Practice Midterm Exam Page 1 1. | Indirect labor is a part of: | A | Prime cost. | B | Conversion cost. | C | Period cost. | D | Nonmanufacturing cost.
Net Present Value (NPV) NPV is a primary investment decision criterion. NPV is defined as the difference between the present value of a stream of benefits and that of a stream of costs. A positive NPV occurs when the sum of the discounted benefits exceeds the sum of the discounted costs. A negative NPV is usually called a Net Present Cost (NPC). The decision rule is to select the option that offers to maximise NPV, or minimise NPC.
The graph above depicts the probability distributions for risks A and B. Based on the graph, which of the following statements is true? a. The expected value of loss for risk A is larger than the expected value of loss for risk B. b. The expected value of loss for risk B is larger than the expected value of loss for risk A. c. The standard deviation of expected losses for risk A is larger than the standard deviation of losses for risk B. d. The standard deviation of expected losses for risk B is larger than the standard deviation of losses for risk A.
Question 1- Training needs identification of an Organization- Training needs identification of an Organization is the process of collecting information about an expressed or implied organizational need that could be met by conducting training. The need can be a desire to improve current performance or to correct a deficiency. It means that there is a prescribed or best way of doing a task and that variance from it is creating a problem. The needs assessment process helps the trainer and the person requesting training to specify the training need or performance deficiency. Conducting a training needs assessment/identification process is the first step in creating a targeted training and development program within organization.
Which of the following is a tool used to secure expert judgment? Question 1: ------------------------------------------------- Top of Form A. Peer Review B. Delphi Technique C. Expected value technique D. Work Breakdown Structure (WBS) Bottom of Form - See more at: http://www.gocertify.com/quizzes/project-management/pmp1.html#sthash.2JVTjA3V.dpuf Question 2: Based on the information provided below, which project would you recommend for being pursued? Project I, with BCR (Benefit Cost ratio) of 1:1.6; Project II, with NPV of US $ 500,000; Project III, with IRR (Internal rate of return) of 15% Project IV, with opportunity cost of US $ 500,000. ------------------------------------------------- Top of Form A.
More specifically, Caladonia’s financial personnel should determine the payback period of each project, the internal rate of return (IRR), the new present value (NPV), if any ranking conflict exists, and then decide which project should be accepted and why. Additionally, Caladonia’s financial personnel should also gather information about leasing versus buying the assets. Team C will address all the above questions that Caladonia’s financial personnel should ask prior making any decisions. What is each project’s payback period? Project A: 100,000/32,000 = 3.125 years Project B: 100,000/200,000 = .5 years What is each project’s net present value?
Usually a discount of 10 percent to 40 percent is applied to private companies due to the lack of liquidity of their shares. Precedents/acquisition comps: At what metrics (same as above) were similar companies acquired? Discounted cash flow (“DCF”): Based on the concept that value of the company equals the cash flows the company can produce in the future. An appropriate discount rate is used to calculate a net present value of projected cash flows. Leveraged Buyout (“LBO”): Assuming an IRR (usually 20 percent to 30 percent), what would a financial buyer be willing to pay?
e. Which project should be accepted? Why? PROJECT A PP =100,000/32,000= 3.125 IRR = 18.03 NPV a = 32,000( 1/ (1 + .11)1) – 100,000 = 18,268.70 PI = 160,000/ 100,000= 1.6 Project A CFo = -100,000 F1 = 5 CF1 = 32,000 = 18,268.70 NET PRESENT VALUE Project A Project B Cash Flow Cash Flow Initial Outlay -100,000 Initial Outlay -100,000 Year 1 32,000 Year 1 0 Year 2 32,000 Year 2 0 Year 3 32,000 Year 3 0 Year 4 32,000 Year 4 0 Year 5 32,000 Year 5 200,000 PV $118,268.70 PV $118,690.27 -100,000.00 -100,000 NPV= 18,268.70 NPV= 18,690.27 INTERNAL RATE OF RETURN year project A year Project B 0 --100000 0 -100000 1 32000 1 0 2 32000 2 0 3 32000 3 0 4 32000 4 0 5 32000 5 200000 18.03% 14.87% The conflict is started by the projects containing two different cash flows in different periods of time. The return cash flows of Project A looks to be consistent over the course of five years after the initial $100,000 investment. They are receiving almost a 1/3 of the original investment back every year and thus can recover more quickly.
* Case 3: Harvey Industries (pages 609 to 611) This case involves an inventory management system. The primary problem is stated in the case. You, as a consultant, are asked to make recommendations to management concerning this problem. You should be very familiar with the material in the text before addressing this problem. You will provide an Executive Summary similar in format to the one developed for Case 2.
Answer 'Capital Budgeting' Step into the shoes of a financial analyst. Discuss which steps of the capital budgeting process you would find the most challenging and state why. Discuss the pros and cons of applying different investment decision rules when faced with the choice of investing corporate funds. Provide two examples Capital Budgeting is a process of long range planning involving investment of funds in long term activities whose benefits are expected over series of years. For example, installing machinery, creating additional capacity to manufacture a part of the machinery which at present is purchased from outside.