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Chapter 6 - Cost-Volume-Profit Relationships True/False 1. One way to compute the total contribution margin is to add total fixed expenses to net operating income.

 Chapter-6 Cost-Volume-Profit Relationships True/False

1. One way to compute the total contribution margin is to add total fixed expenses to net operating income.

2. On a CVP graph for a profitable company, the total revenue line will be steeper than the total cost line.

3. In two companies making the same product and with the same total sales and total expenses, the contribution margin ratio will be lower in the company with a higher proportion of fixed expenses in its cost structure.

4. If the variable expense per unit increases, and all other factors remain constant, the contribution margin ratio will increase.

5. The impact on net operating income of any given dollar change in total sales can be estimated by multiplying the CM ratio by the dollar change in total sales.

6. A company with sales of $70,000 and variable expenses of $40,000 should spend $10,000 on increased advertising if the increased advertising will increase sales by $20,000.

7. The formula for the break-even point is the same as the formula to attain a given target profit for the special case where the target profit is zero.

8. An increase in total fixed expenses will not affect the break-even point so long as the contribution margin ratio remains unchanged.

9. All other things the same, a reduction in the variable expense per unit will cause the break-even point to rise.

10. The unit sales volume necessary to reach a target profit is determined by dividing the target profit by the contribution margin per unit.

11. All other things the same, the margin of safety in dollars at a given level of sales will tend to be lower for a capital-intensive company than for a labor-intensive company with high variable expenses.

12. The margin of safety in dollars equals the excess of budgeted (or actual) sales over the break-even volume of sales.

13. A company with high operating leverage will experience a lower reduction in net operating income in a period of declining sales than will a company with low operating leverage.

14. If Q is the quantity of a product sold, P is the price per unit, V is the variable expense per unit, and F is the total fixed expense, then the degree of operating leverage is equal to: [Q(P-V)] [Q(P-V)-F]

15. A shift in the sales mix from products with high contribution margin ratios toward products with low contribution margin ratios will raise the break-even point.

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Accounting 400 How do you calculated the flexible units budgeted for Sale/Production

Accounting 400 How do you calculated the flexible units budgeted for Sale/Production 100,000 200,000 350,000 Sales $ 2,000,000 4,000,000 COGS $ 1,200,000 2,400,000 Operating expenses ($100,000 is fixed) 500,000 900,000 Operating Income 300,000 700,000 Income Taxes (50%) 150,000 350,000 Total 150,000 350,000 Please show calculation solution
 

1. Maximization of shareholder wealth is a concept in which

1. Maximization of shareholder wealth is a concept in which
a. Virtually all earnings are paid as dividends to common stockholders.
b. Increase earnings is of primary importance.
c. Profits are maximized on a quarterly basis
d. Optimally increasing the long-term value of the firm is emphasized.

2. Regarding risk levels, financial managers should
a. Evaluate investor’s desire for risk
b. Pursue higher risk projects because they increase value
c. Focus primarily on market fluctuations
d. Avoid higher risk projects because they destroy value

3. What is the primary goal of financial management?
a. Minimizing risk of the firm
b. Increased earnings
c. Maximizing shareholder wealth
d. Maximizing cash flow

4. An increase in investments in long-term securities will:
a. Decrease cash flow from financing activities
b. Increase cash flow from investing activities.
c. Increase cash flow from financing activities
d. Decrease cash flow from investing activities.

5. Which of the following is an inflow of cash?
a. The retirement of the firm’s bonds
b. Funds spent in normal business operations
c. The sale of the firm’s bonds
d. The purchase of a new factory

6. The statement of cash flows does NOT include which of the follow sections?
a. Cash flows from financing activities
b. Cash flows from operation activities
c. Cash flows from investing activities
d. Cash flows from sales activities

7. If a firm has both interest expense and lease payments,
a. Fixed charge coverage cannot be computed
b. Times interest earned will be smaller than fixed charge coverage
c. Times interest earned will be the same as fixed charge coverage
d. Times interest earned will be greater than fixed charge coverage

8. For a given level of profitability as measured by profit margin, the firm’s return on equity will
a. Decrease as its current ratio increases
b. Increase as its debt-to-assets ratio decreases
c. Increase as its debt-to assets ratio increases
d. Decrease as its times-interest-earned ratio decreases

9. Which of the following is not considered to be profitability ratio?
a. Times interest earned
b. Profit margin
c. Return on equity
d. Return on assets (investment)

10. In the present-of-sales method, an increase in dividends
a. More information is needed
b. Will increase required new funds
c. Has no effect on required new funds
d. Will decrease required new funds

11. In general, the larger the portion of a firm’s sales that are on credit, the
a. More the firm can buy raw materials on credit
b. Lower will be the firm’s need to borrow                 CLICK HERE FOR SOLUTION
c. More rapidly credit sales will be paid off
d. Higher will be the firm’s need to borrow.

12. In financial statements, the number of units shown in cost of goods sold as compared to the number of the units actually produced
a. Can be either higher or lower
b. Is higher
c. Is the same
d. Is lower 13.

A firm utilizing LIFO inventory accounting would, in calculating gross profits, assume that
a. All sales were for cash
b. All sales were from current production
c. Sales were from current production until current production was depleted, and then use sales from beginning inventory
d. All sales were from beginning inventory

14. The difference between total receipts and total payments is referred to as
a. Cash balance
b. Cumulative cash flow
c. Net cash flow
d. Beginning cash flow

15. In developing the pro forma income statement we follow four important steps:
a. Compute other expenses
b. Determine a production schedule
c. Establish a sales projection
d. Determine profit by completing the actual pro forma statement

16. What is correct order for these four steps?
a. 3, 2, 1, 4
b. 1, 2, 3, 4                                                    CLICK HERE FOR SOLUTION
c. 2, 1, 3, 4
d. 3, 2, 4, 1

17. Firms with high degree of operating leverage are
a. Usually trading off lower levels of risk for higher profits
b. Easily capable of surviving large changes in sales volume
c. Significantly affected by changes in interest rates
d. Trading off higher fixed costs for lower per-unit variable costs

18. The degree of operating leverage is computed as
a. Percent change in volume divided by percent change in operating profit
b. Percent change in operating profit divided by percent change in net income
c. Percent change in EPS divided by percent change in operating income
d. Percent change in operating income divided by percent change in volume

19. Under which of the following conditions could the overuse of financial leverage be detrimental to the firm?
a. Cyclical demand for the firm’s products
b. Stable industry
c. Upswing of business cycle
d. Low interest cost compared to return on assets

20. The break-even point can be calculated as
a. Fixed cost divided by contribution margin
b. Variable cost divided by contribution margin
c. Total cost divided by contribution margin
d. Variable cost times contribution margin

21. Normally, permanent current assets should be financed by
a. Internally generated funds
b. Long-term funds
c. Short-term funds
d. Borrowed funds

22. A conservatively financed firm would
a. Use long-term financing for permanent current assets and fixed assets and a portion of the short-term fluctuating assets and use short-term financing for all short=term assets
b. Use long-term financing for all fixed assets and short-term financing for all other assets
c. Finance a portion of permanent assets and short-term assets with short-term debt
d. Use equity to finance fixed assets, long-term debt to finance permanent assets, and short-term debt to finance fluctuating current assets

23. The theory of the term structure of interest rates which suggest that long-term rates are determined by the average of short-term rates expected over the time that a long-term bond is outstanding is the
a. Market average rate theory
b. Expectations hypothesis
c. Segmentation theory
d. Liquidity premium theory

24. Which of the following combinations of asset structures and financing patterns is likely to create the least volatile earnings?
a. Liquid assets and heavy short-term borrowing
b. Illiquid assets and heavy short-term borrowing
c. Illiquid assets and heavy long-term borrowing
d. Liquid assets and heavy long-term borrowing

25. An aggressive working capital policy would have which of following characteristics?
a. A short average collection period                           CLCIK HERE FOR SOLUTION
b. A high ratio of long-term debt to fixed assets
c. A low ratio of short-term debt to fixed asserts
d. A high ratio of short term debt to long-term sources of funds

26. Which of the following combinations of asset structures and financing patterns is likely to create the most volatile earnings?
a. Illiquid assets and heavy long-term borrowing
b. Illiquid assets and heavy short-term borrowing
c. Liquid assets and heavy short-term borrowing
d. Liquid assets and heavy long-term borrowing

27. How would electronic funds transfer affect the use of “float”?
a. Decrease its use somewhat
b. Increase its use somewhat
c. Have no effect on its use
d. Virtually eliminated its use

28. “Float” takes place because
a. The level of cash on the firms books is equal to the level cash in the bank
b. A firm is early in paying its bills
c. A customer writes “hot” checks
d. A lag exists between writing a check and clearing it through the banking system

29. Which is the following is not valid reason for holding cash?
a. To earn the highest return possible
b. To meet transaction requirement
c. To provide a compensating balance for bank
d. To satisfy emergency needs for funds

30. The three primary policy variables to consider when extending credit include all of the following except
a. The level of inflation
b. Credit standards
c. Collection policy
d. The terms of trade

31. Which of the following is not a valid quantitative measure for accounts receivable collection policies?
a. Ratio of bad debts to credit sales
b. Ratio of debt to equity
c. Average collection period
d. Aging of accounts receivables

32. Dun & Bradstreet is known for providing
a. Consumer credit reports to credit card companies
b. Cash management systems to corporate treasurers
c. Interest rate information to cash managers
d. Credit scoring reports that rank a company’s payment habits relative to its peer group.

33. Which of the following is not a method for lenders to control pledged inventory?
a. Factoring
b. Warehousing                                         CLICK HERE FOR SOLUTION
c. Blanket inventory liens
d. Trust receipts

34. Large firms tend to be
a. Firms with low levels of inventory turnover and accounts receivable turnover
b. Firms with high levels of profitability
c. Net users of trade credit
d. Net supplies to trade credit

35. Which of the following is not a true statement about commercial paper?
a. Industrial companies, utility firms or finance companies too small to sell direct paper dealer paper b. Dealer paper is sold directly to the lender by finance company
c. Finance paper is sold directly to the lender by the finance company
d. Finance paper is also referred to as direct paper

36. Which method of controlling pledged inventory provides the greatest degree of security to the lender?
a. Warehousing
b. Trust receipts
c. Blanket inventory liens
d. Overall inventory liens

37. Firms exposed to the risk of interest rate changes may reduce that risk by
a. Hedging in the financial futures market
b. Pledging or factoring accounts receivable
c. Hedging in the commodities market
d. Obtaining a Eurodollar loan

38. Trade credit may be used to finance a major part of the firm’s working capital when
a. The firm extends more liberal credit terms than the supplier
b. Neither the firm nor the supplier extends credit
c. The firm and the supplier both extend the same credit terms
d. The firm extends less liberal credit terms than the supplier

39. As the interest rate increases, the present value of an amount to be received at the end of a fixed period
a. Decreases
b. Not enough information to tell
c. Remains the same
d. Increases

40. Increasing the number of periods will increase all of the following except
a. The present value of $1
b. The future value of an annuity
c. The future value of $1
d. The present value of an annuity

41. As the compounding rate becomes lower and lower, the future value of inflows approaches
a. The present value of the inflows
b. Need more information
c. Infinity
d. 0

42. If you invest $8,000 at 12% interest, how much will you have in 7 years?
a. $80,712
b. $3,616
c. $18,016
d. $17,688

43. If you were to put $1,000 in the bank at 6% interest each year for the next ten years, which table would you use to find the ending balance in your account?
a. Future value of an annuity of $1
b. Present value of an annuity of $1
c. Present value of $1
d. Future value of $1

44. Ali Shah sets aside 2,000 each year for 5 years. He then withdraws the funds on an equally annual basis for the next 4 years. If Ali wishes to determine the amount of the annuity to be withdrawn each year, he should use the following two tables in this order:
a. Future value of an annuity of $1; future value of a $1
b. Future value of an annuity of $1; present value of a $1
c. Present value of an annuity of $1; future value of an annuity of $1
d. Future value of an annuity of $1; present value of an annuity of $1
 

1) Prepare a balance sheet and income statement as of December 31, 2003, for Preakness, Inc., from the

1) Prepare a balance sheet and income statement as of December 31, 2003, for Preakness, Inc., from the following information.
Inventory $ 6,500  General and administrative expenses 850  Common stock 45,000 Cash 16,550 Operating expenses 1,350 Notes payable 600 Interest expense 900 Depreciation expense 500 Net sales 12,800 Accounts receivable 9,600 Accounts payable 4,800 Long-term debt 55,000 Cost of goods sold 5,750 Buildings and equipment 122,000 Accumulated depreciation 34,000 Taxes 1,440 Retained earnings ?
2) Prepare a balance sheet and income statement for the Tiger Corporation, given the following information: Accumulated depreciation $38,000 Long-term debt ?
Inventory 5,000  General and administrative expenses 1,000 Interest expense 1,200 Common stock 50,000 Cost of goods sold 6,000 Short-term notes 750 Depreciation expense 600 Sales 13,000 Accounts receivable 10,000 Accounts payable 5,000 Buildings and equipment 120,000 Cash 11,000 Taxes 1,300 Retained earnings 10,250
3) Alamo, Inc., bonds have a 9 percent coupon rate. The interest is paid semi-annually and the bonds mature in eight years. Their par value is $1,000. If your required rate of return is 8 percent what is the value of the bond?
4) The market price is $900 for a 10-year bond ($1,000 par value) that pays 8 percent interest (4 percent semi-annually). What is the bond’s expected rate of return?
5) Austin Industries 15-year, $1,000 par value bonds pay 8 percent interest annually. The market price of the bonds is $1,085, and your required rate of return is 10 percent. Compute the bond’s expected rate of return.
6) Philly, Inc., bonds have a 10 percent coupon rate. The interest is paid semi-annually and the bonds mature in 11 years. Their par value is $1,000. If your required rate of return is 9 percent, what is the value of the bond?
7) New Jersey Company’s $1,000 bonds pay 8 percent interest annually and have 25 years until maturity. You can purchase the bond for $915. What return do you expect to earn on this bond?
8) You own 200 shares of Jackson, Inc.’ preferred stock, which currently sells for $40 per share and pays annual dividends of $3.40 per share. What is your expected return?
9) Calhoun, Inc. paid a $3.50 dividend last year. At a constant growth rate of 5 percent, what is the value of the common stock if the investors require a 20 percent rate of return?
10) Salisbury, Inc. paid a $3.75 dividend last year. At a growth rate of 6 percent, what is the value of the common stock if the investors require a 20 percent rate of return?
 
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Salisbury, Inc. paid a $3.75 dividend last year. At a growth rate of 6 percent, what is the value of the

Salisbury, Inc. paid a $3.75 dividend last year. At a growth rate of 6 percent, what is the value of the common stock if the investors require a 20 percent rate of return?
 

Calhoun, Inc. paid a $3.50 dividend last year. At a constant growth rate of 5 percent, what is the value of the

Calhoun, Inc. paid a $3.50 dividend last year. At a constant growth rate of 5 percent, what is the value of the common stock if the investors require a 20 percent rate of return?
 

You own 200 shares of Jackson, Inc.’ preferred stock, which currently sells for $40 per share and pays

You own 200 shares of Jackson, Inc.’ preferred stock, which currently sells for $40 per share and pays annual dividends of $3.40 per share. What is your expected return?
 

New Jersey Company’s $1,000 bonds pay 8 percent interest annually and have 25 years until maturity. You

New Jersey Company’s $1,000 bonds pay 8 percent interest annually and have 25 years until maturity. You can purchase the bond for $915. What return do you expect to earn on this bond?
 

Philly, Inc., bonds have a 10 percent coupon rate. The interest is paid semiannually and the bonds mature in

Philly, Inc., bonds have a 10 percent coupon rate. The interest is paid semiannually and the bonds mature in 11 years. Their par value is $1,000. If your required rate of return is 9 percent, what is the value of the bond?

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Austin Industries 15-year, $1,000 par value bonds pay 8 percent interest annually. The market price of the

Austin Industries 15-year, $1,000 par value bonds pay 8 percent interest annually. The market price of the bonds is $1,085, and your required rate of return is 10 percent. Compute the bond’s expected rate of return.
 

The market price is $900 for a 10-year bond ($1,000 par value) that pays 8 percent interest (4 percent

The market price is $900 for a 10-year bond ($1,000 par value) that pays 8 percent interest (4 percent semi-annually). What is the bond’s expected rate of return?
 

Alamo, Inc., bonds have a 9 percent coupon rate. The interest is paid semi-annually and the bonds mature in

Alamo, Inc., bonds have a 9 percent coupon rate. The interest is paid semi-annually and the bonds mature in eight years. Their par value is $1,000. If your required rate of return is 8 percent what is the value of the bond?
 

Prepare a balance sheet and income statement for the Tiger Corporation, given the following information:

Prepare a balance sheet and income statement for the Tiger Corporation, given the following information:
 
Accumulated depreciation $38,000 Long-term debt ? Inventory 5,000 General and administrative expenses 1,000 Interest expense 1,200 Common stock 50,000  Cost of goods sold 6,000 Short-term notes 750 Depreciation expense 600 Sales 13,000 Accounts receivable 10,000 Accounts payable 5,000 Buildings and equipment 120,000 Cash 11,000 Taxes 1,300 Retained earnings 10,250
 
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Prepare a balance sheet and income statement as of December 31, 2003, for Preakness, Inc., from the

Prepare a balance sheet and income statement as of December 31, 2003, for Preakness, Inc., from the following information.

Inventory $ 6,500
General and administrative expenses 850
Common stock 45,000
Cash 16,550
Operating expenses 1,350
Notes payable 600
Interest expense 900
Depreciation expense 500
Net sales 12,800
Accounts receivable 9,600
Accounts payable 4,800
Long-term debt 55,000
Cost of goods sold 5,750
Buildings and equipment 122,000
Accumulated depreciation 34,000
Taxes 1,440

Retained earnings.?


Management of Jarva Corporation has asked your help as an intern in preparing some key reports for May.

Management of Jarva Corporation has asked your help as an intern in preparing some key reports for May. The company started the month with raw materials inventories of $29,000. During the month, the company made raw materials purchases amounting to $72,000. At the end of the month, raw materials inventories totalled $33,000. Direct labor cost was $36,000 and manufacturing overhead cost was $57,000. The beginning balance in the work in process account was $24,000 and the ending balance was $16,000. The beginning balance in the finished goods account was $35,000 and the ending balance was $46,000. Sales totalled $220,000. Selling expense was $14,000 and administrative expense was $36,000.

The net operating income for May was:

Reference: 2-14
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Blue Snow has come up with a new composite snowboard. Development will take Blue Snow four years and

Blue Snow has come up with a new composite snowboard. Development will take Blue Snow four years and cost $250,000 per year, with the first of the four equal investments payable today upon acceptance of the project. Once in production the snowboard is expected to produce annual cash flows of $200,000 each year for 10 years. Blue Snow's discount rate is 5%. Show calculations.

a) What is the IRR for Blue Snow's snowboard project?
b) What is the NPV for Blue Snow's snowboard project?
 

Maui Blends, Inc., produces and sells organically grown coffee. On July 1, 2010, Maui Blends, Inc. issued

Maui Blends, Inc., produces and sells organically grown coffee. On July 1, 2010, Maui Blends, Inc. issued $3,000,000 of 15-year, 12% bonds at an effective interest rate of 10%, receiving cash of $3,461,181. Interest on the bonds is payable semi-annually on December 31 and June 30. The fiscal year of the company is the calendar year.
 
Instructions
1. Journalize the entry to record the amount of cash proceeds from the scale of the bonds.
2. Journalize the entries to record the following:
a. First semi-annual interest payment on December 31, 2010, and the amortization of the bond premium, using the straight-line method. (Round to the nearest dollar)
b. The interest payment on June 30, 2011, and the amortization of the bond premium, using the straight-line method.(Round to the nearest dollar).
3. Determine the total interest expense for 2010.
4. Will the bond proceeds always be less than the face amount of the bonds when the contract rate is less than the market rate of interest?
5. (Appendix 1) Compute the price of $3,461,181 received for the bonds by using the tables of present value in Appendix A at end of text. (Round to the nearest dollar)
 
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Ace Frisbee Corporation produces a good that is very mature in their product life cycles. Ace Frisbee

Ace Frisbee Corporation produces a good that is very mature in their product life cycles. Ace Frisbee Corporation is expected to pay a dividend in year 1 of $3.00, a dividend in year 2 of $2.00, and a dividend in year 3 of $1.00. After year 3, dividends are expected to decline at the rate of 2% per year. An appropriate required return for the stock is 8%. How much is one share of Ace’s stock worth today?

Rose Hill Trading Company just reported EPS of $8.00. The expected ROE is 18.0%. An appropriate

Rose Hill Trading Company just reported EPS of $8.00. The expected ROE is 18.0%. An appropriate required return on the stock is 14%. If the firm has a dividend payout ratio of30%, what price should each share trade at today? What is the net present value of growth opportunities for Rose Hill Trading’s stock? What will be the price in 5 years?

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A bond has a par value of $1,000, a time to maturity of 10 years, and a coupon rate of 8% with interest paid

A bond has a par value of $1,000, a time to maturity of 10 years, and a coupon rate of 8% with interest paid semi-annually. If the current market price is $750, what is the yield to maturity for this bond? What would happen to this bond’s price if yield to maturity suddenly dropped to 3.5%? Describe/comment on the relationship between yields and bond prices.

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You purchased a 5-year annual interest coupon bond one year ago. Its coupon interest rate was 6% and its

You purchased a 5-year annual interest coupon bond one year ago. Its coupon interest rate was 6% and its par value was $1,000. At the time you purchased the bond, the yield to maturity was 4%. You sold the bond after receiving the first interest payment and the bond's yield to maturity had changed to 3% - What is your total benefit (gain or loss in dollars) from holding this bond?
 

You are 30 years old and want to retire at 55. However, you do not want to start withdrawing your

You are 30 years old and want to retire at 55. However, you do not want to start withdrawing your retirement accounts and social security until 62.You must, therefore, fund 7 years’ worth of living expenses and you estimate you’ll need $5,750/month during that period. If you earn 3% on any money invested in non-retirement accounts during the55-62 time period and can earn 6% annually on your investments prior to age 55, how much must you invest at the end of each month starting next month to fund your early retirement?
 

The Bell Weather Co. is a new firm in a rapidly growing industry.

The Bell Weather Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 20% a year for the next four years and then decreasing the growth rate to 5% per year. The company just paid its annual dividend in the amount of$1.00 per share. What is the current value of one share if the required rate of return is 9.25%?


TUTORIAL PREVIEW
D0 = 1
D1 = 1 (1 + 0.20) = 1.2
D2 = 1.2 (1 + 0.20) = 1.44

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A friend who owns a perpetuity that promises to pay $1,000 at the end of each year, forever, comes to you

A friend who owns a perpetuity that promises to pay $1,000 at the end of each year, forever, comes to you and offers to sell you all of the payments to be received after the 25th year for a price of $1,000. At an interest rate of 10%, should you pay the $1,000 today to receive payment numbers 26 and onwards?
 

You have $2,500 that you want to use to open a savings account. You have found five different accounts that

You have $2,500 that you want to use to open a savings account. You have found five different accounts that are acceptable to you. All you have to do now is determine which account you want to use such that you can earn the highest rate of interest possible. Which account should you use based upon the annual percentage rates quoted by each bank?
Account A: 3.75%, compounded annually
Account B: 3.70%, compounded monthly
Account C: 3.70%, compounded semi-annually
Account D: 3.65%, compounded continuously
Account E: 3.66%, compounded quarterly
 

You borrow $149,000 to buy a house. The mortgage rate is 7.5% and the loan period is 30 years. Payments

You borrow $149,000 to buy a house. The mortgage rate is 7.5% and the loan period is 30 years. Payments are made monthly. If you pay for the house according to the loan agreement, how much total interest will you pay?

SOLUTION PREVIEW
Terms of mortgage and the future value of mortgage:
Rate = 7.5%/12 =
0.625%
Nper = 30 x 12 =
360

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You are the beneficiary of a life insurance policy. The insurance company informs you that you have two

You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $50,000 today or receive payments of $641 a month for ten years. You can earn 6.5% on your money. Which option should you take and why?
 

Using the following information, complete the income statement for Big Corporation:

Using the following information, complete the income statement for Big Corporation:

Sales $__
Cost of Good Sold $ 8,000,000
Gross Profit $__
Selling/Admin Expenses $ 1,150,000
Deprec. Expense $ 250,000
Operating Profit (Before Interest and Taxes) $_
Interest Expense $ 200,000
Earnings Before Taxes $_
Taxes $_
Net Profit $_
Total Shares Outstanding 100,000
Earnings per share $6
Tax Rate is 40%

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The XUZ Corp. had net income before taxes of $200,000 and sales of $2,000,000. If it is in the 50% tax

The XUZ Corp. had net income before taxes of $200,000 and sales of $2,000,000. If it is in the 50% tax bracket its after-tax profit margin is_____. A) 5% B) 12% C) 20% D) 25%

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ABC Co. has forecasted May sales of 600 units and June sales of 1000 units. The company maintains

ABC Co. has forecasted May sales of 600 units and June sales of 1000 units. The company maintains ending inventory equal to 125% of next month's sales. May beginning inventory reflects this policy. What is May's required production? A) 1100 units B)0 units C)500 units D) 400 units
 

Calculate the beta and the cost of equity capital. The following historical data for a proxy firm is similar to the

Calculate the beta and the cost of equity capital. The following historical data for a proxy firm is similar to the firm evaluated in the final project assignment.

                                         Year Market Rate of Return             Firm Rate of Return
20X0                                                     25%                                   15%
20X1                                                     10%                                   6%
20X2                                                     15%                                   9%
20X3                                                     20%                                  12%

Using the above data calculate the beta of the firm.
If the risk-free rate is 4%, and the market rate of return is 14%, calculate the required rate of return (cost of equity) for the stock using CAPM.
 

Grandma's stock has a 50% chance of producing a 35% return, a 30% chance of producing a 10% return,

Grandma's stock has a 50% chance of producing a 35% return, a 30% chance of producing a 10% return, and a 20% chance of producing a -28% return. What is Harper's expected return?
 

2-65 CVP and Break-Even Goal: Create an Excel spreadsheet to perform CVP analysis and show the

2-65 CVP and Break-Even Goal: Create an Excel spreadsheet to perform CVP analysis and show the relationship between price, costs, and break-even points in terms of units and dollars. Use the results to answer questions about your findings.
Scenario: Phonetronix is a small manufacturer of telephone and communications devices. Recently, company management decided to investigate the profitability of cellular phone production. They have three different proposals to evaluate. Under all the proposals, the fixed costs for the new phone would be $110,000. Under proposal A, the selling price of the new phone would be $99 and the variable cost per unit would be $55. Under proposal B, the selling price of the phone would be $129 and the variable cost would remain the same. Under proposal C, the selling price would be $99 and the variable cost would be $49. When you have completed your spreadsheet, answer the following questions:

1. What are the break-even points in units and dollars under proposal A?
2. How did the increased selling price under proposal B impact the break-even points in units and dollars compared to the break-even points calculated under proposal A?
3. Why did the change in variable cost under proposal C not impact the break-even points in units and dollars as significantly as proposal B did?

Step-by-Step: 1. Open a new Excel spreadsheet. 2. In column A, create a bold-faced heading that contains the following: Row 1: Chapter 2 Decision Guideline Row 2: Phonetronix Row 3: Cost-Volume-Profit (CVP) Analysis Row 4: Today’s Date 3. Merge and center the four heading rows across columns A through D. 4. In Row 7, create the following bold-faced, right-justified column headings: Column B: Proposal A Column C: Proposal B Column D: Proposal C Note: Adjust cell widths when necessary as you work. 5. In Column A, create the following row headings: Row 8: Selling price Row 9: Variable cost Row 10: Contribution margin Row 11: Contribution margin ratio Skip a row Row 13: Fixed cost Skip a row Row 15: Break-even in units Skip a row Row 17: Break-even in dollars 6. Use the scenario data to fill in the selling price, variable cost, and fixed cost amounts for the three proposals. 7. Use the appropriate formulas from this chapter to calculate contribution margin, contribution margin ratio, break-even in units, and break-even in dollars. 8. Format all amounts as: Number tab: Category: Currency Decimal places: 0 Symbol: None Negative numbers: Red with parenthesis 9. Change the format of the selling price, contribution margin, fixed cost, and break-even in dollars amounts to display a dollar symbol. 10. Change the format of both contribution margin headings to display as indented: Alignment tab: Horizontal: Left (Indent) Indent: 1 ISBN: 0-536-47129-0 Introduction to Management Accounting: Chapters 1-17, Fourteenth Edition, by Charles T. Horngren, Gary L. Sundem, William O. Stratton, David Burgstahler, and Jeff Schatzberg. Published by Prentice Hall. Copyright © 2008 by Pearson Education, Inc. 90 Part 1: Focus on Decision Making 11. Change the format of the contribution margin amount cells to display a top border, using the default line style. Border tab: Icon: Top Border 12. Change the format of the contribution margin ratio amounts to display as a percentage with two decimal places. Number tab: Category: Percentage Decimal places: 2 13. Change the format of all break-even headings and amounts to display as bold-faced. 14. Activate the ability to use heading names in formulas under Tools ? Options: Calculation tab: Check the box: Accept labels in formulas 15. Replace the cell-based formulas with “word-based” equivalents for each formula used in Proposal A. Example: Contribution margin for proposal B would be: = (‘Selling price’ ‘Proposal B’) - (‘Variable cost’ ‘Proposal B’) Note: The tic marks used in the example help avoid naming errors caused by data having similar titles (i.e., “contribution margin” and “contribution margin ratio”). The parentheses help clarify groupings. Help: Ask the Answer Wizard about “Name cells in a workbook.” Select “Learn about labels and names in formulas” from the right-hand panel. 16. Save your work to a disk, and print a copy for your files.
 
File name: Phonetronix-CVP.xls File type: application/vnd.ms-excel Price: $6

Custom Computers is a company stated by two engineering students to assemble and market personal

Custom Computers is a company stated by two engineering students to assemble and market personal computers to faculty and students. The company operates out of the garage of one of the students’ homes. From the following costs of a recent month, compute the total cost function and total cost for the month.

Telephone $ 50, fixed
Utilities 260: fixed, 25% attributable to the garage, 75% to the house
Advertising 75, fixed
Insurance 80, fixed
Materials 7,500, variable, for five computers
labor 1,800: $1,300 fixed plus $500 for hourly help for assembling five computers
 

Determine the after-tax cash flows for the following assuming a tax rate of 40%:

Determine the after-tax cash flows for the following assuming a tax rate of 40%:
a. Cash inflows of $100,000
b. Cash outflows of $50,000
c. Depreciation Expense of $20,000
 

The comparative balance sheet of Mavenir Technologies Inc. for December 31, 2010 and 2009, is shown as

The comparative balance sheet of Mavenir Technologies Inc. for December 31, 2010 and 2009, is shown as follows:.
Assets Dec. 31, 2010 Dec. 31, 2009 Cash $312,880.00 $292,960.00 Accounts receivable (net) $113,920.00 $104,480.00 Inventories $320,880.00 $308,560.00 Investments $- $120,000.00 Land $164,000.00 $- Equipment $352,560.00 $276,560.00 Accumulated depreciation-equipment $(83,200.00) $(74,000.00) $1,181,040.00 $1,028,560.00 Liabilities and Stockholders' Equity Accounts payable (merchandise creditors)$214,240.00 $202,480.00 Accrued expenses payable (operating expenses) $21,120.00 $26,320.00 Dividends payable $12,000.00 $9,600.00 common stock, $10 par $64,000.00 $48,000.00 paid in capital in excess of par-common stock $240,000.00 $140,000.00 retained earnings $629,680.00 $602,160.00 $1,181,040.00 $1,028,560.00

The following additional information was taken from the records:
a. the investments were sold for $140,000 cash
b. Equipment and land were acquired for cash
c. there were no disposals of equipment during the year
d. the common stock was issued for cash.
e. there was $75,520 credit to retained earnings for net income.
f. there was $48,000 debit to retained earnings for cash dividends declared.

Instructions
Prepare a statement of cash flow, using the indirect method of presenting cash flows from operating activities
 
File name: MAVENIR-TECHNOLOGIES-INC.xls File type: application/vnd.ms-excel  Price: $5

Accounting 403 Westcost Air Co. leases a single jet aircraft and operates between San Francisco and the

Accounting 403 Westcost Air Co. leases a single jet aircraft and operates between San Francisco and the Fiji. Flights leave San Francisco on Mondays and Thursdays and depart from Fiji on Wednesdays and Saturdays. Westcost Air Co. cannot offer any more flights between San Francisco and Fiji. Only tourist-class seats are available on its planes.

An analyst has collected the following information:
Seating capacity per plane 380 passengers
Average number of passengers per flight 175 passengers                   Click here for SOLUTION
Flights per week 4 flights
Flights per year 208 flights
Average one-way fare $325
Variable fuel costs $14,000 per flight
Food and beverage service costs $4 per passenger
Commission to travel agents paid by Air Frisco 10% of fare
(all tickets are booked by travel agents)
Fixed annual lease costs allocated to each flight $53,000 per flight
Fixed ground services
(maintenance, check in, baggage handling) costs allocated to each flight $7,500 per flight
Fixed flight crew salaries allocated to each flight $7,000 per flight

Required:
1. Calculate the operating income that Westcoast Air earns on each one-way flight between San Francisco and Fiji.
2. The Market Research Department of Westcoast Air indicates that lowering the average one-way fare to $280 will increase the average number of passengers per flight to 212. Should the company lower its fare? Show your calculations.
3. Travel International, a tour operator, approaches Westcoast Air on the possibility of chartering (renting out) its jet aircraft twice each month, first to take Travel International’s tourists from San Francisco to Fiji and then to bring the tourists back from Fiji to San Francisco. If Westcoast Air accepts Travel International’s offer, Westcoast Air will be able to offer only 184 (208 – 24) of its own flights each year.

The terms of the charter are as follows:
(a) For each one-way flight, Travel International will pay Westcoast Air $75,000 to charter the plane and to use its flight crew and ground service staff;
(b) Travel International will pay for fuel costs; and
(c) Travel International will pay for all food costs. On purely financial considerations, should Westcost Air accept Travel International’s offer? Show your calculations. What other factors should the company consider in deciding whether or not to charter its plane to Travel International?
Modular Case Assignment Expectations: Summarize your findings in a report which answers the above questions. The submission should be 2 to 4 pages and need to include income statements and other computations in good format as well as a discussion interpreting the analysis. Answer all questions and include references in APA format.

Your uncle offers you a choice of $30,000 in 50 years or $95 today. If money is discounted at 12 percent,

Your uncle offers you a choice of $30,000 in 50 years or $95 today. If money is discounted at 12 percent, which should you choose?
 

If you invest $9,000 today, how much will you have:

If you invest $9,000 today, how much will you have:
a. In 2 years at 9 percent?
b. In 7 years at 12 percent?
c. In 25 years at 14 percent?
d. In 25 years at 14 percent (compounded semiannually)?
If the compounding is done semiannually then the solution is as follows:
 

You will receive $5,000 three years from now. The discount rate is 8 percent.

FIN 200 Week 9 9-3You will receive $5,000 three years from now. The discount rate is 8 percent.
Fin 200 Week 9 day 5 chapter 9
Fin 200 Week 9
Introduction to Finance: Harvesting the Money Tree
Axia College of University of Phoenix (UoP)
278 & 279 of Foundations of Financial Management
Present Value, Future Value, and Annuity Due
Resource: Ch. 9 of Foundations of Financial Management
Due Date: Day 5 [Individual forum]
Complete Problems 3, 4, and 5 on pp. 278-279.
9-3 You will receive $5,000 three years from now. The discount rate is 8 percent.
a. What is the value of your investment two years from now? Multiply $5,000 _ .926 (one year’s discount rate at 8 percent).
b. What is the value of your investment one year from now? Multiply your answer to part a by .926 (one year’s discount rate at 8 percent).
c. What is the value of your investment today? Multiply your answer to part b by .926 (one year’s discount rate at 8 percent).
d. Confirm that your answer to part c is correct by going to Appendix B (present value of $1) for n _ 3 and i _ 8 percent. Multiply this tabular value by $5,000 and compare your answer to part c. There may be a slight difference due to rounding.
4. If you invest $9,000 today, how much will you have:
a. In 2 years at 9 percent?
b. In 7 years at 12 percent?w.mhhe.com/bhd13e
c. In 25 years at 14 percent?
d. In 25 years at 14 percent (compounded semiannually)? If the compounding is done semiannually then the solution is as follows:
5. Your uncle offers you a choice of $30,000 in 50 years or $95 today. If money is discounted at 12 percent, which should you choose?
 
SOLUTION PREVIEW
9-3 You will receive $5,000 three years from now. The discount rate is 8 percent.
a. What is the value of your investment two years from now? Multiply $5,000 _ .926 (one yearÂ’s discount rate at 8 percent).
 
FV = 5,000; rate = 8%; N = 1 years; PV =?
PV = FV x PVIF8%, 1 year
         = 5,000 x 0.926

File name: 9-3-You-will-receive-5000.doc File type: application/msword Price: $9

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