Exam 2 Flashcards
Which of the following cannot be used as an INPUT in a tornado chart
Constraints
an institutional advantage of building a simulation model is that
makes and shares explicit assumptions that decision makers use for planning
if a firms discount rate is 10%, and NPV is 1000, then the IRR of the same cash flow should be
> 10%
which type of NPV calculation model creates a larger standard distriubutionsince its cash flows and variability are linked to eachother per year than calculated separately
Addititive Random Walk Model
Tornado chart is useful for initial investigation of sensitivities to suggest the order in which we should be concerned with the
Inputs
cash streams provided by steady customers are assets that organizations should manage just like any other asset” is the underlying principle of
CLV models
which of the following can be used to predict financial measures into the future
Historical Data, input from management about the industry, and subjective estimates of uniform or triangular assumptions
What is the primary function of tornado charts
executing preliminary, deterministic sensitivity analysis of any spreadsheet cell to its precedent
Sensitivity analysis obtains its results by
performing a statistical analysis fo the relationship between randomly generated inputs and outputs
a common size income statement serves what purpose that a normal income statement does not
identifies which percentages are stable and which are variable over time
Deterministic Versions of a pro forma have long been used to answer which of the following questions
“what if” questions about the impact of the bottom line of managerial decisions
the intent of modeling financial statements is to project financial measures into the future for this purpose
help make informed decisions about the the activities that result in these matters
Assuming tex consequences are being considered, which of the following would be relevant
variable, fixed, and depreciation
Sunk Costs
costs that have occurred in the past or are committed for the future and are irrelevant to decision making
Which of the followind do not include opportunity cost
when making the decision to buy equipment new or lease it for a special projcet
Shirts’R’ us question… add all the costs
add 4000/25= 16, DM+VOH+DL= 17… bulk order
which is not a qualitative factor for Shirts’R’Us when thinking about the bulk order
decrease in customer interactions
tom crean, belts
relevant cost $4, inc contribution $1
Define Master Budget
translates organization short term objectives into action steps, while reflecting the organizations operating and financial plans for the upcoming periods
Budgets will allow management to accomplish
I. Manage, work out, and minimize any adverse effects that anticipated problems could have on operations
II. Identify current and potential bottlenecks
III. Assess period performance by analyzing variances between actual and budgeted results
IV. Serve as a communication device through which top managements communicate pan and goals for the period to managers and employees
V. Motivate employees to meet the expected activities and operating results
which factors should be considered for a sales forecasting in a sales budget
I. Credit Policies
II. Competition
III. Advertising
IV. Unfilled Backorders
Define Zero-based budgeting
method requires management to start over every period instead of focusing on changes to the current operating budget
NOT Correct
C. Cash flow from operation activities excludes non-operating activities, like gain/loss on disposition of investment assets
Kaizen budgeting
“cushion effect”
Which of the following reasons explains how it is possible for low-volume customer segments to have a higher average NPV than high-volume customer segments?
The low-volume segment must have a high cost of retention, The high-volume segment must have a high retention rate
Which of the following descriptions best describes Models 1 and 2 (shown below)
c. Model 2 is more likely to experience a negative NPV than Model 1
Which of the following circumstances will not cause the best-fit distribution of a dataset to be invalid or inappropriate?
b. The “eyeball test” is used to measure closeness of fit.
When building a deterministic model, why should you convert historical income statements into common-sized income statements?
a. By looking at the variability of common-size line items, one can gain an understanding of how much influence each line item in a pro-forma statement will have on earnings
Value-at-Risk (VAR) can be used in all of the following circumstances, except:
a. By analysts to determine excessive losses beyond the threshold level
Which of the following action items represents the last step in the simulation modeling process
b. Analyze the forecast statistics and graphics to make decisions about the real problem.
Why did Amanco transition from the use of lead in PVC to a calcium zinc substitute?
a) They believed the environmental leadership would create long-run profits
Amanco’s triple-bottom-line Sustainability Scorecard (SSC) focuses on what three values?
c) Economic, Social, Environmental
What did Amanco use to link the sustainability scorecard to compensation?
a) EVA as the key financial measure, but also included social and environmental metrics
What are the five persepctives of Amanco’s Sustainability Scorecard?
b) Financial, customer, process and technology, environmental and social, human resources
The core customer dimensions should encompass what three objectives?
d) Brand management, innovative and high-margin products, and customer satisfaction
Which of the following is mentioned as a complication in linking Amanco’s Sustainability Scorecard with its compensation system?
a) Little consistency exists across the organization because of different country laws and labor structures
- Which of the following is not a potential problem with the use of marketing through search engines?
b. Household broadband use has grown tremendously over the past five years and continues to grow.
- Which of the following is a Key Performance Indicator (KPI) for deciding how to properly allocate an advertising budget for online searches?
a. Volume of Bookings
b. Cost Per Click
c. Net profit per transaction
- What does SEM stand for?
b. Search Engine Marketing
- Which of the following is not a key factor in determining the success of SEM (according to the client’s POV)?
a. Tim of day the search is done
- If a company wants to quickly sort and highlight key factors in a large amount of data, what is the most efficient way to do it?
a. Pivot Table analysis
- Which of the following was not a reason why Air France decided to employ an SEM campaign?
c. SEM is costly to employ
- What do tornado charts identify for a model?
b. Variables that have the greatest impact
- What does Crystal Ball use to generate the forecast errors?
a. Correlation tool
- Which variables are used in analyzing Customer Lifetime Value, as shown in Charnes Chapter 7?
c. Retention rate and retention cost
- What factors could contribute to low Customer Lifetime Value NPV, as was the case in Charnes Chapter 7 for the LifetimeValue model?
a. Low retention rates
b. High retention cost
- What is the greatest benefit to making a “Common Size” Statement for a deterministic model?
a. To gain a better understanding of variability across each line item
- What is the most preferential set of data to use for a deterministic model?
b. Subjective estimates from subject matter experts
c. Historical data
- What is the preferred method of evaluating long-term investment projects?
d. Relative Analysis
- What is a Sunk Cost?
a. Historical costs that are not affected by any decision
- Which of the following is an example of a Fixed Cost?
a. Salaries
b. Insurances
c. PPE
- Which of the following is an example of a Fixed Cost?
b. Competitive life of an asset
- The _________ is the exact amount of time it takes the firm to recover its initial investment.
d. Payback period
- What do we evaluate in a proper capital budgeting analysis?
b. Incremental cash flow
- What is a major tool that budget planners use to determine the extent of which a change in the forecasted value of one or more budgetary inputs affects individual budgets?
A. Sensitivity Analysis
Which of the following is not a major factor that affects goal congruenc
C. The total cost and amount of resources supplied for a period
- Which of the following net cash flows is not considered to be one of the three major sections of a cash budget?
B. Purchasing Activities
- An organization’s operating and financing plan for the upcoming period that translates short-term objectives into action steps is referred to as which of the following?
D. Master Budget
- Which of the following budgeting approaches incorporates continuous improvement expectations in the budget?
A. Kaizen Budgeting
- Which of the following processes do not belong to the budgeting process?
D. Ten year historical budget analysis
In the course of ‘Strategic Decision Making’, such as the example that you’ve been shown, what is the first step in the process?
Determining the strategic issues surrounding the ‘problem’
The point in which the execution of financial leverage against the use of equity gives no formidable advantage to those involved is known as what?
Indifference Point
When facing an uncertain future in terms of overall revenues or costs, what (set of) equation(s) is (are) a sufficient mitigation tool?
. Sensitivity Analysis
When attempting to determine the ‘indifference point’ in the strategic decision making process, what calculation should be executed?
(Option 1 Total Fixed Costs- Option 2 Fixed Costs)/ (Option 1 Individual Contribution Margin- Option 2 Individual Contribution Margin)
Considering the nature of each business, which of the following firms is more likely to have a low operating leverage?
. Accounting Firms
When defining assumptions of uncertainty in a Crystal Ball simulation, which of the following appropriately describes an uncertainty with a normal distribution?
B. normal distribution
- All of the following represent a competitive advantage of Kayak over travel aggregator sites and search engines, EXCEPT:
b) Its acquisition of a digital marketing firm
- Which of the following correctly represent Air France’s two-prong strategy:
II. Rationalization: To use only similar modern aircrafts.
III. Flexibility: To modify aircraft lease periods and models used.
- The Air France Case focuses on which of the following search engines
I. Msn.com
II. Google.com
IV. Kayak.com
V. Yahoo.com
- What communications consulting company did Air France hire to help develop its search engine marketing strategy?
e) Media Contacts
- All of the following correctly reflect Search Engine Marketing, EXCEPT:
a) Focuses primarily on Search Engine Optimization (SEO)
Which of the following does NOT represent the relationship between the airline industry and E-commerce in 2006
d) The growth of online airfare purchases stagnated in 2006.
- What is the deterministic model
b. A Mathematical model in which outcomes are precisely determined through known relationships among states and events, without any room for random variation.
- It’s always true that the future data will resemble the past and that historical data is the best information you will have available. (
FALSE
- What type of chart is this and what is it used for?
a. tornado chart, used to define key inputs and their impacts
- What is the forecasting factor for this: Uniform (15%,17%)
e. 16%
- When historical data is unavailable, what technique should be used to determine parameters of assumptions? (JC CH 8 p.143)
a. Obtain subjective estimates from subject matter experts
- What does a pro-forma statement measure?
c. A forecasted period
Errors of estimation is a way to recognize the inherent uncertainties associated with distant cash flows and simply assume a terminal value at a certain point in the project’s life. What two errors did the authors indicate for this approach?
The mathematics of the approach amplifies estimation errors associated with near-term estimated cash inflows
. The method fails to incorporate the declining competitive situation.
Given the following information, if the new machine is purchased, what is the incremental tax savings on depreciation expense?
. $4,000
When comparing the options of purchasing a new machine versus continuing the use of a current machine, which of the following factors are useful in determining cash flow in year 0?
. Purchase price of the new machine
III. Proceeds from disposal of the old machine
Given the following cash flows for a project, what is the estimated payback period (round up the number)?
4 years
Which of the following is NOT true about sunk costs?
They are also referred to as “down-the-pipe” costs.
How do you calculate the indifference point?
. The original variable cost per unit plus the allowable change in variable cost per unit.
What caused an increase in the number of global companies changing from manufacturing enterprises to service providers and brand operating entities?
. Worldwide mergers and acquisitions and global competition
In what way was Haier’s adopted leadership strategy of “Get In, Stay In” effective?
Haier tapped into the niche mini refrigerator sector, then gradually expanded its product offerings and localized the brand
Which of the following is not among the top seven factors that contributes to business success?
. Corporate social responsibility
. Which of the following is not one of the characteristics of Haier’s OEC management control system and enterprise culture?
Use two types of information for management control, planned data and historical data.
Haier maintained a “10-10” scheme among all employees. Which of the following best explains this practice?
. It provided a series of training programs for the top 10% and laid off the bottom 10%.
Which of the following guidelines was not used by Haier in developing the finance division’s culture?
. Use performance bonuses to create competition between other division’s in the firm
While using the Excel ‘NPV’ function does allow an analyst to see the ‘present value’ of a project, what other variable must also be accounted for outside of the original NPV function in order for the function to truly be ‘net’
Initial Investment
As in the NPV model used, what variable must be added to ‘Net Profit’ to come to the final ‘Net Cash Flow’ calculation?
Depreciation
. In a dual Low-volume/High Volume Customer NPV analysis, what is the most likely scenario that will happen if the average retention rate for high volume customers doubles from Year 1 to Year 2.
. Net Present Value will increase.
In a risk analysis, which of these would not be a type of forecast error to be accounted for in the analysis?
Depreciation Percentage Forecast error at year ‘t’
What is an ‘institutional advantage’ of creating and using a simulation model such as Crystal Ball?
. Key decisions makers from different divisions of a company are able to share one set of aligned assumptions.
What information cannot be obtained by generating the NPV spider chart
The distribution of all the potential NPVs
What is not a key aspect of a relevant cost?
c) A cost that is committed for the future.
When do managers wrongly view fixed costs as relevant?
b) When fixed costs are shown as a per unit amount.
Bob makes a decision based on the results of a relevant cost analysis, and ends up with:
c) A net loss of $110,000.
In this situation, what is an example of a relevant cost?
a) Getting the car fixed for $12,000.
b) The $100,000 cost to fix the destroyed building.
) In this situation, what is an example of a sunk cost
b) The $100,000 cost to fix the destroyed building.
Which one of these is NOT a potential issue that should be considered when performing a relevant cost analysis?
d) Failing to realize that relevant costs are almost always considered to be sunk costs.
1.) What are the two widely used models needed for a natural starting point when constructing a Crystal Ball model?
d. Pro forma Income Statement and the Balance Sheet
2.) What is the intent of modeling financial statements using Crystal Ball?
a. Project financial measure into the future to help make informed decisions
b. Create a sophisticated what-if analysis
c. Determine which output figures are stable or variable over time
d. Help decision makers gain more insight than from a deterministic model
3.) Which of the following is NOT a benefit of the balanced scorecard?
b. Maintains original organization strategies and low visibility
4.) What is the overall purpose of the balanced scorecard?
c. Translates strategy into an integrated set of financial and nonfinancial measures
5.) Which of the following is the correct order of Kaplan and Norton’s 4-step process to build a balance scorecard?
c. Define the measurement architecture, Specify strategic objectives, Choose strategic measures, Develop the implementation plan
6.) How do you test for causality for the measures on the balanced scorecard
a. Sensitivity Analysis
b. Cause-and-Effect Analysis
- What does OEC stand for?
- What does OEC stand for?
- What is Haier’s concept of the SBU (Strategic Business Unit) program? (Haier; page 3)
b. Each employee is a profit center with responsibility to generate a profit
- Which one of the following is NOT part of Haier’s Three Stages of Strategy Development?
d. Quality Control
- How did Haier CEO Zhang demonstrate the importance of product quality to his employees?
a. Beat low-quality refrigerators with a hammer
- Which is NOT a measure Haier took to improve management control and make it a billion dollar company?
e. Improved revenue sharing program
- Which of the following is false?
B. Net profit = Revenue - Variable cost - Fixed cost - Depreciation
- Given minimum, most likely, and maximum value, the best assumption in crystal ball is
C. Triangle distribution
- Which of the following statement is false?
D. A tornado chart does not resemble the chart provided by Crystal Ball’s Sensitivity Analysis feature, and it does not differ in how it obtains its results.
- Suppose that you have opportunity to purchase an annuity that costs you $100 at Year 0, and has return to you at the end of each Year 1 through 5. [JC page 120]
o Model 1: Cash flows in Year 1 through 5 are independent normal distribution with a mean of $30 and random walk–normal (30, 3).
o Model 2: Cash flows in Year 1 through 5 are an additive random walk to the previous year with normal (0, 3) increments.What is the corresponding NPV distribution for each model?
. Model 1 is distribution I; model 2 is distribution II
- According to this tornado chart, which of the following is false?
D. Keeping all other factors on the central line, only increase in variable cost by 289,577 yen can NPV go up to about 5 billion yen.
Which of the following formula represents unit variable cost
B. 300,000(1 + e4,3)
- What is NOT true of a tornado chart?
A. It is useful for initial investigation of sensitivities to suggest the order in which we should be concerned with inputs.
- When calculating the internal rate of return (IRR) which of the following are true?
C. As an alternative to NPV, calculating IRR can also help you decide whether to purchase an annuity.
- Which of the following is not an advantage of building a simulation model?
C. Different divisions use different assumptions in the simulation model, therefore each division can develop projections specific to their own needs
- What is not true about this chart?
A. It is a tornado chart
- Which of the following statements regarding capital budgeting is FALSE?
A. The tornado chart is used for a sensitivity analysis of the project’s NPV to model inputs.
B. A Spider Chart depicts the same information as a tornado chart.
C. In a Spider Chart, the line with the lowest slope indicates the model input that has the lowest sensitivity to NPV.
D. Crystal Ball’s Correlation Tool detects forecast errors in a capital budget and displays them in a correlation matrix
- Which of the following statements is (are) true regarding customer lifetime value (CLV) analysis?
A. It can be used to proactively identify and abandon unprofitable customers
B. Cash streams provided by steady customers are financial assets that organizations should manage just like any other asset.
C. Improving CLV involves both qualitative and quantitative aspects of managing customers
Effective decentralization demands mechanisms
a) Coordinate independent initiatives
Which of the following is not important to established relationships and dialogue between companies?
a) Relationships cause a buyer to default to a prescribed response
Which of the following is not a con of centralized control
c) Using routine approaches to quickly develop good products at affordable prices
) When do computerized controls work best?
a) Products or processes can be physically shielded so that variations in conditions can be minimized
b) Feedback from measured outcomes can be continuously used to adjust or improve the decision-making algorithms
c) The number of possible outcomes is vast but conform to well-specified rules
In The Judgment Deficit, the author suggests which of the following as a major short-coming of statistical models
a) Statistical models of human behavior tend to focus on a small number of variables
b) Statistical models disregard the uniqueness of events
The author of The Judgment Deficit would argue that predictions of human activity based on statistical patterns as is suggested in the Henson Case are dangerous when
b) Managers use statistical patterns as a substitute for careful case-by-case judgment
How did Amanco try to differentiate to endure its long term sustainability and leadership?
a. By providing several new products and services including a new agricultural kit for low-income families
b. By offering training programs for local stores
c. By enhancing an integrated communications plan throughout the value chains
d. By raising public consciousness about social/environmental issues through advertisements and publications
. What main objectives helped Amanco achieve its “triple bottom-line” including financial, social, and environmental targets for each year?
i. Create economic sustainability in the long run
ii. Generate value through a system of corporate social responsibility
iv. Generate value through environmental management
How did Amanco’s first “Triple Bottom Line” Scorecard differ from a traditional balanced scorecard?
i. It did not contain a learning and development perspective
ii. It contained 5 perspectives
iv. It contained a social and environmental perspective
What was NOT an issue Pierre Roulet found with Amanco’s execution of its sustainability scorecard in 2003?
b. Amanco’s focus was on long term performance, as opposed to short term goals
What was Stephan Schmidheiny’s first drastic step toward creating a sustainable company, which he would later claim prepared him to be in a position of leadership on business and society issues?
a. He announced that his group would cease to manufacture products that contained asbestos
Which element show below is not on the triple bottom line strategy map proposed in 2006?
c. Learning and development perspective
