CMA Part CD

Question 1

Linear programming

Answer 1

problem-solving approach used in situations where managers need to make decisions about how to maximize profits or minimize costs, based upon certain constraints

Question 2

Initial investment

Answer 2

the purchase price, installation cost, and increase in working capital

Question 3

payback method

Answer 3

capital budgeting method that provides a rough measure of project risk, does not distinguish between types of cash inflows and represents the break-even point for an investment

Question 4

profitability index

Answer 4

(PI, or benefit-cost ratio) compares the present value of future cash flows with the initial investment on a relative basis. It is a ratio of the present value of future net cash flows to the initial cash outflow

Question 5

project?s payback

Answer 5

(PB) is the length of time it takes for the cash flows generated by the initial investment (I) to equal the initial investment. Assuming the cash flows occur uniformly throughout the year

Question 6

payback method

Answer 6

merely looks at the length of time it takes to recover the initial investment. It does not consider the life of the project, the time value of money, or the project profitability

Question 7

Capital investment projects

Answer 7

include many possibilities; including proposals for the acquisition of equipment, the expansion of existing product offerings, and additional research and development facilities. Refinancing is not a capital budgeting decision. It is a financing decision

Question 8

Certainty Equivalent (CE)

Answer 8

amount of cash an investor requires at a given point in time to make that investor indifferent between that certain amount and the amount expected (assuming risk) at the same point in time

Question 9

Internal Rate of Return (IRR)

Answer 9

is the discount rate used in the calculation of net present value (NPV) that causes the NPV to equal zero. NPV Present value (PV) of the project?s annual cash flows (calculated at the appropriate discount rate less the project?s net incremental investment)

Question 10

CVP

Answer 10

Cost/Volume/Profit Analysis

Question 11

Cost

Answer 11

resource expended to achieve a specific objective

Question 12

Cost Driver

Answer 12

factor that affects cost

Question 13

Cost Object

Answer 13

anything for which cost data is accumulated

Question 14

Fixed cost

Answer 14

cost that remains fixed within a relevant range-fixed costs vary per unit

Question 15

Variable cost

Answer 15

cost that varies in direct proportion to changes in activities; variable cost are flat at a unit cost

Question 16

Contribution Margin

Answer 16

Rev - All variable expenses

Question 17

CM Ratio

Answer 17

CM/Revenue

Question 18

Tot Cost

Answer 18

fixed + variable costs

Question 19

Operating Income

Answer 19

Operating Rev-Tot Op costs

Question 20

Net Operating Income

Answer 20

Operating Income - Operating income taxes or (1-relevant tax rate)*(operating income)

Question 21

Sales Mix

Answer 21

sometimes referred to as rev mix, relative proportions of products sold and applies to both products and services. Doesn?t reflect what a product sells for

Question 22

CVP Assumptions

Answer 22

a. Linearity-rev and cost functions are linear over the relevant range,b. Certainty-parameters are known or can be reasonably estimated,c. Single product or defined product mix-allows analysts to utilize a weighted average produce,d. Production=sales,e. For multiple products?sales mix must remain constant