PMBA Final Exam Review Answers Summer 2011 (1)

PMBA Final Exam Review Answers Summer 2011 (1) -...

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UCFBusiness-PMBA Downtown ACCOUNTING 6425 FINAL EXAM REVIEW SUMMER 2011 Indicate the best answer to each of the following questions (each question is worth 4 points – 100 point total.) Calculations must be provide for the award of partial credit: 1. Compared with the internal rate of return (IRR) method, the net present value (NPV) method tends to favor projects with: A) Large investments. B) Long lives. C) Large residual values. D) Short lives. E) Small residual values. Answer: A 2. Depreciation expenses are not cash payments and are by themselves: A) Significant in capital budgeting. B) Irrelevant in capital budgeting. C) Relevant in capital budgeting because of extra taxes paid. D) Irrelevant in capital budgeting because of fewer taxes paid. E) Seldom significant in amounts. Answer: B 3. Working capital commitment affects the capital project cash flow as: A) Cash outflow during the initiation stage only. B) Cash inflow during the final disposal stage only. C) Cash outflow during the initiation stage and cash inflow during the final disposal stage. D) Cash outflow during the operation stage. E) Cash inflow during the operation stage. Answer: C
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4. "Investment myopia" tends to cause managers to avoid new investment because the returns may be uncertain and may not: A) Be actually realized. B) Reach minimum goals. C) Be realized for some time. D) Exceed minimum goals. E) All of the above answers are correct. Answer: C 5. Division A, which is operating at capacity, produces a component that it currently sells in a perfectly competitive market for $25 per unit. At the current level of production, the fixed cost of producing this component is $8 per unit and the variable cost is $10 per unit. Division B would like to purchase this component from Division A. The price that Division A should charge Division Y for this component is: A) $ 10 per unit. B) $ 18 per unit. C) $ 20 per unit. D) $ 25 per unit. E) $ 35 per unit. Answer: D 6. Relevant costs are: A) generally variable. B) usually not committed. C) different in amount for different options. D) in the future. E) all of the above. Answer: E 7. Kingston Company, which needs 10,000 units of a certain part to be used in its production cycle, can make or buy the part. If Kingston buys the part from Utica Company instead of making it, Kingston could not use the released facilities in another manufacturing activity. 60% of the fixed overhead applied will continue regardless of what decision is made. The following information is available: Cost to Kingston to make the part: Direct materials $ 6 Direct labor 24 Variable overhead 12 Fixed overhead applied 15 $57 Cost to buy the part from Utica Company $53 In deciding whether to make or buy the part, what are Kingston's total relevant costs (dollar amount) to make the part?
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Answer: $480,000 = (6+24+12+.4*15)*10,000
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PMBA Final Exam Review Answers Summer 2011 (1) -...

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