 4.8%
