Under the indirect method, depreciation expense is added to net income to report cash flows from operating activities. Does depreciation cause an inflow of cash?
> Derivation of the Marshall-Lerner Condition
> The Congressional Budget Office (CBO) is required to produce a forecast of the federal fiscal situation each year. This question uses the version published in January 2019. There is a document entitled “A Visual Summary of The Budget and Economic Outlook
> Derivation of the Expected Present Value of Profits under Static Expectations
> From the FRED economic database at the Federal Reserve Bank of St. Louis, you can retrieve two series: General Government Gross Debt of the United States (GGGDTAUSA188N) and a measure of the primary deficit (USAGGXONLBGDP). Both are measured as a percent
> Deriving the Expected Present Discounted Value Using Real or Nominal Interest Rates
> How to Measure Technological Progress, and the Application to China
> The Cobb-Douglas Production Function and the Steady State
> Derivation of the Relation Between Inflation, Expected Inflation, and Unemployment
> Wage- and Price-Setting Relations Versus Labor Supply and Labor Demand.
> a. Use the prices for 2012 as the set of common prices to compute real GDP in 2012 and in 2013. Compute the GDP deflator for 2012 and for 2013, and compute the rate of inflation from 2012 to 2013. b. Use the prices for 2013 as the set of common prices to
> The Construction of Real GDP and Chain-Type Indexes
> What do macroeconomists do?
> Where to find the numbers
> The rate of growth of output per person was identified as a major issue facing the United States as of the writing of this chapter. Go to the 2018 Economic Report of the President a. Find the column with numbers that describe the level of output per hour
> Chinese economic growth is the outstanding feature of the world economic scene over the past two decades. a. In 2018, US output was $20.5 trillion, and Chinese output in 2017 was $13.5 trillion. Suppose that from 2017 the output of China grows at an annu
> Beware of simplistic answers to complicated macroeconomic questions. Consider each of the following statements and comment on whether there is another side to the story. a. There is a simple solution to the problem of high European unemployment: Reduce
> Using the information in this chapter and by referring to the IMF data mapper (http://www.imf.org/external/datamapper/datasets/ WEO/3) or the World Bank database (https://data.worldbank. org/) for updated information, label each of the following statemen
> Continuing with the logic from Problem 7, suppose that the economy’s production function is given by Y = K1/3 N2/3 and that the saving rate, s, and the depreciation rate, are equal to 0.10. a. What is the steady-state level of capital
> An economy produces three goods: cars, computers, and oranges. Quantities and prices per unit for years 2012 and 2013 are as follows: a. What is nominal GDP in 2012 and in 2013? By what percentage does nominal GDP change from 2012 to 2013? b. Using th
> Suppose that an economy is characterized by the following production function a. Derive the steady-state level of output per worker, and the steady-state level of capital per worker in terms of the saving rate, s, and the depreciation rate, (. b. Deriv
> Suppose that in a given economy, both the saving rate and the depreciation rate increase. What would the effect of this dual movement be on the economy’s capital per worker and output per worker, in the short and the long run?
> Discuss how the level of output per person in the long run would likely be affected by each of the following changes: a. The right to exclude saving from income when paying income taxes. b. A higher rate of female participation in the labor market (but c
> In Chapter 3 we saw that an increase in the saving rate can lead to a recession in the short run (i.e., the paradox of saving). We examined the issue in the medium run in Problem 5 at the end of Chapter 7. We can now examine the long-run effects of an in
> Suppose that the head of the Finance Ministry in your country were to go on the record advocating an effort to restrain current consumption, arguing that lower consumption now means higher saving; and higher saving now means a permanent higher level of c
> Using the information in this chapter, label each of the following statements true, false, or uncertain. Explain briefly. a. The saving rate is always equal to the investment rate. b. A higher investment rate can sustain higher growth of output forever.
> Your institution may have a subscription to The Economist news magazine, or you may be able to find this graphic on the web. The March 23, 2019 issue, in a section entitled “Graphic Detail: Happiness Economics,” makes the same point as Figure 1. a. Doe
> Using the Penn World Tables, find the data on real GDP per person (chained series) for 1970 for all available countries. Do the same for a recent year of data where the data are available for most countries (it takes more time to produce this measure in
> Consider three rich countries: France, Belgium, and Italy, and four poor countries, Ethiopia, Kenya, Nigeria, and Uganda. Define for each country the ratio of its real GDP per person to that of the United States in 1970 and in the latest year available (
> During a given year, suppose the following activities occur in an economy. i. An automobile manufacturing company pays its workers €10 million to assemble 5,000 cars. The cars are then sold to an automobile store for €12 million. ii. That year, the store
> This section looks at US recessions over the past 60 years. To work out this problem, first obtain quarterly data on US output growth for the period 1960 to the most recent data from www.bea. gov. Table 1.1. 1 presents the percent change in real gross do
> Consider Camp Rainbow’s cost equation results obtained in E5–14 using least-squares regression. Suppose that Rainbow is contemplating staying open one additional week during the summer. Required: 1. Determine Rainbow&a
> Consider Camp Rainbow’s cost estimated in E5–13 using the high-low method and in E5–14 using regression. The two methods yielded very different results, especially in their estimates of fixed cost. Re
> Refer to the Camp Rainbow data presented in E5–13. Required: 1. Perform a least-squares regression analysis on Camp Rainbow’s data. 2. Using the regression output, create a cost equation (y = a + bx) for estimating Cam
> Explain how the primary difference between financial and managerial accounting results in other differences between the two.
> What is the primary difference between financial accounting and managerial accounting?
> From last year to this year, Berry Barn reported that its Net Sales increased from $300,000 to $400,000 and its Gross Profit increased from $90,000 to $130,000. Was the Gross Profit increase caused by (a) an increase in sales volume only, (b) an incr
> From last year to this year, Colossal Company’s current ratio increased and its inventory turnover decreased. Does this imply a higher, or lower, risk of obsolete inventory?
> Camp Rainbow offers overnight summer camp programs for children ages 10 to 14 every summer during June and July. Each camp session is one week and can accommodate up to 200 children. The camp is not coed, so boys attend during the odd-numbered weeks and
> Slow Cellar’s current ratio increased from 1.2 to 1.5. What is one favorable interpretation of this change? What is one unfavorable interpretation of this change?
> Why are some analyses called horizontal and others called vertical?
> Into what three categories of performance are most financial ratios reported? To what in particular does each of these categories relate?
> What benchmarks are commonly used for interpreting ratios?
> What is ratio analysis? Why is it useful?
> How is a year-over-year percentage calculated?
> Explain whether the following situations, taken independently, would be favorable or unfavorable: (a) increase in gross profit percentage, (b) decrease in inventory turnover ratio, (c) increase in earnings per share, (d) decrease in days to collect,
> What is the general goal of trend analysis?
> Explain why a $50,000 increase in inventory during the year must be included in computing cash flows from operating activities under both the direct and indirect methods.
> Explain why cash outflows during the period for purchases and salaries are not specifically reported on a statement of cash flows prepared using the indirect method.
> Odessa, Inc., manufactures one model of computer desk. The following data are available regarding units shipped and total shipping costs Required: 1. Prepare a scattergraph of Odessa’s shipping cost and draw the line you believe best fi
> Describe the types of items used to compute cash flows from operating activities under the two alternative methods of reporting
> What are the typical cash inflows from operating activities? What are the typical cash outflows from operating activities?
> What are the major categories of business activities reported on the statement of cash flows? Define each of these activities.
> What are cash equivalents? How are they reported on the statement of cash flows?
> What information does the statement of cash flows report that is not reported on the other required financial statements?
> How is the sale of equipment reported on the statement of cash flows using the indirect method?
> What are noncash investing and financing activities? Give one example. How are noncash investing and financing activities reported on the statement of cash flows?
> What are the typical cash inflows from financing activities? What are the typical cash outflows from financing activities?
> What are the typical cash inflows from investing activities? What are the typical cash outflows from investing activities?
> Consider Mountain Dental’s cost equation results obtained in E5–9 using least-squares regression. Required: 1. Determine Mountain Dental’s unit contribution margin and contribution margin ratio if it
> As a junior analyst, you are evaluating the financial performance of Digilog Corporation. Impressed by this year’s growth in sales (20 percent increase), receivables (40 percent increase), and inventories (50 percent increase), you plan to report a fa
> Loan covenants require that E-Gadget Corporation (EGC) generate $200,000 cash from operating activities each year. Without intervening during the last month of the current year, EGC will generate only $180,000 cash from operations. What are the pros and
> Compare the purposes of the income statement, the balance sheet, and the statement of cash flows.
> When would you use an annuity factor in a net present value calculation instead of a present value factor for a single cash flow?
> What do a positive NPV and a negative NPV indicate about an investment?
> In everyday terms, explain what information the payback period provides about an investment.
> How do cash flow and net income differ? Explain why this difference is important to capital budgeting.
> What is a company’s hurdle rate? How is it relevant to capital budgeting?
> Which capital budgeting methods incorporate the time value of money and which do not? Which are considered superior and why?
> Briefly explain what the time value of money means.
> Consider Mountain Dental’s cost equation results obtained in E5–7 using the high-low method. Required: 1. Determine Mountain Dental’s unit contribution margin and contribution margin ratio if it charg
> What is the difference between independent projects and mutually exclusive projects? Give an example of each from your own experiences.
> Use Tables 11.1A to 11.4A to complete the following schedule: Data from Table 11.1A: Data from Table 11.4A:
> When would you use the PV of annuity table instead of the PV of $1 table
> If you hold a valid contract that will pay you $8,000 cash 10 years from now and the going rate of interest is 10 percent, what is its present value?
> If you deposited $10,000 in a savings account that earns 10 percent, how much would you have at the end of 10 years?
> Explain the basic difference between future value and present value.
> Briefly explain how the profitability index is calculated and interpreted.
> Why is the net present value method generally preferred over the internal rate of return method?
> Explain how the internal rate of return and net present value are related. If a project has an NPV of $50,000 using a 10 percent discount factor, what does this imply about that project’s IRR?
> Explain the difference between screening decisions and preference decisions.
> Match each of the terms by inserting the appropriate definition letter in the space provided. Not all definitions will be used. 1. Contribution margin 2. Contribution margin income statement 3. Contribution margin ratio 4. Fixed cost 5. Full absorption c
> Return on investment may be separated into two components. Name them and describe what each can tell you.
> What role do return on investment and residual income play in responsibility accounting?
> How do investment center managers differ from profit center managers?
> Why are profit center managers evaluated on segment margin instead of net operating income?
> Briefly explain the difference between segment margin and net operating income.
> Name the four types of responsibility centers and describe the managers’ responsibilities and authority in each.
> What is the controllability principle and why is it crucial to responsibility accounting?
> What are negotiated transfer prices? Explain two possible disadvantages of allowing managers to negotiate a transfer price.
> Describe the cost-based method of transfer pricing.
> How does excess capacity affect a transfer price?
> Schell Company manufactures automobile floor mats. It currently has two product lines, the Standard and the Deluxe. Schell has a total of $39,060 in overhead. It currently uses a traditional cost system with overhead applied to the product on the basis o
> What is the market-price method of transfer pricing?
> Explain the meaning of minimum and maximum transfer prices and identify who (the buyer or the seller) would determine each.
> Explain why two managers employed by the same company may be diametrically opposed to each other when considering a transfer price.
> What is a transfer price?
> Why does decentralization create the need for responsibility accounting in an organization?
> Why are incentive systems that emphasize long-term performance more consistent with a balanced scorecard approach?
> Why must a company consider its incentive and reward system when implementing a balanced scorecard approach?
> What are the four dimensions of a balanced scorecard? What does each dimension represent?
