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Q: Financial Analysis for Manager II (Accounting) ( Answered,   0 Comments )
Subject: Financial Analysis for Manager II (Accounting)
Category: Business and Money > Accounting
Asked by: buckshot1-ga
List Price: $45.00
Posted: 28 Jun 2005 22:20 PDT
Expires: 28 Jul 2005 22:20 PDT
Question ID: 538205
1. Suppose Grand Canyon Railway offers one class of service, coach.  A
round trip ticket costs $52 per passenger.  Assume variable expenses
are $12 per passenger.  If Grand Canyon has $200,000 of fixed expenses
per month compute the number of round trip tickets it must sell to
earn a profit of $5000.

2. If you received $1 savings account earning 5% on your 1st birthday
how much would you have in the account on your 41st birthday if you do
not withdraw any money before then?

3 What is the market value of a bond that will pay a total of 20
semiannual coupons of $50 each over the remainder of its life? Assume
the bond has a $1000 face value and 8% required rate of return.
4 Fill in each blank with a term from the supplied list below.        
 Activity based costing                 Indirect     
 A cost allocation base                 Job costing    
 A cost driver                          Life-cycle budgeting    
 Correctly cost                         Overcost     
 Direct labor                           Target costing    
 Direct material                        Undercost    
 a. Traditional costing systems that use a single overhead allocation
base usually _____________ high volume products that are produced in
large batches.
 b. ____________ is any factor whose change causes a change in the
related total cost.
 c. ___________ uses the costs of activities as building blocks for
compiling product costs.
 d. Traditional costs systems that allocate manufacturing overhead
based on direct labor hours or direct labor costs usually
_____________  direct-labor-intensive products.
 e. ABC systems differ from traditional cost systems in the treatment
of _____________ costs.
5 The internal rate of return (IRR) rule can be best stated as:    
 a. An investment is acceptable if its IRR is exactly equal to its net
present value (NPV),
 b. An investment is acceptable if its IRR is exactly equal to zero.    
 c. An investment is acceptable if its IRR is less than the required
return, else it should be rejected.
 d. An investment is acceptable if its IRR exceeds the required
return, else it should be rejected.
6 Net present value _________________.      
 a. is equal to the initial investment in a project.     
 b. compares project cost to the present value of the project benefits.    
 c. is equal to zero when the discount rate used is less than the IRR.   
 d. is simplified by the fact that future cash flows are easy to estimate.   
 e. requires a firm to set an arbitrary cutoff point for determining
whether an investment is acceptable.
7 What would you pay today for a stock that is expected to make a $1.50    
 dividend in one year if the expected dividend growth rate is 3% and
you require = a 16% return on your investment?
8 The risk related to changes in the value of international assets as
a result of governmental actions is called ____________ risk.
9 What is the NPV of the following cash flows if your required return is 14%?   
 Year 0 1 2 3 4    
 Cash flow -50,000 -5,000 50,000 50,000 -25,000

Request for Question Clarification by livioflores-ga on 28 Jun 2005 22:50 PDT
I suggest you to cancel this multipart question and split it in 9
different ones, pricing each at $5 for example. this will give you
better chances to get answers.
Note that if a researcher fails to solve only one of these problems
(not enough skills or time) he/she cannot post the answers to the
others, even is he/she knows them.
Subject: Re: Financial Analysis for Manager II (Accounting)
Answered By: omnivorous-ga on 29 Jun 2005 08:59 PDT
Buckshot1 --

1.  Your contribution margin per ticket is $52 - $12 = $40.  To cover
the fixed expenses, you?ll need to have 5,000 passengers or $200,000.

A $5,000 profit will require another 125 passengers.

The answer: 5,125.

2.  That?s 40 birthdays.  And we?ll assume that the 5% compounds
annually, as compounding it daily or even monthly increases the
interest paid.  The formula is:
$1 * (1.05^40) 

That?s 1.05 to the 40th power = 7.04

So you?d have $7.04

3.  This is a 10-year bond with semi-annual coupons at an 8%
rate-of-return.  Microsoft Excel is an excellent tool for calculating
the bond value using the PRICE function, which has the following
variables: (settlement, maturity, rate, yield, redemption, frequency)

PRICE returns the value per $100 of face value, which is $62.50,
making this bond worth $625.  I?ve done the calculations here in Excel
(as well as the answer to #9.  Even if you don?t have Excel, it should
be viewable in your browser, but with Excel you can download the
spreadsheet and even change the calculations:

4a. overcost
b.  A cost driver
c.  Activity based costing (ABC)
d.  undercost
e.  indirect

5.  Here it?s important to know that IRR equals an NPV of zero for a
project.  An IRR of less than the NPV should be rejected; an IRR
equaling the NPV would probably have Finance asking again, ?This is on
the cusp: do you really want to do this??

Kent Sate University 
"Intermediate Financial Management," (Ramana Sonti)

So, you want the IRR to exceed the required rate of return, D.

6.  B

7.  You?ll be discounting the growing stream of dividends back to
present day at 16%.  The value will be set by the formula:

P0 = D1 / (r-g)

P0 = today's price
D1 = dividends in period 1
r = required rate of return (in decimals)
g = dividend growth rate

P0 = $1.50/(.16 - .03) = $1.50 / .13 = $11.54

8.  ?Foreign currency? risk is probably the term that best fits this,
from a financial standpoint.  HOwever, Investopedia prefers the term
"foreign-exchange" risk:
"Foreign Exchange Risk" (undated)

9.  Again you?ll want to reference the spreadsheet.  The NPV factor
uses 1 for year 0; 1/1.14 for year 1, 1/(1.14)^2 for year 2, etc.  By
setting up an NPV factor, you?re discounting your cash flows back to
the present ? and this project has a positive NPV of $3033.98

Google search strategy:
?What is IRR??
"currency risk"

Best regards,


Request for Answer Clarification by buckshot1-ga on 29 Jun 2005 09:55 PDT
This is the first time I have used Google to research questions.  I
appreciate you advice to make each question individual.  I also want
to thank you for the answers you supplied.
Also, did you receive payment for your services?  Please get back to
me asap regarding payment if you have not and I will take care of it

What is the average turn around for questions at Google?

Thanks Again,

Clarification of Answer by omnivorous-ga on 29 Jun 2005 10:13 PDT
Jesse --

Thanks for your comments.  It was another researcher who suggested
breaking up questions.  Most questions get answered with 24 hours --
though sometimes questions require longer research.

As you can understand, there are also questions that just can't be
answered -- often because the information just isn't anywhere
accessible on the Internet.

When you set up the question and arranged credit/debit card payment,
it assured that a researcher gets paid, so please don't worry about

Best regards,

There are no comments at this time.

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