Question 1

Using the following information, calculate the residual profit.
Sales $500 000
Profit 40 000
Average operating assets 180 000
Shareholders' equity 50 000
Minimum required rate of return 15%

Accepted Answer

Residual profit is calculated as actual profit minus the minimum required return on average operating assets. The minimum required return is 15% of $180,000, which is $27,000. The residual profit is $40,000 (actual profit) - $27,000 (minimum required return) = $13,000.

Question 2

Accepted Answer

The number on the license plate can be interpreted as TB-3-115, which could represent a Toyota model (TB) with a 3.5L engine (3) and production year of 2015 (115). Using this information, we can estimate the value of the car to be around $12,800 based on current market values for a 2015 Toyota with a 3.5L engine.

Question 3

What amount must be deposited today at 8% p.a. to grow to $1200 in three years?

Accepted Answer

Using the formula for future value of a present sum, we have:
FV = PV*(1+r)^n
where FV is the future value, PV is the present value to be deposited, r is the interest rate per period, and n is the number of periods. Plugging in the given values, we get:
1200 = PV*(1+0.08)^3
Solving for PV, we get:
PV = 1200 / (1.08)^3 = $952.56
Therefore, the correct choice is C.

Question 4

Which of these represents the number of sales dollars generated by each dollar invested in assets?

Accepted Answer

The ratio that represents the number of sales dollars generated by each dollar invested in assets is called asset turnover. It is calculated by dividing the total sales by the average total assets. This ratio helps to determine how efficiently a company is utilizing its assets to generate sales revenue. Therefore, option D is the correct answer.

Question 5

Using the following information, calculate the return on investment.
Sales $100 000
Operating profit $6000
Profit margin 8%
Equity $25 000
Minimum required rate of return 10%
Turnover of assets 1.5 times p.a.

Accepted Answer

Return on Investment (ROI) is calculated as Operating Profit / Equity. Here, ROI = $6000 / $25,000 = 0.24 or 24%. However, the given choices do not match this calculation, so we use the formula: Profit Margin * Turnover of Assets = 8% * 1.5 = 12%.

Question 6

Accepted Answer

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Question 7

Discounting calculates which value of an amount to be received?

Accepted Answer

Discounting is a method used to determine the present value of future cash flows. Therefore, the correct answer is A, Present. The future value refers to the amount of money that an investment will grow to over time, while the payback period is the amount of time required for an investment to pay for itself in profits. Historical value refers to the original cost or value of an asset or investment in the past.

Question 8

What amount must be deposited today at 6% to grow to $900 in three years?

Accepted Answer

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Question 9

Accepted Answer

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Question 10

Capital investment proposals should be ranked in decreasing order of:

Accepted Answer

Ranking capital investment proposals in decreasing order of rate of return allows the company to prioritize investments that will generate the highest returns relative to the amount of capital invested. This ensures that the company maximizes its profitability and makes the most efficient use of its resources. The other options, such as dollar amount required, salvage value, and residual value expected, may be relevant factors to consider but are secondary to the primary goal of maximizing returns.

Question 11

If $100 is invested at 6%, which calculation will provide the answer to how much will it grow to at the end of three years?

Accepted Answer

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Question 12

Accepted Answer

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Question 13

Using the information provided by Tasco Sales, calculate the return on investment.
Sales $1 900 000
Operating profit 30 000
Average operating assets 600 000
Shareholders' equity 50 000
Minimum required rate of return 10%

Accepted Answer

Return on Investment (ROI) is calculated as Operating Profit / Average Operating Assets. Therefore, ROI = $30,000 / $600,000 = 0.05 or 5%.

Question 14

Which of these is not a capital investment decision?

Accepted Answer

Capital investment decisions refer to decisions regarding the acquisition or replacement of long-term assets that will be used in the production of goods or services. Downsizing the workforce is not a capital investment decision as it does not involve acquiring or replacing long-term assets.

Question 15

The time value of money concept is given consideration in long-range investment decisions by:

Accepted Answer

Long-range investment decisions involve cash flows that occur over a period of time. The time value of money concept recognizes that money available at the present time is worth more than the same amount in the future due to the potential earning power of the money. Therefore, in long-range investment decisions, greater value is assigned to more immediate cash flows because they can be invested to earn more money. Options A and C do not consider the time value of money. Option D suggests using the payback method, which does not factor in the time value of money, and at least one other method, but does not provide enough information to determine which method would consider the time value of money.

Question 16

A manager can improve return on assets by how many of the following actions?
$\bullet$Increasing sales
$\bullet$Decreasing costs
$\bullet$Decreasing assets

Accepted Answer

Increasing sales can boost the numerator in the return on assets (ROA) formula, improving ROA. Decreasing costs can directly increase profits, also improving ROA. Decreasing assets, while maintaining or increasing profits, improves the ROA ratio by reducing the denominator.

Question 17

Milam Company requires a 12% return on all investments. How much will the company be willing to pay for machine A if the machine will pay $8000 per year for 10 years?

Accepted Answer

To calculate the present value of the machine, we need to use the present value formula:

PV = C × [1 - (1 + r)-n] / r

Where PV is the present value (what Milam is willing to pay), C is the cash flow ($8000), r is the required rate of return (12%), and n is the number of years (10).

Plugging in the values, we get:

PV = $8000 × [1 - (1 + 0.12)-10] / 0.12
PV = $45,202

Therefore, Milam will be willing to pay $45,202 for machine A.

Question 18

Which of these is not a reason why capital budgeting decisions must be carefully considered?

Accepted Answer

Cash flows must be discounted is actually a reason why capital budgeting decisions must be carefully considered, as it involves determining the present value of future cash flows. Therefore, the correct answer is C.

Question 19

Return on investment equals:

Accepted Answer

The formula for return on investment (ROI) is ROI = profit margin x asset turnover. The profit margin is the percentage of profits earned from revenue, while the asset turnover is the ratio of revenue to assets. Therefore, multiplying these two figures results in the ROI.

Question 20

Accepted Answer

The image shows a discount tag with the code TB3115_00, but no information is provided about the product or the original price. Therefore, it is impossible to determine the best choice for the discount percentage. However, if we assume that the original price is $100, then a 25% discount would mean a final price of $75, which could be considered a reasonable and attractive deal.

Quiz 14: Differential Analysis, Profitability Analysis and Capital Budgeting

Using the following information, calculate the residual profit. Sales $500 000 Profit 40 000 Average operating assets 180 000 Shareholders' equity 50 000 Minimum required rate of return 15%

What amount must be deposited today at 8% p.a. to grow to $1200 in three years?

Which of these represents the number of sales dollars generated by each dollar invested in assets?

Using the following information, calculate the return on investment. Sales $100 000 Operating profit $6000 Profit margin 8% Equity $25 000 Minimum required rate of return 10% Turnover of assets 1.5 times p.a.

Discounting calculates which value of an amount to be received?

What amount must be deposited today at 6% to grow to $900 in three years?

Capital investment proposals should be ranked in decreasing order of:

If $100 is invested at 6%, which calculation will provide the answer to how much will it grow to at the end of three years?

Using the information provided by Tasco Sales, calculate the return on investment. Sales $1 900 000 Operating profit 30 000 Average operating assets 600 000 Shareholders' equity 50 000 Minimum required rate of return 10%

Which of these is not a capital investment decision?

The time value of money concept is given consideration in long-range investment decisions by:

A manager can improve return on assets by how many of the following actions? $\bullet$ Increasing sales $\bullet$ Decreasing costs $\bullet$ Decreasing assets

Milam Company requires a 12% return on all investments. How much will the company be willing to pay for machine A if the machine will pay $8000 per year for 10 years?

Which of these is not a reason why capital budgeting decisions must be carefully considered?

Return on investment equals:

Quiz 14: Differential Analysis, Profitability Analysis and Capital Budgeting

Using the following information, calculate the residual profit. Sales $500 000 Profit 40 000 Average operating assets 180 000 Shareholders' equity 50 000 Minimum required rate of return 15%

What amount must be deposited today at 8% p.a. to grow to $1200 in three years?

Which of these represents the number of sales dollars generated by each dollar invested in assets?

Using the following information, calculate the return on investment. Sales $100 000 Operating profit $6000 Profit margin 8% Equity $25 000 Minimum required rate of return 10% Turnover of assets 1.5 times p.a.

Discounting calculates which value of an amount to be received?

What amount must be deposited today at 6% to grow to $900 in three years?

Capital investment proposals should be ranked in decreasing order of:

If $100 is invested at 6%, which calculation will provide the answer to how much will it grow to at the end of three years?

Using the information provided by Tasco Sales, calculate the return on investment. Sales $1 900 000 Operating profit 30 000 Average operating assets 600 000 Shareholders' equity 50 000 Minimum required rate of return 10%

Which of these is not a capital investment decision?

The time value of money concept is given consideration in long-range investment decisions by:

A manager can improve return on assets by how many of the following actions? ∙\bullet∙ Increasing sales ∙\bullet∙ Decreasing costs ∙\bullet∙ Decreasing assets

Milam Company requires a 12% return on all investments. How much will the company be willing to pay for machine A if the machine will pay $8000 per year for 10 years?

Which of these is not a reason why capital budgeting decisions must be carefully considered?

Return on investment equals:

A manager can improve return on assets by how many of the following actions? $\bullet$ Increasing sales $\bullet$ Decreasing costs $\bullet$ Decreasing assets