1. Cost Estimation Using the High-Low Method (20 points) The University Logo Products Company needs to predict the labor cost in producing specialty coffee mugs. The following production information is available:

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1. Cost Estimation Using the High-Low Method (20 points)

The University Logo Products Company needs to predict the labor cost in producing specialty coffee mugs. The following production information is available:

Year

Production Volume

Labor Hours

Labor Dollars

2006

2,500

1,700

$ 8,500

2007

3,400

1,950

11,700

2008

2,400

1,600

12,800

2009

4,400

2,300

20,700

2010

3,200

1,900

17,100

2011

2,800

1,750

17,500

Wage rates have steadily increased since 2006; however, management expects no further increases in 2012.

a. Select the appropriate independent variable for estimating labor cost. Explain the reason for your selection.

b. Develop an equation to predict for 2012 the labor cost of producing specialty mugs. Use the high-low method.

2. Break-Even Calculation (20 points)

Bountiful Company had the following functional income statement for the month of May, 2011:

Bountiful Company

Functional Income Statement

For the Month Ending May 31, 2011

Sales (15,000 units)

$300,000

Cost of goods sold:

Direct materials

$60,000

Direct labor

45,000

Variable manufacturing overhead

37,500

Fixed factory overhead

50,000

192,500

Gross profit

$107,500

Selling and administrative expenses:

Variable

$ 7,500

Fixed

20,000

27,500

Net income

$ 80,000

Calculate Bountiful’s break-even sales in units.

3. Make or Buy Decision (20 points)

Maple Paper Corporation manufactures 20,000 rolls of paper each period. The paper is used as an input for producing several other products that Maple manufactures. The full manufacturing costs for a batch of 100 rolls of paper are as follows:

Direct materials

$ 270

Direct labor

200

Variable manufacturing overhead

200

Average fixed manufacturing overhead

350

Total

$1,020

The fixed manufacturing overhead is comprised of depreciation expenses related to prior investments in facilities and equipment that are used in the manufacturing of the paper. These assets have no other use than for the manufacturing of the paper. An outside supplier has offered to sell Maple the 20,000 rolls of paper necessary to meet production needs this period for a lump-sum of $150,000. What should Maple do if it wants to maximize its profit for the period?

4. Raw Materials Used Calculation (20 points)

Eleanor Corp. obtained the following information from the Raw Materials Inventory account and purchasing records for the first quarter of the current year:

Beginning Raw Materials

$10,000

Ending Raw Materials

$12,000

Jan. Purchases

$12,000

Feb. Purchases

$8,000

Mar. Purchases

$10,000

Calculate the amount of Raw Materials used for this quarter.

5. Activity-Based costing (25 points)

Angel Manufacturing Company has developed the following activity cost information for its manufacturing activities:

Assembly

$30 per hour

Drilling

$8 per hole

Inspection

$4 per unit

Machine setup

$400 per batch

Movement

$30 per batch plus $0.20 per lb.

Shaping

$50 per hour

Welding

$10 per inch

Filling a batch order for 45 units with a combined weight of 200 pounds required:

· Three sets of inspections

· Drilling four holes in each unit

· Completing 20 inches of welds on each unit

· 0.6 hour of shaping for each unit

· One hour of assembly per unit

Calculate the total cost to produce a batch of 45 units.

6. Direct Cost Allocation Method (20 points)

Airwalk Company has two service departments, Maintenance Department and Personnel Department, and two producing departments, X and Y. The Maintenance Department costs of $120,000 are allocated on the basis of standard service hours used. The Personnel Department costs of $18,000 are allocated on the basis of number of employees. The direct costs of Departments X and Y are $36,000 and $60,000, respectively. Data on standard service-hours and number of employees are as follows:

Maint. Dept.

Person. Dept.

Dept. X

Dept. Y

Standard service hours used

200

100

600

300

Number of employees

5

10

45

45

Using the direct method, calculate the cost of the Personnel Department allocated to Department X.

7. Cost-Based Pricing (25 Points)

Patty Corporation has predicted the following costs for this year for 100,000 units:

Manufacturing

Selling and Administrative

Variable

$1,600,000

$ 400,000

Fixed

2,400,000

1,200,000

Total

$4,000,000

$1,600,000

Required:

a. What is the markup on variable costs needed to achieve a target profit of $200,000?

b. What is the initial unit selling price needed to obtain a target profit of $200,000 using the variable cost markup method?

c. What is the manufacturing cost markup needed to obtain a target profit of $200,000?

d. What is the initial unit selling price needed to obtain a target profit of $200,000 using the manufacturing cost markup method?

21. The term “division margin” is used to describe the:

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21. The term “division margin” is used to describe the:

A) Excess of manufacturing margin over all variable expenses

B) Sum of division cost of goods sold and net income

C) Amount a given division contributes toward covering common corporate expenses

D) Excess of division sales over its variable manufacturing expenses

22. What is a transfer price?

A) The amount charged for a product or service that one division provides another

B) The amount charged for goods and services offered to the government

C) An amount charged to cover the costs associated with import/export taxes

D) The amount charged the final consumer to cover all costs incurred along the value chain

23. Sales for the year = $108,229, Net Income for the year= $13,144, Income from equity investments = $3,309, and average Equity during the year = $47,556. Return on equity (ROE) for the year is:

A) 12.1%

B) 27.6%

C) 43.9%

D) 227.6%

E) There is not enough information to answer the question

24. The audit report is addressed to:

A) The audit committee

B) The board of directors

C) The shareholders

D) The board of directors and the shareholders

E) The Securities and Exchange Commission (SEC)

25. In 2006, Delphi Corporation had current assets of $9,916 million and current liabilities of $8,404 million. The firm’s net working capital is:

A) $9,916 million

B) $1,512 million

C) $(1,512) million

D) $18,320 million

E) None of the above

26. How would a purchase of $150 of inventory on credit affect the income statement?

A) It would increase liabilities by $150

B) It would decrease retained earnings by $150

C) It would increase assets by $150

D) Both A and C, above

E) None of the above

27. Which account is least likely to appear in an accounting adjustment?

A) Interest expense

B) Cost of goods sold

C) Cash

D) Sales

28. A statement of cash flows usually does not include which of the following?

A) Net income

B) Increase in accounts receivable

C) Contributed Capital

D) Depreciation expense

E) All of the above

29. Liquidity refers to:

A) The life cycle of the company

B) The amount of receivables the company has in the balance sheet

C) The amount of financial leverage

D) None of the above

30. The fiscal 2010 financial statements for Walgreen, Inc., report net sales of $67,420 million, net operating profit after tax of $2,145 million, net operating assets of $14,921 million. The 2009 balance sheet reports net operating assets of $14,140 million. Walgreen’s 2010 net operating asset turnover is:

A) 3.2%

B) 6.96

C) 4.52

D) 4.64

E) There is not enough information to calculate the ratio.

31. In fiscal 2011, Microsoft Corp. reported a statutory tax rate of 35.0%, an effective tax rate of 17.53% and a tax rate on operating profit of 16.94%. The 2011 income statement reported income tax expense of $4,921 million. What did Microsoft report as income before income tax expense that year?

A) $14,060 million

B) $28,071 million

C) $29,050 million

D) $7,571 million

E) None of the above

32. Dow Chemical Corporation plans to build a laboratory dedicated to a special project. The company will not use the laboratory after the project is finished. Under GAAP, this laboratory should be:

A) Capitalized and depreciated.

B) Expensed in the current year.

C) Depreciated and expensed.

D) Capitalized only.

E) None of the above

33. At what amount will accounts receivable be reported on the balance sheet if the gross receivable balance is $20,000 and the allowance for uncollectible accounts is estimated at 15% of gross receivables?

A) $3,000

B) $23,000

C) $20,000

D) $17,000

34. The 2011 financial statements of BNSF Railway Company report total revenues of $19,548 million, accounts receivable of $1,189 million for 2011 and $955 million for 2010. The company’s accounts receivable turnover for the year is:

A) 16.4 days

B) 20.5 times

C) 18.2 days

D) 18.2 times

E) None of the above

35. Which of the following would not be considered an intangible asset?

A) Trademarks and internet domain names

B) Plant, Property, and Equipment

C) Patents, computer software, databases and trade secrets

D) Customer lists, production backlog, and customer contracts

E) None of the above

36. When equity method accounting is used for investment, which component of ROE would always be understated?

A) Net Profit Margin

B) Total Asset Turnover

C) Financial leverage

D) Return on Equity

E) None of the above

37. Wild Inc. receives a bill from Easton Inc. for $15,000. Easton has credit terms of 2/15, net 45. If Wild takes advantage of the discount, how much cash do they pay to Easton?

A) $15,300

B) $15,000

C) $14,700

D) $13,500

E) None of the above

38. Kirner Electric Corp. sells $100,000 of bonds to private investors. The bonds have an 8% coupon rate and interest is paid semiannually. The bonds were sold to yield 9%.

What periodic interest payment does Kirner make?

A) $16,000

B) $ 4,000

C) $ 8,000

D) $ 2,250

E) None of the above

39. Which of the following should not be included in accumulated other comprehensive income?

A) Minimum pension liability

B) Currency translation adjustment

C) Unrealized gains and losses on available-for-sale securities

D) Unrealized gains and losses on trading securities

E) None of the above

40. The equity carve-out in which the parent company distributes the subsidiary’s shares as a dividend to shareholders is called which of the following?

A) Sell-Off

B) Spin-Off

C) Split-Off

D) Stock Split

E) None of the above

41. Which of the following cost categories would most likely use the number of orders placed with suppliers as its allocation base?

A) Accounting

B) Maintenance and repairs

C) Personnel

D) Purchasing

42. Which of the following is not a benefit of just-in-time processing?

A) Control of significant inventory balances

B) Enhanced product quality

C) Reduction of rework costs

D) Production cost savings

43. From a value chain perspective, value is defined by which of the following?

A) Only the costs associated with producing a product

B) The amount of worth the final customer places on a product or service

C) All costs necessary to deliver a product or service to the end user.

D) All costs associated with the life of a product or service (including all upstream and downstream costs

44. World-class organizations operating in competitive markets are more likely to take which one of the following approaches toward pricing?

A) Begin with cost data as given and determine price by adding a reasonable mark-up.

B) Determine price based on the amount management believes customers are willing to pay.

C) Employ a cost-based approach to pricing.

D) Determine the price that keeps the facilities fully utilized

45. Evaluating plans and budgets in comparison with actual activities is directly related to:

A) Cost control

B) Planning

C) Financial analysis

D) Control

46. Budgets improve ____________________ and ____________________.

A) Communication; profits

B) Information; revenues

C) Revenues; profits

D) Communication; coordination

47. Both investment center and cost center managers are responsible for managing:

A) Revenues

B) Net income

C) Costs

D) Contribution margins

48. By using time and motion studies, it is possible to determine how long it takes to perform an activity. This information is often used to formulate:

A) Standard allowances for labor hours

B) Standard labor prices

C) Standard allowances for materials

D) Standard material prices

49. Costs that would not be incurred if the segment were discontinued are called:

A) Avoidable segment costs

B) Indirect segment costs

C) Variable segment costs

D) Both A and C

50. Which of the following would normally not be included in an investment center’s asset base?

A) Accounts receivable

B) Equipment

C) Land for a future plant site

D) Inventory

Part II: Multiple Choice 1.The process of selecting strategies to achieve goals is often referred to as:

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Part II: Multiple Choice

1.The process of selecting strategies to achieve goals is often referred to as:

A) Controlling

B) Organizing

C) Motivating

D) Planning

2. This is an organizational cost driver for a discount department store chain:

A) The decision to price lower than a key competitor

B) The decision to rearrange merchandise within a store

C) The decision to issue a purchase order for raw materials

D) The decision to sale product globally versus only domestically

3. Mary French uses gas to heat her home. She has accumulated the following information regarding her monthly gas bill and monthly heating degree-days. The heating degree-days value for a month is found by first subtracting the average temperature for each day from 65 degrees and then summing these daily amounts together for the month.

Month

Heating Degree-Days

Gas Bill

February

1,900

$195

April

600

$78

What will be the increase in Mary’s monthly gas bill per heating degree-day using the high-low method?

A) $ 0.09

B) $ 0.39

C) $ 46.00

D) $117.00

4. The following procedure performed by a dairy is the best example of a unit level activity within a manufacturing cost hierarchy:

A) Delivering dairy products to a grocery store

B) Filling milk into half-gallon cartons

C) Homogenizing milk in specially designed tanks

D) Receiving milk from farms

5. Rozella’s income statement is as follows:

Sales (10,000 units)

$120,000

Less variable costs

– 48,000

Contribution margin

$72,000

Less fixed costs

– 24,000

Net income

$ 48,000

What is the unit contribution margin?

A) $12.00

B) $ 7.20

C) $ 4.80

D) $ 2.40

6. George Company sells one product at a price of $20 per unit. Variable expenses are 40 percent of sales, and fixed expenses are $20,000. The sales dollars level required to break even are:

A) $ 2,500

B) $12,000

C) $33,333

D) $50,000

7. Which of the following statements is true when making a decision between two alternatives?

A) Fixed costs are never relevant.

B) Taxes are never relevant.

C) Variable costs may not be relevant when the decision alternatives have the same activity levels.

D) Variable costs are not relevant when the decision alternatives have different activity levels.

8. The point in the production process where joint products become separately identifiable is called:

A) The conversion point

B) The point of sale

C) The split-off point

D) The throughput point

9. The method of accounting for inventory that assigns all manufacturing costs to inventory is sometimes referred to as:

A) Prime costing

B) FIFO

C) The weighted average cost method

D) Absorption costing

10. Which of the following accounts increases when raw materials are used?

A) Finished Goods Inventory

B) Raw Materials Expense

C) Raw Materials Inventory

D) Work-in-Process Inventory

11. In an activity-based costing model, total costs assigned to cost objectives may include:

A) Only direct costs

B) Both direct costs and resource costs

C) Both activity costs and resource costs

D) Both direct costs and activity costs

12. Assume that total costs assigned to the setup activity cost pool in March are $80,000 and 100 setups were completed in March. Further, assume that during March machines were setup 20 times to make product X5. The total setup cost that would be assigned to product X5 would be:

A) $ 1,600

B) $ 16,000

C) $160,000

D) Cannot be determined

13. Check Company has two service departments whose direct department costs are $30,000 and $50,000, respectively, and two producing departments whose direct department costs are $320,000 and $300,000, respectively. The combined total department costs for the producing departments after allocating the service departments are:

A) $700,000

B) $830,000

C) $780,000

D) $130,000

14. Cycle time is comprised of each of the following components except:

A) Planning time

B) Set-up time

C) Waiting time

D) Inspection time

15. Which of the following is not a drawback to cost-based pricing?

A) Cost-based pricing requires accurate cost assignments.

B) The greater the portion of unassigned costs, the greater the likelihood of overpricing and underpricing individual products.

C) Cost-based pricing assumes goods or services are relatively scarce, and customers who want a product or service are, generally, willing to pay the price.

D) In a competitive environment, cost-based approaches increase the time and cost of bringing new products to market

16. Deb Burg is considering the production of a new line of jeans. Based on preliminary market research, management has decided that each pair of jeans should be priced at $160. Furthermore, management believes that the profit margin should be 30 percent of sales revenue. What is the target cost?

A) $ 32

B) $ 80

C) $112

D) $128

17.Which budgeting approach is widely used in government and non-profit organizations?

A) The continuous budgeting approach

B) The input/output approach

C) The incremental approach

D) Participation budgeting

18.All of the following are true of the sales budget except:

A) It contains a forecast of unit sales volume

B) It contains a forecast of sales dollars

C) It may contain a forecast of sales collections

D) It may contain a forecast of Kaizen activities

19. Which of the following departments would most likely be classified as a cost center in a large department store?

A) The men’s clothing department

B) The hardware department

C) The women’s shoe department

D) The accounting department

20. A flexible budget variance for a manufacturing cost is computed as the difference between:

A) Flexible budget costs and static budget costs

B) Actual costs and flexible budget costs

C) Departmental costs and cost center costs

D) Flexible budget costs and original budget costs

Part I: True/False 1. One of the companies to first employ a successful cost leadership strategy was Carnegie Steel Company.

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Part I: True/False

1. One of the companies to first employ a successful cost leadership strategy was Carnegie Steel Company.

2. The number of units sold is a better independent variable than square feet of all manufacturing facilities in estimating the cost function of a headphone manufacturer.

3. The break-even point for a company with multiple products cannot be determined using a unit contribution margin calculation since there are multiple products each of which has a different unit contribution margin.

4. Differential analysis is an approach to the analysis of relevant costs that focuses on the costs that differ under alternative actions

5. If costs are accurately estimated when establishing an annual predetermined overhead rate, there should never be an overapplied or underapplied overhead balance.

6. The plant-wide rate approach is the simplest to apply, but it is also the most costly to implement, compared to a departmental or activity-based cost allocation system.

7. Just-in-time strives to eliminate inventories by using a pull approach

8. Benchmarking is just a more elegant term for corporate espionage

9. All type of Operations budgeting emphasizes activities performed, rather than traditional expense categories?

10. Unfavorable materials quantity variances may be partially explained by unfavorable materials price variances

11. The balanced scorecard approach for evaluating managerial performance is designed to overcome the limits of single measure performance systems, such as ROI or EVA, by evaluating performance on several key dimensions.

12. A “clean” audit report asserts – among other things – that (a) the auditor has prepared all necessary financial statements and (b) management has expressed its opinion that they are prepared in conformity with GAAP.

13. According to the revenue recognition principle, companies are required to record revenue when cash is received as this provides the most objective evidence for the auditors.

14. To close revenue accounts, a company must debit Retained Earnings because Revenue has a credit balance and debits must equal credits.

15. Net operating asset turnover (NOAT) measures a company’s profitability.

16. When a company reports a deferred tax asset it means that the company will receive a tax benefit in the future.

17. LIFO inventory costing yields more accurate reporting of the inventory balance on the balance sheet.

18. Fair-value changes in available-for-sale investments are recognized in the income statement as unrealized gains or losses.

19. A bond selling for an amount above face value is said to be selling at a discount.

20. A stock split is a monetary transaction. Consequently, a company that splits its stock must make several financial statement adjustments

21. The purpose of cost assignment is to match costs in a common cost pool to cost objectives

22. Target costing is generally more beneficial with products that have a short life cycle, rather than a long life cycle

23. The traditional justifications of budgeting include improved communications, improved planning, and improved sales.

24. A labor efficiency variance results from the inefficient use of labor quantity to produce a given amount of product or service

25. In the short run, the best profitability number for deciding the impact of discontinuing a segment is segment margin.

16-6 Snider Industries sells on terms of 2/10, net 45. Total sales for the year are $1,500,000. Thirty percent of customers pay on the 10th day and take discounts; the other 70% pay, on average, 50 days after their purchases. a. What is the days sales outstanding?

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16-6 Snider Industries sells on terms of 2/10, net 45. Total sales for the year are $1,500,000. Thirty percent of customers pay on the 10th day and take discounts; the other 70% pay, on average, 50 days after their purchases.
a. What is the days sales outstanding?
b. What is the average amount of receivables?
c. What would happen to average receivables if Snider toughened its collection policy with the result that all nondiscount customers paid on the 45th day?

(16-10) The D.J. Masson Corporation needs to raise $500,000 for 1 year to supply working capital to a new store. Masson buys from its suppliers on terms of 3/10, net 90, and it currently pays on the 10th day and takes discounts. However, it could forgo the discounts, pay on the 90th day, and thereby obtain the needed $500,000 in the form of costly trade credit.
What is the effective annual interest rate of this trade credit?

(16-11) Negus Enterprises has an inventory conversion period of 50 days, an average collection period of 35 days, and a payables deferral period of 25 days. Assume that cost of goods sold is 80% of sales.
a. What is the length of the firm’s cash conversion cycle?
b. If Negus’s annual sales are $4,380,000 and all sales are on credit, what is the firm’s investment in accounts receivable?
c. How many times per year does Negus Enterprises turn over its inventory?

(16-12) Strickler Technology is considering changes in its working capital policies to improve its cash flow cycle. Strickler’s sales last year were $3,250,000 (all on credit), and its net profit margin was 7%. Its inventory turnover was 6.0 times during the year, and its DSO was 41 days. Its annual cost of goods sold was $1,800,000. The firm had fixed assets totaling $535,000. Strickler’s payables deferral period is 45 days.
a. Calculate Strickler’s cash conversion cycle.
b. Assuming Strickler holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA.
c. Suppose Strickler’s managers believe the annual inventory turnover can be raised to 9 times without affecting sales.What would Strickler’s cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9 for the year?

(16-16) The Thompson Corporation projects an increase in sales from $1.5 million to $2 million, but it needs an additional $300,000 of current assets to support this expansion. Thompson can finance the expansion by no longer taking discounts, thus increasing accounts payable. Thompson purchases under terms of 2/10, net 30, but it can delay payment for an additional 35 days—paying in 65 days and thus becoming 35 days past due—without apenalty because its suppliers currently have excess capacity. What is the effective, or equivalent, annual cost of the trade credit?

1 Chapman Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new machine press for $576,000 is estimated to result in $192,000 in annual pretax cost savings. The press falls in the MACRS 5-year class, and it will have a salvage value at the end of the project of $84,000. The press also requires an initial investment in spare parts inventory of $24,000, along with an additional $3,600 in inventory for each succeeding year of the project. The inventory will return to its original level when the project ends. The shop’s tax rate is 35 percent and its discount rate is 11 percent. Using the NPV decision rule should the firm buy and install the machine press?

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1 Chapman Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new machine press for $576,000 is estimated to result in $192,000 in annual pretax cost savings. The press falls in the MACRS 5-year class, and it will have a salvage value at the end of the project of $84,000. The press also requires an initial investment in spare parts inventory of $24,000, along with an additional $3,600 in inventory for each succeeding year of the project. The inventory will return to its original level when the project ends. The shop’s tax rate is 35 percent and its discount rate is 11 percent. Using the NPV decision rule should the firm buy and install the machine press?

2 Heer Enterprises needs someone to supply it with 225,000 cartons of machine screws per

year to support its manufacturing needs over the next 7 years, and you’ve decided to bid on the contract. It will cost you $1,170,000 to install the equipment necessary to start production; you’ll depreciate this cost straight-line to zero over the project’s life. You estimate that in 7 years, this equipment can be salvaged for $75,000. Your fixed production costs will be $360,000 per year, and your variable production costs should be $12.75 per carton. You also need an initial investment in net working capital of $112,500, all of which will be recovered when the project ends. Your tax rate is 32 percent and you require a 13 percent return on your investment. What bid price per carton should you submit?

3 ABC Inc. is considering a new 4-year expansion project that requires an initial fixed asset investment of $3 million. The fixed asset will be depreciated straight-line to zero over its 4-year tax life, after which time it will have a market value of $231,000. The project requires an initial investment in net working capital of $330,000, all of which will be recovered at the end of the project. The project is estimated to generate $2,640,000 in annual sales, with costs of $1,056,000. The tax rate is 31 percent and the required return for the project is 15 percent. What is the net present value for this project?

4 You are working on a bid to build two city parks a year for the next three years. This project requires the purchase of $180,000 of equipment that will be depreciated using straight-line depreciation to a zero book value over the 3-year project life. The equipment can be sold at the end of the project for $34,000. You will also need $20,000 in net working capital for the duration of the project. The fixed costs will be $16,000 a year and the variable costs will be $168,000 per park. Your required rate of return is 15 percent and your tax rate is 34 percent. What is the minimal amount you should bid per park? (Round your answer to the nearest $100)

5 Webster & Moore paid $139,000, in cash, for a piece of equipment 3 years ago. At the beginning of last year, the company spent $21,000 to update the equipment with the latest technology. The company no longer uses this equipment in its current operations and has received an offer of $89,000 from a firm that would like to purchase it. Webster & Moore is debating whether to sell the equipment or to expand its operations so that the equipment can be used. When evaluating the expansion option, what value, if any, should the firm assign to this equipment as an initial cost of the project?

6 The Fluffy Feather sells customized handbags. Currently, it sells 18,000 handbags annually at an average price of $89 each. It is considering adding a lower-priced line of handbags that sell for $59 each. The firm estimates it can sell 7,000 of the lower-priced handbags but will sell 3,000 less of the higher-priced handbags by doing so. What is the amount of the sales that should be used when evaluating the addition of the lower-priced handbags?

7 Mason Farms purchased a building for $729,000 eight years ago. Six years ago, repairs were made to the building which cost $136,000. The annual taxes on the property are $11,000. The building has a current market value of $825,000 and a current book value of $494,000. The building is totally paid for and solely owned by the firm. If the company decides to use this building for a new project, what value, if any, should be included in the initial cash flow of the project for this building?

8 We are evaluating a project that costs $854,000, has a 15-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 154,000 units per year. Price per unit is $41, variable cost per unit is $20, and fixed costs are $865,102 per year. The tax rate is 33 percent, and we require a 14 percent return on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within ±14 percent. What is the worst-case NPV?

9 Last year, T-bills returned 2 percent while your investment in large-company stocks earned an average of 5 percent. Which one of the following terms refers to the difference between these two rates of return?
A. risk premium
B. geometric return
C. arithmetic
D. standard deviation
E. variance

10 Which one of the following best defines the variance of an investment’s annual returns over a number of years?
A. The average squared difference between the arithmetic and the geometric average annual returns.
B. The squared summation of the differences between the actual returns and the average geometric return.
C. The average difference between the annual returns and the average return for the period.
D. The difference between the arithmetic average and the geometric average return for the period.
E. The average squared difference between the actual returns and the arithmetic average return.

11 Standard deviation is a measure of which one of the following?
A. average rate of return
B. volatility
C. probability
D. risk premium
E. real returns

12 Which one of the following is defined by its mean and its standard deviation?
A. arithmetic nominal return
B. geometric real return
C. normal distribution
D. variance
E. risk premium

13 One year ago, you purchased a stock at a price of $32.16. The stock pays quarterly dividends of $0.20 per share. Today, the stock is selling for $28.20 per share. What is your capital gain on this investment?
A. -$4.16
B. -$3.96
C. -$3.76
D. -$3.16
E. -$2.96

14 Six months ago, you purchased 100 shares of stock in Global Trading at a price of $38.70 a share. The stock pays a quarterly dividend of $0.15 a share. Today, you sold all of your shares for $40.10 per share. What is the total amount of your dividend income on this investment?
A. $15
B. $30
C. $45
D. $50
E. $60

15 A year ago, you purchased 400 shares of Stellar Wood Products, Inc. stock at a price of $8.62 per share. The stock pays an annual dividend of $0.10 per share. Today, you sold all of your shares for $4.80 per share. What is your total dollar return on this investment?
A. -$382
B. -$372
C. -$1,528
D. -$1,488
E. -$1,360

16 You own 400 shares of Western Feed Mills stock valued at $51.20 per share. What is the dividend yield if your annual dividend income is $352?
A. 1.68 percent
B. 1.72 percent
C. 1.83 percent
D. 1.13 percent
E. 1.21 percent

17 West Wind Tours stock is currently selling for $48 a share. The stock has a dividend yield of 2.6 percent. How much dividend income will you receive per year if you purchase 200 shares of this stock?
A. $24.96
B. $36.20
C. $124.80
D. $362.00
E. $249.60

18 One year ago, you purchased a stock at a price of $47.50 a share. Today, you sold the

stock and realized a total loss of 22.11 percent. Your capital gain was -$12.70 a share. What was your dividend yield?
A. 4.63 percent
B. 4.88 percent
C. 5.02 percent
D. 12.67 percent
E. 14.38 percent

19 You just sold 600 shares of Wesley, Inc. stock at a price of $31.09 a share. Last year, you paid $30.92 a share to buy this stock. Over the course of the year, you received dividends totaling $1.20 per share. What is your total capital gain on this investment?
A. -$618
B. -$102
C. $102
D. $618
E. $720

20 Last year, you purchased 500 shares of Analog Devices, Inc. stock for $11.16 a share. You have received a total of $120 in dividends and $7,190 from selling the shares. What is your capital gains yield on this stock?
A. 26.70 percent
B. 26.73 percent
C. 28.85 percent
D. 29.13 percent
E. 31.02 percent

21 Today, you sold 200 shares of Indian River Produce stock. Your total return on these shares is 5.65 percent. You purchased the shares one year ago at a price of $31.10 a share. You have received a total of $100 in dividends over the course of the year. What is your capital gains yield on this investment?
A. 3.68 percent
B. 4.04 percent
C. 5.67 percent
D. 7.26 percent
E. 7.41 percent

22 Using the data below find the correlation between the following stocks A and B.

Find the Beta of A and Beta of B

Stock A

Stock B

Market

2010

10%

9%

8%

2011

12%

8%

12%

2012

14%

15%

10%

2013

16%

24%

14%