Business: Managerial ACCT: CHPT 11 & 12
Grummet Company is acquiring a new wood lathe with a cash purchase price of $80,000. The Wood Master Industries (the manufacturer) has agreed to accept $23,500 at the end of each of the next 4 years. Based on this deal, how much interest will Grummet pay over the life of the loan?
$14,00094,000 (23,500 * 4)-80,000=14,000
The capital structure of Ridley Enterprises is: Debt 40%, Equity 60%. The cost of debt is 13%, and the cost of equity is 16.5%. What is the weighted average cost of capital for Ridley Enterprises?
15.1%cost of debt is 0.4x 0.13= 0.052cost of equity is 0.6 x 0.165= 0.099WACC; 0.052 + 0.099= 0.151 or 15.1%
Which of the following statements is false?
A balanced scorecard is the compatibility between personal goals and the goals of the organization.
Which of the following is not a characteristic of a good performance measurement system?
Based on activities over which managers have no control or influence
What should an organization do if performance measures change?
Make sure that the manager being evaluated is aware of the measurement change, as this may affect his or her decision-making
Which of the following does not assign a value to a business opportunity using time-value measurement tools?
Payback period method
The metrics based on financial numbers produced by the accounting system are ________.
Stockholders
You are explaining time value of money factors to your friend. Which factor would you explain as being larger?
The future value of $1 for 12 periods at 6% is larger
When using the NPV method for a particular invenstment deicision, if the present value of all cash inflows is greater than the present value of all cash outflows, then ________.
The investment provides an actual rate of return greater than the discount rate
Capital investment decisions often involve large amounts of money.
True
12. When managerial accountants design an evaluation system that is based on criteria for which a manager is responsible, and it is structured to encourage managers to make decisions that will meet the goals of the company as well as their own personal job goals, the framework used is ________.
a responsibility accounting framework
The owners of company stock are ________.
a shareholder
The process of reinvesting interest earned to generate additional earnings over time is ________.
compounding
You want to invest $8,000 at an annual interest rate of 8% that compounds annually for 12 years. Which table will help you determine the value of your account at the end of 12 years?
future value of one dollar ($1)
This calculation determines profitability or growth potential of an investment, expressed as a percentage, at the point where NPV equals zero
internal rate of return (IRR) method
Without proper performance measures, goal congruence is almost impossible to achieve and will likely lead to ________.
lost profits
Responsibility accounting holds managers responsible for ________.
only the costs that they can control
11. Preference decisions compare potential projects that meet screening decision criteria and will be ranked in their preference order to differentiate between alternatives with respect to all of the following characteristics except ________.
political prominence
The cost of equity is ________.
the rate of return required by investors to incentivize them to invest in a company
A good performance measurement system will include both short and long-term goals.
true
Return on investment (ROI) measures the profitability of a division relative to the size of its investment in capital assets.
true
The process that determines the present value of a single payment or stream of payments to be received is discounting.
true