DEVRY BUSN278 MIDTERM EXAM

MIDTERM

(TCO 1) Why are budgets useful in the planning process?

 They provide management with information about the company's past performance.

They help communicate goals throughout the organization.

They guarantee the company will be profitable if it meets its objectives.

They enable the budget committee members to earn their paychecks

Question 2. Question : (TCO 2) The quantitative forecasting method that uses actual sales from recent time periods to predict future sales, assuming each period has equal influence on the prediction of future sales, is the _____.

: moving average model

weighted moving average model

exponential smoothing model

equal average model

Points Received: 5 of 5

Comments:

Question 3. Question : (TCO 3) The regression statistic that measures how many standard errors the coefficient is from zero is the _____.

: correlation coefficient

coefficient of determination

standard error of the estimate

t-statistic

Points Received: 0 of 5

Comments:

Question 4. Question : (TCO 4) Capital expenditures are incurred for all of the following reasons except _____.

: as preventive maintenance

to counteract competition

decreased production

improvement in product quality

Points Received: 0 of 5

Comments:

Question 5. Question : (TCO 5) Which of the following is not true when ranking proposals using zero-base budgeting?

 Due to changing circumstances, a low-priority item may later become a high-priority item.

Decision packages are ranked in order of increasing benefit.

Divisional and departmental managers submit initial recommendations, with top management making the final ranking.

Nonfunded packages should also be ranked.

Points Received: 0 of 5

Comments:

Question 6. Question : (TCO 6) Which of the following ignores the time value of money?

 Internal rate of return

Profitability index

Net present value

Payback period

Points Received: 5 of 5

Comments:

Question 7. Question : (TCO 1) Budgeting is a planning and control system. Discuss how budgeting contributes to these two functions of management.

Question 8. Question : (TCO 2) There are a variety of forecasting techniques that a company may use. Identify and discuss the four main qualitatative approaches, including their advantages and disadvantages.

Question 9. Question : (TCO 2) Use the table Television Sales Time Series to answer the questions below.

Television Sales Time Series

(in thousands)

Day Sales Day Sales

1 24.0 9 26.0

2 25.0 10 27.0

3 26.0 11 27.0

4 27.0 12 26.5

5 28.5 13 28.0

6 28.0 14 27.0

7 27.0 15 29.0

8 27.5

Part (a): What is the project sales for Day 16 using a 3-day moving average?

Part (b): What is the project sales for Day 16 using a 6-day moving average?

Part (c): Use the mean absolute deviation (MAD) and mean square error (MSE) to determine which average provides the better forecast.

Comments:

Question 10. Question : (TCO 3) Use the table “Food and Beverage Sales for Luigi’s Italian Restaurant” to answer the questions below.

Food and Beverage Sales for Luigi’s Italian Restaurant

($000s)

Month First Year Second Year

January 218 237

February 212 215

March 209 223

April 251 174

May 256 174

June 216 135

July 131 142

August 137 145

September 99 110

October 117 117

November 137 151

December 213 208

Part (a): Calculate the regression line and forecast sales for February of Year 3.

Part (b): Calculate the seasonal forecast of sales for February of Year 3.

Part (c): Which forecast do you think is most accurate and why?

Question 11. Question : (TCO 6) Davis Company is considering two capital investment proposals. Estimates regarding each project are provided below.

Project A Project B

Initial Investment $800,000 $650,000

Annual Net Income $50,000 45,000

Annual Cash Inflow $220,000 $200,000

Salvage Value $0 $0

Estimated Useful Life 5 years 4 years

The company requires a 10% rate of return on all new investments.

Part (a): Calculate the payback period for each project.

Part (b): Calculate the net present value for each project.

Part (c): Which project should Jackson Company accept and why?

Question 12. Question : (TCO 6) Mimi Company is considering a capital investment of $250,000 in new equipment. The equipment is expected to have a 5-year useful life with no salvage value. Depreciation is computed by the straight-line method. During the life of the investment, annual net income and cash inflows are expected to be $25,000 and $75,000, respectively. Mimi's minimum required rate of return is 10%.

Part (a): Calculate the payback period.

Part (b): Calculate the net present value.

Part (c): Calculate the accounting rate of return.