AAEC 3980 final
firm should shut down when:
P-AVC<0 or when contribution is negative
net working capital is
current assets minus current liabilities; unchanged when inventory is purchased on credit; unchanged when inventories are purchased with cash; decreases when a loan is paid off
the economic efficiency point (max profit) occurs in which of the following situations? between max efficiency and max output; in stage II of the production function; when changes in revenue equals change in costs
all
taxes: have no impact on the discount rate unless 100% of an investment is financed; when lower, can increase the likelihood of investment in capital assets by businesses; impact cash flows because depreciation and interest expenses are tax-deductible
all dem
adjusting prices for inflation and population helps to: remove the impact of changes in population growth to show actual changes in demand; provide a clearer picture of price changes; can show an actual increase or decrease in price rather than a change in demand or supply
all of the above
capital budget investment opportunities occur when: a depreciable capital item needs to be replaced or maintained; a cost reducing investment can be adopted to produce a given volume of output; an income-increasing investment is adopted; any combination of the above opportunities occurs
all of the above
partnerships can be characterized by: each person involved participates in management decisions; assets are jointly owned; losses and profits are shared; there is a single set of business records
all of the above
the best investment in capital is the one that provides: positive long term profit; highest long term profit among alternatives; benefits sooner rather than later; the lowest risk
all of the above
the internal rate of return method in the capital budgeting is: the discount rate where the present value of an investment's benefits equal the present value of its costs; the discount rate where NPV =0; a variation on the Net Present Value methods
all of the above
which of the following capital budgeting methods does not use the time value of money?
average rate of return
the sources and uses of net working capital statement
tells managers and shareholders where the firm acquired its working capital and where it was spent; is developed by first determining the change in net working capital over time, then determining the difference between the total sources and total uses of net working capital and then determining the changes within current assets and current liabilities
in a free market, price is the best allocator of scarce resources because it leads to the most efficient use of resources
true
when given a choice, consumers will always select the item that gives them the highest satisfaction because of the economic principle of
utility maximization
the discount rate is not: a firm's required rate of return on its equity capital; important to the long-run financial; survival of a firm; when low, makes it harder for the firm to find acceptable investments
when low, makes it harder for the firm to find acceptable investments
depreciation is not
a cash transaction
you determine a trend line for eggs starting at $1.85/dozen at the beginning of January 2012 and ending with $4.95/dozen by the end of December 2015: the trend is...
+0.775/year & +0.065
tools of financial analysis
1. comparative financial systems, 2. index-number trend series, 3. common-size financial statements; 4. specific financial performance measures
the advantage of keeping the organizational structure simple is to
1. ensure that everyone in the organization has a clear understanding of what they are supposed to do; 2. provide employees with the opportunity to contribute to the overall objectives and corporate purpose
the sole proprietorship
1. the easiest business structure to begin and end; 2. a legal structure whose profits are taxed as personal income of the proprietor; 3. totally responsible for all losses, including personal and business assets; 4. not transferrable as a gift or inheritance
businesses can be organized by
1. type of business function performed; 2. types of products handled; 3. geographic area covered
gross margin
1. what remains after subtracting costs of goods sold from revenue; 2. income remaining to cover operating expenses; 3. equivalent to contribution; 4. revenue from sales minus cost of goods sold
the pro forma cash flow budget answers the following
1. when will borrowed money be paid; 2. when and how much money does the business need to borrow; 3. does the business need to borrow money; 4. how will borrowed money be repaid
with the same info, what is the quick ratio?
1.3; quick ratio does not include inventories ...(49000+5000)/(41500)
what is the current ratio: if cash = 49,000, accounts receivable= 5,000, inventories = 151,000, buildings= 750,000, accounts payable= 20,000, notes payable= 21500, and owners equity= 567,000
4.94 (buildings are not assets, and owners equity is not counted here; (49000+5000+151000)/(41500)
The industry average accounts receivable turnover ratio is 12 for the food industry. The profit and loss statement for Food, Inc. shows total sales for 2012 as $600,000, of which 30% were credit. If the balance sheet for Food, Inc. shows accounts receivable of $30,000, the accounts receivable turnover ratio for Food,
6; (0.3x 600,000)/(30,000)
assume a firm has a land best of $300,000 at 8.25% and an operating note over the past few years that averaged $65,000/yr at 6.75%. What is the weighted average cost of borrowed capital?
8.0%
if the seasonal price index number for April is 91.6, what percentage of the average annual price is the price in April during a normal year?
91.6
Food, Inc. has a debt to equity ratio of 0.67. Which one of the following statements is true about Food, Inc
Creditors have a relative investment of $0.67 per dollar put up by the firm's owners
Ralph's Ag Supply sells organic soil conditioner by the bag for $30 each. Total fixed costs are $150,000. Variable costs are $16 per bag. Round to the nearest cent or unit where necessary. How many bags do they need to sell to break even? What is the contribution margin percentage? What is the breakeven point in dollars if the required profit percentage is 5%? What is the breakeven point in dollars if fixed costs increase to $190,000? Now, after the increase in fixed costs, how many bags would be needed to breakeven?
How many bags do they need to sell to break even? $150,000/($30-$16) = 10,714 bags What is the contribution margin percentage? $14/$30 = 0.467 or 47 percent What is the breakeven point in dollars if the required profit percentage is 5%? $150,000/(0.467-0.05) = $360,000 What is the breakeven point in dollars if fixed costs increase to $190,000? $190,000/0.467 = $407,143 Now, after the increase in fixed costs, how many bags would be needed to breakeven? $190,000/$14 = 13,571 bags
Contribution is all of the following, except: Selling Price/Unit - Fixed Cost/Unit; A firm's most profitable level of output in measurable units; Selling Price/Unit - Variable Cost/Unit; Fixed Cost/Unit + Profit/Unit; When negative, it indicates that a firm should shut down
Selling Price/Unit - Fixed Cost/Unit
net working capital is
[(current assets) - (current liabilities)]; unchanged when inventory is purchased on credit; decreases when a loan is paid off; unchanged when inventories are purchased with cash
Proper organizational structures require
a strong, external focus on customer's needs; a clear view of corporate structure and purpose; keeping in mind which tasks are most important; determination of the critical tasks
In a week, the manager-owner of a small agribusiness spends $2,000 on raw materials, $400 on utilities, $950 on leased tools, and $600 in rent. The agribusiness makes 80 units per week and sells each unit for $90. The manager-owner earned $1,200 per week before quitting her job to start this enterprise. Round to the nearest dollar or unit where necessary. a) explicit and fixed costs are b) implicit/opportunity cost c) profit for this firm d) contribution per unit
a) The firm has explicit costs of $ 2,000 and fixed costs of $ 400 + 950 + 600 = $ 1,950 per week. b) The implicit cost/opportunity cost to the manager-owner is $ 1,200 per week. c) The profit for this firm is (80 units * $90) - 2,000 - 1,950 - 1,200 = $2,050 per week. d) The contribution is $ 90 - ($2,000/80 units) = $65 per unit.
Suppose that an agribusiness is currently employing 20 workers, the only variable input, at a wage rate of $60 per worker. The average product of labor is 30 units per worker. The last worker added 12 units to total output. Total fixed costs are $3,000. Round to the nearest cent or unit where necessary.
a) What is the marginal cost of output? $60 per worker/12 units = $5/unit b) What is average variable cost of output? ($60 * 20 workers)/(30 units/worker * 20 workers) = $2/unit c) How much output is being produced? 20 workers * 30 units/worker = 600 units d) What is average total cost of output? $3,000 + ($60 * 20 workers)/600 units = $7/unit e) Is average total cost of output increasing, constant, or decreasing? Decreasing 600 units - 12 units from 20th worker = 588 units made by 19 workers 19 workers * $60 = $1,140 total variable costs $3,000 fixed cost + $1,140 variable costs = $4,140 in total cost Average Total Cost of Output with 19 workers: $4,140/588 units = $7.04/unit
economic order quantities and reorder points in inventory management aid managers in determining: the number of items to order each time an order is placed; the minimum total cost of inventory; when a reorder needs to be made; how to minimize stockouts
all
to obtain long-run profit maximization, the production process must NOT: a. maximize marginal product b. be tech efficient c. max output per unit of input d. be economically efficient e. cease when marginal product=0
a. maximize marginal product
consumers consume a variety of goods because of the economic principle of
diminishing marginal utility
to identify a target market, a business must: match needs, preferences and benefits with demographics of potential customers; analyze data collected on needs, benefits and preferences to see if patterns emerge; gather information on consumers' demographics, needs, and preferences
all of the above
which of the following data are necessary to conduct a capital budget analysis and decision? initial investment, terminal value, discount rate, net cash flows
all of the above
the CASH FLOW BUDGET is composed of these major components except: a. new borrowings, b. retained earnings, c. savings withdrawals, d. savings deposits, e. repayment of operating loans
b. retained earnings
the advantages of organizing as a corporation include
continuity of operation; limited liability of the owners
marginal product
contribution of each input to output; the slope of the total production curve; dY/dX; zero when total product is maximized
explicit costs are
costs directly traceable to an end product; avoidable, controllable, or incremental; calculated by multiplying the price of inputs by the quantity of inputs used; cash payments on raw materials
sunk costs are
costs that were incurred in the past
factors that affect the demand for a product include:
price, income, population, tastes and preferences, season of the year and the prices of substitute and complement goods
the first step in creating a successful business plan is to
decide the firm's purpose and values- how it will conduct itself with suppliers, employees, customers, investors and the communities in which it operates
A firm's purpose and objective should include the following:
description of how the firm will gain its competitive edge in the marketplace
the control function of management is expressed in seven steps, which is not one of them: develop indices, indicators, or proxies for performance criteria; develop a business and marketing plan; identify financial performance criteria, determine targets for financial performance measures, develop a management information system
develop a business and marketing plan
the budgeting process is valuable because:
each manager is forced to think clearly through the firm's costs and revenues
Line personnel are not
employed in the human resources department of the firm
agribusinesses have to deal with the challenge of sticky prices, what makes prices sticky?
firms whose marketing strategy is to have the lowest priced products regardless of increased production costs; the cost to update pricing and marketing materials when prices change; imperfect information in the markets
the advantages of decentralized management include
frees top mgmt from day-to-day chores so they can focus on the bigger picture; puts managers in charge of their own destiny; keeps decisions and decision-makers close together; provides training ground for younger managers/supervisors
specific financial performance measures and ratios can evaluate a business's financial performance in the following categories, except: liquidity, human resources capacity, solvency, activity, profitability
human resources capacity
the following can be found on the profit and loss statement
income taxes
the following can be found on a balance sheet
land buildings and equipment
the following can be found on the balance sheet
land, buildings, and equipment
the following are true of leases, except: lease payments are tax-deductible for basis; an operating lease has changes based on use; lease-with-option-to-purchase has tax deductible lease payments; lease payments are usually less than a down payment if the item was to be purchased; leasing is often beneficial to start-up businesses
lease with the option to purchase
which of the following is not one of the four principles of organizational design? 1. Simple organizational structure 2. Critical tasks have prominence and function without restriction 3. Minimum numbers of support staff 4. Small working units 5. maximize the number of support staff
maximize the number of support staff
the cash flow budget is composed of these major components
new borrowings, savings withdrawals, savings deposits, repayment of operating loans
the goal of marketing includes all of the following, except: to make selling an absolute necessarity, especially a hard sell; to satisfy consumer needs and give businesses the right to earn a profit; to find out what consumers want before anything else; to develop a product that satisfies the needs of the consumer
none boi
the means for comparing business structure include all the following except: resource allocation, continuity of existence, liability of the owners, dividend policy
none of the above
the following are examples of data that go into calculating the initial investment of a capital asset except: operating expenses of the asset; acquisition cost; borrowed funds; freight installations; salvage value of replaced asset
operating expenses of the asset
the following types of budgets are related to each other:
operating, cash flow, and capital expenditures budgets
the seasonal index each month is shown as
percentage of the year's average value
the major advantages of limited liability corporation do not include
personal assets of members are liable for debts of the corporation
strategic management has three parts, which of the following is not one?
porter's five forces model
The income for Food, Inc. was $100,000 in 2011 and $150,000 in 2012. Total sales were $570,000 in 2011 and $600,000 in 2012. Assuming that Food, Inc. has a tax rate of 25 percent, which of the following statements is true about Food, Inc.:
profit per dollar of sales has risen by 0.075
there are nine marketing functions; of the following, which is not one? buying and selling, transportation, promotion, processing, storage
promotion
the four Ps of marketing in the marketing mix are:
promotion, price, product, and place
a firm's accounting system must perform which of the following functions
provide input to the firm's management information system
a firm's accounting system must perform which of the following
provide input to the firms management informations systems
risk and uncertainty are not:
rare occurrences in agribusiness because of the stability of the industry
cycles or cyclical patters
reflect biological lags of approximately four years for hogs and eight to ten years for cattle
the best forecasts are those that
relate the impact of macroeconomic variables to changes in a firm's sales and costs
centralized mgmt decision making is good because
senior managers have the most experience and can see the big picture
the return on owner's equity ratio
shows the return on the owner's invested capital
the following are all tools of financial analysis, except: comparative financial statements, spectrophotometer measures, common-size financial statements; specific financial performance measures, index-number trend series
spectrophotometer measures
average product is
the efficiency of each unit of input used; AP= (y/x)
economic order quantities and reorder points in inventory management aid managers in determining
the number of items to order each time an order is placed; the mini total cost of inventory; when a reorder needs to be made; how to minimize stockouts
explicit costs are not:
the return given up by not selecting the highest-value alternative
market potential
total level of sales possible in a target market for all firms