Exam: 061684RR - THE IMPACT OF MANAGEMENT
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exam_061684rr_-_the_impact_of_management.docxExam: 061684RR - THE IMPACT OF MANAGEMENT
Questions 1 to 20: Select the best answer to each question. Note that a question and its answers may be split across a page break, so be sure that you have seen the entire question and all the answers before choosing an answer.
1. Brittman Corporation makes three products that use the current constraint-a particular type of machine. Data concerning those products appear below:
|
|
IP |
NI |
YD |
|
Selling price per unit |
$183.57 |
$207.74 |
$348.15 |
|
Variable cost per unit |
$144.42 |
$155.04 |
$269.50 |
|
Minutes on the constraint |
2.90 |
3.40 |
5.50 |
Assume that sufficient constraint time is available to satisfy demand for all but the least profitable product. Up to how much should the company be willing to pay to acquire more of the constrained resource?
A. $39.15 per unit
B. $15.50 per minute
C. $78.65 per unit
D. $13.50 per minute
2. A project profitability index greater than zero for a project indicates that
A. there has been a calculation error.
B. the project is unattractive and shouldn't be pursued.
C. the company should reevaluate its discount rate.
D. the discount rate is less than the internal rate of return.
3. A company's current ratio and acid-test ratios are both greater than 1. If obsolete inventory is written off, this would
A. decrease the current ratio.
B. increase net working capital.
C. decrease the acid-test ratio.
D. increase the acid-test ratio.
Use the following information to answer this question.
Financial statements for Larkins Company appear below:
Larkins Company
Statement of Financial Position
December 31, Year 2 and Year 1
(dollars in thousands)
Year 2 Year 1
Current assets:
Cash and marketable securities $180 $180
Accounts receivable, net 210 180
Inventory 130 120
Prepaid expenses 50 50
Total current assets 570 530
Noncurrent assets:
Plant & equipment, net 1,540 1,480
Total assets $2,110 $2,010
Current liabilities:
Accounts payable $100 $130
Accrued liabilities 60 60
Notes payable, short term 90 120
Total current liabilities 250 310
Noncurrent liabilities:
Bonds payable 480 500
Total liabilities 730 810
Stockholders' equity:
Preferred stock, $20 par, 10% 120 120
Common stock, $10 par 180 180
Additional paid-in capital--common stock 240 240
Retained earnings 840 660
Total stockholders' equity 1,380 1,200
Total liabilities & stockholders' equity $2,110 $2,010
Larkins Company
Income Statement
For the Year Ended December 31, Year 2
(dollars in thousands)
Sales (all on account) $2,760
Cost of goods sold 1,930
Gross margin 830
Selling and administrative expense 330
Net operating income 500
Interest expense 50
Net income before taxes 450
Income taxes (30%)
135
$315
Net income
Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, Year 2 was $150.
4. Larkins Company's dividend payout ratio for Year 2 was closest to:
A. 40.6%
B. 42.9%
C. 14.8%
D. 24.6%
Use the following information to answer this question.
The most recent balance sheet and income statement of Teramoto Corporation appear below:
|
Comparative Balance Sheet |
Ending Beginning
|
|
|
|
Balance |
Balance |
|
Assets: Cash and cash equivalents Accounts receivable Inventory Plant and equipment |
$43 53 73 582 |
$35 59 69 490 |
Less accumulated depreciation
301
$450
286
$367
Total assets
|
Liabilities and stockholders' equity Accounts payable Wages payable Taxes payable Bonds payable Deferred taxes Common stock |
$57 21 15 21 20 55 |
$48 18 13 20 21 50 |
Retained earnings
261
$450
197
$367
Total liabilities and stockholders' equity
|
|
|
|
Income Statement Sales Cost of good sold Gross margin Selling and administrative expense Net operating income Income taxes Net income |
$893 587 306 189 117 35 $82 |
5. The net cash provided by (used by) investing activities for the year was
A. $77.
B. $92.
C. ($92).
D. ($77).
6. (Ignore income taxes in this problem.) The following data pertain to an investment:
|
Cost of the investment |
$18,955 |
|
Life of the project |
5 years |
|
Annual cost savings |
$5,000 |
|
Estimated salvage value |
$1,000 |
|
Discount rate |
10% |
The net present value of the proposed investment is
A. $621.
B. $(3,430).
C. $0.
D. $3,355.
7. Ignore income taxes in this problem.) Purvell Company has just acquired a new machine. Data on the machine follow:
Purchase cost $50,000
Annual cost savings $15,000
Life of the machine 8 years
The company uses straight-line depreciation and a $5,000 salvage value. (The company considers salvage value in making depreciation deductions.) Assume cash flows occur uniformly throughout a year.
The simple rate of return would be closest to
A. 12.5%.
B. 17.5%.
C. 30.0%.
D. 18.75%.
8. An increase in the market price of a company's common stock will immediately affect its
A. dividend yield ratio.
B. debt-to-equity ratio.
C. dividend payout ratio.
D. earnings per share of common stock.
9. Centerville Company's debt-to-equity ratio is 0.60 Total assets are $320,000, current assets are $170,000, and working capital is $80,000. Centerville's long-term liabilities must be
A. $120,000.
B. $90,000.
C. $80,000.
D. $30,000.
Use the following information to answer this question.
Financial statements for Larkins Company appear below:
Larkins Company
Statement of Financial Position
December 31, Year 2 and Year 1
(dollars in thousands)
Year 2 Year 1
Current assets:
Cash and marketable securities $180 $180
Income taxes (30%)
135
$315
Net income
Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, Year 2 was $150.
10. Larkins Company's price-earnings ratio on December 31, Year 2 was closest to:
|
Accounts receivable, net Inventory Prepaid expenses Total current assets Noncurrent assets: Plant & equipment, net Total assets
Current liabilities: Accounts payable Accrued liabilities Notes payable, short term Total current liabilities Noncurrent liabilities: Bonds payable Total liabilities Stockholders' equity: Preferred stock, $20 par, 10% Common stock, $10 par Additional paid-in capital--common stock Retained earnings Total stockholders' equity Total liabilities & stockholders' equity
Larkins Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands)
|
210 130
50 570
1,540 $2,110
$100 60 90 250
480 730
120 180 240 840 1,380 $2,110 |
180 120 50 530
1,480 $2,010
$130 60 120 310
500 810
120 180 240 660 1,200 $2,010 |
|
Sales (all on account) Cost of goods sold Gross margin Selling and administrative expense Net operating income Interest expense Net income before taxes |
$2,760 1,930 830 330 500 50 450 |
|
A. 8.91
B. 6.00
C. 8.57
D. 20.79
Use the following information to answer this question.
The most recent balance sheet and income statement of Teramoto Corporation appear below:
|
Comparative Balance Sheet |
Ending
Balance |
Beginning Balance |
|
Assets: Cash and cash equivalents Accounts receivable Inventory Plant and equipment |
$43 53 73 582 |
$35 59 69 490 |
Less accumulated depreciation
301
$450
286
$367
Total assets
|
Liabilities and stockholders' equity Accounts payable Wages payable Taxes payable Bonds payable Deferred taxes Common stock |
$57 21 15 21 20 55 |
$48 18 13 20 21 50 |
Retained earnings
261
$450
197
$367
Total liabilities and stockholders' equity
|
|
|
|
Income Statement Sales Cost of good sold Gross margin Selling and administrative expense Net operating income Income taxes Net income |
$893 587 306 189 117 35 $82 |
11. The net cash provided by (used by) operations for the year was
A. $112.
B. $30.
C. $52.
D. $117.
12. Fonics Corporation is considering the following three competing investment proposals:
|
|
Aye |
Bee |
Cee |
|
Initial investment required |
$62,000 |
$74,000 |
$95,000 |
|
Net present value |
$10,000 |
$8,000 |
$12,000 |
|
Internal rate of return |
15% |
17% |
18% |
Using the project profitability index, how would the above investments be ranked (highest to lowest)?
A. Aye, Cee, Bee
B. Aye, Bee, Cee
C. Cee, Bee, Aye
D. Bee, Cee, Aye
13. Degner Inc. has some material that originally cost $19,500. The material has a scrap value of $13,300 as is, but if reworked at a cost of $2,100, it could be sold for $14,000. What would be the incremental effect on the company's overall profit of reworking and selling the material rather than selling it as is as scrap?
A. $11,900
B. -$1,400
C. -$20,900
D. -$7,600
Use the following information to answer this question.
Financial statements for Larkins Company appear below:
Larkins Company
Statement of Financial Position
December 31, Year 2 and Year 1
(dollars in thousands)
Year 2 Year 1
Current assets:
Cash and marketable securities $180 $180
Accounts receivable, net 210 180
Inventory 130 120
Prepaid expenses 50 50
Total current assets 570 530
Noncurrent assets:
Plant & equipment, net 1,540 1,480
Total assets $2,110 $2,010
Current liabilities:
Accounts payable $100 $130
Accrued liabilities 60 60
Notes payable, short term 90 120
Total current liabilities 250 310
Noncurrent liabilities:
Bonds payable 480 500
Total liabilities 730 810
Stockholders' equity:
Preferred stock, $20 par, 10% 120 120
Common stock, $10 par 180 180
Additional paid-in capital--common stock 240 240
Retained earnings 840 660
Total stockholders' equity 1,380 1,200
Total liabilities & stockholders' equity $2,110 $2,010
Larkins Company
Income Statement
For the Year Ended December 31, Year 2
(dollars in thousands)
Sales (all on account) $2,760
Cost of goods sold 1,930
Income taxes (30%)
135
$315
Net income
Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, Year 2 was $150.
14. Larkins Company's dividend yield ratio on December 31, Year 2 was closest to:
A. 4.6%.
B. 4.1%.
C. 5.0%.
D. 2.1%.
15. Which of the following would be classified as a financing activity on the statement of cash flows?
A. Interest paid on bonds issued by the reporting company
B. Interest received on investments in another company's bonds
C. Dividends paid to shareholders of the company on the company's common stock
D. Dividends received on investments in another company's common stock
16. A weakness of the internal rate of return method for screening investment projects is that it
A. implicitly assumes that the company is able to reinvest cash flows from the project at the internal rate of return.
|
Gross margin Selling and administrative expense Net operating income Interest expense Net income before taxes |
830 330 500 50 450 |
B. doesn't take into account all of the cash flows from a project.
C. doesn't consider the time value of money.
D. implicitly assumes that the company is able to reinvest cash flows from the project at the company's discount rate.
17. The Clemson Company reported the following results last year for the manufacture and sale of one of its products known as a Tam.
|
Sales (6,500 Tams at $130 each) |
$845,000 |
|
Variable cost of sales |
390,000 |
|
Variable distribution costs |
65,000 |
|
Fixed advertising expense |
275,000 |
|
Salary of product line manager |
25,000 |
|
Fixed manufacturing overhead |
145,000 |
|
Net operating loss |
$(55,000) |
Clemson Company is trying to determine whether to discontinue the manufacture and sale of Tams. The operating results reported above for last year are expected to continue in the foreseeable future if the product isn't dropped. The fixed manufacturing overhead represents the costs of production facilities and equipment that the Tam product shares with other products produced by Clemson. If the Tam product were dropped, there would be no change in the fixed manufacturing costs of the company.
Assume that discontinuing the manufacture and sale of Tams will have no effect on the sale of other product lines. If the company discontinues the Tam product line, the change in annual operating income (or loss) should be a
A. $70,000 increase.
B. $55,000 decrease.
C. $90,000 decrease.
D. $65,000 decrease.
18. (Ignore income taxes in this problem.) The Keego Company is planning a $200,000 equipment investment that has an estimated five-year life with no estimated salvage value. The company has projected the following annual cash flows for the investment:
Year Cash Inflows
1 $120,000
2 60,000
3 40,000
4 40,000
5 40,000
Total $300,000
Assuming that the cash inflows occur evenly over the year, the payback period for the investment is _______ years.
A. 0.75
B. 2.50
C. 4.91
D. 1.67
Use the following information to answer this question.
The most recent balance sheet and income statement of Teramoto Corporation appear below:
|
Comparative Balance Sheet |
Ending
Balance |
Beginning Balance |
|
Assets: Cash and cash equivalents Accounts receivable Inventory Plant and equipment |
$43 53 73 582 |
$35 59 69 490 |
Less accumulated depreciation
301
$450
286
$367
Total assets
|
Liabilities and stockholders' equity Accounts payable Wages payable Taxes payable Bonds payable Deferred taxes Common stock |
$57 21 15 21 20 55 |
$48 18 13 20 21 50 |
Retained earnings
261
$450
197
$367
Total liabilities and stockholders' equity
|
Income Statement Sales Cost of good sold Gross margin Selling and administrative expense Net operating income Income taxes Net income |
$893 587 306 189 117 35 $82 |
Cash dividends were $18.
19. The net cash provided by (used by) financing activities for the year was
A. ($12).
B. $5.
C. $1.
D. ($18).
Use the following information to answer this question.
Financial statements for Larkins Company appear below:
Larkins Company
Statement of Financial Position
December 31, Year 2 and Year 1
(dollars in thousands)
Year 2 Year 1
Current assets:
Cash and marketable securities $180 $180
Accounts receivable, net 210 180
Inventory 130 120
Prepaid expenses 50 50
Total current assets 570 530
Noncurrent assets:
Plant & equipment, net 1,540 1,480
Total assets $2,110 $2,010
Current liabilities:
Accounts payable $100 $130
Accrued liabilities 60 60
Notes payable, short term 90 120
Total current liabilities 250 310
Noncurrent liabilities:
Bonds payable 480 500
Total liabilities 730 810
Stockholders' equity:
Preferred stock, $20 par, 10% 120 120
Common stock, $10 par 180 180
Additional paid-in capital--common stock 240 240
Retained earnings 840 660
Income taxes (30%)
135
$315
Net income
Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, Year 2 was $150.
|
Total stockholders' equity Total liabilities & stockholders' equity
Larkins Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands)
|
1,380 $2,110 |
1,200 $2,010 |
|
Sales (all on account) Cost of goods sold Gross margin Selling and administrative expense Net operating income Interest expense Net income before taxes |
$2,760 1,930 830 330 500 50 450 |
|
20. Larkins Company's book value per share at the end of Year 2 was closest to:
A. $23.33.
B. $70.00.
C. $76.67.
D. $10.00.
End of exam
