In capital budgeting analysis, what is meant by the income tax effect? Give three examples of the tax effect pertaining to the acquisition of new factory (manufacturing) equipment.
> Consider a Poisson distribution with a mean of two occurrences per time period. a. Write the appropriate Poisson probability function. b. What is the expected number of occurrences in three time periods? c. Write the appropriate Poisson probability funct
> Suppose a sample of 20 Americans is selected as part of a study of the state of the nation. The Americans in the sample are asked whether or not they are satisfied with the way things are going in the United States. a. Compute the probability that exactl
> Suppose that a random sample of fifteen 18- to 34-year-olds living with their parents is selected and asked if they contribute to household expenses. a. Is the selection of the fifteen 18- to 34-year-olds living with their parents a binomial experiment?
> Market-share-analysis company Net Applications monitors and reports on Internet browser usage. According to Net Applications, in the summer of 2014, Google’s Chrome browser exceeded a 20% market share for the first time, with a 20.37% share of the browse
> In automobile mileage and gasoline-consumption testing, 13 automobiles were road tested for 300 miles in both city and highway driving conditions. The following data were recorded for miles-per-gallon performance. Use the mean, median, and mode to make
> Military radar and missile detection systems are designed to warn a country of an enemy attack. A reliability question is whether a detection system will be able to identify an attack and issue a warning. Assume that a particular detection system has a .
> According to a 2018 survey by Bankrate.com, 20% of adults in the United States save nothing for retirement (CNBC website). Suppose that 15 adults in the United States are selected randomly. a. Is the selection of the 15 adults a binomial experiment? Expl
> When a new machine is functioning properly, only 3% of the items produced are defective. Assume that we will randomly select two parts produced on the machine and that we are interested in the number of defective parts found. a. Describe the conditions u
> The Center for Medicare and Medical Services reported that there were 295,000 appeals for hospitalization and other Part A Medicare service. For this group, 40% of first-round appeals were successful (The Wall Street Journal). Suppose 10 first-round appe
> For its Music 360 survey, Nielsen Co. asked teenagers and adults how each group has listened to music in the past 12 months. Nearly two-thirds of U.S. teenagers under the age of 18 say they use Google Inc.’s video-sharing site to listen to music and 35%
> Consider a binomial experiment with n = 20 and p = .70. a. Compute f (12). b. Compute f (16). c. Compute P(x ≥ 16). d. Compute P(x ≤ 15). e. Compute E(x). f. Compute Var (x) and σ.
> Consider a binomial experiment with n = 10 and p = .10. a. Compute f (0). b. Compute f (2). c. Compute P(x ≤ 2). d. Compute P(x ≥ 1). e. Compute E(x). f. Compute Var(x) and σ.
> Consider a binomial experiment with two trials and p = .4. a. Draw a tree diagram for this experiment (see Figure 5.3). b. Compute the probability of one success, f (1). c. Compute f (0). d. Compute f (2). e. Compute the probability of at least one succe
> In addition to the information in exercise 29 on the S&P 500 and core bonds, J.P. Morgan Asset Management reported that the expected return for real estate investment trusts ( REITs) during the same time period was 13.07% with a standard deviation of 23.
> J.P. Morgan Asset Management publishes information about financial investments. Between 2002 and 2011, the expected return for the S&P 500 was 5.04% with a standard deviation of 19.45% and the expected return over that same period for a core bonds fund w
> The Hawaii Visitors Bureau collects data on visitors to Hawaii. The following questions were among 16 asked in a questionnaire handed out to passengers during incoming airline flights. ●● This trip to Hawaii is my: 1st, 2nd, 3rd, 4th, etc. ●● The primary
> PortaCom has developed a design for a high-quality portable printer. The two key components of manufacturing cost are direct labor and parts. During a testing period, the company has developed prototypes and conducted extensive product tests with the new
> The Chamber of Commerce in a Canadian city has conducted an evaluation of 300 restaurants in its metropolitan area. Each restaurant received a rating on a 3-point scale on typical meal price (1 least expensive to 3 most expensive) and quality (1 lowest q
> A person is interested in constructing a portfolio. Two stocks are being considered. Let x = percent return for an investment in stock 1, and y = percent return for an investment in stock 2. The expected return and variance for stock 1 are E(x) = 8.45% a
> Given below is a bivariate distribution for the random variables x and y. a. Compute the expected value and the variance for x and y. b. Develop a probability distribution for x + y. c. Using the result of part (b), compute E(x + y) and Var (x + y). d.
> The J. R. Ryland Computer Company is considering a plant expansion to enable the company to begin production of a new computer product. The company’s president must determine whether to make the expansion a medium- or large-scale projec
> In Gallup’s Annual Consumption Habits Poll, telephone interviews were conducted for a random sample of 1014 adults aged 18 and over. One of the questions was, “How many cups of coffee, if any, do you drink on an averag
> The following probability distributions of job satisfaction scores for a sample of information systems (IS) senior executives and middle managers range from a low of 1 (very dissatisfied) to a high of 5 (very satisfied). a. What is the expected value o
> The probability distribution for damage claims paid by the Newton Automobile Insurance Company on collision insurance follows. a. Use the expected collision payment to determine the collision insurance premium that would enable the company to break eve
> New legislation passed in 2017 by the U.S. Congress changed tax laws that affect how many people file their taxes in 2018 and beyond. These tax law changes will likely lead many people to seek tax advice from their accountants (The New York Times). Backe
> The following data has been collected on the number of times that owner-occupied and renter-occupied units had a water supply stoppage lasting 6 or more hours in the past 3 months. a. Define a random variable x = number of times that owner-occupied uni
> TripAdvisor is one of many online websites that provides ratings for hotels throughout the world. Ratings provided by 649 guests at the Lakeview Hotel can be found in the file HotelRatings. Possible responses were Excellent, Very Good, Average, Poor, and
> During the summer of 2018, Coldstream Country Club in Cincinnati, Ohio, collected data on 443 rounds of golf played from its white tees. The data for each golfer’s score on the twelfth hole are contained in the DATAfile Coldstream12. a. Construct an empi
> The following table provides a probability distribution for the random variable y. a. Compute E( y). b. Compute Var( y) and σ.
> The following table provides a probability distribution for the random variable x. a. Compute E(x), the expected value of x. b. Compute s2, the variance of x. c. Compute s, the standard deviation of x.
> The following table is a partial probability distribution for the MRA Company’s projected profits (x = profit in $1000s) for the first year of operation (the negative value denotes a loss). a. What is the proper value for f (200)? Wha
> The percent frequency distributions of job satisfaction scores for a sample of information systems (IS) senior executives and middle managers are as follows. The scores range from a low of 1 (very dissatisfied) to a high of 5 (very satisfied). a. Devel
> In the city of Milford, applications for zoning changes go through a two-step process: a review by the planning commission and a final decision by the city council. At step 1 the planning commission reviews the zoning change request and makes a positive
> The National Center for Health Statistics, housed within the U.S. Centers for Disease Control and Prevention (CDC), tracks the number of adults in the United States who have health insurance. According to this agency, the uninsured rates for Americans in
> ParFore created a website to market golf equipment and golf apparel. Management would like a special pop-up offer to appear for female website visitors and a different special pop-up offer to appear for male website visitors. From a sample of past websit
> According to a 2018 article in Esquire magazine, approximately 70% of males over age 70 will develop cancerous cells in their prostate. Prostate cancer is second only to skin cancer as the most common form of cancer for males in the United States. One of
> The prior probabilities for events A1, A2, and A3 are P(A1) = .20, P(A2) = .50, and P(A3) = .30. The conditional probabilities of event B given A1, A2, and A3 are P(B ∣ A1) = .50, P(B ∣ A2) = .40, and P(B ∣ A3) = .30. a. Compute P(B ∩ A1), P(B ∩ A2), and
> The Bureau of Transportation Statistics Omnibus Household Survey is conducted annually and serves as an information source for the U.S. Department of Transportation. In one part of the survey the person being interviewed was asked to respond to the follo
> Consider a finite population with five elements labeled A, B, C, D, and E. Ten possible simple random samples of size 2 can be selected. a. List the 10 samples beginning with AB, AC, and so on. b. Using simple random sampling, what is the probability tha
> Weatherly Lumber Company processes wood pulp for manufacturing various paper products. The company employs a process costing system for its manufacturing operations. All direct materials are added at the beginning of the process, and conversion costs are
> What is the main difference between activity-based costing and the theory of constraints? When is it appropriate to use each one?
> What is the role of the flow diagram in the theory of constraints analysis?
> What does the term constraints mean in the theory of constraints analysis?
> What is target costing? briefly explain.
> “The net present value (NPV) method weighs early receipts of cash much more heavily than more distant receipts of cash.” Do you agree? Why?
> List at least three important behavioral issues related to the capital budgeting process.
> What should be the decision criterion when using the NPV method to evaluate capital investments? Does the IRR method use the same criterion?
> Does the accounting (book) rate of return (ARR) method provide a valid (or meaningful) measure of the return on investment? How about the investment’s internal rate of return (IRR)?
> What are the limitations of the payback period method for making capital budgeting decisions (e.g., whether to accept or reject a proposed investment)? Does the present value payback period overcome these limitations?
> Given an asset with a net book value (NBV) of $25,000, what are the after-tax proceeds for a firm in the 34% tax bracket if this asset is sold for $35,000 cash? What are the after-tax proceeds for this same firm if the asset is sold for $15,000 cash?
> What is the analytic hierarchy process (AHP), and how can it be used in making capital budgeting decisions?
> In what ways can accountants add value to the capital budgeting process?
> How does the size of the initial investment affect the indicated internal rate of return (IRR) and net present value (NPV) of a proposed investment?
> When analyzing a proposed capital investment, what conditions or factors may lead the results to differ between the net present value (NPV) and internal rate of return (IRR) decision models?
> What decision criterion should be used to choose investment projects for a firm with unlimited funds available at a weighted-average cost of 10% (after tax)? Can the firm use the same decision criterion if it has only a limited amount of available funds,
> Provide a short explanation of the modified internal rate of return (MIRR) financial performance metric. How does MIRR differ from IRR? (In addition to the discussion in the text, see, for example, www.journalofaccountancy.com/issues/2017/feb/calculate-i
> Should the firm accept the independent projects described below? Why or why not? (a) The firm’s cost of capital is 10% and the estimated internal rate of return (IRR) of the project is 11%. (b) A capital project requires a $150,000 initial investment.
> “Depreciation expenses have no effect on cash flows and, therefore, are not relevant in capital expenditure analysis.” Do you agree? Why or why not?
> What are the distinguishing characteristics of capital budgeting decisions?
> How does the presence of one production constraint affect the relevant cost analysis model? Two or more production constraints?
> A company purchases an asset that costs $10,000. This asset qualifies as 3-year property under MACRS. The company uses an after-tax discount rate of 12% and faces a 40% income tax rate. (a) Use the appropriate present value factors found in Appendix C,
> List some of the behavioral, implementation, and legal problems to be anticipated in the use of relevant cost analysis.
> How do strategic factors affect the proper use of relevant cost analysis?
> List for or five important limitations of relevant cost analysis.
> How do short-term evaluations affect a manager's incentives and performance?
> List four to six strategic factors that are often important in the make-or-buy decision.
> What is the relevant cost when determining whether to sell a product before or after additional processing?
> List at least four different decisions for which the relevant cost model can be used effectively.
> What is the relationship, if any, between the relevant cost analysis method and cost-volume-profit analysis (Chapter 09)?
> What are relevant costs? Provide several examples for the decision to replace a piece of equipment.
> Define the term “budgetary slack.” Why is it common to find slack in budgets?
> Refer to Exhibit 12.4 in the text. What is the depreciation expense deduction in each of 4 years for a $10,000 asset classified under MACRS as 3-year property? Exhibit 12.4:
> What is zero-base budgeting (ZBB)?
> List the major components of a cash budget.
> In addition to the sales budget, what additional information does a firm need to complete its materials purchases budget?
> Why is the sales budget considered the cornerstone of the organization’s master budget?
> Some critics of budgeting believe that budgets are effective tools for planning but not for control purposes. What is the essence of this argument?
> Many accountants believe that the most important benefit of the master budgeting process is the end result: a set of budgeted (i.e., pro-forma) financial statements. What is the rationale for this view?
> Differentiate master, operating, and financial budgets.
> Define the terms “relative performance contract” and “rolling financial forecasts.” What role for these is envisioned by critics of the traditional budgeting process?
> Define what is meant by the terms what-if analysis and scenario analysis.
> What is the essence of a fixed-performance contract and what dysfunctional consequences can occur through the use of this type of incentive system?
> Calculate the net after-tax cash flow effect of the following information: sales, $260; expenses other than depreciation, $140; depreciation expense, $50; marginal income tax rate, 35%. Round your answer to 2 decimal places.
> How does the use of a time-driven activity-based cost (TDABC) system facilitate the preparation of budgets for an organization?
> Describe at least three benefits that an organization can expect to realize from budgeting.
> Define “degree of operating leverage” (DOL). How is DOL measured?
> What is operating leverage, and for what is it used?
> What is the margin of safety (MOS), and for what is it used?
> Why does the issue of taxes not affect the calculation of the breakeven point?
> What type of risk does sensitivity analysis address?
> Why do management accountants use sensitivity analysis?
> What are the basic assumptions of CVP analysis?
> What is the contribution margin ratio and how is it used?
> Use the appropriate function in Excel (= SLN) to calculate the annual straight-line (SL) depreciation charge for an asset that has a $10,000 acquisition cost, an estimated salvage value of $500, and a useful life of 4 years.
> How is CVP analysis used to calculate the breakeven point for multiple products?
> What is the underlying relationship depicted in a CVP analysis?
> What are nonlinear cost relationships? Give two examples.
> Explain how to choose the dependent and independent variables in regression analysis used for cost estimation.
> How can cost estimation be used in activity-based costing?
> Contrast the use of regression analysis and the high-low method to estimate costs.
