Activity 5 – Corporate Memo

Activity 5_14  

Activity Description: Corporate Memo (100 points)

You are working for the College town-based California Happy Valley Beverage Corporation, marketers of California Sunshine Filtered Water. The product has a colorful label and sells well throughout the state, especially among environmentally-conscious consumers. A member of the College town City Council, with a reputation and record for activism, ran across several controversial articles about filtered water production and distribution and proceeded to raise a ruckus, questioning the integrity of Happy Valley Beverage Corporation and the suitability and value of its bottled water product.

The city council has written a pointed letter to your corporation and copied it to the local newspaper, mirroring these concerns. On the attractive bottle label, you and thousands of other consumers can read the statement, “Every drop of this healthy, refreshing beverage is guaranteed to be filtered in conformance with all applicable California and federal government regulations.” What the label does not explicitly state, however, is that the water is actually tap water from the town's municipal system, a fact that has now been exposed.

As a newly minted MBA who has only recently assumed the Director of Marketing and Community Relations position, you have been assigned the privilege of answering the letter. Even though you have two other “rookies” who can assist in the research and composition, the responsibility for the content rests with you. In order for your assistants to do a good job, you have to supply them with some of the basic arguments that will uphold your company's reputation and stem the tide of this public relations brouhaha.  Your Activity responses should be both grammatically and mechanically correct, and formatted in the same fashion as the Activity itself.  If there is a Part A, your response should identify a Part A, etc.  In addition, you must appropriately cite all resources used in your response and document in a bibliography using APA style.  (100 points)  (A 2-page response is required.)

Part A Find at least three (3) journal and/or news articles that might help you outline a response to why consumers should pay for bottled tap water and to determine what other defenses your company could use against this type of consumer activism. You will use this research in Part B. Present your research in the form of an annotated bibliography.  (30 points) 

Part B Write a 2-page memo to your “rookie” associates explaining the company’s present circumstances. Note that your memo will likely be used as the basis of your company’s response to the accusations of the College town City Council. Include responses to the following issues in your memo and support them with the research that you found in Part A.  (70 points) 

  1. Why will/should people pay for a bottle of water? Give a minimum of three (3) reasons supported by the research. 

  2. What are the corporations’ best defenses in the face of this kind of consumer criticism? Give at least three (3) defenses with an explanation of why each reason is important.

For more homework assignments please visit: http://homework.ecrater.com

Activity 5 – Corporate Memo

Activity 5_14  

Activity Description: Corporate Memo (100 points)

You are working for the College town-based California Happy Valley Beverage Corporation, marketers of California Sunshine Filtered Water. The product has a colorful label and sells well throughout the state, especially among environmentally-conscious consumers. A member of the College town City Council, with a reputation and record for activism, ran across several controversial articles about filtered water production and distribution and proceeded to raise a ruckus, questioning the integrity of Happy Valley Beverage Corporation and the suitability and value of its bottled water product.

The city council has written a pointed letter to your corporation and copied it to the local newspaper, mirroring these concerns. On the attractive bottle label, you and thousands of other consumers can read the statement, “Every drop of this healthy, refreshing beverage is guaranteed to be filtered in conformance with all applicable California and federal government regulations.” What the label does not explicitly state, however, is that the water is actually tap water from the town's municipal system, a fact that has now been exposed.

As a newly minted MBA who has only recently assumed the Director of Marketing and Community Relations position, you have been assigned the privilege of answering the letter. Even though you have two other “rookies” who can assist in the research and composition, the responsibility for the content rests with you. In order for your assistants to do a good job, you have to supply them with some of the basic arguments that will uphold your company's reputation and stem the tide of this public relations brouhaha.  Your Activity responses should be both grammatically and mechanically correct, and formatted in the same fashion as the Activity itself.  If there is a Part A, your response should identify a Part A, etc.  In addition, you must appropriately cite all resources used in your response and document in a bibliography using APA style.  (100 points)  (A 2-page response is required.)

Part A Find at least three (3) journal and/or news articles that might help you outline a response to why consumers should pay for bottled tap water and to determine what other defenses your company could use against this type of consumer activism. You will use this research in Part B. Present your research in the form of an annotated bibliography.  (30 points) 

Part B Write a 2-page memo to your “rookie” associates explaining the company’s present circumstances. Note that your memo will likely be used as the basis of your company’s response to the accusations of the College town City Council. Include responses to the following issues in your memo and support them with the research that you found in Part A.  (70 points) 

  1. Why will/should people pay for a bottle of water? Give a minimum of three (3) reasons supported by the research. 

  2. What are the corporations’ best defenses in the face of this kind of consumer criticism? Give at least three (3) defenses with an explanation of why each reason is important.

Access SC_Access2013_CS_P1a_FirstnameLastname_2

   

 

                                                   

 

PROJECT DESCRIPTION

You are working with the organizers of the Solar Energy Conference to be held in Phoenix, Arizona in March of 2016. The conference will bring together delegates from companies around the world that specialize in developing solar energy solutions. A database for the conference has already been developed. This database includes tables listing data about workshops, delegates and the companies they represent, and conference staff. You are working in the database and will be editing some of the tables and other components as part of ongoing efforts to ensure the database is as up-to-date and useful as possible.

 

GETTING STARTED

• Download the following file from the SAM website:

• SC_Access2013_CS_P1a_FirstLastName_1.accdb
• Open the file you just downloaded and save it with the name:
• SC_Access2013_CS_P1a_FirstLastName_2.accdb
• Hint: If you do not see the .accdb file extension in the Save file dialog box, do not type it. Access will add the file extension for you automatically.
• To complete this SAM Project, you will also need to download and save the following data file from the SAM Website onto your computer:
• support_SC_A13_CS_P1a_Company.xlsx
• Open the _GradingInfoTable table and ensure that your first and last name is displayed as the first record in the table. If the table does not contain your name, delete the file and download a new copy from the SAM website.

 

PROJECT STEPS

1. Create a new table in Datasheet view with the following options:

1. Rename the default primary key ID field to PackageID and change the Data Type to Short Text. (Hint: PackageID should remain the primary key.)
2. Change the Field Size of the PackageID field to 4.
3. Add a new field with the name PackageName and change the Data Type to Short Text.
4. Add another field to the table with the name Price and change the Data Type to Currency.

    Save the table with the name Conference Packages.

2.                  With the Conference Packages table open in Datasheet view, change the font in the table to Arial Narrow and the font size of the table to 12 pt.

3.                  With the Conference Packages table still open, add the records shown in bold in Table 1 below to the Conference Packages table. As necessary, widen the columns to make all text visible for each record. Save and close the table.

Table 1: Conference Packages

 

PackageID	PackageName	Price
FC16	Full Conference Package	$175.00
WO16	Workshop Package	$100.00
SV16	Site Visit Package	$100.00
KO16	Keynote Package	$75.00

 

4.                  Open the Relationships window and add the Delegates and Conference Packages table to the Relationships window. Create a one-to-many relationship between the PackageID field in the Conference Packages table and the PackageID field in the Delegates table. Select enforce referential integrity and cascade update related fields. Do not make the relationship cascade delete related records. Save and close the Relationships window.

5.                  Open the Delegates table in Design view and make the following changes to the Deposit field:

a.           Change the Data Type from Short Text to Currency.

b.           Change the Default Value property to 50.

6.                  With the Delegates table still open in Design view, specify PackageID field as a required field.

7.                  Add a field to the end of the Delegates table with the following options:

3. Set SpecAccommodations for the field name.

d.           Set the Data Type property of the field to Long Text.

e.           Set the Description property to Special Accommodations required for Workshop or Site Visit participation.

f.            Set the Caption property of the field to Special Accommodations.

8.                  Change the Field Size property of the ReservationID field to 6. Save the changes to the Delegates table. (Note: Because there was a change to a field size, the “Some data may be lost” warning message will appear. The data fits within the valid ranges, so ignore this error and continue saving the table.)

9.                  View the Delegates table in Datasheet view and then find or navigate to the record with the ReservationID value of LO001. Update the Special Accommodations field value to Wheel Chair accessibility.

10.              With the Delegates table still in Datasheet view, apply a filter by selection to locate all records where the CompanyID value is equal to DSNM01. Update the PackageID field value for Lalo Garcia’s record (who has a ReservationID of LG001) to FC16. Also update the Workshop field value to ACT01. Clear all filters applied to the table. Save and close the Delegates table.

11.              Open the Workshops table in Design view. Use the Lookup Wizard to change the Category field to a Lookup field. Type in the following three values (in the order shown) as the list of possible values for the field: Presentation, Panel Discussion, Hands-On Training. Limit the field values to only the items in the list, and do not allow multiple values for the field.

12.              With the Workshops table still open in Design view, delete the Confirmed field from the Workshops table. Save the Workshops table.

13.              Switch the Workshops table to Datasheet view and change the Category field value to Panel Discussion for the Efficiency Levels for Solar Power workshop (which has the WorkshopID field value ESP01). Close the table.

14.              The Solar Energy Conference organizers offer priority registration for Gold-level corporate sponsors, but are planning to open the registration to companies at other support levels. To identify the companies in the Company table as Gold-level corporate sponsors, create an Update query to update the SponsorLevel field value to “Gold“ for all records currently in the Company table. Run the query and save it as Gold Update Query. Close the query.

15.              Import the data from the Excel file support_SC_A13_CS_P1a_Company.xlsx available for download from the SAM website. Append the records into the Company table. Do not create a new table and do not save the import steps.

16.              Create a simple query using the Query Wizard based on the Sites table with the following options:

a.           Include the SiteName, ContactName, ContactNumber fields (in that order).

b.           Save the query with the title Sites Contact Query.

    Run and close the query.

17.              Create a new query in Design view based on the Company and Delegates tables with the following options:

a.           Include the Company field from the Company table.

b.           Include the LastName, FirstName, and Phone fields (in that order) from the Delegates table.

c.           Sort the records in ascending order based on the Company field and then by the LastName field.

d.           Save the query with the name Company Contact Query.

        Run and close the query.

18.              Create a crosstab query based on the Delegates table with the following options:

a.           Use only data from the Delegates table in the query.

b.           Use the PackageID field as the row heading.

c.           Use the CompanyID field as the column heading.

d.           Use a Count of the ReservationID field as the calculated value for each row and column intersection in the crosstab query.

e.           Save the query with the name Package-Company Crosstab.

        View the query and then close it.

19.              Create a query based on the Conference Packages and Delegates tables with the following options:

a.           Select the FirstName, LastName, and Deposit fields from the Delegates table.

b.           Select the PackageName and Price fields from the Conference Packages table.

c.           Move the Deposit field to the right of the Price field.

d.           Add a calculated field after the Deposit field with the alias TotalDue that calculates the difference between the Price field and the Deposit field.

e.           Save the query with the name Outstanding Payments Query.

View the query, confirm that it matches Figure 1 on the following page, and then close it.

Figure 1: Outstanding Payments Query

 

20.              Open the Keynote Attendance Query and add the criteria to select only those records with a PackageID field value of FC16 or KO16. Save and run the query and then close it.

21.              Open the Sunworks Small Deposit Query and add the criteria to select only those records with a CompanyID field value of SWWA01 AND a Deposit field value less than 100. Hide the CompanyID field. Save and run the query, then close it.

22.              Open the Site Visits Total Query in Design view and modify it by adding totals to the query. For the SiteName field, set the total row to Group By. For the ReservationID field, set the total row to Count. Save and run the query, then close it.

23.              Create a Split Form based on the Delegates table. Save the form as Delegates Entry Form.

24.              Use the Delegates Entry Form to add a new record to the Delegates table, using the values shown in Figure 2 on the following page.

Figure 2: Delegates Entry Form

 

25.              Create the simple report shown in Figure 3 on the following page for the Workshops table. Save the report with the name Workshops Report and close the table. (Hint: The time and date values in your report header may not match those shown in Figure 3.)

Figure 3: Workshops Report

26.              Create a new report using the Report Wizard based on the Company Payment Query with the following options:

a.           Include all fields from the Company Payment Query.

b.           Use no additional grouping in the report.

c.           Sort the report in ascending order by the Company field values.

d.           Use the Tabular layout and the Portrait orientation for the report.

e.           Set the title of the report to Company Payment Report.

    Preview the report and then save it.

Figure 4: Company Payment Report

27.              Open the Company report in Layout view and make the following updates to the report so that it matches Figure 5 on the following page:

a.           Change the title of the report to Company Representation.

b.           Remove the Address and Postal Code columns from the report.

28.              Add a Total row to the Company report that calculates the sum of the values in the Number of Delegates column. If necessary, expand the size of the total control so that it appears completely. View the Company report in Report view, confirm that it matches Figure 5 on the following page, then save and close the report.

 

Figure 5: Company Report

Save and close any open objects in your database. Compact and repair your database, close it, and exit Access. Follow the directions on the SAM website to submit your completed project.

 

 

                      

For more homework assignments please visit: http://homework.ecrater.com

Access SC_Access2013_CS_P1a_FirstnameLastname_2

   

 

                                                   

 

PROJECT DESCRIPTION

You are working with the organizers of the Solar Energy Conference to be held in Phoenix, Arizona in March of 2016. The conference will bring together delegates from companies around the world that specialize in developing solar energy solutions. A database for the conference has already been developed. This database includes tables listing data about workshops, delegates and the companies they represent, and conference staff. You are working in the database and will be editing some of the tables and other components as part of ongoing efforts to ensure the database is as up-to-date and useful as possible.

 

GETTING STARTED

• Download the following file from the SAM website:

• SC_Access2013_CS_P1a_FirstLastName_1.accdb
• Open the file you just downloaded and save it with the name:
• SC_Access2013_CS_P1a_FirstLastName_2.accdb
• Hint: If you do not see the .accdb file extension in the Save file dialog box, do not type it. Access will add the file extension for you automatically.
• To complete this SAM Project, you will also need to download and save the following data file from the SAM Website onto your computer:
• support_SC_A13_CS_P1a_Company.xlsx
• Open the _GradingInfoTable table and ensure that your first and last name is displayed as the first record in the table. If the table does not contain your name, delete the file and download a new copy from the SAM website.

 

PROJECT STEPS

1. Create a new table in Datasheet view with the following options:

1. Rename the default primary key ID field to PackageID and change the Data Type to Short Text. (Hint: PackageID should remain the primary key.)
2. Change the Field Size of the PackageID field to 4.
3. Add a new field with the name PackageName and change the Data Type to Short Text.
4. Add another field to the table with the name Price and change the Data Type to Currency.

    Save the table with the name Conference Packages.

2.                  With the Conference Packages table open in Datasheet view, change the font in the table to Arial Narrow and the font size of the table to 12 pt.

3.                  With the Conference Packages table still open, add the records shown in bold in Table 1 below to the Conference Packages table. As necessary, widen the columns to make all text visible for each record. Save and close the table.

Table 1: Conference Packages

 

PackageID	PackageName	Price
FC16	Full Conference Package	$175.00
WO16	Workshop Package	$100.00
SV16	Site Visit Package	$100.00
KO16	Keynote Package	$75.00

 

4.                  Open the Relationships window and add the Delegates and Conference Packages table to the Relationships window. Create a one-to-many relationship between the PackageID field in the Conference Packages table and the PackageID field in the Delegates table. Select enforce referential integrity and cascade update related fields. Do not make the relationship cascade delete related records. Save and close the Relationships window.

5.                  Open the Delegates table in Design view and make the following changes to the Deposit field:

a.           Change the Data Type from Short Text to Currency.

b.           Change the Default Value property to 50.

6.                  With the Delegates table still open in Design view, specify PackageID field as a required field.

7.                  Add a field to the end of the Delegates table with the following options:

3. Set SpecAccommodations for the field name.

d.           Set the Data Type property of the field to Long Text.

e.           Set the Description property to Special Accommodations required for Workshop or Site Visit participation.

f.            Set the Caption property of the field to Special Accommodations.

8.                  Change the Field Size property of the ReservationID field to 6. Save the changes to the Delegates table. (Note: Because there was a change to a field size, the “Some data may be lost” warning message will appear. The data fits within the valid ranges, so ignore this error and continue saving the table.)

9.                  View the Delegates table in Datasheet view and then find or navigate to the record with the ReservationID value of LO001. Update the Special Accommodations field value to Wheel Chair accessibility.

10.              With the Delegates table still in Datasheet view, apply a filter by selection to locate all records where the CompanyID value is equal to DSNM01. Update the PackageID field value for Lalo Garcia’s record (who has a ReservationID of LG001) to FC16. Also update the Workshop field value to ACT01. Clear all filters applied to the table. Save and close the Delegates table.

11.              Open the Workshops table in Design view. Use the Lookup Wizard to change the Category field to a Lookup field. Type in the following three values (in the order shown) as the list of possible values for the field: Presentation, Panel Discussion, Hands-On Training. Limit the field values to only the items in the list, and do not allow multiple values for the field.

12.              With the Workshops table still open in Design view, delete the Confirmed field from the Workshops table. Save the Workshops table.

13.              Switch the Workshops table to Datasheet view and change the Category field value to Panel Discussion for the Efficiency Levels for Solar Power workshop (which has the WorkshopID field value ESP01). Close the table.

14.              The Solar Energy Conference organizers offer priority registration for Gold-level corporate sponsors, but are planning to open the registration to companies at other support levels. To identify the companies in the Company table as Gold-level corporate sponsors, create an Update query to update the SponsorLevel field value to “Gold“ for all records currently in the Company table. Run the query and save it as Gold Update Query. Close the query.

15.              Import the data from the Excel file support_SC_A13_CS_P1a_Company.xlsx available for download from the SAM website. Append the records into the Company table. Do not create a new table and do not save the import steps.

16.              Create a simple query using the Query Wizard based on the Sites table with the following options:

a.           Include the SiteName, ContactName, ContactNumber fields (in that order).

b.           Save the query with the title Sites Contact Query.

    Run and close the query.

17.              Create a new query in Design view based on the Company and Delegates tables with the following options:

a.           Include the Company field from the Company table.

b.           Include the LastName, FirstName, and Phone fields (in that order) from the Delegates table.

c.           Sort the records in ascending order based on the Company field and then by the LastName field.

d.           Save the query with the name Company Contact Query.

        Run and close the query.

18.              Create a crosstab query based on the Delegates table with the following options:

a.           Use only data from the Delegates table in the query.

b.           Use the PackageID field as the row heading.

c.           Use the CompanyID field as the column heading.

d.           Use a Count of the ReservationID field as the calculated value for each row and column intersection in the crosstab query.

e.           Save the query with the name Package-Company Crosstab.

        View the query and then close it.

19.              Create a query based on the Conference Packages and Delegates tables with the following options:

a.           Select the FirstName, LastName, and Deposit fields from the Delegates table.

b.           Select the PackageName and Price fields from the Conference Packages table.

c.           Move the Deposit field to the right of the Price field.

d.           Add a calculated field after the Deposit field with the alias TotalDue that calculates the difference between the Price field and the Deposit field.

e.           Save the query with the name Outstanding Payments Query.

View the query, confirm that it matches Figure 1 on the following page, and then close it.

Figure 1: Outstanding Payments Query

 

20.              Open the Keynote Attendance Query and add the criteria to select only those records with a PackageID field value of FC16 or KO16. Save and run the query and then close it.

21.              Open the Sunworks Small Deposit Query and add the criteria to select only those records with a CompanyID field value of SWWA01 AND a Deposit field value less than 100. Hide the CompanyID field. Save and run the query, then close it.

22.              Open the Site Visits Total Query in Design view and modify it by adding totals to the query. For the SiteName field, set the total row to Group By. For the ReservationID field, set the total row to Count. Save and run the query, then close it.

23.              Create a Split Form based on the Delegates table. Save the form as Delegates Entry Form.

24.              Use the Delegates Entry Form to add a new record to the Delegates table, using the values shown in Figure 2 on the following page.

Figure 2: Delegates Entry Form

 

25.              Create the simple report shown in Figure 3 on the following page for the Workshops table. Save the report with the name Workshops Report and close the table. (Hint: The time and date values in your report header may not match those shown in Figure 3.)

Figure 3: Workshops Report

26.              Create a new report using the Report Wizard based on the Company Payment Query with the following options:

a.           Include all fields from the Company Payment Query.

b.           Use no additional grouping in the report.

c.           Sort the report in ascending order by the Company field values.

d.           Use the Tabular layout and the Portrait orientation for the report.

e.           Set the title of the report to Company Payment Report.

    Preview the report and then save it.

Figure 4: Company Payment Report

27.              Open the Company report in Layout view and make the following updates to the report so that it matches Figure 5 on the following page:

a.           Change the title of the report to Company Representation.

b.           Remove the Address and Postal Code columns from the report.

28.              Add a Total row to the Company report that calculates the sum of the values in the Number of Delegates column. If necessary, expand the size of the total control so that it appears completely. View the Company report in Report view, confirm that it matches Figure 5 on the following page, then save and close the report.

 

Figure 5: Company Report

Save and close any open objects in your database. Compact and repair your database, close it, and exit Access. Follow the directions on the SAM website to submit your completed project.

 

 

                      

MGT195 Midterm Exam

Q1. According to Henry Mintzberg, decisions flowing from a firm's strategic analysis are its:

a. Emergent strategy

b. Deliberate strategy

c. Intended strategy

d. Realized strategy

Q2. Strategic objectives are more specific than vision statements.

a. true

b. false

Q3. According to Michael Porter, management innovations such as total quality, benchmarking, and business process reengineering cannot lead to sustainable competitive advantage because:

a. Companies that have implemented these techniques have lost money

b. There is no proof that these techniques work

c. They cost too much money and effort to implement

d. Every company is trying to implement them and hence it does not make a company different from others

Q4. Effective vision statements include:

a. All strategic directions of the organization

b. A brief statement of the company's direction

c. Strategic posturing and future objectives

d. Financial objectives and projected figures

Q5. According to the text, formulating strategy includes taking into consideration strategy at the business, international, and corporate levels. In addition managers must formulate effective entrepreneurial initiatives.

a. true

b. false

Q6. Objectives in organizations should be clear, stated, and known by employees throughout the organization.

a. true

b. false

Q7. Decisions by Boards of Directors are always consistent with shareholder interests.

a. true

b. false

Q8. Strategic management should only include short-term objectives. Long-term objectives are covered in the organization's vision statement.

a. true

b. false

Q9. Members of Boards of Directors are:

a. Appointed by the Securities and Exchange Commission

b. Elected by the shareholders as their representatives

c. Elected by the public

d. Only allowed to serve one term of four years

Q10. To illustrate interrelationships among different segments of the general environment: The persistence of large U.S. trade deficits (__________) has led to greater demand for protectionist measures, such as trade barriers and quotas (__________). These measures lead to higher prices for U.S. consumers and fuel inflation (__________).

a. Macroeconomic, sociocultural, political/legal

b. Macroeconomic, political/legal, macroeconomic

c. Macroeconomic, technological, macroeconomic

d. Macroeconomic, global, macroeconomic

Q11. Rivalry will be most intense when there is a lack of differentiation or switching costs.

a. true

b. false

Q12. Which of the following would be considered part of a firm's general environment?

a. Decreased entry barriers

b. Higher unemployment rates

c. Increased bargaining power of the firm's suppliers

d. Increased competitive intensity

Q13. An independent group of suppliers, such as farmers, gather to form a cooperative to sell their products to buyers directly, replacing their former distributor. This is an example of:

a. Threat of entry

b. Backward integration

c. Forward integration

d. Threat of substitute products

Q14. Because the Internet lowers barriers to entry in most industries, it:

a. Decreases the threat of new entrants

b. Increases the threat of new entrants

c. Makes it easier to build customer loyalty

d. Increases supplier power

Q15. The most intense rivalry results from:

a. Numerous equally balanced competitors, slow industry growth, high fixed or storage costs

b. Few competitors, slow industry growth, lack of differentiation, high fixed or storage costs

c. Numerous equally balanced competitors, manufacturing capacity increases only in large increments, low exit barriers

d. A high level of differentiation

Q16. A large fabricator of building components purchased a steel company to provide raw materials for its production process. This is an example of:

a. Backward integration

b. Economies of scale

c. Forward integration

d. Product differentiation

Q17. Environmental scanning and competitor intelligence provide important inputs for forecasting activities.

a. true

b. false

Q18. Competitor Intelligence (CI) is a tool that can provide management with 'early warnings' about both threats and opportunities.

a. true

b. false

Q19. Historical comparisons are most appropriate during periods of recession or economic boom.

a. true

b. false

Q20. Value chain analysis can only be applied to manufacturing operations.

a. true

b. false

Q21. Customer service would include:

a. Product promotion

b. Product distribution

c. Parts supply

d. Procurement of critical supplies

Q22. Value chain analysis assumes that a firm's basic economic purpose is to create value and it is a useful framework for analyzing a firm's strengths and weaknesses.

a. true

b. false

Q23. One strength of the balanced scorecard is that it is very easy to implement and that there is little need for executive sponsorship.

a. true

b. false

Q24. For a resource to provide a firm with potential sustainable advantages it must satisfy only two criteria: rareness and difficulty in substitution.

a. true

b. false

Q25. In value chain analysis, finance and accounting are considered part of a firm's general

administration.

a. true

b. false

Q26. Employees will be able to obtain a proportionately high level of profits they generate (relative to the firm) if:

a. Suppliers are loyal to the firm

b. The cost to the firm of replacing them is high

c. Their expertise is firm-specific

d. The firm's resources are path dependent

Q27. Tacit knowledge:

a. Is the same as explicit knowledge

b. Is found mostly at the lower levels of the organization

c. Can be codified but not reproduced

d. Can be accessed only with the consent of the employees because it is in the minds of the employees

Q28. In the knowledge economy, if a large portion of a firm's value is in intellectual and human assets, the difference between the company's market value and book value should ___________ a company with mostly physical and financial assets.

a. Be equal to

b. Be smaller than

c. Be larger than

d. Not be correlated with

Q29. Attracting and retaining human capital is a challenge for many firms today. Firms experiencing high turnover should:

a. Focus on increased recruiting

b. Decrease money spent on human capital

c. Make their work environment less stimulating

d. Adopt effective retention strategies

Q30. The text suggests that talented professionals are typically most concerned about financial rewards. Money is the top reason why such employees take and leave jobs.

a. true

b. false

Q31. The difference between the market value and book value of a firm is its social capital.

a. true

b. false

Q32. Social capital is found in the knowledge, skills, and abilities of individual employees.

a. true

b. false

Q33. The least effective way to retain human capital is:

a. Encouraging employee identification with organizational mission and goals

b. Requiring employees to sign agreements that prevent them from working for competitors in the future

c. Providing employees with a challenging and stimulating work environment

d. Providing employees with financial and nonfinancial rewards and incentives

Q34. According to the text, effective e-teams identified group members with a proper balance of technical and interpersonal skills.

a. true

b. false

Q35. The experience curve concept suggests that production costs tend to increase as production increases regardless of where an industry is at in its life cycle.

a. true

b. false

Q36. Which of the following phrases best completes this sentence: Because of the Internet, firms that use a focus strategy have new opportunities to:

a. Respond quickly to customer requests

b. Provide more services and features

c. Access markets less expensively

d. Access niche markets in a highly specialized fashion

Q37. Focus, by itself, often constitutes a competitive advantage.

a. true

b. false

Q38. During the decline stage of the product life cycle, a harvesting strategy means that a firm keeps a product going without significantly reducing marketing support, technological development or other investments, while hoping that competitors will exit the market.

a. true

b. false

Q39. As markets mature, competition on the basis of differentiation is preferable to price

competition.

a. true

b. false

Q40. Concentrating solely on one form of competitive advantage generally leads to the highest possible level of profitability.

a. true

b. false

Q41. An important advantage of first movers or 'pioneers' in a market is that they may establish brand recognition that may later serve as an important switching cost.

a. true

b. false

Q42. One way the Internet and digital technologies are creating opportunities for firms with differentiation strategies is by enabling mass customization.

a. true

b. false

Q43. One of the risks of vertical integration is that there may be problems associated with

unbalanced capacities or unfilled demands along a firm's value chain.

a. true

b. false

Q44. Which of the following statements regarding internal development as a means of

diversification is false?

a. Many companies use internal development to extend their product lines or add to their service

offerings

b. An advantage of internal development is that it is generally faster than other means of diversification and firms can benefit from speed in developing new products and services

c. The firm is able to capture the wealth created without having to 'share the wealth' with alliance

partners

d. Firms can often develop products or services at a lower cost if they rely on their own resources instead

of external funding

Q45. Philip Morris bought Miller Brewing and used its marketing expertise to improve Miller's market share. This justification for diversification is best described as:

a. Utilizing common infrastructures

b. Capitalizing on core competencies

c. Reducing corporate risk

d. Using portfolio analysis

Q46. A firm that incorporates more processes toward the original source of raw materials is an example of forward integration.

a. true

b. false

Q47. Portfolio management should be considered as the primary basis for formulating corporate level strategies.

a. true

b. false

Q48. According to the text, the two main sources of synergy in unrelated diversification are

parenting and financial synergies.

a. true

b. false

Q49. Portfolio management matrices generally consist of two axes that reflect industry or market growth and the market share of a business.

a. true

b. false

Q50. A firm should consider vertical integration when:

a. The competitive situation is highly volatile

b. Customer needs are evolving

c. The firm's suppliers willingly cooperate with the firm

d. The firm's suppliers of raw materials are often unable to maintain quality standards

    

For more homework assignments please visit: http://homework.ecrater.com

MGT195 Midterm Exam

Q1. According to Henry Mintzberg, decisions flowing from a firm's strategic analysis are its:

a. Emergent strategy

b. Deliberate strategy

c. Intended strategy

d. Realized strategy

Q2. Strategic objectives are more specific than vision statements.

a. true

b. false

Q3. According to Michael Porter, management innovations such as total quality, benchmarking, and business process reengineering cannot lead to sustainable competitive advantage because:

a. Companies that have implemented these techniques have lost money

b. There is no proof that these techniques work

c. They cost too much money and effort to implement

d. Every company is trying to implement them and hence it does not make a company different from others

Q4. Effective vision statements include:

a. All strategic directions of the organization

b. A brief statement of the company's direction

c. Strategic posturing and future objectives

d. Financial objectives and projected figures

Q5. According to the text, formulating strategy includes taking into consideration strategy at the business, international, and corporate levels. In addition managers must formulate effective entrepreneurial initiatives.

a. true

b. false

Q6. Objectives in organizations should be clear, stated, and known by employees throughout the organization.

a. true

b. false

Q7. Decisions by Boards of Directors are always consistent with shareholder interests.

a. true

b. false

Q8. Strategic management should only include short-term objectives. Long-term objectives are covered in the organization's vision statement.

a. true

b. false

Q9. Members of Boards of Directors are:

a. Appointed by the Securities and Exchange Commission

b. Elected by the shareholders as their representatives

c. Elected by the public

d. Only allowed to serve one term of four years

Q10. To illustrate interrelationships among different segments of the general environment: The persistence of large U.S. trade deficits (__________) has led to greater demand for protectionist measures, such as trade barriers and quotas (__________). These measures lead to higher prices for U.S. consumers and fuel inflation (__________).

a. Macroeconomic, sociocultural, political/legal

b. Macroeconomic, political/legal, macroeconomic

c. Macroeconomic, technological, macroeconomic

d. Macroeconomic, global, macroeconomic

Q11. Rivalry will be most intense when there is a lack of differentiation or switching costs.

a. true

b. false

Q12. Which of the following would be considered part of a firm's general environment?

a. Decreased entry barriers

b. Higher unemployment rates

c. Increased bargaining power of the firm's suppliers

d. Increased competitive intensity

Q13. An independent group of suppliers, such as farmers, gather to form a cooperative to sell their products to buyers directly, replacing their former distributor. This is an example of:

a. Threat of entry

b. Backward integration

c. Forward integration

d. Threat of substitute products

Q14. Because the Internet lowers barriers to entry in most industries, it:

a. Decreases the threat of new entrants

b. Increases the threat of new entrants

c. Makes it easier to build customer loyalty

d. Increases supplier power

Q15. The most intense rivalry results from:

a. Numerous equally balanced competitors, slow industry growth, high fixed or storage costs

b. Few competitors, slow industry growth, lack of differentiation, high fixed or storage costs

c. Numerous equally balanced competitors, manufacturing capacity increases only in large increments, low exit barriers

d. A high level of differentiation

Q16. A large fabricator of building components purchased a steel company to provide raw materials for its production process. This is an example of:

a. Backward integration

b. Economies of scale

c. Forward integration

d. Product differentiation

Q17. Environmental scanning and competitor intelligence provide important inputs for forecasting activities.

a. true

b. false

Q18. Competitor Intelligence (CI) is a tool that can provide management with 'early warnings' about both threats and opportunities.

a. true

b. false

Q19. Historical comparisons are most appropriate during periods of recession or economic boom.

a. true

b. false

Q20. Value chain analysis can only be applied to manufacturing operations.

a. true

b. false

Q21. Customer service would include:

a. Product promotion

b. Product distribution

c. Parts supply

d. Procurement of critical supplies

Q22. Value chain analysis assumes that a firm's basic economic purpose is to create value and it is a useful framework for analyzing a firm's strengths and weaknesses.

a. true

b. false

Q23. One strength of the balanced scorecard is that it is very easy to implement and that there is little need for executive sponsorship.

a. true

b. false

Q24. For a resource to provide a firm with potential sustainable advantages it must satisfy only two criteria: rareness and difficulty in substitution.

a. true

b. false

Q25. In value chain analysis, finance and accounting are considered part of a firm's general

administration.

a. true

b. false

Q26. Employees will be able to obtain a proportionately high level of profits they generate (relative to the firm) if:

a. Suppliers are loyal to the firm

b. The cost to the firm of replacing them is high

c. Their expertise is firm-specific

d. The firm's resources are path dependent

Q27. Tacit knowledge:

a. Is the same as explicit knowledge

b. Is found mostly at the lower levels of the organization

c. Can be codified but not reproduced

d. Can be accessed only with the consent of the employees because it is in the minds of the employees

Q28. In the knowledge economy, if a large portion of a firm's value is in intellectual and human assets, the difference between the company's market value and book value should ___________ a company with mostly physical and financial assets.

a. Be equal to

b. Be smaller than

c. Be larger than

d. Not be correlated with

Q29. Attracting and retaining human capital is a challenge for many firms today. Firms experiencing high turnover should:

a. Focus on increased recruiting

b. Decrease money spent on human capital

c. Make their work environment less stimulating

d. Adopt effective retention strategies

Q30. The text suggests that talented professionals are typically most concerned about financial rewards. Money is the top reason why such employees take and leave jobs.

a. true

b. false

Q31. The difference between the market value and book value of a firm is its social capital.

a. true

b. false

Q32. Social capital is found in the knowledge, skills, and abilities of individual employees.

a. true

b. false

Q33. The least effective way to retain human capital is:

a. Encouraging employee identification with organizational mission and goals

b. Requiring employees to sign agreements that prevent them from working for competitors in the future

c. Providing employees with a challenging and stimulating work environment

d. Providing employees with financial and nonfinancial rewards and incentives

Q34. According to the text, effective e-teams identified group members with a proper balance of technical and interpersonal skills.

a. true

b. false

Q35. The experience curve concept suggests that production costs tend to increase as production increases regardless of where an industry is at in its life cycle.

a. true

b. false

Q36. Which of the following phrases best completes this sentence: Because of the Internet, firms that use a focus strategy have new opportunities to:

a. Respond quickly to customer requests

b. Provide more services and features

c. Access markets less expensively

d. Access niche markets in a highly specialized fashion

Q37. Focus, by itself, often constitutes a competitive advantage.

a. true

b. false

Q38. During the decline stage of the product life cycle, a harvesting strategy means that a firm keeps a product going without significantly reducing marketing support, technological development or other investments, while hoping that competitors will exit the market.

a. true

b. false

Q39. As markets mature, competition on the basis of differentiation is preferable to price

competition.

a. true

b. false

Q40. Concentrating solely on one form of competitive advantage generally leads to the highest possible level of profitability.

a. true

b. false

Q41. An important advantage of first movers or 'pioneers' in a market is that they may establish brand recognition that may later serve as an important switching cost.

a. true

b. false

Q42. One way the Internet and digital technologies are creating opportunities for firms with differentiation strategies is by enabling mass customization.

a. true

b. false

Q43. One of the risks of vertical integration is that there may be problems associated with

unbalanced capacities or unfilled demands along a firm's value chain.

a. true

b. false

Q44. Which of the following statements regarding internal development as a means of

diversification is false?

a. Many companies use internal development to extend their product lines or add to their service

offerings

b. An advantage of internal development is that it is generally faster than other means of diversification and firms can benefit from speed in developing new products and services

c. The firm is able to capture the wealth created without having to 'share the wealth' with alliance

partners

d. Firms can often develop products or services at a lower cost if they rely on their own resources instead

of external funding

Q45. Philip Morris bought Miller Brewing and used its marketing expertise to improve Miller's market share. This justification for diversification is best described as:

a. Utilizing common infrastructures

b. Capitalizing on core competencies

c. Reducing corporate risk

d. Using portfolio analysis

Q46. A firm that incorporates more processes toward the original source of raw materials is an example of forward integration.

a. true

b. false

Q47. Portfolio management should be considered as the primary basis for formulating corporate level strategies.

a. true

b. false

Q48. According to the text, the two main sources of synergy in unrelated diversification are

parenting and financial synergies.

a. true

b. false

Q49. Portfolio management matrices generally consist of two axes that reflect industry or market growth and the market share of a business.

a. true

b. false

Q50. A firm should consider vertical integration when:

a. The competitive situation is highly volatile

b. Customer needs are evolving

c. The firm's suppliers willingly cooperate with the firm

d. The firm's suppliers of raw materials are often unable to maintain quality standards

    

Finance questions 1-31 with excel calculation of problems 26-31

1. The objective of a firm's management should be to only undertake the projects that ________ the market value of shareholders' equity.
a. decrease
b. increase
c. do not change
d. provide zero change to
e. none of the above

2. The decision rule that management should use with net present value (NPV) is to undertake only those projects with a(n) ________ NPV.
a. positive
b. negative
c. indeterminate
d. negative or zero
e. none of the above

3. The net present value (NPV) amount represents the amount by which the project is expected to ________ shareholder wealth (assuming positive NPV for this question).
a. provide zero change to
b. decrease
c. increase
d. provide zero change to or decrease

4. Net cash inflows from operations can be computed in which of the following ways?
a. Cash Flow = Revenues – Cash Expenses – Taxes
b. Cash Flow = Net Income + Noncash Expenses
c. Cash Flow = Revenue – Total Expenses – Taxes + Noncash Expenses
d. all of the above

5. Which of the following is not true?
a. Multiple IRRs for a project may exist when the project's required rate of return is high.
b. IRR implicitly assumes that cash flows can be reinvested at the IRR rate.
c. Ranking projects based on NPV is not always the appropriate way to pick which projects to undertake.
d. When used to compare two projects, ACC assumes that a project with a short live can be repeated at a later date.

6. Which of the following would not be expected to affect the decision of whether to undertake an investment?
a. Income tax rates.
b. Cost of capital.
c. Sales reductions in other products caused by this investment.
d. Cost of the feasibility study which was conducted for a project.

7. The cost of capital does not reflect any market related risk of the project, or “beta.”
a. true
b. false

8. In computing a project's cost of capital the risk to use is:
a. the risk of the financing instruments used to fund the project
b. the risk of the project's cash flows
c. a risk free rate
d. a historical risk rate using T-bills
e. none of the above

9. When a firm has to ration capital, it should:
a. Fund the set of projects within the limits of capital that produces the greatest overall net present value.
b. Fund the set of projects within the limits of capital that produces the greatest overall internal rate of return (IRR).
c. Rank the projects based on net present value and fund as many of them in that order as possible.
d. Rank the projects based on internal rate of return (IRR) and fund as many of them in that order as possible.

10. If a project requires a $50,000 increase in inventory, this increase in inventory . . .
a. represents a cash outflow for the project.
b. represents a cash inflow for the project.
c. represents a cash outflow for the project but must be adjusted for taxes.
d. represents a cash inflow for the project but must be adjusted for taxes.
e. should be ignored in the evaluation of the project.

11. The ________ is the rate that prevails in a zero-inflation scenario. The ________ is the rate that one actually observes.
a. nominal, inflation
b. real rate, expected
c. nominal, real rate
d. real rate, nominal

12. If the nominal cost of capital is 16% per year and the expected rate of inflation is 5% per year, then compute the real cost of capital (rounded to nearest tenth of a %).
a. 11.5%
b. 10.5%
c. 8.5%
d. 9.0%
e. none of the above

13. When a project has multiple internal rates of return:
a. the analyst should choose the highest rate to compare with the firm's cost of equity
b. the analyst should choose the lowest rate to compare with the firm's cost of capital
c. the analyst should choose the rate that seems most “reasonable” given the project's cash flows, to compare with the firm's cost of equity
d. the analyst should compute the project's net present value and accept the project if its NPV is greater than $0.
e. none of the above

14. Which of the following statements is most correct?
a. Sunk costs must be included in the project's cash flow.
b. R&D expenditures cannot be a part of the initial cost of a project.
c. Opportunity costs are sunk costs and therefore should not be included in the cost of the project.
d. Depreciation is not a cash expense.
e. All of the above statements are false.

15. Suppose the firm's cost of capital is stated in nominal terms, but the project's cash flows are expressed in real dollars. If a nominal rate is used to discount real cash flows and there is inflation (assume positive inflation), the calculated NPV would
a. be biased upward
b. be biased downward
c. be correct
d. be possibly biased; either upward or downward
e. none of the above

16. The correct method to handle overhead costs in capital budgeting is to:
a. allocate a portion to each project.
b. allocate them to projects with the highest NPVs.
c. ignore all except identifiable incremental amounts.
d. ignore them in all cases.

17. Which of the following statements is normally correct for a project with a positive NPV?
a. IRR exceeds the cost of capital.
b. Accepting the project has an indeterminate effect on shareholders.
c. The traditional payback period exceeds the life of the project.
d. The present value index equals one.

18. Capital budgeting proposals for investment projects should be evaluated as if the project were financed:
a. entirely by debt.
b. entirely by debt, adjusting for taxes.
c. half by debt and half by equity.
d. with the highest cost source of funds, to be safe.
e. the financing and investment decisions should be viewed separately.

19. When projects are mutually exclusive, can be undertaken only once, and capital is unconstrained, selection should be made according to the project with the:
a. longer life.
b. larger initial size.
c. highest IRR.
d. highest NPV.
e. highest PVI (present value index).

20. Which of the following can be deduced about a three-year investment project that has a two year traditional payback period?
a. The NPV is positive.
b. The IRR is greater than the cost of capital.
c. Both 'a' and 'b' can be deduced.
d. Neither 'a' nor 'b' can be deduced.

21. If a project has a cost of $50,000 and a present value index of 1.4, then:
a. its cash inflows are $70,000.
b. the present value of its cash inflows is $30,000.
c. its IRR is 20%.
d. its NPV is $20,000.

22. If two projects offer the same, positive NPV, then:
a. they also have the same IRR.
b. they have the same traditional payback period.
c. they are mutually exclusive projects.
d. they add the same amount to the value of the firm.
e. all the above

23. The likely effect of discounting nominal cash flows with real interest rates (assuming positive NPV) will be to:
a. make an investment's NPV appear more attractive.
b. make an investment's NPV appear less attractive.
c. correctly calculate an investment's NPV if inflation is expected.
d. correctly calculate an investment's NPV, regardless of expected inflation.

24. Which of the following is representative of how depreciation expense is handled in the face of inflation?
a. It increases annually with the rate of inflation.
b. It decreases annually in nominal terms.
c. The depreciable base is not altered by inflation.
d. The real value of the depreciation is fixed.

25. When analyzing a capital project, an increase in net working capital associated with the project:
a. is not a relevant cash flow.
b. is a relevant cash outflow.
c. is a relevant cash inflow.
d. is a relevant cash outflow that must be adjusted for taxes.
e. is a relevant cash inflow that must be adjusted for taxes.

Problems

26. What is Plato’s Inc.’s weighted average cost of capital (WACC) given the following information? Dollar amounts are in millions. There are two debt components and YTM (yield to maturity) for these two components are: 4% for notes due in May 2015, and 6% for notes due in January 2020. The risk-free rate is 3%, and market risk premium is 8%. The company has a beta of 1.5. The firm’s tax rate is 35%. (7 points)

        Book Value     Market Value
Notes due 2015     15         17
Notes due 2020     12         16
Equity         54         74
Total         81         107

27. Calculate the traditional payback period, IRR, NPV, and PVI (present value index) for the project with the following cash flows. The opportunity cost of capital for the project is 14%. (8 points)

Cash
Year Flows
0 -1,500,000
1 400,000
2 600,000
3 550,000
4 450,000
5 200,000

28. Calculate the relevant cash flows (for each year) for the following capital budgeting proposal. Enter the total net cash flows for each year in the answer sheet. (10 points)
• $90,000 initial cost for machinery;
• depreciated straight-line over 4 years to a book value of $10,000;
• 35% marginal tax rate;
• $55,000 additional annual revenues;
• $25,000 additional annual cash expense;
• annual expense for debt financing is $7,500.
• $3,500 previously spent for engineering study;
• The project requires inventory increase by $32,000 and accounts payable increase by $14,000 at the beginning of the project;
• The investment in working capital occurs one time at the beginning of the project and it requires working capital return to the original level when the project ends in 4 years;
• 11% cost of capital;
• life of the project is 4 years; and
• The new equipment will be sold at the end of 4 years; expected market value of the new equipment at the end of 4 years is $15,000;

29. You are analyzing a capital budgeting project and, as shown by ???, some numbers are unreadable. You can read the following information:

Cash Flows at the end of:
Year 0 = -$25,000
Year 1 = +$8,000
Year 2 = +$ 6,000
Year 3 = +$ 2,600
Year 4 = $ ???
Year 5 = +$ 9,500

The Cost of Capital is 13%, the NPV = -$5,650.01 and the IRR = ???%. Your superior, ignoring the important fact that we should reject the project, is demanding to know the Cash Flow in Year 4.
Calculate the cash flow in Year 4. (5 points)

30. We can continue to use an existing machine at a cost of $22,500 annually (after-tax cash basis, including depreciation tax benefits) for the next 4 years. Alternatively, we can purchase a new machine that has an expected life of 7 years for $45,000. The new machine is expected to cost $11,000 each year to operate (after-tax cash basis, including depreciation tax benefits). The new machine will reduce inventory needs by $5,000 starting immediately. This is a one-time reduction in inventory that will last for the entirety of the new machine’s life. This reduction in inventory will be reversed at the end of 7 years. The cost of capital is 14%. The existing machine has no salvage value and we estimate that the new machine’s salvage value will be 0 in 7 years. Should we purchase the new machine? In the exam answer sheet, indicate your decision to replace or not replace, and provide support for your answer (i.e., indicate the criteria used to make the decision and the values for that criteria). (10 points)

Additional facts for question 31:
• The existing machine has been fully depreciated.
• As stated, the $22,500 and $11,000 are annual after-tax cash operating costs (i.e., after-tax cash operating costs = net income + depreciation), thus no further adjustments need to be made to them for depreciation.

31. For the following project, calculate the NPV break-even level of annual revenue, assuming that the operating cash flows will be stable for an 8 year horizon and that the discount rate is 12%. (10 points)

• The project requires an initial investment of $600,000.
• Expected annual sales are $770,000.
• Annual fixed costs (excluding depreciation and any other non cash expenses) will be $100,000.
• Straight-line depreciation of the initial investment over 8 years to a book value of 0.
• Variable costs (all of which are cash expenses) of 65% of revenues.
• Working capital will not be affected.
• Market values for salvage purposes in 8 years are estimated to be $40,000.
• 35% tax rate.

For more homework assignments please visit: http://homework.ecrater.com

Finance questions 1-31 with excel calculation of problems 26-31

1. The objective of a firm's management should be to only undertake the projects that ________ the market value of shareholders' equity.
a. decrease
b. increase
c. do not change
d. provide zero change to
e. none of the above

2. The decision rule that management should use with net present value (NPV) is to undertake only those projects with a(n) ________ NPV.
a. positive
b. negative
c. indeterminate
d. negative or zero
e. none of the above

3. The net present value (NPV) amount represents the amount by which the project is expected to ________ shareholder wealth (assuming positive NPV for this question).
a. provide zero change to
b. decrease
c. increase
d. provide zero change to or decrease

4. Net cash inflows from operations can be computed in which of the following ways?
a. Cash Flow = Revenues – Cash Expenses – Taxes
b. Cash Flow = Net Income + Noncash Expenses
c. Cash Flow = Revenue – Total Expenses – Taxes + Noncash Expenses
d. all of the above

5. Which of the following is not true?
a. Multiple IRRs for a project may exist when the project's required rate of return is high.
b. IRR implicitly assumes that cash flows can be reinvested at the IRR rate.
c. Ranking projects based on NPV is not always the appropriate way to pick which projects to undertake.
d. When used to compare two projects, ACC assumes that a project with a short live can be repeated at a later date.

6. Which of the following would not be expected to affect the decision of whether to undertake an investment?
a. Income tax rates.
b. Cost of capital.
c. Sales reductions in other products caused by this investment.
d. Cost of the feasibility study which was conducted for a project.

7. The cost of capital does not reflect any market related risk of the project, or “beta.”
a. true
b. false

8. In computing a project's cost of capital the risk to use is:
a. the risk of the financing instruments used to fund the project
b. the risk of the project's cash flows
c. a risk free rate
d. a historical risk rate using T-bills
e. none of the above

9. When a firm has to ration capital, it should:
a. Fund the set of projects within the limits of capital that produces the greatest overall net present value.
b. Fund the set of projects within the limits of capital that produces the greatest overall internal rate of return (IRR).
c. Rank the projects based on net present value and fund as many of them in that order as possible.
d. Rank the projects based on internal rate of return (IRR) and fund as many of them in that order as possible.

10. If a project requires a $50,000 increase in inventory, this increase in inventory . . .
a. represents a cash outflow for the project.
b. represents a cash inflow for the project.
c. represents a cash outflow for the project but must be adjusted for taxes.
d. represents a cash inflow for the project but must be adjusted for taxes.
e. should be ignored in the evaluation of the project.

11. The ________ is the rate that prevails in a zero-inflation scenario. The ________ is the rate that one actually observes.
a. nominal, inflation
b. real rate, expected
c. nominal, real rate
d. real rate, nominal

12. If the nominal cost of capital is 16% per year and the expected rate of inflation is 5% per year, then compute the real cost of capital (rounded to nearest tenth of a %).
a. 11.5%
b. 10.5%
c. 8.5%
d. 9.0%
e. none of the above

13. When a project has multiple internal rates of return:
a. the analyst should choose the highest rate to compare with the firm's cost of equity
b. the analyst should choose the lowest rate to compare with the firm's cost of capital
c. the analyst should choose the rate that seems most “reasonable” given the project's cash flows, to compare with the firm's cost of equity
d. the analyst should compute the project's net present value and accept the project if its NPV is greater than $0.
e. none of the above

14. Which of the following statements is most correct?
a. Sunk costs must be included in the project's cash flow.
b. R&D expenditures cannot be a part of the initial cost of a project.
c. Opportunity costs are sunk costs and therefore should not be included in the cost of the project.
d. Depreciation is not a cash expense.
e. All of the above statements are false.

15. Suppose the firm's cost of capital is stated in nominal terms, but the project's cash flows are expressed in real dollars. If a nominal rate is used to discount real cash flows and there is inflation (assume positive inflation), the calculated NPV would
a. be biased upward
b. be biased downward
c. be correct
d. be possibly biased; either upward or downward
e. none of the above

16. The correct method to handle overhead costs in capital budgeting is to:
a. allocate a portion to each project.
b. allocate them to projects with the highest NPVs.
c. ignore all except identifiable incremental amounts.
d. ignore them in all cases.

17. Which of the following statements is normally correct for a project with a positive NPV?
a. IRR exceeds the cost of capital.
b. Accepting the project has an indeterminate effect on shareholders.
c. The traditional payback period exceeds the life of the project.
d. The present value index equals one.

18. Capital budgeting proposals for investment projects should be evaluated as if the project were financed:
a. entirely by debt.
b. entirely by debt, adjusting for taxes.
c. half by debt and half by equity.
d. with the highest cost source of funds, to be safe.
e. the financing and investment decisions should be viewed separately.

19. When projects are mutually exclusive, can be undertaken only once, and capital is unconstrained, selection should be made according to the project with the:
a. longer life.
b. larger initial size.
c. highest IRR.
d. highest NPV.
e. highest PVI (present value index).

20. Which of the following can be deduced about a three-year investment project that has a two year traditional payback period?
a. The NPV is positive.
b. The IRR is greater than the cost of capital.
c. Both 'a' and 'b' can be deduced.
d. Neither 'a' nor 'b' can be deduced.

21. If a project has a cost of $50,000 and a present value index of 1.4, then:
a. its cash inflows are $70,000.
b. the present value of its cash inflows is $30,000.
c. its IRR is 20%.
d. its NPV is $20,000.

22. If two projects offer the same, positive NPV, then:
a. they also have the same IRR.
b. they have the same traditional payback period.
c. they are mutually exclusive projects.
d. they add the same amount to the value of the firm.
e. all the above

23. The likely effect of discounting nominal cash flows with real interest rates (assuming positive NPV) will be to:
a. make an investment's NPV appear more attractive.
b. make an investment's NPV appear less attractive.
c. correctly calculate an investment's NPV if inflation is expected.
d. correctly calculate an investment's NPV, regardless of expected inflation.

24. Which of the following is representative of how depreciation expense is handled in the face of inflation?
a. It increases annually with the rate of inflation.
b. It decreases annually in nominal terms.
c. The depreciable base is not altered by inflation.
d. The real value of the depreciation is fixed.

25. When analyzing a capital project, an increase in net working capital associated with the project:
a. is not a relevant cash flow.
b. is a relevant cash outflow.
c. is a relevant cash inflow.
d. is a relevant cash outflow that must be adjusted for taxes.
e. is a relevant cash inflow that must be adjusted for taxes.

Problems

26. What is Plato’s Inc.’s weighted average cost of capital (WACC) given the following information? Dollar amounts are in millions. There are two debt components and YTM (yield to maturity) for these two components are: 4% for notes due in May 2015, and 6% for notes due in January 2020. The risk-free rate is 3%, and market risk premium is 8%. The company has a beta of 1.5. The firm’s tax rate is 35%. (7 points)

        Book Value     Market Value
Notes due 2015     15         17
Notes due 2020     12         16
Equity         54         74
Total         81         107

27. Calculate the traditional payback period, IRR, NPV, and PVI (present value index) for the project with the following cash flows. The opportunity cost of capital for the project is 14%. (8 points)

Cash
Year Flows
0 -1,500,000
1 400,000
2 600,000
3 550,000
4 450,000
5 200,000

28. Calculate the relevant cash flows (for each year) for the following capital budgeting proposal. Enter the total net cash flows for each year in the answer sheet. (10 points)
• $90,000 initial cost for machinery;
• depreciated straight-line over 4 years to a book value of $10,000;
• 35% marginal tax rate;
• $55,000 additional annual revenues;
• $25,000 additional annual cash expense;
• annual expense for debt financing is $7,500.
• $3,500 previously spent for engineering study;
• The project requires inventory increase by $32,000 and accounts payable increase by $14,000 at the beginning of the project;
• The investment in working capital occurs one time at the beginning of the project and it requires working capital return to the original level when the project ends in 4 years;
• 11% cost of capital;
• life of the project is 4 years; and
• The new equipment will be sold at the end of 4 years; expected market value of the new equipment at the end of 4 years is $15,000;

29. You are analyzing a capital budgeting project and, as shown by ???, some numbers are unreadable. You can read the following information:

Cash Flows at the end of:
Year 0 = -$25,000
Year 1 = +$8,000
Year 2 = +$ 6,000
Year 3 = +$ 2,600
Year 4 = $ ???
Year 5 = +$ 9,500

The Cost of Capital is 13%, the NPV = -$5,650.01 and the IRR = ???%. Your superior, ignoring the important fact that we should reject the project, is demanding to know the Cash Flow in Year 4.
Calculate the cash flow in Year 4. (5 points)

30. We can continue to use an existing machine at a cost of $22,500 annually (after-tax cash basis, including depreciation tax benefits) for the next 4 years. Alternatively, we can purchase a new machine that has an expected life of 7 years for $45,000. The new machine is expected to cost $11,000 each year to operate (after-tax cash basis, including depreciation tax benefits). The new machine will reduce inventory needs by $5,000 starting immediately. This is a one-time reduction in inventory that will last for the entirety of the new machine’s life. This reduction in inventory will be reversed at the end of 7 years. The cost of capital is 14%. The existing machine has no salvage value and we estimate that the new machine’s salvage value will be 0 in 7 years. Should we purchase the new machine? In the exam answer sheet, indicate your decision to replace or not replace, and provide support for your answer (i.e., indicate the criteria used to make the decision and the values for that criteria). (10 points)

Additional facts for question 31:
• The existing machine has been fully depreciated.
• As stated, the $22,500 and $11,000 are annual after-tax cash operating costs (i.e., after-tax cash operating costs = net income + depreciation), thus no further adjustments need to be made to them for depreciation.

31. For the following project, calculate the NPV break-even level of annual revenue, assuming that the operating cash flows will be stable for an 8 year horizon and that the discount rate is 12%. (10 points)

• The project requires an initial investment of $600,000.
• Expected annual sales are $770,000.
• Annual fixed costs (excluding depreciation and any other non cash expenses) will be $100,000.
• Straight-line depreciation of the initial investment over 8 years to a book value of 0.
• Variable costs (all of which are cash expenses) of 65% of revenues.
• Working capital will not be affected.
• Market values for salvage purposes in 8 years are estimated to be $40,000.
• 35% tax rate.

DQ: Corporate Credibility

Define corporate credibility and describe the three (3) factors upon which it depends. Identify a company not mentioned in the text that has earned a high level of corporate credibility. Fully support your selection with discussion of how each factor applies. (24 points) (A 1½-page response is required.)

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DQ: Corporate Credibility

Define corporate credibility and describe the three (3) factors upon which it depends. Identify a company not mentioned in the text that has earned a high level of corporate credibility. Fully support your selection with discussion of how each factor applies. (24 points) (A 1½-page response is required.)