BUSN 278 Week 8 Final Exam

1. (TCO 1) A common starting point in the budgeting process is _____. (Points : 5)

expected future net income

past performance

to motivate the sales force

a clean slate, with no expectations

Question 2. 2. (TCO 2) “Groupthink” is a primary disadvantage of which qualitative forecasting method? (Points : 5)

Executive opinions

Sales force polling

Delphi method

Consumer surveys

Question 3. 3. (TCO 3) Which of the following is not an example of a seasonal variation?(Points : 5)

Increased restaurant sales on Fridays and Saturdays

Increased retail sales in the fourth quarter

Increased sales of jet skis in the summer

Increased sales resulting from a special promotion

Question 4. 4. (TCO 4) Which of the following statements regarding the risk associated with R & D activities is incorrect? (Points : 5)

The amount of time between the R & D activity and the cash flows from the project does not affect risk.

Greater risk is associated with creating new products than with improving existing products.

Risk increases as the time between the R & D activity and the cash flows from the project increases.

Assessing risk is a vital part of research and development.

Question 5. 5. (TCO 5) Program budgeting does not include _____.

(Points : 5)

controlling

programming

budgeting

planning

Question 6. 6. (TCO 6) The payback period technique _____.

(Points : 5)

should be used as a final screening tool

can be the only basis for the capital budgeting decision

is relatively easy to compute and understand

considers the expected profitability of a project

Question 7. 7. (TCO 6) The profitability index is computed by dividing the _____.

(Points : 5)

total cash flows by the initial investment

present value of cash inflows by the present value of each outflow

nitial investment by the total cash flows

initial investment by the present value of cash flows

Question 8. 8. (TCO 6) A company projects annual cash inflows of $90,000 each year for the next 5 years if it invests $450,000 in new equipment. The equipment has a 5-year life and an estimated salvage value of $150,000. What is the accounting rate of return on this investment? (Points : 5)

6.7%

13.3%

20%

33.3%

Question 9. 9. (TCO 6) If an asset costs $210,000 and is expected to have a $30,000 salvage value at the end of its 10-year life, and generates annual net cash inflows of $30,000 each year, the payback period is _____. (Points : 5)

5 years

6 years

7 years

8 years

Question 10. 10. (TCO 6) Selma Inc. is comparing several alternative capital budgeting projects as shown below.

Projects

A

B

C

Initial Investment

$40,000

$60,000

$80,000

Present value of cash inflows

$60,000

$55,000

$100,000

Using the profitability index, rank the projects, starting with the most attractive. (Points : 5)

Question 11. 11. (TCO 6) Cleaners, Inc. is considering purchasing equipment costing $30,000 with a 6-year useful life. The equipment will provide cost savings of $7,300 and will be depreciated straight-line over its useful life with no salvage value. Cleaners requires a 10% rate of return. What is the approximate net present value of this investment? (Points : 5)

Question 12. 12. (TCO 7) Which of the following is not an operating budget? (Points : 5)

Question 13. 13. (TCO 7) If the required materials to be purchased are 18,000 pounds, the production needs are three times the direct materials purchases, and the beginning direct materials are three and a half times the direct materials purchases, what are the desired ending direct materials in pounds? (Points : 5)

Question 14. 14. (TCO 8) Which of the following is not a cause of profit variance? (Points : 5)

Question 15. 15. (TCO 9) A static budget is appropriate in evaluating a manager's performance if _____.