EXAM 3 PRACTICE

# EXAM 3 PRACTICE - This is not a comprehensive list of...

This preview shows pages 1–3. Sign up to view the full content.

This is not a comprehensive list of notes!!!! -relevant cost: a cost that differs between alternatives -sunk costs are not relevant costs -when you have a limited supply of a resource (a constrained resource), choose the alternative that generates the most profit per unit of the constrained resource -amt. of cash flow(s) x present value factor = present value of cash flow(s) -if NPV is positive or equal to 0, then the project is acceptable b/c it exceeds the required rate of return -IRR is equal to the discount rate that provides a NPV of 0 -PV factor of IRR = Investment required / Net Annual Cash Flows -Payback Period = Investment Required / Net Annual Cash Flows -payback period ignores the time value of money!!! Here is some hypothetical data that illustrates how you should setup a NPV problem: Item Years Amt. of Cash Flows 15% Factor PV of Cash Flows Investment Now (100,000) 1.000 (100,000) Annual Inflows (1-5) 33,000 3.352 110,616 Salvage 5 8,000 0.497 3,976 Net Present Value 14,592 Note: When doing NPV problems, use this table as a guideline. Fill in as much of the table as possible and work to solve for the missing parts. -know definitions of cost, profit, investment centers (all are responsibility centers) -know difference between common and traceable costs….. traceable costs would more likely disappear if the segment was removed (but not necessarily) ROI = Net Operating Income / Avg. Operating Assets Margin = Net Operating Income / Sales Turnover = Sales / Average Operating Assets Therefore……….. ROI = Margin x Turnover -Three ways to improve ROI – increase sales, reduce expenses, reduce assets Residual Income = Net Operating Income – Minimum required return on Investment MCE = Value added time / Manufacturing cycle time Note: Process time is the only value added time

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern