Q: 41-80 Flashcards
What is the present value of two payments of 100 each (at the end of year one and at the end of year two), considering a discount rate of 10%?
A
1/(1+0,1) * 100 + 1/(1+0,1)2*100 ≈ 174
B
100/(1+0,2)2 ≈ 69,44
C
100-10%100+100-10%100 =180
D
100+100 = 200
Question:
What is the present value of two payments of 100 each (at the end of year one and at the end of year two), considering a discount rate of 10%?
Correct Answer:
A)
1/(1+0,1) * 100 + 1/(1+0,1)2*100 ≈ 174
A scenario analysis can typically include a worst case, a probable case and a best case scenario. T True F False
True
You are thinking of hiring a student as a junior consultant. The relevant cost (i.e. the costs that will occur due to the recruitment) is 500 000 SEK. You develop an expected value for the possible revenues that the junior consultant can attain. Calculate the expected value of hiring the student given the follwing probabilities: Probability Revenues 10% 0 40% 400 000 50% 600 000 A 500 000
B
- 500 000
C
+ 40 000
D
- 40 000
E
Never hire a student!
Explanation:
- 500 000 + 10%0+40%400 000+ 50%*600 000 = -500 000 + 0 + 160 000 + 300 000 = -40 000
A firm has to have a budget according to law. This is true for all European countries.
True
False
False
Explanation:
In some countries, like Sweden, the public sector has to have a budget. Still, this is not true for firms. The ways in which the firm controls and allocates its resources is up to the management (and owners) to decide.
Net Present Value is a method of investment appraisal based on the present value of relevant cashflows (both inflows and outflows) of an investment. T True F False
True
Materiality is a qualitative characteristic for accounting and it suggests that only information that is significant should be reported. T True F False
True
One way to see the balanced scorecard (BSC) is that it focuses on balancing the interests of the organization's stakeholders. T True F False
False
Explanation:
The BSC is a management tool in which financial and non-financial measures are used as a means to implement strategy. If the strategy is to avoid balancing interests, then the BSC is a vehicle to not balancing interests.
Shareholder value is… [choose one or many]
A
… typically understood as maximizing the returns for the shareholders.
B
… can be measured by the sales number
C
… can be measured by the change of the net present value of the firm
D
… builds on an idea that the employees should be influenced (by e.g control measures) to act in the shareholders interest.
E
… is the law.
Correct Answers
… builds on an idea that the employees should be influenced (by e.g control measures) to act in the shareholders interest.
… can be measured by the change of the net present value of the firm.
.. typically understood as maximizing the returns for the shareholders.
Because shareholder value is about a long period it makes no sense to think of the profit of one year as a good measure for shareholder value. T True F False
True
The concept of an "economic profit" suggests that a business, to make economic sense, must exceed the required returns of investors. T True F False
True
One of the risks of full cost pricing (i.e. cost-plus pricing) is that the charging of overheads might be wrong and that, therefor, the price might be “too low” or “too high”.
True
False
Correct Answer:
True
Explanation:
One reason is that the charging of indirect costs (overheads) tries to transform indirect costs to direct costs and this transformation might be done on - what might be - the wrong method. As an example, some products might demand much less effort from the administration and might be charged too much costs for the administration.
The shirt firm uses cost-plus pricing. Habitually they multiply the variable costs by 250%. The firm buys shirts for 40 and sells them for 100 and thus the contribution margin ratio (CMR) is 60%. If they increase the price with 20% (to 120), how much less (in percent of the volume) will they have to sell to achieve the same absolute contribution?
25% LESS
This can be calculated as (60%/(20%+60%))-1 = 0,75-1 => The volume can be decreased by 25%.
One can check this by e.g. presuming a break-even at a volume of 100 before the price change. This suggests that the fixed costs (FC)are 6 000 because the contribution margin (CM) per shirt is 60 (100-40) and the total contribution margin (TCM) = 6 000 (60*100)
(0 = 60*100-FC)
With the price change we do not know the volume, but we know the FC so our equation looks like this:
0 = TCM (CM*Volume - FC) and CM = 80 (120-40) => = 0= 80X - 6000 => X=6000/80=75
This means that we need to sell 75 (25% less) to reach break even if we increase the price with 20% to 120 with a new CM of 80.
0 = CMvolume - FC => 8075-6000
Negative contribution margin it will loose money
True
False
True
It is fair to place BSC as a part of the efforts to carry out strategic accounting. T True F False
True
If the liabilities (debts) are 60 and the equity (capital) is 40, then…
A the assets are 20 B the assets are 100 C the debt/equity ratio is 1.5 D the debt equity ratio is 40% E ROA is 100%
C
D
It is said that the employees are the most important assets of the firm, but the accounting value of them, in a normal firm, is 0 in the balance sheet.
True
A transfer price in a multinational firm…
A
… is the price one pays for the bus transfer to the airport to visit another subsidiary.
B
… is the means by which intra-organizational (inter-divisional) trading is compensated.
C
… directly affects the profit of divisions
D
… directly affects the profit before tax of the group
E
… directly affects the profit after tax for the group
F
… is used as a means to measure performance in divisions.
B … is the means by which intra-organizational (inter-divisional) trading is compensated….
C directly affects the profit of divisions…
E directly affects the profit after tax for the group…
F is used as a means to measure performance in divisions.
Working capital is defined as current assets minus current liabilities. Current assets are (here): Cash, receivables and inventories. Current liabilities are (here): Overdraft, Salary payables and Trade payables.
Working capital is defined as current assets minus current liabilities. Current assets are (here): Cash, receivables and inventories. Current liabilities are (here): Overdraft, Salary payables and Trade payables.
The value of a firm can be calculated as the net present value of the firms future cash flows.
True or false?
True!
According to Kaplan, what are the major reasons for the development of the. ROI measure during the beginning of the 20th century? Firms wanted ..
A
…to align to the deamnd from the capital market
B
…to increase motivation at the department level
C
…to increase the possibility to evaluate performance
D
…to guide the firm’s strategy
E
…to use the accounting numbers
SUBMIT
D …to guide the firm’s strategy
C …to increase the possibility to evaluate performance
B …to increase motivation at the department level
It is fair to say that Kaplan argues that profit measurements is the best way of evaluating performance.
True or false?
False
It is fair to say that Kaplan argues that profit measurements is the best way of evaluating performance.
If Return on investments (ROI) is calculated by multiplying profit margin (PM) with capital turnover (CT) and PM is defined as profit/turnover and CT is defined as turnover/assets, then
A
It is possible to, everything else being equal, increase ROI by selling out the firm’s assets
B
It is possible to, everything else being equal, increase ROI by increasing the firm’s assets
C
A PM of 5% and a CT of 2 is as good as a CT of 20 and 0.5% in PM
D
None of the above
A
C
A management control package is a set controls that directs behavior towards something that the organization praises.
T
True
F
False
True
Let’s imagine that you love strawberry ice cream as much as you love raspberry milk-shake as much as you love blueberry crush. Let’s also imagine that the price of the ice-cream is 10 SEK, the price of the shake is 15 SEK and the price of the blueberry crush is 10. Let’s say that you go to a café and they offer all three things, but you are only allowed to buy one product. If you choose the ice-cream, how much is your opportunity cost?
A
25 SEK
B
5 SEK
C
10 SEK
D
15 SEK
SUBMIT
5 SEK
Explanation:
Since you can only buy one thing, you only forego one alternative. Opportunity cost is what you must forgo in order to get something, the opportunity cost is the price for one of the other products. The question now is which one? As a definition: Opportunity Cost = Return of Most Lucrative Option – Return of Chosen Option. This suggests that choosing the Ice cream (10) is the “Return of the Chosen Option and that shake (15) is the “Return of the most lucrative option”. Thus: The opportunity cost is 5 (15-10).
If you cannot identify a cost to a special cost-unit, then it is an indirect cost.
T
True
F
False
True
If a firm signs a lease contract for an office that makes it possible for the firm to rent the office for 5 years, a relevant description of the costs is that they are direct costs.
T
True
F
False
False
Explanation:
It is a committed cost because it is a cost that, because of a contract or obligation, incurs in the future.
If the debt-equity ratio (D/E) = 100% then the total assets are D+D.
T
True
F
False
True
If everything you know about the firm’s plans (2022) is the following:
Sales (cash payment) 100
Operating expenses (cash payment 80
Depeciation 10
Tax expenses (cash payment) 3
… then how will the cash account change in 2022?
A
+20
B
-20
C
7
D
-7
E
+17
F
-17
E
The following things happen in a firm during its first year:
(1) The firm is started as the owners invest a total of 10 in the firm and the firm gets credited 10 in cash and the owners get equity
(2) The firm buys a machine for 5 (to be depreciated over 5 years)
(3) The firm buys material for 2 that is put into storage. Cash payment.
(4) Over the year the firm pays salaries and other production expenses for 2. Cash payment.
(5) The firm sells for 4 over the year. 90% of those sales are paid within the year. 10% of the sales are - the 31st of December - not paid yet.
(6) The store is valued at 0.2 as of the 31st of December.
(7) The firm depreciates the machine according to plan
How much cash does the firm have at year’s end?
4.6
The following things happen in a firm during its first year:
(1) The firm is started as the owners invest a total of 10 in the firm and the firm gets credited 10 in cash and the owners get equity
(2) The firm buys a machine for 5 (to be depreciated over 5 years)
(3) The firm buys material for 2 that is put into storage. Cash payment.
(4) Over the year the firm pays salaries and other production expenses for 2. Cash payment.
(5) The firm sells for 4 over the year. 90% of those sales are paid within the year. 10% of the sales are - the 31st of December - not paid yet.
(6) The store is valued at 0.2 as of the 31st of December.
(7) The firm depreciates the machine according to plan
What is the income for the year?
A
2
B
-1.8
C
-0.8
D
1
E
3
Correct Answer:
-0.8
Explanation:
Sales = 4
Costs = Operating expenses 2 + Cost of material (1-0.2=) 1.8 + Depreciation (5/5=) 1 => 4.8
Income = 4-4.8=-0.8
If a firm has accounts receivable of 10,000,000 SEK in the balance sheet, then you know for sure that the sales will be at least 10,000,000 SEK in the next period because accounts receivables are sales not yet booked.
T
True
F
False
False
Explanation:
Accounts receivables are booked as sales not yet paid by the customer.
Auditing is the name for the practice of double-bookkeeping.
T
True
F
False
False
International Financial Reporting Standards (IFRS) is a standard for reporting that has the ambition to be a single set of high-quality, understandable, enforceable, and globally accepted accounting standards.
True
Let’s say that Return of Assets (ROA) is defined as Earning Before Interest and Taxes (EBIT) divided by Assets at the start of the period.
What is ROA (2023)?
Question:
Let’s say that Return of Assets (ROA) is defined as Earning Before Interest and Taxes (EBIT) divided by Assets at the start of the period.
What is ROA (2023)?
Correct Answer:
27,27%
Explanation:
EBIT = Sales - Operating costs - depreciation => 200-150-20 = 30
Assets (2022) = 110
ROA = EBIT/ASSETS => 30/110 =
(Income/costs) * Debt/Assets
Let’s say that Return of Assets (ROA) is defined as Earning Before Interest and Taxes (EBIT) divided by Assets at the start of the period.
What is ROA (2023)?
Debt = 30
Assets = 120
Costs = 185
Income = 200
Equity = 90
Question:
Let’s say that Return of Assets (ROA) is defined as Earning Before Interest and Taxes (EBIT) divided by Assets at the start of the period.
What is ROA (2023)?
Correct Answer:
27,27%
Explanation:
EBIT = Sales - Operating costs - depreciation => 200-150-20 = 30
Assets (2022) = 110
ROA = EBIT/ASSETS => 30/110 =
(Income/costs) * Debt/Assets
If a firm decides to approach the budgeting process as “zero based budgeting”, then …
… the firm has the philosophy that all spending needs to be justified
Net present value is a so called non-discounted cash flow model of investment appraisal
True or false?
False
Explanation:
NPV is a discounted cash flow method that takes into account the timing (and therefor the cost) of cash flows.
You own a run the business “CUPPA” which is selling coffee to commuters. The variable cost for a cup of coffee is 2 SEK per cup and your fixed costs are 5.000 SEK per day (in rent and personnel and such things). You want to have a profit of 1.800 SEK per day.
Today you are selling 500 cups of coffee per day for 15 SEK per cup and you are not reaching your target.
You know that the fixed costs (that are not so fixed) change when you reach a certain volume and that there is a price sensitivity in the market. The variable costs per cup also vary per unit depending on how much you order from your supplier.
Your assignment is to argue for a solution to the problem that you are not making enough money (only taking price, volume and costs into account. You are to test a number of different price/volume alternatives (25 SEK/cup, 15 SEK/cup, 10 SEK/cup, 7 SEK/cup).
This is what you know:
Explanation:
7 or 25
(This answer is changed!)
As of today, the numbers for CUPPA look lite this
SALES: Sales volume = 500 and price per cup 15 SEK => SALES = 7 500 SEK
COSTS:
Fixed Costs (FC) are - according to the table related to the volume (so they are half-fixed) - 5 000 if the volume is less than 750 => FC = 5 000 SEK
Variable costs are - according to the table 2 SEK/cup if the volume is less than 1500 => Total variable costs (TVC) = 500*2 =TVC = 1 000 SEK
TOTAL COSTS (TC) = 6 000 SEK
INCOME = 7 500 - 6000 = 1 500
AMBITION:
The ambition is an income of 1 800 SEK per day
INCOME vs. AMBITION = 1 500 -1 800 = - 300
In the table below we have calculated the different options (in two ways). We find that there are two pricing strategies that seem to make it possible to reach the goal of a profit of 1.800 per day:
Pricing at 25 SEK per cup or pricing at 7 SEK per cup.
Now, which one should you choose? Well, that demand some additional information and issues to attend to:
- The first and obvious question is whether this price sensitivity analysis is true? And will we actually sell all the cups just because the demand is presented in this way?
- What will competitors do if we change the price?
- How do we approach risk? Is it riskier to lower the price than to increase it?
- Pricing the coffee at 7 SEK gives more profit. IS the ambition of 1.800 fixed or do we instead want more (or less) profit?
There are also strategic issues to consider:
With the lower price (and higher volume) CUPPA has a larger cash flow, which in turn can help CUPPA to grow to other places.
With a higher price (and lower volume) CUPPA might brand themselves as a premium brand.
etc.
The ways in which a firm values and reports fixed assets affects the debt/equity ratio.
True or false?
True
A profit center is an organizational unit that collects all profits.
false
