Question 2
Chapter 5 #57. There are 100 employees at Kiddie Carts International. Fifty-seven of the employees are production workers, 40 are supervisors, 2 are secretaries, and the remaining employee is the president. Suppose an employee is selected: a. What is the probability the selected employee is a production worker? b. What is the probability the selected employee is either a production worker or a supervisor? c. Refer to part (b). Are these events mutually exclusive? d. What is the probability the selected employee is neither a production worker nor a supervisor? Chapter 6 #63. A study of the checkout lines at the Safeway Supermarket in the South Strand area revealed that between 4 and 7 P.M. on weekdays there is an average of four customers waiting in line. What is the probability that you visit Safeway today during this period and find: a. No customers are waiting? b. Four customers are waiting? c. Four or fewer are waiting? d. Four or more are waiting? Chapter 8 #38. The mean amount purchased by a typical customer at Churchill?s Grocery Store is $23.50 with a standard deviation of $5.00. Assume the distribution of amounts purchased follows the normal distribution. For a sample of 50 customers, answer the following questions. a. What is the likelihood the sample mean is at least $25.00? b. What is the likelihood the sample mean is greater than $22.50 but less than $25.00? c. Within what limits will 90 percent of the sample means occur? Chapter 9 #54. Families USA, a monthly magazine that discusses issues related to health and health costs, surveyed 20 of its subscribers. It found that the annual health insurance premiums for a family with coverage through an employer averaged $10,979. The standard deviation of the sample was $1,000. a. Based on this sample information, develop a 90 percent confidence interval for the population mean yearly premium. b. How large a sample is needed to find the population mean within $250 at 99 percent confidence? Chapter 10 #42. During recent seasons, Major League Baseball has been criticized for the length of the games. A report indicated that the average game lasts 3 hours and 30 minutes. A sample of 17 games revealed the following times to completion. (Note that the minutes have been changed to fractions of hours, so that a game that lasted 2 hours and 24 minutes is reported at 2.40 hours.) 2.98 2.40 2.70 2.25 3.23 3.17 2.93 3.18 2.80 2.38 3.75 3.20 3.27 2.52 2.58 4.45 2.45 Can we conclude that the mean time for a game is less than 3.50 hours? Use the .05 significance level. 58. The amount of income spent on housing is an important component of the cost of living. The total costs of housing for homeowners might include mortgage payments, property taxes, and utility costs (water, heat, electricity). An economist selected a sample of 20 homeowners in New England and then calculated these total housing costs as a percent of monthly income, five years ago and now. The information is reported below. Is it reasonable to conclude the percent is less now than five years ago? Homeowner Five Years Ago Now Homeowner Five Years Ago Now 1 17% 10% 11 35% 32% 2 20 39 12 16 32 3 29 37 13 23 21 4 43 27 14 33 12 5 36 12 15 44 40 6 43 41 16 44 42 7 45 24 17 28 22 8 19 26 18 29 19 9 49 28 19 39 35 10 49 26 20 22 12 Chapter 12 #42. Martin Motors has in stock three cars of the same make and model. The president would like to compare the gas consumption of the three cars (labeled car A, car B, and car C) using four different types of gasoline. For each trial, a gallon of gasoline was added to an empty tank, and the car was driven until it ran out of gas. The following table shows the number of miles driven in each trial Distance (miles) Types of Gasoline Car A Car B Car C Regular 22.4 20.8 21.5 Super regular 17.0 19.4 20.7 Unleaded 19.2 20.2 21.2 Premium unleaded 20.3 18.6 20.4 Using the .05 level of significance: a. Is there a difference among types of gasoline? b. Is there a difference in the cars? Chapter 13 #37. A regional commuter airline selected a random sample of 25 flights and found that the correlation between the number of passengers and the total weight, in pounds, of luggage stored in the luggage compartment is 0.94. Using the .05 significance level, can we conclude that there is a positive association between the two variables? #40. A suburban hotel derives its gross income from its hotel and restaurant operations. The owners are interested in the relationship between the number of rooms occupied on a nightly basis and the revenue per day in the restaurant. Below is a sample of 25 days (Monday through Thursday) from last year showing the restaurant income and number of rooms occupied. Day Income Occupied Day Income Occupied 1 $1,452 23 14 $1,425 27 2 1,361 47 15 1,445 34 3 1,426 21 16 1,439 15 4 1,470 39 17 1,348 19 5 1,456 37 18 1,450 38 6 1,430 29 19 1,431 44 7 1,354 23 20 1,446 47 8 1,442 44 21 1,485 43 9 1,394 45 22 1,405 38 10 1,459 16 23 1,461 51 11 1,399 30 24 1,490 61 12 1,458 42 25 1,426 39 13 1,537 54 Use a statistical software package to answer the following questions. a. Does the breakfast revenue seem to increase as the number of occupied rooms increases? Draw a scatter diagram to support your conclusion. b. Determine the coefficient of correlation between the two variables. Interpret the value. c. Is it reasonable to conclude that there is a positive relationship between revenue and occupied rooms? Use the .10 significance level. d. What percent of the variation in revenue in the restaurant is accounted for by the number of rooms occupied? Chapter 14 #17. The district manager of Jasons, a large discount electronics chain, is investigating why certain stores in her region are performing better than others. She believes that three factors are related to total sales: the number of competitors in the region, the population in the surrounding area, and the amount spent on advertising. From her district, consisting of several hundred stores, she selects a random sample of 30 stores. For each store she gathered the following information: y= total sales last year (in $ thousands) x1 = number of competitors in the region x2= population in the region(in millions) x3= advertising expense (in $ thousands) The sample data were run on MINITAB, with the following results. Analysis of variance SOURCE DF SS MS Regression 3 3050.00 1016.67 Error 26 2200.00 84.62 Total 29 5250.00 Predictor Coef StDev t-ratio Constant 14.00 7.00 2.00 X1 _1.00 0.70 _1.43 X2 30.00 5.20 5.77 X3 0.20 0.08 2.50 a. What are the estimated sales for the Bryne store, which has four competitors, a regional population of 0.4 (400,000), and advertising expense of 30 ($30,000)? b. Compute the R square value. c. Compute the multiple standard error of estimate. d. Conduct a global test of hypothesis to determine whether any of the regression coefficients are not equal to zero. Use the .05 level of significance. e. Conduct tests of hypotheses to determine which of the independent variables have significant regression coefficients. Which variables would you consider eliminating? Use the .05 significance level. Chapter 17 22. Banner Mattress and Furniture Company wishes to study the number of credit applications received per day for the last 300 days. The information is reported on the next page. Number of Credit Frequency Applications (Number of Days) 0 50 1 77 2 81 3 48 4 31 5 or more 13 To interpret, there were 50 days on which no credit applications were received, 77 days on which only one application was received, and so on. Would it be reasonable to conclude that the population distribution is Poisson with a mean of 2.0? Use the .05 significance level. Hint: To find the expected frequencies use the Poisson distribution with a mean of 2.0. Find the probability of exactly one success given a Poisson distribution with a mean of 2.0. Multiply this probability by 300 to find the expected frequency for the number of days in which there was exactly one application. Determine the expected frequency for the other days in a similar manner
Question 3
1. In 2013, Justin invested $20,000 in a cattle-feeding partnership that used nonrecourse notes to purchase $100,000 of feed, which was used to feed the cattle and expensed. If Justin?s share of the expense was $30,000, what is the most that Justin can deduct in 2013? a. $10,000 b. $20,000 c. $30,000 d. $100,000 2. Joyce, a corporate executive, exercised an incentive stock option (?ISO?) granted by Joyce?s employer to purchase 10,000 shares of the corporation?s stock at the option price of $1 per share (i.e., the exercise price was $1 per share). The stock is freely transferable. At the time the option was exercised, the stock was selling for $6 per share. What is the AMT adjustment that results from Joyce exercising the ISO (assume that Joyce will NOT dispose of any of the stock during the year)? a. $0 b. $10,000 c. $50,000 d. $60,000 3. Juna, a single parent, lives in an apartment with Juna?s ONE minor children (Jennifer), whom Juna supports. For 2013, Juna will have AGI and earned income of $20,000. Calculate the amount, if any, of Juna?s earned income credit. a. $3,250 b. $2,855 c. $1,000 d. $0 4. Carlos and Cassandra are married and file a joint return. In 2013, Cassandra worked fulltime and earned $15,000, while Carlos worked fulltime and earned $13,000. Assume their 2013 AGI equaled $28,000. Assume they incurred $9,000 of child care expenses during 2013 for their TWO dependent children, Jacqueline and Porshia (who are 5 years old and 7 years old, respectively). What is their child and dependent care CREDIT amount? a. $1,680 b. $2,000 c. $6,000 d. $9,000 5. In 2006, Alicia received stock from Batista worth $50,000 at the time of the GIFT. At the time of the gift, Batista?s adjusted basis in the stock was $75,000. What is the gain or loss that Alicia should report for 2013 if she sold the stock to Sandra in 2013 for $100,000 (ignore any gift tax that may have been paid on the transfer from Batista to Alicia)? a. There is no gain or loss b. $100,000 gain c. $50,000 gain d. $25,000 gain 6. Now, assume that in the previous question Alicia sold the stock to Sandra for $65,000 (instead of $100,000). What is the gain or loss that Alicia should report (again, ignore any gift tax that may have been paid on the transfer from Batista to Alicia)? a. There is no gain or loss b. $65,000 gain c. $15,000 gain d. $10,000 loss 7. Now, assume that in Question 5 Alicia sold the stock to Sandra for $25,000 (instead of $100,000). What is the gain or loss that Alicia realized on the sale to Sandra (again, ignore any gift tax that may have been paid on the transfer from Batista to Alicia)? a. There is no gain or loss b. $25,000 loss c. $50,000 loss d. $25,000 gain 8. Anthony traded in office equipment with an adjusted basis of $40,000 (and value of $50,000) for other (like-kind) office equipment then valued at $35,000. Anthony also received $15,000 in cash as part of the deal. What was Anthony?s recognized gain on the exchange, if any? a. $0 b. $10,000 c. $15,000 d. $50,000 9. Mohammed traded in computer equipment with an adjusted basis of $50,000 (and a value of $50,000) for other (like-kind) computer equipment then valued at $30,000. Mohammed also received $20,000 in cash as part of the deal. What was Mohammed?s realized gain on the exchange, if any? a. $0 b. $20,000 c. $30,000 d. $50,000 10. In 2013, Ann and Kevin sold a house to Pharlande for $1,600,000. Prior the 2013 sale, neither Ann nor Kevin had ever excluded a gain from the sale of a personal residence. Ann and Kevin had lived in the house for the last five years and used it exclusively for personal purposes. Ann and Kevin had purchased the house for $300,000. Ann and Kevin started living in the house immediately after purchasing it and never made any capital improvements to the house or took any depreciation (or other deductions) against it. Assume there were no selling expenses. How much of a gain did Ann and Kevin realize on the sale to Pharlande (assume that Ann and Kevin are married and file a joint return)? a. $1,300,000 b. $800,000 c. $500,000 d. $0 11. Assume the facts stated in the previous question. How much of a gain must Ann and Kevin recognize on the sale to Pharlande? a. $1,300,000 b. $800,000 c. $500,000 d. $0 12. In 2013, Abena will have taxable income of approximately $80,000. In 2013, Abena will also have a long-term capital loss of $12,000. Abena has no other capital gains or losses (in 2013 or prior years). For 2013, what is the maximum capital loss amount that Abena may use to offset her other income? a. $0 b. $3,000 c. $9,000 d. $12,000 13. Assume the facts stated in the prior question. Assume further that for 2013 Abena offset her wages (with her capital loss) to the maximum extent permitted by law. What is the amount of Abena?s capital loss carryover to 2014? a. $0 b. $3,000 c. $9,000 d. $12,000 14. Carlita is a single taxpayer in the 15% tax bracket. Carlita wants to minimize her 2013 tax liability. Which of the following provides the LARGEST tax benefit to Carlita (assume that she may legally take advantage of each item in its entirety for 2013)? a. A $5,000 exclusion from gross income. b. A $5,000 deduction from gross income. c. A $1,500 tax credit. d. Options ?a? and ?b? would provide the largest tax benefits. 15. What was the MAXIMUM EARNED INCOME CREDIT amount that Chase and Daenne could possibly take for 2013? Assume they are U.S. taxpayers filing a joint return with TWO qualifying children. a. $6,000 b. $5,372 c. $2,100 d. $2,000 16. Which item MOST resembles an interest free loan from the U.S. government? a. The earned income credit b. The American Opportunity tax credit c. The child tax credit d. First-time homebuyer credit for a closing that occurred in June of 2008 17. In early 2013, Ami sold her personal residence to Alan for $200,000. At the time of the sale, Ami?s adjusted basis was $100,000. Within three months of the sale, Ami moved into a new residence she purchased for $650,000. What is Ami?s basis in her new residence? a. $650,000 b. $550,000 c. $400,000 d. $300,000 18. Which of the following is TRUE? a. When compared to exclusions, deferrals are more temporary in nature b. When compared to deferrals, exclusions are more temporary in nature c. Section 1031 provides for an elective deferral upon certain exchanges d. All of the above 19. Kristine?s business property (located in Rewal Town USA) was condemned by the proper local authorities. Immediately before the condemnation, the property had a fair market value of $500,000 and Kristine?s adjusted basis in the property was $200,000. The local authorities replaced Kristine?s condemned property with similar Rewal Town property having a fair market value of $400,000. What is Kristine?s realized gain or loss relating to these matters? a. Loss of $100,000 b. Gain of $200,000 c. Gain of $400,000 d. $0 20. Assume the facts stated in the prior question. What is Kristine?s recognized gain or loss relating to such matters? a. Loss of $100,000 b. Gain of $200,000 c. Gain of $400,000 d. $0 21. Assume the facts stated in the prior two questions. What is Kristine?s basis in the Rewal Town property she received as a result of the condemnation (i.e., what is Kristine?s basis in the newly acquired property)? a. $500,000 b. $400,000 c. $200,000 d. $0 22. In 2013, Janice and Greg sold a house to Femi for $400,000. Janice and Greg had purchased the house for $1,000,000 in 2004 (during the real estate boom). Janice and Greg started living in the house immediately after purchasing it and never made any capital improvements to it or took any depreciation (or other deductions) against it. Assume there were no selling expenses. How much of a LOSS may Janice and Greg recognize on the sale to Femi (assume that Janice and Greg are married and file a joint return and itemize deductions)? a. $600,000 b. $600,000 less 10% of their AGI c. $400,000 less 10% of their AGI d. $0 23. Juliana purchased land for $200,000 in 1989. The land was valued at $500,000 on July 1, 2013, when Juliana died. Juliana?s son Jason inherited the land. What basis would Jason have in the land as a result of the inheritance? a. $0 b. $200,000 c. $500,000 d. Juliana?s adjusted basis on July 1, 2013 (if different than $200,000) 24. Assume the same facts stated in the previous question. Which of the following is most likely TRUE, if Jason sold the land in October 2013 for $600,000? a. Jason?s 2013 gain is long-term b. Jason?s 2013 gain is short-term c. In 2013, Jason should ?recapture? any depreciation previously taken by Juliana on the land d. In 2013, Jason will be taxed on the appreciation that occurred while Juliana held the land (provided that such appreciation was previously not taxed) 25. Which of the following statements is most likely TRUE for Charles (a typical individual taxpayer in the 35% tax bracket)? a. Charles usually prefers ordinary losses to capital losses b. Charles usually prefers ordinary income to long-term capital gains c. Charles usually prefers a $1,500 deduction to a $1,250 credit d. All of the above 26. Holman, who owns and operates an ICE CREAM SHOP as a sole proprietor, has the following property: ? STOCKS held for Holman?s investment ? Elaborate ice cream making EQUIPMENT that was inherited from Lakesha (Holman?s grandmother) (it is used exclusively in the ICE CREAM SHOP) ? CHAIRS that are used exclusively in Holman?s home ? a COMPUTER used exclusively in the ICE CREAM SHOP Considering the above items, which option below lists the capital asset(s) under Section 1221? a. Only the STOCKS b. Only the STOCKS & CHAIRS c. Only the EQUIPMENT, CHAIRS & COMPUTER d. Each of the above assets is a capital asset under Section 1221 27. Jonathan recently purchased a piece of land, a building and a truck for a lump sum of $500,000. The fair market value of the land was $190,000, the fair market value of the building was $400,000, and the fair market value of the truck was $10,000. What is Jonathan?s basis in the TRUCK? a. $0 b. $8,333 c. $10,000 d. $166,667 28. On September 5, 2007, Fernando paid $5,500 for 100 shares of TXX-5761 Inc. common stock. On June 13, 2013, Fernando received a nontaxable 10% common stock dividend (i.e., 10 additional shares of identical common stock). On June 13, 2013, TXX-5761 Inc. the common stock was trading on the market for $60 a share. On November 15, 2013, Fernando sold the 10 shares he received on June 13, 2013 to Yuri. What is the basis of the 10 shares Fernando sold to Yuri? a. $0 b. $500 ($50 x 10) c. $550 ($55 x 10) d. $600 ($60 x 10) 29. Refer to the facts stated in the prior question. The gain or loss resulting from the November 15, 2013 sale to Yuri will most likely be: a. Short-term b. Long-term c. Both short-term and long-term d. Neither short-term nor long-term 30. In 2013, Lakesha sold a piece of equipment from Lakesha?s business for $200,000. The equipment was purchased in 2009 for $120,000. It had a useful life of five years and was depreciated on a straight-line basis. Assume total of $84,000 depreciation was taken (prior to the sale). What is Lakesha?s recognized gain on the sale? a. $200,000 b. $164,000 c. $84,000 d. $80,000 31. Refer to the facts stated in the prior question. What amount of the gain will be recaptured at Lakesha?s ordinary income rate? a. $200,000 b. $164,000 c. $84,000 d. $80,000 32. Refer to the facts stated in the prior two questions. What amount of the gain will be treated as Section 1231 gain and (possibly) taxed at the long-term capital gain rate? a. $200,000 b. $164,000 c. $84,000 d. $80,000 33. Which of the following is most likely Section 1231 property (assume that each item has been held long-term and is used in a trade or business)? a. Section 1245 property b. Section 1250 property c. Land d. Each of the above items is Section 1231 property 34. Which of the following is most likely Section 1245 property (assume that each item has been held long-term and is used in a trade or business)? a. Inventory b. Office building c. Office equipment d. Land 35. Which of the following would MOST LIKELY require an adjustment for the alternative minimum tax? a. A casualty loss deduction b. A deduction for state income taxes c. A charitable contribution deduction d. Each of the above items requires an adjustment for the alternative minimum tax 36. Mustufa was at risk for $25,000 in Partnership X and $25,000 in Partnership Z on January 1, 2013. Both partnerships are passive activities to Mustufa (these are Mustufa?s only passive activities). Mustufa?s share of net income from Partnership X during 2013 is $10,000. Mustufa?s share of losses from Partnership Z during 2013 is $40,000. How much is Mustufa at risk for Partnership X on January 1, 2014? a. $35,000 b. $25,000 c. $10,000 d. $0 37. Refer to the facts in the previous question. How much is Mustufa at risk for Partnership Z on January 1, 2014 a. $65,000 b. $40,000 c. $15,000 d. $0 38. Refer to the facts in the previous questions. What is Mustufa?s carryover under the at-risk rules for Partnership Z in 2013? a. $65,000 b. $40,000 c. $15,000 d. $0 39. Refer to the facts in the previous question. What is Mustufa?s deductible loss for Partnership Z in 2013? a. $40,000 b. $25,000 c. $10,000 d. $0 40. Refer to the facts in the previous question. What is Mustufa?s suspended loss under the passive loss rules for Partnership Z in 2013? a. $40,000 b. $25,000 c. $15,000 d. $0 41. In 2013, Dennis invested in the BERNARDO Limited Partnership (?BERNARDO L.P.?) by paying $75,000 cash and contributing additional assets worth $50,000 (and having a basis equal to $25,000 on the date of the contribution). What amount did Dennis have at risk in BERNARDO L.P. as of January 1, 2014, if BERNARDO L.P. broke even in 2013 (i.e., if BERNARDO L.P. had no income or loss in 2013)? a. $150,000 b. $125,000 c. $100,000 d. $75,000 42. Refer to the facts stated in the prior question. But, for this question, assume that BERNARDO L.P. allocated to Dennis net income of $20,000 from operations in 2013. What amount does Dennis have at risk in BERNARDO L.P. as of January 1, 2014? a. $170,000 b. $145,000 c. $120,000 d. $95,000 43. In 2013, Kristine and Jason (who file a joint return) had an interest expense of $10,000 on a loan that was used to purchase a variety of stock and bonds (all producing taxable income). Assume further that, in 2013, Kristine and Jason had net investment income of $4,000. Assume they itemize deductions, what is their maximum interest expense deduction in 2013? a. $10,000 b. $6,000 c. $4,000 d. $0 44. Assume that Jason and Joyce file a joint return and have the following items for 2013: Taxable income: $75,000 Positive adjustments: $40,000 Preferences: $35,000 Regular tax ability: $10,608 What was their 2013 AMT? a. $17,992 b. $10,608 c. $7,384 d. $0 45. Assume that a couple that filed a joint return had 2013 AMTI of $300,000. What was the amount of their actual 2013 exemption for the AMT? a. $0 b. $7,800 (i.e., $3,900 x 2) c. $44,275 d. $80,800 46. Holman is negotiating to buy land from Carlita. What will Holman?s basis be in the land, if Holman gives Carlita $20,000 and Holman assumes Carlita?s mortgage on the land of $70,000? a. $90,000 b. $70,000 c. $50,000 d. $20,000 47. Which of the following is LEAST likely to qualify as a like-kind exchange under Section 1031 (assume all of the assets are used for business)? a. Improved real estate for unimproved real estate b. Improved real estate for office equipment c. Office building for a warehouse d. Office furniture for office equipment 48. Johnathan exchanges undeveloped real estate for developed real estate on August 2, 2013. On August 2, 2013, the fair market value of each property is $700,000. Johnathan had purchased the undeveloped real estate on February 14, 2009, for $350,000. Both properties are considered investment property for Johnathan. Which of the following is TRUE? a. Johnathan?s basis in the developed real estate is $700,000 b. Johnathan?s basis in the undeveloped real estate was $700,000 c. Johnathan?s holding period begins on February 14, 2009 for the developed real estate d. Johnathan?s holding period begins on August 2, 2013 for the developed real estate 49. In October 2013, Cassandra purchased a playground set at a garage sale for $100. Cassandra is not in the business of buying and selling anything. Cassandra researched the playground set online and discovered it was worth $500. In December 2013, Cassandra sold the playground set through an auction website for that amount (i.e., $500). Which of the following is TRUE considering these transactions? a. Cassandra does not have any income b. Had Cassandra sold the playground set for $50, Cassandra could have deducted a $50 ordinary loss c. Cassandra has a $400 long-term capital gain d. Cassandra has a $400 short-term capital gain 50. Carlos had the following net Section 1231 results for each of the years shown. Tax Year Net Section 1231 LOSS Net Section 1231 GAIN 2008 $0 $0 2009 $0 $0 2010 $0 $0 2011 $5,000 2012 $7,000 2013 $30,000 Which of the following is TRUE regarding the net Section 1231 gain in 2013? a. All $30,000 will all be taxed at Carlos?s ordinary income rate b. All $30,000 will all be taxed at Carlos?s long-term capital gain rate c. $12,000 of the $30,000 will be taxed at Carlos?s ordinary income rate d. $12,000 of the $30,000 will be taxed at Carlos?s long-term capital gain rate
Question 5
I must have answers in 45 minutes. I will give a tip, guaranteed 1. A truck, costing $25,000 and uninsured, was wrecked the very first day it was used. It can either be disposed of for $5,000 cash and be replaced with a similar truck costing $27,000, or rebuilt for $20,000 and be brand new as far as operating characteristics and looks are concerned. The best choice provides a net savings of: (Points : 2) $2,000. $5,000. $7,000. $12,000. 2. A decision bias is an inherent tendency of most decision makers that leads to incorrect decisions. An example of decision bias is: (Points : 2) Failure to consider all relevant costs. Failure to properly identify sunk costs as irrelevant. Failure to consider opportunity cost. Failure to adjust for the time value of money. 3. The opportunity cost of making a component part in a factory with excess capacity for which there is no alternative use is: (Points : 2) The variable manufacturing cost of the component. The total manufacturing cost of the component. The total variable cost of the component. The fixed manufacturing cost of the component. Zero. 4. Done on a regular basis, relevant cost pricing in special order decisions can erode normal pricing policies and lead to: (Points : 2) Overconfidence in decision-making. A loss in the firm's profitability. Conflicting goals between management and sales personnel. A cost leadership strategy. Maximization of resources. 5. Which one of the following is most descriptive of strategic analysis? (Points : 2) Quantitative. Customer focus. Short-term focus. Individual product focus. Not linked to the firm's strategy. 6. An effective analysis of sales mix needs to include an analysis of: (Points : 2) Value chain analysis. Production constraints. Sales mix costing. Revenue forecasting. Joint manufacturing costs. 7. The opportunity cost of making a component part in a factory with no excess capacity is the: (Points : 2) Variable manufacturing cost of the component. Fixed manufacturing cost of the component. Total manufacturing cost of the component. Cost of the production given up in order to manufacture the component. Net benefit foregone from the best alternative use of the capacity required. 8. Special orders: (Points : 2) Are frequent. Are infrequent. Commonly represent a large part of a firm's overall business. Can never be profitable to a firm. 9. A profitable company pays $100,000 wages and has depreciation expense of $100,000. The company's income tax rate is 40%. The after-tax effects on cash flow are a net cash outflow of: (Points : 2) $40,000 for wages and a net cash inflow of $60,000 for depreciation expenses. $40,000 for wages and a net cash inflow of $40,000 for depreciation expenses. $60,000 for wages and a net cash inflow of $60,000 for depreciation expenses. $60,000 for wages and a net cash inflow of $40,000 for depreciation expenses. $40,000 for wages and a net cash inflow of $100,000 for depreciation expenses. 10. You just bought a new car for $125,000. Before you had time to get insurance, the car was wrecked. Weird Wally offers to take it off your hands for $10,000. You can then purchase a similar model for $128,000. A body-shop with an excellent reputation offers to rebuild it for $90,000 and loan you a similar model while the vehicle is being rebuilt. Once rebuilt, the body-shop claims, it will run like a new car and nobody will be able to tell the difference. What would you do from a financial point of view? (Points : 2) Rebuild to save $13,000. Rebuild to save $28,000. Rebuild to save $38,000. Sell to Weird Wally and save $7,000. 11. Operating at or near full capacity will require a firm considering a special order to recognize potentially the: (Points : 2) Opportunity cost from lost sales. Value of full employment. Time value of money. Need for good management. Value of capacity resource management. 12. The excess of the present value of future cash flows over the initial investment outlay for a project is the: (Points : 2) Internal rate of return (IRR) of the project. Modified internal rate of return (MIRR) on the project. Book (accounting) rate of return for the project. Net present value (NPV) of the project. Modified internal rate of return (MIRR) of the project. 13. The value chain analysis used in connection with the make or buy decision often leads a firm to make use of: (Points : 2) Activity-based costing. Cost-volume profit analysis. Outsourcing activities. Relevant cost-based pricing. 14. Which one of the following is correct for determining relevant costs? (Points : 2) Differential. Integrative. Long-term focus. Subjective. Opportunistic. 15. Which one of the following methods assumes that all interim cash inflows generated by an investment earn a return equal to the internal rate of return (IRR) of the investment? (Points : 2) Modified internal rate of return (MIRR). Payback. Net present value (NPV). Present value index (PI). Internal rate of return method (IRR). 16. When the internal rate of return (IRR) method and the net present value (NPV) method do not yield the same recommendation for the same investment project, the technique normally selected is: (Points : 2) IRR, because all reinvestment of funds occurs at the rate of the cost of capital and because it takes into consideration the relative size of the initial investment. NPV, because it takes into consideration the relative size of the initial investment. IRR, because all reinvestment of funds occurs at the discount rate that will make the NPV of the project equal to zero. NPV, because all reinvestment of funds occurs at the discount rate that will make the NPV of the project equal to zero. 17. In making capital budgeting decisions, the principal focus is on: (Points : 2) Cash flows only. Timing of the cash flows only. Cash flows and the timing of the cash flows. Accounting-based measures of revenues and expenses. Nonfinancial performance indicators. 18. Generally speaking, when ranking two mutually exclusive investments with different initial amounts, management should give first priority to the project: (Points : 2) That generates cash flows for the longer period of time. Whose net after-tax cash flows equal the initial investment outlay. That has the greater accounting rate of return (ARR). Whose cash flows vary the least. That has the greater profitability index (PI). 19. Which one of the following capital budgeting decision models consists of dividing the total initial investment outlay by annual after-tax cash inflows (when such inflows are assumed equal over time)? (Points : 2) Profitability index. Payback period. Book (accounting) rate of return. Internal rate of return. Adjusted payback period. 20. Which of the following is not one of the four general classes of real options? (Points : 2) Expansion option. Exercise option. Abandonment option. Investment-timing option (e.g., delay) 21. The term "breakeven after-tax cash flow" represents: (Points : 2) A pessimistic estimate in a typical scenario analysis. An optimistic estimate in a typical scenario analysis. The amount of after-tax cash flow needed to generate a return equal to a project's IRR. The cash flow needed to generate an IRR of zero. An estimate that can be arrived at using Goal Seek in Excel. 22. Which one of the following statements concerning capital budgeting is not true? (Points : 2) A basic objective underlying capital budgeting is to select assets that will earn a satisfactory return. Capital budgeting is the process of planning asset investments. Capital budgeting is based on precise estimates of future events. Capital budgeting involves estimating the revenues and costs of each proposed project, evaluating their merits, and choosing those worthy of investment. Capital budgeting uses after-tax cash flows in the analysis of proposed investments. 23. Which of the following statements regarding capital investment analysis is false? (Points : 2) A long-term planning horizon is assumed. Benefits of potential investment projects are conceptually expressed in terms of accounting income (or reduction in costs). Project acceptance decisions are based on models that explicitly incorporate the time value of money. Need to incorporate income-tax effects in the analysis, for both revenues (gains) as well as expenses (losses). Discounted cash flow (DCF) decision models are used by a majority of large organizations. 24. Omaha Plating Corporation is considering purchasing a machine for $1,500,000. The machine will generate a constant after-tax income of $100,000 per year for 15 years. The firm will use straight-line (SL) depreciation for the new machine over 10 years with no residual value. What is the payback period for the new machine, under the assumption that cash inflows occur evenly throughout the year? (Points : 2) 4 years. 5 years. 6 years. 10 years. 15 years. 25. The capital budgeting method(s) that is (are) most likely to provide consistency between data for capital budgeting and data for subsequent performance evaluation is (are) the: (Points : 2) Payback period. Discounted cash flow (DCF) methods. Book (i.e., accounting) rate of return method. Discounted payback period. Cash-flow proxy method.
