

Subject:
Financial Analysis for Manager II (Accounting)
Category: Business and Money > Accounting Asked by: buckshot1ga 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 Lifecycle 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 _____________ directlaborintensive 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  


Subject:
Re: Financial Analysis for Manager II (Accounting)
Answered By: omnivorousga 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 10year bond with semiannual coupons at an 8% rateofreturn. 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: http://www.mooneyevents.com/accounting.xls 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) http://business.kent.edu/courses/spring02/Fin/36054/lecture_notes/chapter6.htm 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 / (rg) 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 "foreignexchange" risk: Answers.com "Foreign Exchange Risk" (undated) http://www.answers.com/currency%20risk 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: NPV + IRR ?What is IRR?? "currency risk" Best regards, OmnivorousGA  
 


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