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Exam: 061684RR - THE IMPACT OF MANAGEMENT

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Question;Exam: 061684RR - THE IMPACT OF MANAGEMENT When you have completed your exam and reviewed your answers, click Submit Exam. Answers will not be recorded until you hit Submit Exam. If you need to exit before completing the exam, click Cancel Exam. 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: 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? 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 5.50A. $39.15 per unitB. $15.50 per minuteC. $78.65 per unitD. $13.50 per minute 2. A project profitability index greater than zero for a project indicates thatA. 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 wouldA. 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) 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. Year 2 Year 1 Current assets: Cash and marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Noncurrent assets: Plant & equipment, net $180 210 130 50 570 1,540 $180 180 120 50 530 1,480 Total assets $2,110 $2,010Current 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 $100 60 90 250 480 730 120 180 240 840 1,380 $2,110 $130 60 120 310 500 810 120 180 240 660 1,200 $2,010Larkins Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands)Sales (all on account) Cost of goods sold Gross margin Selling and administrative expense Net operating income Interest expense Net income before taxes Income taxes (30%) Net income$2,760 1,930 830 330 500 50 450 135 $315 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 Balance Beginning BalanceAssets: Cash and cash equivalents Accounts receivable Inventory Plant and equipment Less accumulated depreciation Total assets $43 53 73 582 301 $450 $35 59 69 490 286 $367Liabilities and stockholders' equity Accounts payable Wages payable Taxes payable Bonds payable Deferred taxes Common stock Retained earnings Total liabilities and stockholders' equity $57 21 15 21 20 55 261 $450 $48 18 13 20 21 50 197 $367Income 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 wasA. $77.B. $92.C. ($92).D. ($77). 6. (Ignore income taxes in this problem.) The following data pertain to an investment: The net present value of the proposed investment isCost of the investment $18,955 Life of the project 5 years Annual cost savings $5,000 Estimated salvage value $1,000 Discount rate 10% 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: 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 toPurchase cost $50,000 Annual cost savings $15,000 Life of the machine 8 years 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 beA. $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 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. Accounts receivable, net Inventory Prepaid expenses Total current assets Noncurrent assets: Plant & equipment, net210 130 50 570 1,540 180 120 50 530 1,480 Total assets $2,110 $2,010Current 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 $100 60 90 250 480 730 120 180 240 840 1,380 $2,110 $130 60 120 310 500 810 120 180 240 660 1,200 $2,010Larkins Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands)Sales (all on account) Cost of goods sold Gross margin Selling and administrative expense Net operating income Interest expense Net income before taxes Income taxes (30%) Net income$2,760 1,930 830 330 500 50 450 135 $315 10. Larkins Company's price-earnings ratio on December 31, Year 2 was closest to:A. 8.91B. 6.00C. 8.57D. 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 BalanceAssets: Cash and cash equivalents Accounts receivable Inventory Plant and equipment Less accumulated depreciation Total assets $43 53 73 582 301 $450 $35 59 69 490 286 $367Liabilities and stockholders' equity Accounts payable Wages payable Taxes payable Bonds payable Deferred taxes Common stock Retained earnings Total liabilities and stockholders' equity $57 21 15 21 20 55 261 $450 $48 18 13 20 21 50 197 $367Income 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 wasA. $112.B. $30.C. $52.D. $117. 12. Fonics Corporation is considering the following three competing investment proposals: Using the project profitability index, how would the above investments be ranked (highest to lowest)? 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%A. Aye, Cee, BeeB. Aye, Bee, CeeC. Cee, Bee, AyeD. 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. $11,900B. -$1,400C. -$20,900D. -$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 Accounts receivable, net Inventory Prepaid expenses Total current assets Noncurrent assets: Plant & equipment, net $180 210 130 50 570 1,540 $180 180 120 50 530 1,480 Total assets $2,110 $2,010Current 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 $100 60 90 250 480 730 120 180 240 840 1,380 $2,110 $130 60 120 310 500 810 120 180 240 660 1,200 $2,010Larkins Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands)Sales (all on account) Cost of goods sold $2,760 1,930 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. Gross margin Selling and administrative expense Net operating income Interest expense Net income before taxes Income taxes (30%) Net income830 330 500 50 450 135 $315 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 companyB. Interest received on investments in another company's bondsC. Dividends paid to shareholders of the company on the company's common stockD. 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 itA. implicitly assumes that the company is able to reinvest cash flows from the project at the internal rate of return.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. 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 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) loss) should be aA. $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: Assuming that the cash inflows occur evenly over the year, the payback period for the investment is _______ years.Year Cash Inflows 1 $120,000 2 60,000 3 40,000 4 40,000 5 40,000 Total $300,000 A. 0.75B. 2.50C. 4.91D. 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 BalanceAssets: Cash and cash equivalents Accounts receivable Inventory Plant and equipment Less accumulated depreciation Total assets $43 53 73 582 301 $450 $35 59 69 490 286 $367Liabilities and stockholders' equity Accounts payable Wages payable Taxes payable Bonds payable Deferred taxes Common stock Retained earnings Total liabilities and stockholders' equity $57 21 15 21 20 55 261 $450 $48 18 13 20 21 50 197 $367Cash dividends were $18. 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 $8219. The net cash provided by (used by) financing activities for the year wasA. ($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 Accounts receivable, net Inventory Prepaid expenses Total current assets Noncurrent assets: Plant & equipment, net $180 210 130 50 570 1,540 $180 180 120 50 530 1,480 Total assets $2,110 $2,010Current 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 $100 60 90 250 480 730 120 180 240 840 $130 60 120 310 500 810 120 180 240 660 End of exam 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' equity1,380 $2,1101,200 $2,010Larkins Company Income Statement For the Year Ended December 31, Year 2 (dollars in thousands)Sales (all on account) Cost of goods sold Gross margin Selling and administrative expense Net operating income Interest expense Net income before taxes Income taxes (30%) Net income$2,760 1,930 830 330 500 50 450 135 $315 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.

 

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