(TCO 8) Planning for capital investments is an important function of management. You are responsible for considering purchasing a new exhibit. It would cost $136,000 and have an estimated useful life of 5 years. The salvage value is $70,000. It is expected to increase net annual cash flows by $25,000. The borrowing rate is 8%. The cost of capital is 10%. Calculate the net present value of this project. (1) Explain the pros and cons of using this method to evaluate a capital expenditure (10 points) and (2) show all computations required to arrive at the correct solution. (15 points). (Points : 25)
2. (TCO 6) To adequately plan for the success of the business a budget must be developed. (1) Identify the budgets that comprise the master budget (10 points) and (2) Describe the sources for preparing the budgeted income statement (15 points). Include textbook page references to identify where the correct answer was located. (Points : 25)
3. (TCO 4) Financial statement analysis is used by investors, creditors and managers of business to evaluate the operation and health of the business. This information is in part the basis for decision making. (1) Explain how to use the Statement of Cash Flows to understand the operation of the business (10 points) and (2) provide an example of how the results of this analysis could be used to make business decisions. (15 points). (Points : 25)
5. (TCO 5) Ajax Company has a unit selling price of $520, variable costs per unit of $286, and fixed costs of $187,000. Compute the break-even point in units using (a) the mathematical equation and (b) contribution margin per unit.. (1) Explain how the determination of the break-even point is to be performed (10 points) and (2) Show the computations of both methods required to arrive at the correct answers. (20 points or 10 points per solution). (Points : 30)
(TCO 10) Not all pricing methods apply to the market place. In manufacturing it is common practice to determine the cost of a product as it moves through it transformation to a finished product. (1) Explain why a negotiated transfer price is required (10 points) and (2) provide an example of the application of a negotiated transfer price (10 points). (Points : 20)
2. (TCO 11) Distinguish between managerial and financial accounting as to (1) primary users of reports (10 points) and
Primary user of Managerial accounting are Managers, employees and other internal decision maker of the organization.
Primary users of financial accounting are Investor, creditors and other user who are external to the organization.
(2) identify the types & purpose of financial reports. (10 points). (Points : 20)
4. (TCO 7) To promote better management control of business centers financial responsibilities are assigned to managers. There are three basic types of responsibility centers. (1) Explain how a profit center operates (10 points) and (2) provide an example of its application in business. (10 points). (Points : 20)
5. (TCO 1) To evaluate the financial operation and health of a business ratio analysis is used. (1) Provide the formula for Debt to Total Assets Ratio and explain how it is computed (10 points) and (2) provide an example of how this ratio can be used in decision making in business (10 points). (Points : 20)