Midterm1 Spr2010

1 vonn consulting inc is a service firm which of the

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Unformatted text preview: am. 1. Vonn Consulting, Inc. is a service firm. Which of the following items would appear on its balance sheet? Write the associated letter codes on your answer sheet. a. b. c. d. e. f. g. h. Accounts Receivable Cash Consultant Salaries Inventory Machinery Depreciation Prepaid Expenses Sales Revenue Work In Process Inventory Use the following information about Community to answer questions 2 through 5. After attending a TQM seminar, the vice-president of Community Bank, Inc. proposed a major initiative to increase quality. If Community undertakes this initiative, it will incur the following costs: Computer software $175,000 Training 225,000 Consultant Fees 250,000 Total $650,000 Community believes that the quality initiative will increase sales, decrease losses due to accounting errors, and improved employee satisfaction. It estimates the present values of these benefits as follows: Increased sales $340,000 Decreased losses due to accounting errors 225,000 Improved employee satisfaction 190,000 Total 755,000 Community believes it has accurately estimated costs but is less certain about future benefits. It believes there is only a 60% chance it will increase sales. 6A:002 Spring 2010 – Midterm 1 Page 3 2. Compute the expected value of the benefits of the quality initiative. 3. (a) Based on the information above, should Community undertake the project? (b) Compute the net expected benefit of the quality initiative. If the net benefit is negative, write your answer in parentheses. 4. Assume that the net expected benefit of the quality initiative is $45,000. Community is concerned that it has overestimated the present value of improved employee satisfaction. What is the smallest this benefit could be and still result in Community wanting to undertake the initiative? 5. Ignore question 4. Instead assume that Community has reevaluated its cost estimates. It believes there is a 25% chance it will experience a cost overrun on computer software costs. If it experiences this cost overrun, total computer software costs will be $210,000 rather than the $175,000 it originally estimated. Compute Community’s revised expected cost of the quality initiative. 6A:002 Spring 2010 – Midterm 1 Page 4 6....
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This note was uploaded on 09/29/2011 for the course 06A 002 taught by Professor Stuff during the Spring '11 term at University of Iowa.

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