Business Operations and Financial Strategy Quiz Notes

BOD QUIZ Q1) Rank the following companies from high to low cumulative profit, (in descending order, 1=highest, 4=lowest). Answer 1) From Selected Financial Statistic see cumulative profit and arrange in the order given (Need to follow courier report given) Q2) Chester has a new design for their product Cell next round that can reduce their material cost of producing units from $8.13 to $7.32. Chester passes on half of all cost savings by cutÝng the current price to customers. For simplicity: - Use current labor costs of $4.02 - Assume all period costs as reported on Chester's Income Statement (Annual Rpt Pg 2) will remain the same. Determine how many units (000) of product Cell would need to be sold next round to break even on the product. ANS 2) Follow courier report Break even= period cost/current price –new material cost- labour cost Material and labour cost given in question Period cost find from income statement or Calculate from financial summary (Depreciation+SGA) Current price = list price of product cell from courier report New price = 19 - (8.14-7.32)/2 = $18.59 Contribution margin per unit = current price –new material cost- labour cost Breakeven unit = period cost/contribution , margin Q3) When you accepted the CEO position for company Andrews, you discovered that you had inherited a profitable company with a leading market share. Your contract has ended, and you have accepted a new position as CEO of another company. The board has asked you to prepare a briefing for the incoming CEO that will replace you. In good essay form, address the following questions: 1. What have you done during your tenure to create or enhance a competitive advantage? 2. What major threats does the company face today? 3. What would be your vision for Andrews four years from now? (Answer 3) subjective question, follow courier report , do give ROS,ROI etc figures while writing (No wrong or right answer for this) Q4) Assuming no brokerage fees, calculate the amount of cash needed to retire Baldwin's 11.1S2011 bond early Answer 4) 11.1S2011 this means year 2011 bond at 11.1% (Look for this bond in that summary) (Face value bond /100) = Number of bonds (Refer bond summary) Cash to retire= (No of bonds *closing price)+brokerage fees Face value of per bond is 100 always Q5) Your company Andrews has a bond retiring in 2008. This bond has an interest rate of 13.5%, a face value of $10,300,000 and a closing price of $102.53. Since your company had sold these 10 year bonds at $100, you would be buying them back at Answer 5) Face value of per bond is 100 always Premium Explanation: Since the closing price of the bond is $102.53, the bond will be repurchased at a premium since this price is higher than the par of $100. (if below 100 than discount) Q6) Answer 6) don’t know what to do Q7) Looking at the industry Balance Sheets, suppose each company wants to increase its leverage to 3.0 by issuing bonds and purchasing plant and equipment. Which of the following company actions would accomplish that goal? Answer 7) Total assets/Total Equity Formula Chester's Total Liabilities would rise to 120,988,000. Chester could buy 60,494,000 additional plant and equipment. Look for financial summary for all competitor and calculate normally and check whose leverage will increased to 3.0 Q8) From the Chester management team's perspective, how would the following actions by Andrews worry them? Rank order the tactics below from (1) most worrisome to Chester to (5) least worrisome to Chester Answer 8) Given the focus more on revenue and then on cost (Subjective) the ranking is as follows: 1. Andrews introduces a new Nano product 2. Andrews invests in TQM to reduce R&D cycle time. 3. Andrews increases automation levels on product Ark to 6.0 4. Andrews increases their Ark promotion budget from $1,200 to $1,920 5. Andrews extends their credit terms to 90 days Q9) Answer 9) Don’t know Q10) Answer 10) Don’t know Q11) Answer 11) Don’t know Q 12) Forecast demand for Bat next year. Assume all competitors maintain their policies towards R&D, pricing, and marketing budgets so that all products will maintain their relative competitive positions as of year end. You expect the Bat product's demand to be somewhere between (in 000's): Answer 12) Industry deamd * growth * apna ccs/total css (Like we do in excel) (CSS: customer service score from courier report segment) For ref: Q 13) Which description best fits Andrews? For clarity: - A differentiator competes through good designs, high awareness, and easy accessibility. - A cost leader competes on price by reducing costs and passing the savings to customers. - A broad player competes in all parts of the market. - A niche player competes in selected parts of the market. Which of these four statements best describes your company's current strategy? Answer 13) Andrews is a niche differentiator (Because you introduce new products by default etc) Q 14) Which description best fits Digby in your industry? For clarity: - A differentiator competes through good designs, high awareness, and easy accessibility. - A cost leader competes on price by reducing costs and passing the savings to customers. - A broad player competes in all parts of the market. - A niche player competes in selected parts of the market. Which of these four statements best describes this competitor? Answer 14) Analyse the other player’s strategy Q 15) Which description best fits Chester? For clarity: - A differentiator competes through good designs, high awareness, and easy accessibility. - A cost leader competes on price by reducing costs and passing the savings to customers. - A broad player competes in all parts of the market. - A niche player competes in selected parts of the market. Which of these four statements best describes this competitor? Answer 15) Analyse the other player’s strategy Q 16) Which description best fits Baldwin in your industry? For clarity: - A differentiator competes through good designs, high awareness, and easy accessibility. - A cost leader competes on price by reducing costs and passing the savings to customers. - A broad player competes in all parts of the market. - A niche player competes in selected parts of the market. Which of these four statements best describes this competitor? Answer 16) Analyse the other player’s strategy ((For analyzing look for new products introduced, pricing , promotion, awareness , accessibility score, market share etc)) Q 17) You want to forecast market demand using historical data. Which tool provides you with the best quantitative estimate of future conditions? Answer 17) Regression Analysis. Note: Linear Programming – Transportation Scenario Analysis - Contingency, example one variable is changed, WHAT IF Ratio Analysis – Financial summaries of the company Economic Order Quantity – Production SWAG analysis – Intuition based Q 18) The Andrews company currently has the following balances in their equity accounts: Common Stock $11,121 Retained earnings $41,044 Suppose next year the Andrews company generates $46,300 in Net Profit, and declares and pays $16,000 in Dividends. What will Andrews ending balance in Retained Earnings be next year? Answer 18) Retained earnings + net income - dividends = current retained earnings 41044+46300-16000 = 71344 Q 19) Your company acquires inventory on account. Select the impact on your financial statements. ( ) Increasing assets only. ( ) Increasing assets and liabilities. ( ) Increasing liabilities only. ( ) Increasing liabilities and decreasing assets. Answer 19) Journal entry Stock To creditors (Journal entry) Increasing assets and liabilities. Assets stock increase and liabilities increase debt Q 20) Select what will be the most correct calculation of retained earnings for next year. ( ) Add next year's gross income to this year's retained earnings. ( ) Add next year's net income to this year's retained earnings. ( ) Add next year's net income minus dividends paid to this year's retained earnings. Answer 20) Add next year's net income minus dividends paid to this year's retained earnings. (Formulas as given earlier) Q 21) This year Baldwin achieved an ROE of 43.4%. Suppose the Board of Directors of Baldwin mandates that management take measures to increase financial Leverage (=Assets/Equity) next year. Assuming Sales, Profits, and Assets remain the same next year, what effect would you expect this new Leverage policy will have on Baldwin ROE? Answer 21) Baldwin ROE will increase since ROI = net income/equity As leverage is asset/equity , asset remains so equity have to decrease to increase leverage and net income remains same so roe increase Q 22) Your Competitive Intelligence team reports that a wave of product liability lawsuits is likely to cause Digby to pull the product Dot entirely off the market this year. Assume Digby scraps all capacity and inventory this round, completely writing off those assets and escrowing the proceeds to a settlement fund, and assume these lawsuits will have no effect on any other products of Digby or other companies. Without Digby's product Dot how much can the industry currently produce in the Core segment? Consider only products primarily in the Core segment last year. Ignore current inventories. Figures in thousands (000). Answer 22) (No forecast, production because question has asked on how many it can produce) Production capacity = Sum of all products in Core segment’s capacity next round ignoring dot’s capacity Production capacity can be used to produce *2* the amount of product (due to second shift potential). – follow production analysis in courier report Q 23) Product Bam is being produced on both first and second shifts by company Baldwin. Compare the incremental cost of purchasing an additional unit of first shift capacity with the additional labor costs of producing that unit on second shift. It costs $3.62/unit in labor to produce Bam on first shift, second shift labor costs are 50% higher. At the current automation level of 8.0 it costs $38.00/unit of first shift capacity. Assume the only fixed costs of purchasing first shift capacity will be Depreciation on a 15 year straight line. Ignore material costs and SG&A expenses which are the same on both shifts. Which of the following statements are true? ( ) Producing units on first shift is always more profitable than second shift because second shift labor rates are higher. ( ) At the current automation level it would be less profitable to pay second shift rates than to buy more capacity. ( ) At the current automation level it would be more profitable to pay second shift rates than to buy more capacity. ( ) It is always more profitable to produce on second shift rather than buying more capacity. Answer 23) Don’t know Q 24) Currently Digby is paying a dividend of $21.05 (per share). If this dividend were raised by $3.64, given its current stock price what would be the Dividend Yield? Answer 24) Formula Dividend yield: d0(1+g)/p0 so 21.05+3.64/closing stock price OF DIGBY , (SEE STOCK MARKET SUMMARY in courier report) Q 25) Currently Axe is charged $2,261,333 Depreciation on the Income Statement of Andrews. Andrews is planning for an increase in this depreciation. On the financial statements of Andrews will this? ( ) Decrease Net Cash from Operations on the Cash Flow Statement. ( ) Increase Net Cash from Operations on the Cash Flow Statement. ( ) Have no impact on the Net Cash from Operations as depreciation appears in both Cash Flow and the Income Statement. ( ) Just impact the Balance Sheet. Answer 25) Have no impact on the Net Cash from Operations as depreciation appears in both Cash Flow and the Income Statement Q 26) What is the Working Capital of Chester? Answer 26) CA-CL = Working capital (See financial summary in courier report) Q 27) What is Digby's Days of Working Capital? Answer 26) [Working Capital/365] (See financial summary in courier report) Q 28) What is Andrews's Free Cash Flow? Ans28) Free Cash Flow = Cash Flow From Operations - Capital Expenditures cash flow from operations - cash flows from investing (See financial summary in courier report) Q 29) Rank the following costs according to their percentage of sales for Digby (largest to smallest) Answer 29) Follow income statement OR (See financial summary in courier report) and for period cost from financial summary calculate (Dep+ SGA) Q 30) Baldwin has a productivity index of 122.5%. What does this mean? ‘ Answer 30) Productivity refers to the amount of work that has been completed within a specific time limit. Productivity is calculated by the total amount of work done with the number of hours. Since productivity increase labour efÏciency increases so less people needed The company needs 18.4% less people to do the same amount of work. Q 31) Chester has a leverage of 1.91 This means that: (Assume leverage is calculated as Assets/Equity) (IMPORTANT QUESTION) ( ) $1.91 of assets is funded with $1.00 of equity and $0.91 of debt. ( ) $1.91 of assets is funded with $1.00 of debt and $0.91 of equity. ( ) Assets are funded with 91% debt. ( ) Assets are funded with 91% equity Answer 31) This means that $1.91 of assets is funded with $1.00 of debt and $0.91 of equity. Equity= Assets/Equity – 1 = 1.91 – 1 = $0.91 debt = Assets/Equity – Equity = 1.91- $0.91 = $1 Q 32) Midyear on July 31st, the Digby Corporation's balance sheet reported: Total Assets of $104.818 million Total Common Stock of $5.080 million Cash of $8.040 million Retained Earnings of $16.323 million. What were the Digby Corporation's total liabilities? Answer 32) Total asset = total equity and liabilities Cash is already included in assets. So , Total Asset - (Retained Earnings + Stock)] million Q 33) Digby Corporation is considering their dividend policy for this year. They are projecting a $5.475mil profit. Given the proforma balance sheet below, what is Digby Corporation planning to pay in dividends this year. (See full question in question book) Answer 33) (This Year Retained Earnings - Last Year Retained Earnings)]mil. Answer 17$14$ Note, cash , inventory ,depreciation etc has no effect on giving divided. Dividend is paid out of retained earnings Q 34) Given Baldwin Corporation’s Q2 balance sheet, compute the missing balance sheet amounts: (See full question in question book) Answer 33) Current Assets [Current Assets = Cash + AR + Inv] Current Liabilities [Current Liabilities = Curr Debt + AP] Total Equity [Total Equity = Common Stock + Retained Earnings] Total Assets [Total Assets = Current Assets + Fixed Assets] (Normal calculation of balance sheet amount as done in finance) Q 35) Digby Corporation uses the accrual method of accounting. When it sells the first unit of inventory for its product called Dast during the year, it also matches which of these expenses with that sale: ( ) The promotion budget for the Dast product. ( ) The R&D on the Dast product. ( ) The material cost and labor cost of the Dast unit. ( ) The depreciation on the Dast production line. Answer 35) The material cost and labor cost of the Dast unit , Since those are direct cost Q 36) What if last year the Andrews Corporation issued 208,000 shares at $42.00 per share. The effect on the balance sheet would have been: ( ) Common Stock increased $8,736,000; Retained Earnings decreased $8,736,000. ( ) Cash increased $8,736,000; Common Stock decreased $8,736,000. ( ) Cash increased $8,736,000 Common Stock increased $8,736,000. ( ) Retained Earnings increased $8,736,000; Cash increased $8,736,00 Answer 36) Cash increased $8,736,000 Common Stock increased $8,736,000. When equity is raised cash inflows and equity also increases Q 37) In anticipation of Digby Corporation’s new product Digle, the company purchased new plant and equipment for $27,360,000. The plant and equipment is expected to be used for 15 years, and has a planned salvage value of $0. Assuming straight-line depreciation, how much will Digle expense in depreciation next year? Answer 37) 27360000-0/15= 1824000 as PLANT value-SALVAGE VALUE/ESTIMATED LIFE YEAR Q 38) Some income or expense transactions are unusual and do not reflect the normal business of the company. These are captured in an Other (unusual income or expenses) line (or something similarly labeled) in the income statement. For example, a brokerage fee for the sale of common stock would not be a normal operating expense for a manufacturer. Which of the following transactions would also be included in the Other (unusual income or expenses) line? ( ) Build $21,800,000 in inventory. ( ) Increase Accounts Payable by $3,270,000. ( ) Sell used plant and equipment with a depreciated value of $32,700,000 for $35,970,000. ( ) Depreciate the value of the plant by $2,180,000. Answer 38) Sell used plant and equipment with a depreciated value of $32,700,000 for $35,970,000. (Loss/gain on sale comes in other or unusual expenses account always) Q 39) In the month of March the Baldwin Corporation received and delivered orders of 173,000 units at a price of $14.00 for revenue of $2.422mil for their product Bam. Baldwin uses the accrual method of accounting and offers 30 day credit terms. By the end of May Baldwin had collected payments of $2.422mil for the March deliveries. How much of the collected $2.422mil should Baldwin show on the March 31st income statement and how much on the May 31st income statement Answer 39) $2.422mil in March; $0 in May Since you record debtor to sales in march, where sales will be added in revenue of income statement. And in may there will be cash to debtor’s entry which will have no effect on income statement Q 40) On the Income Statement, which of the following would be classified as a fixed cost? Answer 40) Income Tax will be Q 41) The Digby Corporation reports the following summaries in this partial Income Statement. Compute the missing values: (see full question in question bank) Answer 41) Contribution: Sales- VC Net profit : EBIT-interest-tax option ©answer (solved by options) Note: Contribution Margin [Contribution Margin = Sales- Var Costs] Net Margin [Net Margin = Sales- (Var Costs + Period Cost)] Net Profit [Net Profit = EBIT - (Interst + Taxes)] Q 42) As part of your competitive analysis, you notice that at Baldwin Corporation the Promo and Sales budgets of the Bam product are pretty low. You wonder how doubling Bam's Sales and Promo budget next year will increase demand--and aversely affect your sales. Examine the profitability of this scenario to Baldwin. For simplicity, assume the following: - Price remains unchanged at $19.00. Variable costs reported on the Production Analysis Report remain constant: material stays at $6.93/unit and labor at $2.71/unit. - Promo and Sales budgets double from $1,000,000 and $1,000,000 respectively. - No inventory carry costs. All other period costs are the same as reported on last year's Annual Report. Estimate how many units of Bam would have to be sold to reach break even. Answer 42) [(Sum period costs including 2 * Promo and 2*Sales) / (Price - material cost labor cost)] thousand units Periodic cost includes promotion and sales so we will increase Or other method (Existing SGA + Depreciation+ Increase in SGA)/ (SP-Material cost-labor cost) Q 43) On the Income Statement, which of the following would be classified as a variable cost? ( ) Direct Labor Expense ( ) R&D Expense ( ) Promotion Expense ( ) Depreciation Expense Answer 43) Direct Labor Expense is in income statement (VC) follow income statement in courier report Q 44) Between January 1st and December 31st of 2006, Chester Corporation paid its employees $23.151mil. However, its Income Statement shows a direct labor expense of $24.351mil million. Which of the following statements accurately explains the difference. Answer 44) Direct labor cost is the labor component of the inventory that was sold, and may include inventory produced in prior years (See income statement in courier report) Q 45) Chester Corporation’s cash flow statement shows an increase in cash of $1,847,357. Which of the following transactions contributed to the cash increase? ( ) A decrease in accounts payable of $710,475 ( ) A decrease in accounts receivable of $330,114 ( ) A decrease in long term bonds of $1,154,598 ( ) An increase in inventory of $759,885 Answer 45) A decrease in accounts receivable of $330,114 (Received cash from Debtors reduce so cash increase) Q 46) Andrews Corporation earned a profit of $22.838mil last year. Andrews' profit would be placed in which category on the cash flow statement? ( ) Nowhere. Profits are not cash ( ) Cash flow from operations ( ) Cash flow from investing activities ( ) Cash flow from financing activities Answer 46) Cash flow from operations (Follow cash flow statement in courier report) Q 47) Looking at the bond market summary, if Baldwin Corp. were to retire the oldest bond early this round how much is the difference that the company will pay per $100 of face value (excluding brokerage fees)? Answer 47) No of bonds: (face value price/100) ((Oldest per bond price (close price) – face value per bond i.ee 100= discount if negative /premium if + (follow bond summary) If value wise multiply by no of bonds [Bond Close - 100 as a percent] Check Bond Market Summary in courier report Q 48) If Chester Corp. were to buy all of it's shares outstanding at its current price, how much would it cost Chester Corp, excluding brokerage fees? Answer 48) Check Stock Market Summary in courier report (Buy back question) [Shares Outstanding * Stock Price] million Basically, (close price*no of shares) Q 49) Chester Corp. has a surplus of cash. If Chester Corp. would have used all of their cash to pay off liabilities what would their leverage have been? Answer 48) [(Total assets - cash) / equity] (see from financial summary) Q 50) Which company has the least amount of free cash flow? Answer 50) Cash flow from operation – cash flow from investing (See from financial statistics from courier report) Q 51) Which company has the most days of working capital? Answer 51) working capital/365 days , calculate for all companies and sees whose maximum ((See from financial statistics from courier report) Q 52) Chester's current book value is $21.57. If the company issued $10 million of their outstanding stock at last year's stock price, what would be the new book value? (Assume everything else remains constant. Answer 52) (total equity exisitng+(10million*closingprice)/ 10million+no of old shares ) (From stock summary in courier report Q 53) Digby Corp. is planning to purchase 50 units of plant capacity for each product line. How much more in depreciation would the company have to spend with this purchase? Answer 53) Automation cost: [50 * (6 + (4 * automation)) / 15] for all products So do individually for each product line since automation will be different And add all (see segment report in courier report for automation) Q 54) The product manager for Baldwin's Elite product, Best, is comparing his product to Chester's Elite product, Creak, in terms of reliability costs between the two. If it costs $0.30 per 1000 hours of MTBF, what is the difference in reliability cost per unit? Answer 54) (0.3*current MTBF of that product)/1000 (see segment report in courier report for mtbf) Q 55) Which company has the most efficient SG&A / Sales ratio? Answer 55) SG&A / Sales ratio (Financial statistics in courier report, calculate for each) Q 56) Andrews Corp. ended the year carrying $76,509,000 worth of inventory. Had they sold their entire inventory at their current prices, how much more revenue would it have brought to Andrews Corp.? Answer 56) [Inventory value] same only option (b), since the value is already given , if no of inventory would have given we would have multiplied by list price Q 57) How much would it cost in brokerage fees for Chester Corp. to repurchase 5% of their shares outstanding? Answer 57) [(5% * shares outstanding * closing stock price)] (see stock summary in courier report) According to capsim “Your company pays a 5% brokerage fee” Q 58) What was Andrews' Dividend Yield last year? Answer 58) see stock market summary in courier report for dividend yield Q 59) Chester has a 4% increase in sales and a 6% increase in interest expense. Assuming everything else remains the same, what is their expected Net Profit? Answer 59) increase sales 4% and increase 6% of interest in income statement of chester from financial statistics in courier report and calculate net profit Q 60) Digby's total assets are expected to increase by 5% this year. What should they expect their leverage to be assuming Total Equity stays the same? (Digby uses Assets / Equity to determine leverage.) Answer 60) [1.05*Total Assets/Total Equity] : New leverage (See financial statistics in courier report for TA And Total equity) Q 61) Refer to the 2006 Income Statement in the Annual Report section of the Inquirer for Andrews. Axe has $4,189 of Total Period Costs. Interest and Other expenses must be allocated to all products, so assume this is done equally and Axe's share is $1,670. For simplicity, assume that changing the price of Axe would not alter its sales of 0,786 units. What is the minimum price Axe could have been sold for without losing money, i.e., its Contribution Margin would cover the $5,859 of Period, Interest and Other expenses? Answer 61) SP-(VC/786)=contribution per unit 786 = break even units VC: find from financial statistics in courier report Period cost: 4189 Period cost/contribution per unit=786 ignore interest expense Q 62) A market condition in which purchasers are so few that the actions of any one of them can materially affect price and the costs that competitors must pay. ( ) Monopoly : one seller many buyer ( ) Monopsony ( ) Oligopoly : many seller one buyer : few seller many buyer ( ) Oligopsony : many seller few buyer Ans 62) Oligopsony Q 63) Refer to the HR Reports in the Inquirer. Through past investments in recruiting and training Baldwin has obtained a productivity index of 109.1%. This means that Baldwin's labor costs would be increased by 9.1% if it did not have these productivity improvements. This is a competitive advantage that Baldwin can sustain or even widen further if its competitors have no HR initiatives. Now, refer to the Income Statement in Baldwin's Annual Report. How much did Baldwin's productivity improvements save it in direct labor costs (in thousands) last year? Ans 63) [Direct labor * productivity index over 100 (9.1 % MULTIPLIED AND THAT MUCH LABOUR COST SAVED) (Refer to courier report income statement) Q 64) The Chester's balance sheet has $76,011,000 in equity. Further, the company is expecting $3,000,000 in net income next year. Assuming no dividends are paid and no stock is issued, what would their Book Value be next year? Ans 64) [( Total Equity + 3 million) / shares outstanding] , shares outstanding in stock summary in courier report Q 65) Of Chester Corporation’s products, which earned the highest Net Margin as a percentage of its sales? Ans 65) Normal calculate NM/SALES CALCUALATE (From income statement in courier report) Q 66) The Baldwin's workforce complement will grow by 10% (rounded to the nearest person) next year. Ignoring downsizing from automating, what would their total recruiting cost be? Assume Baldwin spends the same amount extra above the $1,000 recruiting base as they did last year. ANS 66) Total employee last year = workforce needed complement + new employees ( see HR summary in courier report) Number of employees this year = 501*(1+10%) = 551 Increase in employee = current employees- employees last year Amount spend on recruitment = recruiting spend + increase in recruiting spend (1000 given in question)*increase in employee i.e [110% of last year workforce * (1000 + extra recruiting expense)] (if total recruiting spend asked) Follow HR summary report Q 67) The Digby company will continue to train their existing workforce at their current level to help reduce turnover and improve productivity next year. Employee training costs $20 per hour. How much would their training costs per employee be to the nearest dollar? Ans 67) Training cost: [Training hours * $20 per hour] (Follow hr summary in courier report for training hours) Q 68) If Digby were to increase their workforce complement by 10% (rounded to the nearest person), how much will the company spend on benefits next year? Answer: I don’t know Q 69) Chester Corp. is downsizing the size of their workforce by 10% (to the nearest person) next year from various strategic initiatives. How much will the company pay in separation costs if each worker receives $5,000 when separated? Ans 69) [Complement * decrease percentage * $5,000] Total employee last year(Complement) = workforce needed complement + new employees ( see HR summary in courier report) Q 70) The Digby company will sell 100 units (x1000) of capacity from their Dim product line. Each unit of capacity is worth $6 plus $4 per automation rating. The Digby company will sell the capacity for 35% off. How much do they receive when the capacity is sold? Ans 70) Total Number of Units: 100*1000=100000 units Each unit of capacity is worth =$6+4$=$10 Selling price=@35% off then S.P is 10*(1-0.35) =$6.5 When capacity will be sold they will receive= $6.5*100000=$650000 Q 71) Last year, Baldwin Corp paid their workers $28.15 per hour. How much will they be paying them 2 rounds from then? ANS 71) 28.15(1+.05)^2 (Always 5% increase in each round) Q 72) Deal is a product of the Digby company. Digby's sales forecast for Deal is 513 units. Digby wants to have an extra 10% of units on hand above and beyond their forecast in case sales are better than expected. (They would risk the possibility of excess inventory carrying charges rather than risk lost profits on a stock out.) Taking current inventory into account, what will Deal's Production After Adjustment have to be in order to have a 10% reserve of units available for sale? ANS 72) [1.1 * forecast – current inventory] unit (best case forecasting) (See production analysis in courier report) (add safety stock also that’s why 1.1) Q 73) Baldwin's Elite product Bold has an awareness of 72%. Baldwin's Bold product manager for the Elite segment is determined to have more awareness for Bold than Andrews' Elite product Abby. She knows that the first $1M in promotion generates 22% new awareness, the second million adds 23% more and the third million adds another 5%. She also knows one-third of Bold's existing awareness is lost every year. Assuming that Abby's awareness stays the same next year (77%), out of the promotion budgets below, what is the minimum Baldwin's Elite product manager should spend in promotion to earn more awareness than Andrews' Abby product? ANS 73) Andrews arwareness 77% Baldwin awareness next year (72%*2/3=48%) So Baldwin will spend 1+1 miliion =2 million to generate 22%+23% awareness= 45% more awareness So balwdiwn total awarenss 48+45= 93% which is more than Andrews 77% So 2 million spend answer Q 74) Demand is created through meeting customer buying criteria, credit terms, awareness (promotion) and accessibility (distribution). According to the Thrift segment's customers, which of these products was the most competitive at the end of last year? Ans 74) [Product that earned the highest Dec. Cust. Survey score] (Because eof highest market share is highly competitive) Q 75) Digby currently has $9,749 (000) in cash. Assuming this year’s cash from operations is unchanged and the most capital the company can raise is from issuing bonds and stocks worth $8,000 (000), what activity exposes this company to the most risk of being issued an emergency loan? Ans 75) calculate closing cash highest negative that has maximum risk and also 25% wala funda will apllicable. So calculate for each option and see where there is maximum cash in hand Closing cash (9749+8000=17749) Logic for this question: Moslty getting rid of the entire inventory because cash is coming and in all cash is going Q 76) City is a product of the Chester company which is primarily in the Nano segment, but is also sold in another segment. Chester starts to create their sales forecast by assuming all policies (R&D, Marketing, and Production) for all competitors are equal this year over last. For this question assume that all 708 of units of City are sold in the Nano segment. If the competitive environment remains unchanged what will be the City product’s demand next year (in 000’s)? Ans 76) last year’s sales * growth rate (Given 708b units , find growth rate from courier report) Q 77) Which of these products below is inside the positioning fine cut of 2 segments at year end? Ans 77) With the help of perceptual see the products which are in the centre of the circle in different segment (See perceptual in courier report) Q 78) Investing $2,000,000 in TQM's Channel Support Systems initiative will at a minimum increase demand for your products 1.7% in this and in all future rounds. (Refer to the TQM Initiative worksheet in the CompXM.xls Decisions menu.) Looking at the Round 0 Inquirer for Andrews, last year's sales were $179,789,193. Assuming similar sales next year, the 1.7% increase in demand will provide $3,056,416 of additional revenue. With the overall contribution margin of 34.6%, after direct costs this revenue will add $1,057,520 to the bottom line. For simplicity, assume that the demand increase and margins will remain at last year's levels. How long will it take to achieve payback on the initial $2,000,000 TQM investment, rounded to the nearest month? IMPORTANT QUESTION Ans 78) [12 * investment / (margin * sales increase)] months (12* $2,000,000)/(34.6%* $3,056,416) Q 79) Which product had the lowest combined per unit Material and Labor costs at the end of December, 2006 in the Core market segment? Ans 79) see production analysis in courier report and add material cost+labour cost Q 80) In order to sell a product at a profit the product must be priced higher than the total of what it costs you to build the unit, plus period expenses, and plus overhead. At the end of last year the broad cost leader Chester had an Elite product Cozy. Use the Inquirer's Production Analysis to find Cozy's production cost, (labor+materials). Exclude possible inventory carrying costs. Assume period expenses and overhead total 1/2 of their production cost. What is the minimum price the product could have been sold for to cover the unit cost, period expenses, and overhead? Ans 80) [(Material + labor )* 1.5] (see production analysis in courier report) (1.5 because overhead is also there of about ½ of direct labour+direct material) Q 81) How big will the market be in four years? Ans 81) industry demand (1+g)^4 for each segment and see Q 82) It is January 2nd. Senior management of Digby meets to determine their investment plan for the year. They decide to fully fund a plant and equipment purchase by issuing 50,000 shares of stock plus a new bond issue. The CFO happily notes this will raise their Leverage (=assets/equity) to a new target of 3.0. Assume the stock can be issued at yesterday’s stock price ($27.01). Which of the following statements are true? Check all that apply. (See full question in courier report) Ans 82) option 1 & 5 confirm Digby will issue stock totaling $1,350,500 Long term debt will increase from $66,467,200 to $67,817,700 (because equity of 67817700 added) For working capital and asset check courier report Q 83) Last year the Chester company increased their equity. In 2007 their equity was $37,669. Last year (2008) it increased to $41,399. What are causes of change in equity? Check all that apply (See full question in courier report) Ans 83)     A change of plant and equipment of$10,310. A change in cash of -$4,845. Plant Improvements of $10,31 Issue and retirement of stock. Q 84) Review the Inquirer to determine Digby’s current strategy. Where will they seek a competitive advantage? From the following list, select the top five sources of competitive advantage that Digby would be most likely to pursue. (See full question in courier report) Ans 84) Don’t know But mostly: (Not sure)      Increase demand through TQM initiatives Seek excellent product designs, high awareness, and high accessibility Seek high automation levels Accept lower plant utilization and higher capacities to insure sufficient capacity is available to meet demand Reduce cost of goods through TQM initiatives Q 85) Company Baldwin invested $45,300,000 in plant and equipment last year. The plant investment was funded with bonds at a face value of $24,178,667 at 13.6% interest, and equity of $21,121,333. Depreciation is 15 years straight line. For this transaction alone which of the following statements are true? Ans 85)    On the Balance sheet, Plant & Equipment increased by $45,300,000. On the Balance sheet, Long Term Debt changed by $24,178,667 Depreciation increased by $3,020,000. Q 86) Review the Inquirer to determine Baldwin's current strategy. Where will they seek a competitive advantage? From the following list, select the five sources of competitive advantage that Baldwin would be most likely to pursue. (See full question in courier report) Ans 86) Don’t know Q 87) Digby Corporation is considering adding capacity to their Daft product, currently automated to 7.0. Assume: - They will use the new capacity next year to make and sell 200 additional units. - Each unit of capacity will cost $34.00. - Daft's price will be unchanged at $34.00. - Material costs will remain $13.94 next year. - Labor costs will remain $5.47 on first shift, and $8.09 on second shift. - Bond interest will remain 13.3% next year. - Depreciation will be straight line over 15 years. - SG&A costs can be ignored because they would be the same with or without the new capacity. Which of the following tactics will yield the highest ROI in their first year of production? Ans 87) Scenario 1 buying 200 capacity: Profit/loss: 200*((34+13.94+5.47)-34) Scenario 2 buying 100 capacity Profit/loss: 100*((13.94+5.47)+100*(13.94+8.09)-34) Find which has minimum loss Dep & interest ignored Always purchase with stock since no interest will be borne Find which has minimum loss Q 88) The Andrews team has just purchased $56,892,000 of plant and equipment that has an estimated useful life of 15 years. Suppose at the end of 15 years this plant and equipment can be salvaged for $5,689,200 (1/10th of its original cost). What will be the book value of this purchase (excluding all other Plant and Equipment) after its first year of use? Ans 88) 56892000-5689200/15 = 3413520 56892000-3413520= $53,478,480 at second year Q 89) As part of your competitive analysis, you notice that at Chester Corporation the Promo and Sales budgets of the Cozy product are pretty low. You wonder how doubling Cozy's Sales and Promo budget next year will increase demand--and aversely affect your sales. Examine the profitability of this scenario to Chester. For simplicity, assume the following: - Price remains unchanged at $20.00. - Variable costs reported on the Production Analysis Report remain constant: material stays at $6.65/unit and labor at $2.83/unit. - Promo and Sales budgets double from $950,000 and $1,000,000 respectively. - No inventory carry costs. – All other period costs are fixed and remain the same as reported on last year's Annual Report. Estimate how many units of Cozy would have to be sold to reach break even. Ans 89) [(Sum period costs including 2 * Promo and 2*Sales) / (Price - material cost - labor cost)] thousand units Similar question done earlier Q 90) Chester has a new design for their product Camp next round that can reduce their material cost of producing units from $10.01 to $9.01. For simplicity: - Use current labor costs of $5.64 - Assume all period costs as reported on Chester's Income Statement (Annual Rpt Pg 2) will remain the same. Determine how many units (000) of product Camp would need to be sold next round to break even on the product Ans 90) deprecation+sga/list price-material cost(new)-labour cost (segment report+financial summary in courier report) Similar question done earlier NOTES 1) Break even= period cost/SP-LABOUR-MATERIALCOST PERIOD COST = (Depreciation+SGA) Contribution margin per unit = current price –new material cost- labour cost Sometimes period cost also takes into account of selling & promotion expense of that period 2) (Face value bond /100) = Number of bonds (Refer bond summary) Cash to retire= (No of bonds *closing price)+brokerage fees 3) Leverage: Total assets/Total Equity 4) Demand forecast: Industry deamd * growth * apna ccs/total css 5) retained earning+net income-dividends = current retained earnings 6) Dividend yield: d0(1+g)/p0 7) CA-CL = Working capital 8) [Working Capital/365] = working capital days Free Cash Flow = Cash Flow From Operations - Capital Expenditures or C ash flow from operations - cash flows from investing 10) Productivity refers to the amount of work that has been completed within a specific time limit. Productivity is calculated by the total amount of work done with the number of hours. Since productivity increase labour efÏciency increases so less people needed , so always productivity increase , less labour needed 11) Depreciation = PLANT value -SALVAGE VALUE/ESTIMATED LIFE YEAR 12)Contribution Margin [Contribution Margin = Sales- Var Costs] Net Margin [Net Margin = Sales- (Var Costs + Period Cost)] Net Profit [Net Profit = EBIT - (Interst + Taxes)] 13) Break even: [(Sum period costs including 2 * Promo and 2*Sales) / (Price - material cost - labor cost)] thousand units 14) ) Automation cost: [units* (6 + (4 * automation)) / 15] 9) Important topics for BOD         Break even Bond retire Leverage FORECAST DEMAND Retained earnings ROI sums Free cash flow Book value related sums in equity