Review by cuiliqing

VIEWS: 14 PAGES: 58

									                                Review
Use the following to answer the following five questions
Selected data from Chering Co.'s accounting records revealed the following:
Sales                               $825,000
Average investment                  $440,000
Net income                          $ 66,000
Minimum rate of return                   14%

    Chering Co.'s return on investment is calculated to be:
    A)    6.0%.
    B)    8.0%.
    C) 14.0%.
    D) 15.0%.
    E) 20.0%.



1
                                Review
Use the following to answer the following five questions
Selected data from Chering Co.'s accounting records revealed the following:
Sales                                        $825,000
Average investment                           $440,000
Net income                                   $ 66,000
Minimum rate of return                            14%

    Chering Co.'s return on investment is calculated to be:
    A)    6.0%.
    B)    8.0%.
    C) 14.0%.
    D) 15.0%. ($66,000/$440,000)
    E) 20.0%.



2
                    Review
Chering Co.'s return on sales is calculated to be:
  A) 6.0%.
  B) 8.0%.
  C) 14.0%.
  D) 15.0%.
  E) 20.0%.



3
                    Review
Chering Co.'s return on sales is calculated to be:
  A) 6.0%.
  B) 8.0%. ($66,000/825,000)
  C) 14.0%.
  D) 15.0%.
  E) 20.0%.



4
                    Review
Chering Co.'s asset turnover is calculated to be:
  A) 1.07.
  B) 1.63.
  C) 1.88.
  D) 4.27.
  E) 12.50.



5
                    Review
Chering Co.'s asset turnover is calculated to be:
  A) 1.07.
  B) 1.63.
  C) 1.88. ($825,000/$440,000)
  D) 4.27.
  E) 12.50.



6
                   Review
Chering Co.'s residual income is calculated to be:
  A) $ 4,400.
  B) $ 8,800.
  C) $ 9,240.
  D) $22,380.
  E) $49,500.



7
                   Review
Chering Co.'s residual income is calculated to be:
  A) $ 4,400. [$66.000 -(440,000 x .14)]
  B) $ 8,800.
  C) $ 9,240.
  D) $22,380.
  E) $49,500.



8
                         Review

If the minimum rate of return was 13%, Chering Co.'s residual
    income would calculate to be:
    A) $ 4,400.
    B) $ 8,800.
    C) $ 9,240.
    D) $22,380.
    E) $49,500.




9
                         Review

If the minimum rate of return was 13%, Chering Co.'s residual
    income would calculate to be:
    A) $ 4,400.
    B) $ 8,800. [$66,000 – ($440,000 x .13)]
    C) $ 9,240.
    D) $22,380.
    E) $49,500.




10
                      Review
     Which of the following is NOT an example of a
         benefit?
     A) Free travel arrangements.
     B) A bonus based on achieving performance
         goals.
     C) Life insurance for family members.
     D) Tickets to entertainment events.


11
                   Review
 Which of the following is NOT an example of a
     benefit?
 A) Free travel arrangements.
 B) A bonus based on achieving performance
     goals.
 C) Life insurance for family members.
 D) Tickets to entertainment events.


12
                   Review
Of the three basic forms of management
  compensation (salary, bonus, perks), the
  fastest growing part of the total compensation
  is:
 A) salary.
 B) bonus.
 C) perks.
 D) salary and bonus.
 E) They are all growing at the same rate.

13
                   Review
Of the three basic forms of management
  compensation (salary, bonus, perks), the
  fastest growing part of the total compensation
  is:
 A) salary.
 B) bonus.
 C) perks.
 D) salary and bonus.
 E) They are all growing at the same rate.

14
                 Review
The three most common bases of compensation
  are ________, strategic performance
  measures, or the balanced scorecard.
 A) Allocated costs.
 B) Sales.
 C) Stock price.
 D) Turnover ratio.


15
                 Review
The three most common bases of compensation
  are ________, strategic performance
  measures, or the balanced scorecard.
 A) Allocated costs.
 B) Sales.
 C) Stock price.
 D) Turnover ratio.


16
                  Review
Which of the following bonus payment options
  tends to be short-term focused?
 A) Current bonus
 B) Deferred bonus
 C) Stock options
 D) Performance shares



17
                  Review
Which of the following bonus payment options
  tends to be short-term focused?
 A) Current bonus
 B) Deferred bonus
 C) Stock options
 D) Performance shares



18
                  Review
The ideal compensation plan would make all
  company contributions to the plan
  immediately tax-deductible and all tax
  consequences for managers:
 A) non-existent.
 B) insignificant.
 C) deferred or avoidable.
 D) limited, but current.
 E) limited, but pre-paid.

19
                  Review
The ideal compensation plan would make all
  company contributions to the plan
  immediately tax-deductible and all tax
  consequences for managers:
 A) non-existent.
 B) insignificant.
 C) deferred or avoidable.
 D) limited, but current.
 E) limited, but pre-paid.

20
                  Review
Which of the following compensation plans is
  never taxed to the manager?
 A) Salary
 B) Stock options - nonqualified plan
 C) Stock options - qualified plan
 D) Certain retirement plans
 E) Other perks

21
                  Review
Which of the following compensation plans is
  never taxed to the manager?
 A) Salary
 B) Stock options - nonqualified plan
 C) Stock options - qualified plan
 D) Certain retirement plans
 E) Other perks

22
                    Review
"Market value" is an objective measure that
  clearly shows what:
 A) the firm's accountant determines as the
  firm's worth to be.
 B) investors think the firm is worth.
 C) stock analysts calculate as the firm's worth.
 D) is the sales value of the firm.
 E) is the liquidation value of the firm.

23
                    Review
"Market value" is an objective measure that
  clearly shows what:
 A) the firm's accountant determines as the
  firm's worth to be.
 B) investors think the firm is worth.
 C) stock analysts calculate as the firm's worth.
 D) is the sales value of the firm.
 E) is the liquidation value of the firm.

24
                  Review
Which of the following is NOT a key measure of
  liquidity?
 A) Current ratio.
 B) Cash flow ratio.
 C) Inventory turnover.
 D) Gross margin percent.



25
                  Review
Which of the following is NOT a key measure of
  liquidity?
 A) Current ratio.
 B) Cash flow ratio.
 C) Inventory turnover.
 D) Gross margin percent.



26
                  Review
Which of the following is NOT a method for
  valuing a firm?
 A) Balanced scorecard method
 B) Market value method
 C) Book value method
 D) The discounted cash flow method
 E) Multiples based method


27
                  Review
Which of the following is NOT a method for
  valuing a firm?
 A) Balanced scorecard method
 B) Market value method
 C) Book value method
 D) The discounted cash flow method
 E) Multiples based method


28
               Calculate EVA
• Malone Corporation had net income of
  $192,000 in 2007. Its cost of capital was 12%
  and its invested capital was $1,000,000.
  Malone’s EVA for 2007 was
  A) $119,000
  B) $120,000
  C) $72,000
  D) $24,000
29
               Calculate EVA
• Malone Corporation had net income of
  $192,000 in 2007. Its cost of capital was 12%
  and its invested capital was $1,000,000.
  Malone’s EVA for 2007 was
  A) $192,000
  B) $120,000
  C) $72,000 [$192,000 – ($1,000,000 x .12)]
  D) $24,000
30
                         Review
_______________ is a long-term project that involves a large
   sum of funds and that provides expected future benefits.
 A) A balanced scorecard
 B) A master budget
 C) A capital budget
 D) A capital investment
 E) A multicriteria decision model

•
•
•




31
                         Review
_______________ is a long-term project that involves a large
   sum of funds and that provides expected future benefits.
 A) A balanced scorecard
 B) A master budget
 C) A capital budget
 D) A capital investment
 E) A multicriteria decision model

•
•
•




32
                         Review

Which of the following is NOT a contribution that the accountant
  makes to the capital budgeting process?
A) Linkage to master budget (planning)
B) Linkage to the balanced scorecard (control)
C) Generation of relevant data for investment analysis purposes
  (decision making)
D) Conducting of post-audits (control)
E) All of the above are contributions made by the accountant.




33
                         Review

Which of the following is NOT a contribution that the accountant
  makes to the capital budgeting process?
A) Linkage to master budget (planning)
B) Linkage to the balanced scorecard (control)
C) Generation of relevant data for investment analysis purposes
  (decision making)
D) Conducting of post-audits (control)
E) All of the above are contributions made by the accountant.




34
                      Review
_______________ is a multicriteria decision technique
  that can combine qualitative and quantitative factors
  in the overall evaluation of decision alternatives.
 A) The balanced scorecard
 B) The analytic hierarchy process
 C) A capital budget
 D) The capital asset pricing model
 E) None of the above.



35
                      Review
_______________ is a multicriteria decision technique
  that can combine qualitative and quantitative factors
  in the overall evaluation of decision alternatives.
 A) The balanced scorecard
 B) The analytic hierarchy process
 C) A capital budget
 D) The capital asset pricing model
 E) None of the above.



36
                           Review
What is the proper procedure for handling working capital
  commitments in a capital budgeting decision?
A) Show it as a negative cash flow in the project initiation year.
B) Show it as a positive cash flow in the project initiation year.
C) Show it as a positive cash flow in the final project disposal
  year.
D) Both a and c are correct.
E) Both b and c are correct.




37
                           Review
What is the proper procedure for handling working capital
  commitments in a capital budgeting decision?
A) Show it as a negative cash flow in the project initiation year.
B) Show it as a positive cash flow in the project initiation year.
C) Show it as a positive cash flow in the final project disposal
  year.
D) Both a and c are correct.
E) Both b and c are correct.




38
                           Review
Cash flows occur at three stages of the capital investment
   project, in the following sequence:
 A) project consideration, project implementation, project
   evaluation.
 B) project implementation, project consideration, project
   termination.
 C) project initiation, project operation, final disposal.
 D) project operation, project evaluation, final disposal.
 E) project reflection, project inception, project operation.




39
                           Review
Cash flows occur at three stages of the capital investment
   project, in the following sequence:
 A) project consideration, project implementation, project
   evaluation.
 B) project implementation, project consideration, project
   termination.
 C) project initiation, project operation, final disposal.
 D) project operation, project evaluation, final disposal.
 E) project reflection, project inception, project operation.




40
                              Review
USE THE FOLLOWING INFORMATION TO ANSWER the NEXT 3 QUESTIONS

Brent Corporation is considering purchasing a machine for $2,000,000. The
   machine will generate a net after-tax income of $80,000 per year. The firm
   will use straight-line depreciation for the new machine over the machine's
   useful life of 10 years with no residual value.

What is the new machine's net present value if the firm has a minimum rate
   of return of 10% on all investments?
A) $140,000
B) $279,400
C) $1,139,700
D) $1,200,000
E) $1,508,400


41
                                    Review
USE THE FOLLOWING INFORMATION TO ANSWER the NEXT 3 QUESTIONS

Brent Corporation is considering purchasing a machine for $2,000,000. The machine
   will generate a net after-tax income of $80,000 per year. The firm will use straight-
   line depreciation for the new machine over the machine's useful life of 10 years
   with no residual value.

What is the new machine's net present value if the firm has a minimum rate of return
    of 10% on all investments?
 A) $140,000
 B) $279,400
 C) $1,139,700
 D) $1,200,000
 E) $1,508,400

Initial investment ($2,000,000) x 1.000 = ($2,000,000)
Cash flow = $80,000 + ($2,000,000 / 10) = $280,000
Present value factor 1-10 = 6.1425
 $280,000 x 6.145= $1,720,600
NPV=($279,400) reject
42
                        Review


What is the payback period for the new machine?
A) 7.14 years
B) 8.33 years
C) 9.16 years
D) 10 years
E) 14.29 years




43
                             Review


What is the payback period for the new machine?
A) 7.14 years
B) 8.33 years
C) 9.16 years
D) 10 years
E) 14.29 years

Payback period = $2,000,000 / $280,000 = 7.14 years




44
                      Review

What is the new machine's average book (accounting) rate
  of return?
 A) 6.35%
 B) 7.50%
 C) 8%
 D) 10%
 E) 12%



 45
                         Review

What is the new machine's average book (accounting) rate of
   return?
 A) 6.35%
 B) 7.50%
 C) 8%
 D) 10%
 E) 12%
Calculation – Avg. investment = $2,000,000/2 =$1,000,000
$80,000/$1,000,000 = 8%


46
                  Review
_______________ is the process of selectively
  varying a key input variable.
 A) Sensitivity analysis
 B) Scenario analysis
 C) Monte Carlo simulation
 D) The balanced scorecard



47
                  Review
_______________ is the process of selectively
  varying a key input variable.
 A) Sensitivity analysis
 B) Scenario analysis
 C) Monte Carlo simulation
 D) The balanced scorecard



48
                   Review
The capital budgeting method(s) that provide(s)
  consistency between data for budgeting and
  data for performance evaluation is (are) the:
 A) payback period.
 B) discounted cash flow methods.
 C) accounting rate of return
 D) All of the above are correct.
 E) Only a and b are correct.

49
                   Review
The capital budgeting method(s) that provide(s)
  consistency between data for budgeting and
  data for performance evaluation is (are) the:
 A) payback period.
 B) discounted cash flow methods.
 C) accounting rate of return
 D) All of the above are correct.
 E) Only a and b are correct.

50
                  Review

Which of the following capital budgeting
  methods ignores the time value of money?
 A) Internal rate of return
 B) Present value payback period
 C) Net present value
 D) Accounting rate of return

51
                  Review

Which of the following capital budgeting
  methods ignores the time value of money?
 A) Internal rate of return
 B) Present value payback period
 C) Net present value
 D) Accounting rate of return

52
                         Review

_______________ is a measure of financial performance
   designed to approximate an entity's economic profit.
 A) IRR
 B) Payback period
 C) NPV
 D) Accounting rate of return
 E) EVA




53
                         Review

_______________ is a measure of financial performance
   designed to approximate an entity's economic profit.
 A) IRR
 B) Payback period
 C) NPV
 D) Accounting rate of return
 E) EVA




54
                       18-28
                        Mortgage Loans Consumer Loans
Total Assets                   $ 2,000        $20,000
Operating Income                   400          2,500
Return on Investment               20%           12.5%




55
                                  18-28
                                      Mortgage Loans Consumer Loans
Residual Income:
(a)*       at 10%                      $200                      $ 500
(b)**      at 15%                       100                         (500)
(c)***     at 20%                         0                       (1,500)

* $400 - ($2,000 x .10) = $200        $2,500 - ($20,000 x .10) = $ 500
** $400 - ($2,000 x .15) = $100       $2,500 - ($20,000 x .15) = $ (500)
*** $400 - ($2,000 x .20) = $0        $2,500 - ($20,000 x .20) = $(1,500)




 56
                        19-28
Book value of equity = $1,325,000
Market value of equity = $2.55 x 1,800,000
  =$4,590,000
Discounted free cash flow = $260,000 x 1/.06 =
  $433,333
Multiples based valuations
     Earnings = 9 x $300,000 = $2,700,000
     Free cash flow = 18 x $260,000 = $4,680,000
     Sales = 2 x $3,500,000 = $7,000,000
57
                                     P20-38
Payback Period:

The payback period = $500,000  $120,000/year
    = 4.17 years (about 4 years and 2 months)

         Book (accounting) rate of return:
Accounting income = cash income- depreciation
                   = $120,000 – ($500,000/10)
As a result, the average increase in net Income= $70,000/year.       Thus, the
ARR

(1)      On initial investment:     $70,000/$500,000         =      14.00%

(2)      On average investment:
         Average investment:           ($500,000 + 0)/2 =    $250,000
         Book rate of return:       $70,000  $250,000       =       28.00%

NPV: using the PV factors from Table 2 (p. 871),
($120,000 x 5.65) – 500,000
NPV = $178,000

  58

								
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