Board Query 1 Questions for FINAL

Correct Answers Highlighted in Yellow After Review

1.Chester's Elite product Cute has an awareness of 72%. Chester's Cute product manager for the Elite
segment is determined to have more awareness for Cute than Andrews' Elite product Able. She knows that
the first $1M in promotion generates 22% new awareness, the second million adds 23% more and the third
million adds another 5%. She also knows one-third of Cute's existing awareness is lost every year.
Assuming that Able's awareness stays the same next year (77%), out of the promotion budgets below,
what is the minimum Chester's Elite product manager should spend in promotion to earn more awareness
than Andrews' Able product?
Select: 1

Nothing

1M

3M

2M

2.Brat is a product of the Baldwin company which is primarily in the Nano segment, but is also sold in
another segment. Baldwin starts to create their sales forecast by assuming all policies (R&D, Marketing,
and Production) for all competitors are equal this year over last. For this question assume that all 699 of
units of Brat are sold in the Nano segment. If the competitive environment remains unchanged what will be
the Brat product’s demand next year (in 000’s)?
Select: 1

1594

699

797

748

3.Select all of the following statements that are true four years from now, in the year 2021.Select: 2

The Elite segment will demand 5,867 thousand units

The Nano segment will demand 5,402 thousand units

The Core segment will demand 9,768 thousand units

The Thrift segment will demand 7,738 thousand units

4.Looking forward to next year, if Chester’s current cash balance is $20,132 (000) and cash flows from
operations next period are unchanged from this period, and Chester takes ONLY the following actions
relating to cash flows from investing and financing activities:

Issues 100 (000) shares of stock at the current stock price

Issues $400 (000) in bonds
Retires $10,000 (000) in debt

Which of the following activities will expose Chester to the most risk of needing an emergency loan?
Select: 1

Liquidates the entire inventory

Sells $10,000 (000) of their long-term assets

Purchases assets at a cost of $25,000 (000)

Pays a $5.00 per share dividend

5.A productivity index of 110% means that a company’s labor costs would have been 10% higher if it had
not made production improvements. Now refer to the Income Statement in Digby's Annual Report. The
direct labor costs for Digby were $32,460. These labor costs could have been $20,000 higher if investments
in training that increased productivity had not been made. What was the productivity index for Digby that
led to such savings?
Select: 1

44.5%

161.6%

38.4%

155.5%

6.Investing $2,000,000 in TQM's Channel Support Systems initiative will at a minimum increase demand for
your products 3.0% in this and in all future rounds. (Refer to the TQM Initiative worksheet in the CompXM
Decisions menu.) Looking at the Round 0 Inquirer for Andrews, last year's sales were $163,085,264.
Assuming similar sales next year, the 3.0% increase in demand will provide $4,892,558 of additional
revenue. With the overall contribution margin of 34.1%, after direct costs this revenue will add $1,668,362
to the bottom line. For simplicity, assume that the demand increase and margins will remain at last year's
levels. How long will it take to achieve payback on the initial $2,000,000 TQM investment, rounded to the
nearest month?
Select: 1

10 months

TQM investment will not have a significant financial impact

5 months
 14 months

7.Assuming Digby’s current market share for its Dug product remains the same, how many units of Dug
should Digby expect to sell in the primary segment for the upcoming year?
Select: 1

1459 units

1552 units

1707 units

1565 units

8.Bolt's product manager is under pressure to increase market share, but is uncertain about how to make
the product more competitive. The product is reasonably well-positioned in the Thrift segment and enjoys
relatively high awareness and accessibility. Which of the following would most likely result in a quick
increase in market share?
Select: 1

Increase awareness by 5%

Lower the unit selling price to the bottom limit of the segment price range

Re-position the product to the ideal spot within the segment

Increase the unit contribution margin by decreasing the MTBF

9.Baldwin's product manager is considering lowering the price of the Baker product by $2.50 and wants to
know what the impact will be on the product’s contribution margin. Assuming no inventory carry costs,
what will Baker's contribution margin be if the price is lowered?
Select: 1

29.99%

31.57%

32.30%

34.00%

10. Which description best fits Andrews? For clarity:

- A differentiator competes through good designs, high awareness, and easy accessibility.
- A cost leader competes on price by reducing costs and passing the savings to customers.
- A broad player competes in all parts of the market.
- A niche player competes in selected parts of the market.

Which of these four statements best describes your company's current strategy?
 Select: 1

Andrews is a niche differentiator

Andrews is a niche cost leader

Andrews is a broad differentiator

Andrews is a broad cost leader

Q2: 699*(1+ growth rate) = 699*1.14 = 796.86~797

Q4: Purchases assets at a cost of $25,000 (000)

Q7: Page 5 of the report:

Dug: 1398*(1 + growth Rate) = 1398*1.11 = 1551.78 ~ 1552
Q8: Lower the unit selling price to the bottom limit of the segment price range  make the product more attractive
while lowering MTBF makes it less attractive.
1. You are hiring for a new group of sales reps for next year in anticipation of an increase in
business. Charles, a minority candidate, is your top pick as his performance in the sales training
program far exceeded any other sales rep. You’re set to hire him into your largest and most
profitable territory. Your boss, however, has expressed concerns that his minority status might be
a problem in your mainly White territory. Today your boss sent you an email that read in part "I
think it’s in Charles’ best interest if we find him a territory that is better suited to his
background." Which stakeholders are you primarily obligated to consider in making this
decision? Select: 1

Territory customers, your boss, and you

Charles, you, and your boss

Territory customers and your boss

Charles, your territory customers, and your boss

2.
On the Income Statement, which of the following would be classified as a variable cost?
Select: 1

Direct Labor Expense

Depreciation Expense

Promotion Expense

R&D Expense

3.
Digby Corp. ended the year carrying $20,850,000 worth of inventory. Had they sold their entire inventory at their
current prices, how much more revenue would it have brought to Digby Corp.?
Select: 1

$44,094,040

$11,480,000

$20,850,000

$32,906,000

4.
The Chester's workforce complement will grow by 10% (rounded to the nearest person) next year. Ignoring
downsizing from automating, what would their total recruiting cost be? Assume Chester spends the same amount
extra above the $1,000 recruiting base as they did last year.
Select: 1

$225,000
 $2,475,000

$2,970,000

$270,000

5.
Your team is having difficulty assigning work to each team member to meet overall team goals. Which of the following
actions would be most likely to enhance coordination among your team’s members?
Select: 1

Appoint a single team member to be in charge of coordinating individual assignments.

Discuss and clarify the roles and the responsibilities of each team member.

Continuously rotate task assignments among team members so everyone can do new things.

Assign each task to more than one person to promote repetition among the team’s members.

6.
The statement of cash flows for Baldwin Company shows what happens in the Cash account during the year. It can
be seen as a summary of the sources and uses of cash (sources of cash are added, uses of cash are subtracted).
Please answer which of the following is true if Baldwin repurchases some of its common stock:
Select: 1

It is a use of cash, and will be shown in the financing section as a subtraction.

It is a use of cash, and will be shown in the investing section as a subtraction.

It is a source of cash, and will be shown in the investing section as an addition.

It is a source of cash and will be shown in the financing section as an addition.

7.
This year Andrews achieved an ROE of 20.4%. Suppose management takes measures that decrease Asset turnover
(Sales/Total Assets) next year. Assuming Sales, Profits, and financial leverage remain the same, what effect would
you expect this action to have on Andrews's ROE?
Select: 1

Andrews ROE will decrease

Andrews ROE will increase

Andrews ROE will remain the same

8. It is January 2nd and senior management of Chester meets to determine their investment plan
for the year. They decide to fully fund a plant and equipment purchase by issuing 75,000 shares
of stock plus a new bond issue. Assume the stock can be issued at yesterday’s stock price
($28.47) and leverage changes to 2.8. Which of the following statements are true? Select all that
apply.Select: 3
 Chester will issue stock totaling $2,135,250

Total liabilities will be $141,885,153

Total assets will rise to $220,365,079

Working capital will remain the same at $11,177,860

The total investment for Chester will be $24,140,087

9.
Next year Baldwin plans to include an additional performance bonus of 0.25% in its compensation plan. This
incentive will be provided in addition to the annual raise, if productivity goals are reached. Assuming the goals are
reached, how much will Baldwin pay its employees per hour?
Select: 1

$29.63

$28.15

$31.04

$28.22

10.
Suppose the Chester company shifts focus to only competing in the Thrift and Nano segments, while competing on
price by reducing costs and passing the savings to the customers, what strategy would they be implementing?
Select: 1

Niche cost leader

Broad differentiation

Broad cost leader

Niche differentiation

11.
There is no one more technically savvy than James Westover. Indeed, he has built two amazing cloud-based
applications and started his own application development company, all within two years of graduating from college.
Because of his success, James caught the attention of Cheryl Stevens, a venture capitalist who funds technology
start-ups. Cheryl asked James to send her his best idea for a new application remarking, "if it’s anything like your
previous two, you can count me in." James is worried about sending the idea without being able to clarify the very
technical nature of his idea. Which of the following actions would you recommend James do at this stage in order to
be MOST effective in communicating with Cheryl?
Select: 1
Provide Cheryl with a brief proposal describing the idea in non-technical terms and ask for a face-to-face follow up
meeting.

Send Cheryl a PowerPoint slide deck with the information she requested and ask for her feedback.
 Thank Cheryl and politely tell her that the information is too technical to be described in a proposal and ask for a
face-to-face meeting.
Tell Cheryl that this type of information is very technical and ask if she has a technical advisory team that could help
her.
12.
Mike is the Director of Human Resources for a 120-employee family-owned manufacturing firm. Mike has been quite
busy the last year reforming the benefit offerings to comply with recent changes in healthcare laws. Given the many
changes, Mike took the opportunity to completely overhaul the employee benefits program including replacing the old
medical plans with three brand-new plans. Mike is preparing to tell employees about their new benefit offerings a few
months prior to the benefits open-enrollment period. Given the number of employees, he decides to design a nicely
formatted PowerPoint slide deck explaining the changes and to send this presentation via email to all employees.
One day into the open-enrollment period, his inbox is flooded with over 50 emails from confused employees. Mike is
puzzled, but realizes he may have made a mistake in communication. Which of the following BEST describes the
primary communication mistake he made?
Select: 1

Forgetting to alert managers that the communication was "coming their way."

Failing to match the communication medium (or channel) with the intended outcome.

Assuming that employees would understand the content of the PowerPoint slides.

Failing to develop core ideas that adhere to the rules of "sticky" communication.

13.
You are preparing for a 3-month global assignment in Turkey working on an international quality improvement team
for your company’s manufacturing division. After buying a few travel books and researching some of Turkey’s
contemporary history, you are quickly overwhelmed by the sheer amount of information to learn. Which of the
following types of cultural information would be MOST CRITICAL to understand before arriving in Turkey for your
assignment?
Select: 1

Dominant religious beliefs in Turkey.

Rules for Turkish interpersonal communication.

Geopolitical views of your own (native) country.

Basic tax and compensation laws in Turkey

14.
You have realized that a report your team authored and which is now sitting on the desk of the CEO, contains several
significant errors. What is the most effective way to deal with this situation?
Select: 1

As a team, figure out who was responsible for the errors so that they can be fixed.

Wait for the CEO to inform the team that the errors are important to fix.

Develop an initial plan for how to fix the report.

As a team, prioritize the errors and fix the report.

15.
Your company is fairly progressive and has started to use peer evaluations in the performance evaluation process
with the idea that nobody knows team members’ behaviors better than the team. Each individual completes a self-
evaluation and then one evaluation on each member of the team. The overall average is used to calculate
performance grades for each team member. Dave, one of your teammates, is not fond of Sherry; in fact, it’s fair to
say he’d rather work with anyone but Sherry. They are both good performers, but Dave confides in you that he’s
afraid that she will give him poor ratings. Anticipating this likelihood, Dave tells you that he feels like he has no other
choice but to provide Sherry with lower ratings so as to counteract the effect of her lower ratings of him. Which of the
following actions would be least helpful to Dave in promoting an ethical choice?
Select: 1
Tell Dave that lying is never the answer especially since he doesn’t know for sure that Sherry will behave as he
fears.

Ask Dave to consider other potential options regardless of whether he is right or wrong about Sherry.

Tell Dave that if he feels that this is the best option, he should look for evidence that confirms his suspicion.

Tell Dave that although you appreciate his candor, he should talk to your boss about the situation.

16. You have just accepted a leadership position of a newly formed project team. The team is
geographically dispersed with team members from Europe, North America, and South America.
Although the team will have quarterly face-to-face meetings at the company’s headquarters, most
of the team’s work is conducted virtually (online). As the leader of this new team, you want to
ensure that team members from different cultural backgrounds work effectively and efficiently
together. Which of the following actions would be most effective in facilitating your team’s
performance?Select: 1

Have each team member learn something about another team member’s home country.

Have regular “check-ins” with the team where everyone discusses how things are going.

Discuss expectations for team member communication and processes for making decisions.

Tell the team that you are available for advice or help whenever anyone needs it.
1. You are an account manager working for the Andrews Company. You sell and service the
sensors for sales representatives in many different industries. Your boss tells you that your
engineers are contemplating changing the specifications to make the sensors operate in mobile
phones. Some of the proposed changes however may be unpopular with your customers. You
suggest to your boss that customers should be notified before any changes would take place.
Your boss disagrees and says, "It’s better to ask for forgiveness than for permission." Which of
the following is the best course of action in order to help make the best decision?Select: 1

Convene your team to discuss the possible impact of any change on all affected parties.

Follow your boss’s suggestion since none of the proposed changes will eliminate the primary functionality of the
device.

Send a letter to customers before the change takes place.

Find legal or contractual grounds to argue that such changes made require 30-days written notice.

2.
A representative from a prestigious industry association just emailed. She asks for your participation on an expert
panel that will be held at an upcoming professional conference. The conference is not local, so it will require you to
travel and stay several days in the conference location. The representative offers to pay for travel and lodgings for
you and a guest to the conference. Which of the following responses would be most effective for helping you to make
an ethical decision?
Select: 1

Ask the representative if this offer has been made to any others that she’s inviting.

Ask the representative to cover your expenses, but not your guest’s.

Ask the representative to cover travel expenses, but not hotel expenses.

Thank the representative and accept the offer to cover expenses of your participation.

3.
Chester has a new design for their product Cent next round that can reduce their material cost of producing units
from $8.14 to $7.32. Chester passes on half of all cost savings by cutting the current price to customers. For
simplicity:

- Use current labor costs of $3.85

- Assume all period costs as reported on Chester's Income Statement (Annual Rpt Pg 2) will remain the same.

Determine how many units (000) of product Cent would need to be sold next round to break even on the product.
Select: 1

2,354 units.

1,258 units.

917 units.

774 units.
 967 units.

1,024 units.

4.
Of Digby Corporation’s products, which earned the highest Net Margin as a percentage of its sales?
Select: 1

Don

Dart

Deft

Dim

5.
The Digby company will sell 100 units (x1000) of capacity from their Dim product line. Each unit of capacity is worth
$6 plus $4 per automation rating. The Digby company will sell the capacity for 35% off. How much do they receive
when the capacity is sold?
Select: 1

$1,190,000

$3,400,000

$2,210,000

$1,870,000

6.
As the leader of your newly formed 9-person team, one of your key concerns is that the team performs as a cohesive
unit. Which of the following descriptions is most likely to indicate that your team is cohesive?
Select: 1

Whenever tackling a new team task, members typically divide into the same 3 subgroups.

Team members have no problem working independently or alone.

There is very little conflict between team members.

Team members prioritize the team’s goals over their own goals.

7.
The Baldwin Company currently has the following balances on their balance sheet:

Total Assets $187,144

Total Liabilities $114,306
Retained Earnings $30,660

Suppose next year the Baldwin Company generates $44,200 in net profit, pays $12,000 in dividends, total assets
increase by $55,000, and total liabilities remain unchanged. What will ending Baldwins balance in Common Stock be
next year?
Select: 1

$293,590

$129,378

$387,110

$64,978

8.
Assuming Brokerage fees of $6000, calculate the amount of cash needed to retire Baldwin's 12.5S2027 bond early.
Select: 1

$13,771,142

$13,765,142

$14,665,611

9.
How much would it cost for Chester Corporation to repurchase all its outstanding shares if new brokerage fees
totaled 1% of the underlying transaction?
Select: 1

$80.2 million

$78.6 million

$91.0 million

$89.2 million

10.
Refer to the HR Report section of the Inquirer. Baldwin will continue to keep their current hourly levels of training in
order to help reduce turnover and improve productivity next year. How much must be spent per employee on an
hourly basis to maintain the current training commitment?
Select: 1

$18

$20

$7,555

$36

11.
Suppose you were hired as a consultant for a company that wants to penetrate the Comp-XM market. This company
wants to pursue a broad cost leader strategy. From last year’s reports, which company would be the strongest
competitor?
Select: 1
 Digby

Andrews

Chester

Baldwin

12.
One of your colleagues spends a great deal of time planning her interactions with people from different cultural
backgrounds. Before she talks with people from a different culture, she researches their culture, tries to understand
how it’s both similar and different from her own, and then tries to put herself "in their shoes" by testing how different
statements might make her feel if she were from their culture. Which of the following views is MOST ACCURATE
about her behavior with respect to being culturally competent?
Select: 1
She should probably spend the most time on learning about the other culture rather than comparing it to her own
because this distracts from the real issues at hand.

She is missing the most important aspect of cultural competence, learning the language of the other culture.

This type of cultural learning, although requiring a lot of effort, is essential to be the most effective you can be when
talking with others from different cultures.
Although admirable, the most culturally competent people are authentic and her behavior is political in nature – it
would be better if she just tried to be herself.
13.
One of your teammates, Laura, is having difficulty accomplishing her assigned tasks. Which of the following actions
would be most effective?
Select: 1

Ask Laura why she is struggling to accomplish her tasks.

Ask Laura if there are tasks that you can help her finish.

Ask Laura to speak to the leader so that everyone knows about the potential delay.

Ask if your team leader can delay the next deadline to give more time for Laura to finish.

14.
Tom works for a large payroll outsourcing firm. One of his key customer’s contracts is set to expire in one month.
Competition has heated up in this industry and Tom’s customer asked him to make a presentation to the top
management team about his firm’s services. In his presentation, he thanked the customers for their loyalty, talked
about industry trends, highlighted how his firm has been successfully serving firms for decades (unlike the new
players in the market), and then asked them to renew their business again by showing them pricing options. Tom
didn’t get the contract renewed and wonders if his presentation had anything to do with it. Which of the following
actions should Tom do in order to IMPROVE his future presentations?
Select: 1

Spend less time talking about the competition’s low-quality services.

Spend more time thanking the customer for his/her loyalty.

Spend more time giving examples of how his firm has helped the customer.
 Spend more time asking about the customer’s specific needs.

15.

You’ve been asked to participate at a prestigious and well-attended annual conference within
your industry. Your participation requires that you sit on a panel of experts during the keynote
session of the conference. This session focuses on discussing key industry trends and challenges,
and it is expected to draw a large and engaged crowd. The session will include brief
presentations by each panelist, as well as a question-and-answer portion where you will respond
to the audience. Which of the following aspects of effective communication should you give the
most attention during the conference session?Select: 1

Linking your comments to comments made by other panelists.

Integrating evidence into your comments.

Establishing your credibility as an industry expert.

Making sure that your viewpoints are clearly heard.

16.
It’s been six months since you began your role as a regional sales manager. Your territory includes the U.S., Canada,
and Mexico, making it highly culturally diverse. You feel like you are doing fairly well, but still feel somewhat
uncomfortable when coaching sales people from Mexico. In fact, a recent meeting with a Mexican sales rep did not
go well. You tried to motivate him but he just became very defensive and you’re not sure if he reacted that way
because of the negative performance feedback, because you violated some cultural norm, or potentially, both. You
spoke with another manager in Mexico who assured you that you were culturally sensitive in your feedback delivery.
Which of the following would be LEAST helpful in continuing to develop your cross-cultural skills in delivering
performance feedback?
Select: 1
Increase your confidence through practice by coaching Mexican sales reps and then by seeking feedback on your
approach.

Gather feedback from other managers in Mexico about how you deliver performance feedback to sales reps.

Deliver performance feedback to sales reps in a written format.

Differentiate between what you say and how you say it.
1. The statement of cash flows for Baldwin Company shows what happens in the Cash
account during the year. It can be seen as a summary of the sources and uses of cash
(sources of cash are added, uses of cash are subtracted). Please answer which of the
following is true if Baldwin makes plant improvements:

Answer - It is a use of cash, and will be shown in the investing section as a subtraction.

2. This year Baldwin achieved an ROE of 2.0%. Suppose management takes measures that
decrease Asset turnover (Sales/Total Assets) next year. Assuming Sales, Profits, and
financial leverage remain the same, what effect would you expect this action to have on
Baldwin's ROE?

Answer - Baldwin ROE will decrease

3. On the income statement, which of the following would be classified as a variable cost?

Answer- Direct Material Expense

4. It is January 2nd and senior management of Baldwin meets to determine their

investment plan for the year. They decide to fully fund a plant and equipment purchase by
issuing $10,000,000 in bonds. Assume the bonds are issued at face value and leverage
changes to 2.7. Which of the following statements are true? Select all that apply.

Answer- Baldwin’s long-term debt will rise by $10,000,000

5. Baldwin's workforce complement will grow by 20% (rounded to the nearest person) next
year. Ignoring downsizing from automating, what would their total recruiting cost be?
Assume Baldwin spends the same amount extra above the $1,000 recruiting base as they
did last year.

Answer - can’t answer (other information required, which is not provided)

6. This year, Baldwin paid their workers $26.81 per hour. How much will they be paying
them 3 rounds from now?

Answer - $29.56

7. Suppose the Chester Company expands to other markets with good designs, high
awareness and easy accessibility, what strategy would they be implementing?

Answer- Niche differentiation

8. Andrews Corp. ended the year carrying $60,398,000 worth of inventory. Had they sold
their entire inventory at their current prices, how many more dollars of contribution
margin would it have brought to Andrews Corp.?

Answer - $60,398,000

Note- some data not available. pls post entire problem with all numeric data . Generic questions are
answered but question no 4, 5& 8 need more data which seems to be missing.
 lOMoARcPSD|9024298

CompXM Capsim Examination Notes

Post Graduate Diploma in Management (SVKM's NMIMS)

StuDocu is not sponsored or endorsed by any college or university

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 lOMoARcPSD|9024298

BOD QUIZ
Q1) Rank the following companies from high to low cumulative profit, (in descending order, 1=highest,
4=lowest).

Answer 1) From Selected Financial Statistic see cumulative profit and arrange in the order given (Need
to follow courier report given)

Q2) Chester has a new design for their product Cell next round that can reduce their material cost of
producing units from $8.13 to $7.32. Chester passes on half of all cost savings by cutting the current
price to customers. For simplicity:

- Use current labor costs of $4.02 - Assume all period costs as reported on Chester's Income Statement
(Annual Rpt Pg 2) will remain the same.

Determine how many units (000) of product Cell would need to be sold next round to break even on
the product.
ANS 2) Follow courier report

Break even= period cost/current price –new material cost- labour cost

Material and labour cost given in question

Period cost find from income statement or Calculate from financial summary (Depreciation+SGA)

Current price = list price of product cell from courier report

New price = 19 - (8.14-7.32)/2 = $18.59
Contribution margin per unit = current price –new material cost- labour cost
Breakeven unit = period cost/contribution , margin

Q3) When you accepted the CEO position for company Andrews, you discovered that you had
inherited a profitable company with a leading market share. Your contract has ended, and you
have accepted a new position as CEO of another company. The board has asked you to prepare a
briefing for the incoming CEO that will replace you. In good essay form, address the following
questions:

1. What have you done during your tenure to create or enhance a competitive advantage?

2. What major threats does the company face today?

3. What would be your vision for Andrews four years from now?

(Answer 3) subjective question, follow courier report , do give ROS,ROI etc figures while writing (No
wrong or right answer for this)

Q4) Assuming no brokerage fees, calculate the amount of cash needed to retire Baldwin's
11.1S2011 bond early

Answer 4) 11.1S2011 this means year 2011 bond at 11.1% (Look for this bond in that summary)

(Face value bond /100) = Number of bonds (Refer bond summary)

Downloaded by JAYESH VAYA (jayesh.vaya73@nmims.edu.in)

 lOMoARcPSD|9024298

Cash to retire= (No of bonds *closing price)+brokerage fees

Face value of per bond is 100 always

Q5) Your company Andrews has a bond retiring in 2008. This bond has an interest rate of 13.5%, a
face value of $10,300,000 and a closing price of $102.53. Since your company had sold these 10
year bonds at $100, you would be buying them back at

Answer 5) Face value of per bond is 100 always

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Chester's Total Liabilities would rise to 120,988,000. Chester could buy 60,494,000 additional plant and
equipment.
Look for financial summary for all competitor and calculate normally and check whose leverage
will increased to 3.0

Q8) From the Chester management team's perspective, how would the following actions by
Andrews worry them? Rank order the tactics below from (1) most worrisome to Chester to (5)
least worrisome to Chester

Answer 8) Given the focus more on revenue and then on cost (Subjective)

ther
ankingi
sasfollows:
1. Andrews introduces a new Nano product
2. Andrews invests in TQM to reduce R&D cycle time.
3. Andrews increases automation levels on product Ark to 6.0
4. Andrews increases their Ark promotion budget from $1,200 to $1,920
5. Andrews extends their credit terms to 90 days

Q9)

Answer 9) Don’t know

Q10)

Answer 10) Don’t know

Q11)

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Answer 11) Don’t know

Q 12) Forecast demand for Bat next year. Assume all competitors maintain
their policies towards R&D, pricing, and marketing budgets so that all
products will maintain their relative competitive positions as of year
end. You expect the Bat product's demand to be somewhere between
(in 000's):

Answer 12) Industry deamd * growth * apna ccs/total css (Like we do in excel) (CSS:
customer service score from courier report segment)

For ref:

Q 13) Which description best fits Andrews? For clarity:

- A differentiator competes through good designs, high awareness, and easy
accessibility.
- A cost leader competes on price by reducing costs and passing the savings
to customers.
- A broad player competes in all parts of the market.
- A niche player competes in selected parts of the market.
Which of these four statements best describes your company's current
strategy?

Answer 13) Andrews is a niche differentiator (Because you introduce new products by default etc)

Q 14) Which description best fits Digby in your industry? For clarity:
- A differentiator competes through good designs, high awareness, and easy accessibility.
- A cost leader competes on price by reducing costs and passing the savings to customers.
- A broad player competes in all parts of the market.
- A niche player competes in selected parts of the market.
Which of these four statements best describes this competitor?

Answer 14) Analyse the other player’s strategy

Q 15) Which description best fits Chester? For clarity:

- A differentiator competes through good designs, high awareness, and easy accessibility.

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- A cost leader competes on price by reducing costs and passing the savings to customers.

- A broad player competes in all parts of the market.

- A niche player competes in selected parts of the market.

Which of these four statements best describes this competitor?

Answer 15) Analyse the other player’s strategy

Q 16) Which description best fits Baldwin in your industry? For clarity:

- A differentiator competes through good designs, high awareness, and easy accessibility.

- A cost leader competes on price by reducing costs and passing the savings to customers.

- A broad player competes in all parts of the market.

- A niche player competes in selected parts of the market.

Which of these four statements best describes this competitor?

Answer 16) Analyse the other player’s strategy

((For analyzing look for new products introduced, pricing , promotion, awareness , accessibility score,
market share etc))
Q 17) You want to forecast market demand using historical data. Which tool provides you with the best
quantitative estimate of future conditions?

Answer 17) Regression Analysis.

Note:
Linear Programming – Transportation
Scenario Analysis - Contingency, example one variable is changed, WHAT IF
Ratio Analysis – Financial summaries of the company
Economic Order Quantity – Production
SWAG analysis – Intuition based
Q 18) The Andrews company currently has the following balances in their equity accounts:
Common Stock $11,121 Retained earnings $41,044
Suppose next year the Andrews company generates $46,300 in Net Profit,
and declares and pays $16,000 in Dividends. What will Andrews ending balance in Retained Earnings
be next year?
Answer 18) Retained earnings + net income - dividends = current retained earnings
41044+46300-16000 = 71344

Q 19) Your company acquires inventory on account. Select the impact on your financial statements.
( ) Increasing assets only.
( ) Increasing assets and liabilities.
( ) Increasing liabilities only.
( ) Increasing liabilities and decreasing assets.

Answer 19) Journal entry

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Stock
To creditors (Journal entry)

Increasing assets and liabilities.

As
set
sst
ocki
ncr
easeandl
i
abi
l
it
iesi
ncr
easedebt

Q 20)Sel
ectwhatwil
lbethemostcorrectcalculationofretainedear
ningsfornextyear
.
()Addnextyear'sgrossincometothisyear'sr etai
nedear ni
ngs.
()Addnextyear'snetincometothi
syear'sr etainedearnings.
()Addnextyear '
snetincomemi nusdivi
dendspai dtot
hisyear'sret
ainedear
nings.

Ans
wer20)Add nextyear
's neti
ncome mi
nus di
vi
dends pai
dtot
hisy
ear
'sr
etai
ned ear
nings
.
(
Formulasasgiv
enear
li
er)

Q 21)ThisyearBaldwi nachievedanROEof43. 4%.SupposetheBoar dofDirect

ors
of Baldwin mandat es that management t ake measur
es toi ncr
ease financi
alLever
age
(=Assets/Equi
ty)nextyear
.
Assumi ngSales,Profit
s,andAsset sremainthesamenextyear,
whateffectwouldyouexpectt hisnew Lever
agepoli
cywillhaveonBal dwi
nROE?

Ans
wer21)Bal
dwinROEwi lli
ncreasesi
nceROI=netincome/equit
y
Asl
ever
ageisasset
/equi
ty,assetremai
nssoequi
tyhav etodecreaset
oincr
easel
ever
ageandnet
i
ncomeremai nss
amesoroeincrease

Q 22)YourCompet
it
iveI
ntel
li
gencet eam repor tsthatawaveofpr oductli
abi l
it
ylawsui t
sis
likelytocauseDi gbyt opullthepr oductDotent i
relyoffthe
mar ketthi
syear .AssumeDi gbyscr apsallcapacityand
invent orythisround,compl etel
ywr it
ingoffthoseasset sand
escr owi ngthepr oceedst oaset tl
ementfund,andassumet hese
lawsui tswillhavenoeffectonanyot herproduct sofDigbyor
ot hercompani es.Wi thoutDi gby'sproductDothow muchcan
thei ndust r
ycur rentl
ypr oducei ntheCoresegment ?Consi der
onl ypr oductspr i
mar i
lyintheCor esegmentl astyear.I
gnor e
cur rentinventories.Figuresinthousands( 000).
Answer22)

(Noforecas t
,product i
onbecausequesti
onhasask
edonhowmanyitcanproduce)
Production capacity = Sum ofal
lpr
oduct
sinCor
esegment
’
scapaci
tynextr
oundignor
ingdot
’
s
capacity
Production capacity can be used to produce *2* the amount of product (due to second shift potential).
– follow production analysis in courier report

Q 23) Product Bam is being produced on both first and second shifts by company Baldwin.
Compare the incremental cost of purchasing an additional unit of first shift capacity with
the additional labor costs of producing that unit on second shift. It costs $3.62/unit in labor
to produce Bam on first shift, second shift labor costs are 50% higher. At the current
automation level of 8.0 it costs $38.00/unit of first shift capacity. Assume the only fixed
costs of purchasing first shift capacity will be Depreciation on a 15 year straight line. Ignore
material costs and SG&A expenses which are the same on both shifts. Which of the
following statements are true?

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( ) Producing units on first shift is always more profitable than second shift because
second shift labor rates are higher.

( ) At the current automation level it would be less profitable to pay second shift rates
than to buy more capacity.

( ) At the current automation level it would be more profitable to pay second shift rates
than to buy more capacity.

( ) It is always more profitable to produce on second shift rather than buying more
capacity.

Answer 23) Don’t know

Q 24) Currently Digby is paying a dividend of $21.05 (per share). If this

dividend were raised by $3.64, given its current stock price what would be the
Dividend Yield?

Answer 24) Formula Dividend yield: d0(1+g)/p0 so 21.05+3.64/closing stock price OF DIGBY , (SEE
STOCK MARKET SUMMARY in courier report)

Q 25) Currently Axe is charged $2,261,333 Depreciation on the Income Statement of

Andrews. Andrews is planning for an increase in this depreciation. On the financial
statements of Andrews will this?

( ) Decrease Net Cash from Operations on the Cash Flow Statement.

( ) Increase Net Cash from Operations on the Cash Flow Statement.

( ) Have no impact on the Net Cash from Operations as depreciation appears in both Cash
Flow and the Income Statement.

( ) Just impact the Balance Sheet.

Answer 25) Have no impact on the Net Cash from Operations as depreciation appears in both Cash
Flow and the Income Statement

Q 26) What is the Working Capital of Chester?

Ans
wer26)CA-
CL= Wor
kingcapi
tal(
Seefi
nanci
alsummar
yincour
ierr
epor
t)

Q 27)Whati
sDi
gby'
sDaysofWor
kingCapi
tal
?

Ans
wer26)[
Wor
kingCapi
t
al/
365](
Seefinanci
alsummar
yincour
ierr
epor
t)

Q 28)Whati
sAndr
ews'
sFr
eeCashFl
ow?

Ans28)Free Cash Flow = Cash Flow From Operations - Capital Expenditures

cashflowfrom oper ations-cashfl owsf r
om i nv es ti
ng
(Seefinanci
alsummar yi ncour i
err eport
)

Q 29)Rankthefol
lowi
ngcostsaccordi ngtot hei
rpercentageofsalesforDigby(l
argestto
smallest
)
Answer29)Fol
l
ow i
ncomest
atementOR ( Seefinanci
alsummar yincour
ierr
epor
t)andforper
iod
costf
rom financi
alsummarycalcul
ate(Dep+SGA)

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Q 30)Bal
dwinhasaproducti
vityi ndexof122. 5%.Whatdoest hi
smean?
‘
Answer30)Pr
oduct
i
vit
yref
erstot heamountofwor kt hathasbeencompl etedwi t
hinaspeci fict i
me
li
mi t.Product ivit
yi scal cul
atedbythet ot alamountofwor kdonewi th
the numberofhour s. Since productivity increase labour efficiency
increases so less people needed
The company needs 18.4% less people to do the same amount of work.

Q 31)Chest
erhasal everageof1. 91Thismeanst hat:(Assumel ever
agei
scal
cul
ated as
Asset
s/Equit
y)(IMPORTANTQUESTI ON)
()$1.91ofasset
sisfundedwi th$1.00ofequi
tyand$0.91ofdebt.
()$1.91ofasset
sisfundedwi th$1.00ofdebtand$0.
91ofequity.
()Assetsarefundedwit
h91% debt .
()Assetsarefundedwit
h91% equi ty

Ans wer31)
This means that $1.91 of assets is funded with $1.00 of debt and $0.91 of equity.

Equity= Assets/Equity – 1

= 1.91 – 1

= $0.91

debt = Assets/Equity – Equity

= 1.91- $0.91

= $1

Q 32) Midyear on July 31st, the Digby Corporation's balance sheet reported:

Total Assets of $104.818 million Total Common Stock of $5.080 million Cash of
$8.040 million Retained Earnings of $16.323 million.

What were the Digby Corporation's total liabilities?

Answer 32) Total asset = total equity and liabilities

Cash is already included in assets. So ,

Total Asset - (Retained Earnings + Stock)] million

Q 33) Digby Corporation is considering their dividend policy for this year. They are
projecting a $5.475mil profit. Given the proforma balance sheet below, what is
Digby Corporation planning to pay in dividends this year. (See full question in
question book)

Answer 33) (This Year Retained Earnings - Last Year Retained Earnings)]mil. Answer 17$-
14$

Note, cash , inventory ,depreciation etc has no effect on giving divided. Dividend is paid out
of retained earnings

Q 34) Given Baldwin Corporation’s Q2 balance sheet, compute the missing balance
sheet amounts: (See full question in question book)

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Answer 33) Current Assets [Current Assets = Cash + AR + Inv] Current Liabilities [Current
Liabilities = Curr Debt + AP] Total Equity [Total Equity = Common Stock + Retained
Earnings] Total Assets [Total Assets = Current Assets + Fixed Assets]

(Normal calculation of balance sheet amount as done in finance)

Q 35) Digby Corporation uses the accrual method of accounting. When it sells the
first unit of inventory for its product called Dast during the year, it also matches
which of these expenses with that sale:

( ) The promotion budget for the Dast product.

( ) The R&D on the Dast product.

( ) The material cost and labor cost of the Dast unit.

( ) The depreciation on the Dast production line.

Answer 35) The material cost and labor cost of the Dast unit , Since those are direct cost

Q 36) What if last year the Andrews Corporation issued 208,000 shares at $42.00
per share.

The effect on the balance sheet would have been:

( ) Common Stock increased $8,736,000; Retained Earnings decreased

$8,736,000.

( ) Cash increased $8,736,000; Common Stock decreased $8,736,000.

( ) Cash increased $8,736,000 Common Stock increased $8,736,000.

( ) Retained Earnings increased $8,736,000; Cash increased $8,736,00

Answer 36) Cash increased $8,736,000 Common Stock increased $8,736,000. When equity
is raised cash inflows and equity also increases

Q 37) In anticipation of Digby Corporation’s new product Digle, the company

purchased new plant and equipment for $27,360,000. The plant and equipment is
expected to be used for 15 years, and has a planned salvage value of $0. Assuming
straight-line depreciation, how much will Digle expense in depreciation next year?

Answer 37) 27360000-0/15= 1824000 as PLANT value-SALVAGE VALUE/ESTIMATED LIFE

YEAR

Q 38) Some income or expense transactions are unusual and do not reflect the
normal business of the company. These are captured in an Other (unusual income
or expenses) line (or something similarly labeled) in the income statement. For
example, a brokerage fee for the sale of common stock would not be a normal
operating expense for a manufacturer.

Which of the following transactions would also be included in the Other (unusual
income or expenses) line?

( ) Build $21,800,000 in inventory.

( ) Increase Accounts Payable by $3,270,000.

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( ) Sell used plant and equipment with a depreciated value of $32,700,000 for
$35,970,000.

( ) Depreciate the value of the plant by $2,180,000.

Answer 38) Sell used plant and equipment with a depreciated value of $32,700,000 for
$35,970,000. (Loss/gain on sale comes in other or unusual expenses account always)

Q 39) In the month of March the Baldwin Corporation received and delivered
orders of 173,000 units at a price of $14.00 for revenue of $2.422mil for their
product Bam. Baldwin uses the accrual method of accounting and offers 30 day
credit terms. By the end of May Baldwin had collected payments of $2.422mil for
the March deliveries. How much of the collected $2.422mil should Baldwin show
on the March 31st income statement and how much on the May 31st income
statement

Answer 39) $2.422mil in March; $0 in May

Since you record debtor to sales in march, where sales will be added in revenue of income
statement. And in may there will be cash to debtor’s entry which will have no effect on
income statement

Q 40) On the Income Statement, which of the following would be classified as a

fixed cost?

Answer 40) Income Tax will be

Q 41) The Digby Corporation reports the following summaries in this partial
Income Statement. Compute the missing values: (see full question in question
bank)

Answer 41)

Contribution: Sales- VC

Net profit : EBIT-interest-tax

option ©answer (solved by options)

Note: Contribution Margin [Contribution Margin = Sales- Var Costs] Net Margin [Net Margin
= Sales- (Var Costs + Period Cost)] Net Profit [Net Profit = EBIT - (Interst + Taxes)]

Q 42) As part of your competitive analysis, you notice that at Baldwin Corporation
the Promo and Sales budgets of the Bam product are pretty low. You wonder how
doubling Bam's Sales and Promo budget next year will increase demand--and
aversely affect your sales. Examine the profitability of this scenario to Baldwin.
For simplicity, assume the following: - Price remains unchanged at $19.00. -
Variable costs reported on the Production Analysis Report remain constant:
material stays at $6.93/unit and labor at $2.71/unit. - Promo and Sales budgets
double from $1,000,000 and $1,000,000 respectively. - No inventory carry costs. -

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All other period costs are the same as reported on last year's Annual Report.
Estimate how many units of Bam would have to be sold to reach break even.

Answer 42) [(Sum period costs including 2 * Promo and 2*Sales) / (Price - material cost -
labor cost)] thousand units

Periodic cost includes promotion and sales so we will increase

Or other method

(Existing SGA + Depreciation+ Increase in SGA)/ (SP-Material cost-labor cost)

Q 43) On the Income Statement, which of the following would be classified as a

variable cost?

( ) Direct Labor Expense

( ) R&D Expense

( ) Promotion Expense

( ) Depreciation Expense

Answer 43) Direct Labor Expense is in income statement (VC) follow income statement in
courier report

Q 44) Between January 1st and December 31st of 2006, Chester Corporation paid
its employees $23.151mil. However, its Income Statement shows a direct labor
expense of $24.351mil million.

Which of the following statements accurately explains the difference.

Answer 44) Direct labor cost is the labor component of the inventory that was sold, and
may include inventory produced in prior years (See income statement in courier report)

Q 45) Chester Corporation’s cash flow statement shows an increase in cash of

$1,847,357.

Which of the following transactions contributed to the cash increase?

( ) A decrease in accounts payable of $710,475

( ) A decrease in accounts receivable of $330,114

( ) A decrease in long term bonds of $1,154,598

( ) An increase in inventory of $759,885

Answer 45) A decrease in accounts receivable of $330,114 (Received cash from Debtors
reduce so cash increase)

Q 46) Andrews Corporation earned a profit of $22.838mil last year.

Andrews' profit would be placed in which category on the cash flow statement?

( ) Nowhere. Profits are not cash

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( ) Cash flow from operations

( ) Cash flow from investing activities

( ) Cash flow from financing activities

Answer 46) Cash flow from operations (Follow cash flow statement in courier report)

Q 47) Looking at the bond market summary, if Baldwin Corp. were to retire the
oldest bond early this round how much is the difference that the company will pay
per $100 of face value (excluding brokerage fees)?

Answer 47) No of bonds: (face value price/100)

((Oldest per bond price (close price) – face value per bond i.ee 100= discount if negative
/premium if + (follow bond summary)

If value wise multiply by no of bonds

[Bond Close - 100 as a percent]

Check Bond Market Summary in courier report

Q 48) If Chester Corp. were to buy all of it's shares outstanding at its current
price, how much would it cost Chester Corp, excluding brokerage fees?

Answer 48) Check Stock Market Summary in courier report (Buy back question)

[Shares Outstanding * Stock Price] million

Basically, (close price*no of shares)

Q 49) Chester Corp. has a surplus of cash. If Chester Corp. would have used all of
their cash to pay off liabilities what would their leverage have been?

Answer 48) [(Total assets - cash) / equity] (see from financial summary)

Q 50) Which company has the least amount of free cash flow?

Answer 50) Cash flow from operation – cash flow from investing (See from financial
statistics from courier report)

Q 51) Which company has the most days of working capital?

Answer 51) working capital/365 days , calculate for all companies and sees whose
maximum ((See from financial statistics from courier report)

Q 52) Chester's current book value is $21.57. If the company issued $10 million of
their outstanding stock at last year's stock price, what would be the new book
value? (Assume everything else remains constant.

Answer 52) (total equity exisitng+(10million*closingprice)/ 10million+no of old shares )

(From stock summary in courier report

Q 53) Digby Corp. is planning to purchase 50 units of plant capacity for each
product line. How much more in depreciation would the company have to spend
with this purchase?

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Answer 53) Automation cost: [50 * (6 + (4 * automation)) / 15] for all products

So do individually for each product line since automation will be different

And add all (see segment report in courier report for automation)

Q 54) The product manager for Baldwin's Elite product, Best, is comparing his
product to Chester's Elite product, Creak, in terms of reliability costs between the
two. If it costs $0.30 per 1000 hours of MTBF, what is the difference in reliability
cost per unit?

Answer 54) (0.3*current MTBF of that product)/1000 (see segment report in courier report
for mtbf)

Q 55) Which company has the most efficient SG&A / Sales ratio?

Answer 55) SG&A / Sales ratio (Financial statistics in courier report, calculate for each)

Q 56) Andrews Corp. ended the year carrying $76,509,000 worth of inventory. Had
they sold their entire inventory at their current prices, how much more revenue
would it have brought to Andrews Corp.?

Answer 56) [Inventory value] same only option (b), since the value is already given , if no
of inventory would have given we would have multiplied by list price

Q 57) How much would it cost in brokerage fees for Chester Corp. to repurchase
5% of their shares outstanding?

Answer 57) [(5% * shares outstanding * closing stock price)] (see stock summary in courier
report)

According to capsim “Your company pays a 5% brokerage fee”

Q 58) What was Andrews' Dividend Yield last year?

Answer 58) see stock market summary in courier report for dividend yield

Q 59) Chester has a 4% increase in sales and a 6% increase in interest expense.

Assuming everything else remains the same, what is their expected Net Profit?

Answer 59) increase sales 4% and increase 6% of interest in income statement of chester
from financial statistics in courier report and calculate net profit

Q 60) Digby's total assets are expected to increase by 5% this year. What should
they expect their leverage to be assuming Total Equity stays the same? (Digby
uses Assets / Equity to determine leverage.)

Answer 60) [1.05*Total Assets/Total Equity] : New leverage (See financial statistics in
courier report for TA And Total equity)

Q 61) Refer to the 2006 Income Statement in the Annual Report section of the
Inquirer for Andrews. Axe has $4,189 of Total Period Costs. Interest and Other
expenses must be allocated to all products, so assume this is done equally and
Axe's share is $1,670. For simplicity, assume that changing the price of Axe would
not alter its sales of 0,786 units. What is the minimum price Axe could have been

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sold for without losing money, i.e., its Contribution Margin would cover the $5,859
of Period, Interest and Other expenses?

Answer 61)

SP-(VC/786)=contribution per unit

786 = break even units

VC: find from financial statistics in courier report

Period cost: 4189

Period cost/contribution per unit=786 ignore interest expense

Q 62) A market condition in which purchasers are so few that the actions of any
one of them can materially affect price and the costs that competitors must pay.

( ) Monopoly : one seller many buyer

( ) Monopsony : many seller one buyer

( ) Oligopoly : few seller many buyer

( ) Oligopsony : many seller few buyer

Ans 62) Oligopsony

Q 63) Refer to the HR Reports in the Inquirer. Through past investments in

recruiting and training Baldwin has obtained a productivity index of 109.1%. This
means that Baldwin's labor costs would be increased by 9.1% if it did not have
these productivity improvements. This is a competitive advantage that Baldwin
can sustain or even widen further if its competitors have no HR initiatives. Now,
refer to the Income Statement in Baldwin's Annual Report. How much did
Baldwin's productivity improvements save it in direct labor costs (in thousands)
last year?

Ans 63) [Direct labor * productivity index over 100 (9.1 % MULTIPLIED AND THAT MUCH
LABOUR COST SAVED) (Refer to courier report income statement)

Q 64) The Chester's balance sheet has $76,011,000 in equity. Further, the
company is expecting $3,000,000 in net income next year. Assuming no dividends
are paid and no stock is issued, what would their Book Value be next year?

Ans 64) [( Total Equity + 3 million) / shares outstanding] , shares outstanding in stock
summary in courier report

Q 65) Of Chester Corporation’s products, which earned the highest Net Margin as a
percentage of its sales?

Ans 65) Normal calculate NM/SALES CALCUALATE (From income statement in courier
report)

Q 66) The Baldwin's workforce complement will grow by 10% (rounded to the
nearest person) next year. Ignoring downsizing from automating, what would

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their total recruiting cost be? Assume Baldwin spends the same amount extra
above the $1,000 recruiting base as they did last year.

ANS 66) Total employee last year = workforce needed complement + new employees ( see HR summary
in courier report)

Number of employees this year = 501*(1+10%) = 551

Increase in employee = current employees- employees last year

Amount spend on recruitment = recruiting spend + increase in recruiting spend (1000 given in
question)*increase in employee

i.e [110% of last year workforce * (1000 + extra recruiting expense)] (if total recruiting spend asked)

Follow HR summary report

Q 67) The Digby company will continue to train their existing workforce at their current level to help
reduce turnover and improve productivity next year. Employee training costs $20 per hour. How much
would their training costs per employee be to the nearest dollar?

Ans 67) Training cost: [Training hours * $20 per hour] (Follow hr summary in courier report
for training hours)

Q 68) If Digby were to increase their workforce complement by 10% (rounded to the
nearest person), how much will the company spend on benefits next year?

Answer: I don’t know

Q 69) Chester Corp. is downsizing the size of their workforce by 10% (to the
nearest person) next year from various strategic initiatives. How much will the
company pay in separation costs if each worker receives $5,000 when separated?

Ans 69) [Complement * decrease percentage * $5,000]

Total employee last year(Complement) = workforce needed complement + new employees ( see HR
summary in courier report)
Q 70) The Digby company will sell 100 units (x1000) of capacity from their Dim
product line. Each unit of capacity is worth $6 plus $4 per automation rating. The

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Digby company will sell the capacity for 35% off. How much do they receive when
the capacity is sold?

Ans 70) Tot

alNumberofUni
ts
:100*
1000=100000uni
t
s
Eachuni
tofcapaci
tyi
swort
h=$6+4$=$10
Sel
li
ngpri
ce=@35% offt
henS.Pi
s10*(1-0.
35)=$6.5
Whencapacit
ywill
besol
dtheywi
llr
eceiv
e=$6.5*100000=$650000

Q 71)Lastyear
,Baldwi
nCorppaidt
hei
rwor
ker
s$28.
15perhour
.How muchwi
llt
heybe
payingthem 2roundsf
rom t
hen?

ANS71)28.
15(
1+.
05)
^2

(
Alway
s5% i
ncr
easei
neachr
ound)

Q 72)Dealisapr oductoftheDi gbycompany.Digby'ssal

esforecastforDealis513uni t
s.
Digbywant stohaveanext ra10% ofunitsonhandaboveandbeyondt hei
rf or
ecastincase
salesarebetterthanexpected.(Theywouldri
skt hepossibi
li
tyofexcessi nventor
ycarryi
ng
chargesratherthanrisklostprofit
sonastockout .
)Taki
ngcur r
entinventoryintoaccount,
whatwi l
lDeal'sProducti
onAf t
erAdj ust
menthavet obeinordertohavea10% r eser
veof
unitsavai
lableforsal
e?

ANS72)[
1.1*f
orecas
t–cur
renti
nvent
ory]uni
t(bes
tcasef
orecas
ti
ng)

(
Seepr
oduct
i
onanal
ysi
sincour
ierr
epor
t)(
adds
afet
yst
ockal
sot
hat
’
swhy1.
1)

Q 73)Bal dwin'sEl i
teproductBoldhasanawar enessof72%.Bal dwin'sBoldpr oduct
managerf ortheEl i
tesegmentisdeterminedtohavemor eawarenessf orBol
dt hanAndr ews'
Elit
epr oductAbby.Sheknowst hatt
hefirst$1M inpr omot i
ongenerates22% new awar eness,
thesecondmi l
li
onadds23% mor eandt hethir
dmi l
lionaddsanother5%.Sheal soknows
one-thirdofBol d'sexisti
ngawarenessislostever yyear.Assumingt hatAbby'sawareness
staysthesamenextyear( 77%),outofthepromot ionbudget sbel
ow,whati sthemi nimum
Baldwin'sEl i
tepr oductmanagershouldspendi npr omotiontoearnmor eawarenesst han
Andr ews'Abbypr oduct?

ANS73)

Andr
ewsar
war
eness77%

Bal
dwi
nawar
enessnexty
ear(
72%*
2/3=48%)

SoBaldwi
nwi
l
lspend1+1mi
l
ii
on=2mi
l
li
ont
ogener
ate22%+23% awar
eness=45% mor
e
awar
eness

Sobal
wdi
wnt
otal
awar
enss48+45=93% whi
chi
smor
ethanAndr
ews77%

So2mi
l
li
onspendans
wer

Q 74)Demandi screatedthroughmeeti
ngcustomerbuyingcr
it
eria,credi
tterms,awar
eness
(
pr omotion)andaccessibi
li
ty(dist
ri
but
ion)
.Accordi
ngtotheThrif
tsegment '
scustomers,
whi chofthesepr
oduct swast hemostcompeti
ti
veattheendoflastyear?

Ans74)[
Productt
hatear
nedt
hehi
ghes
tDec
.Cus
t.Sur
veys
cor
e](
Becauseeofhi
ghes
tmar
ket
shar
eishi
ghlycompet
it
iv
e)

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 lOMoARcPSD|9024298

Q 75)Di
gbycurrentl
yhas$9,749(000)i
ncash.Assumingthi
syear’
scashfrom operati
onsis
unchangedandthemostcapi t
althecompanycanraisei
sfrom i
ssui
ngbondsandst ocks
worth$8,
000(000),whatact
ivi
tyexposest
hiscompanytothemostriskofbei
ngi ssuedan
emergencyl
oan?

Ans75)cal
cul
atecl
osi
ngcashhi
ghes
tnegat
iv
ethathasmaxi
mum r
iskandal
so25% wal
afundawi
l
l
apl
l
icabl
e.

Socal
cul
atef
oreachopt
i
onands
eewher
ether
eismaxi
mum cashi
nhand

Cl
osi
ngcash(
9749+8000=17749)

Logi
cfort
hisques
ti
on:Mosl
tyget
ti
ngr
idoft
heent
i
rei
nvent
orybecausecashi
scomi
ngandi
nal
l
cashi
sgoing

Q 76)CityisaproductoftheChest ercompanywhi chisprimaril

yintheNanosegment,buti
s
alsosoldinanothersegment .Chesterstar
tstocreat
etheirsalesfor
ecastbyassumingal
l
polici
es(R&D,Mar ket
ing,andProduct i
on)foral
lcompetit
or sareequalthi
syearoverl
ast
.For
thisquesti
onassumet hatall708ofuni t
sofCityaresoldint heNanosegment.Ift
he
compet i
ti
veenvir
onmentr emainsunchangedwhatwi l
lbet heCityproduct’
sdemandnext
year(in000’s)
?

Ans76)l
asty
ear
’ss
ales*gr
owt
hrat
e(Gi
ven708buni
t
s,fi
ndgr
owt
hrat
efr
om cour
ierr
epor
t)

Q 77)Whi
choft
hesepr
oduct
sbel
ow i
sinsi
det
heposi
ti
oni
ngfinecutof2segment
satyear
end?

Ans77)Witht
hehelpofper
cept
ualseethepr
oduct
swhi
char
eint
hecent
reoft
heci
rcl
eindi
ffer
ent
segment(
Seepercept
uali
ncour
ierrepor
t)

Q 78)Investing$2,000,000inTQM' sChannelSuppor tSystemsi niti

ati
vewi l
latami nimum
i
ncreasedemandf oryourpr oducts1.7% int hisandi nallfuturer ounds.(RefertotheTQM
I
niti
ati
vewor ksheetintheCompXM. xl
sDeci sionsmenu. )Looki ngatt heRound0I nquir
erfor
Andrews,l astyear'ssaleswer e$179,789,193.Assumi ngsi mil
arsal esnextyear,the1.7%
i
ncreasei ndemandwi l
lprovide$3,056,416ofaddi tionalrevenue.Wi t
ht heoveral
l
contri
butionmar ginof34. 6%,afterdirectcoststhisr evenuewi l
ladd$1, 057,
520tot hebottom
l
ine.Forsi mplici
ty,assumet hatthedemandi ncreaseandmar ginswi l
lremainatlastyear's
l
evels.How l ongwi l
littaketoachievepaybackont hei ni
tial$2,000,000TQM invest ment,
roundedt othenear estmont h?IMPORTANTQUESTI ON

Ans78)[
12*i
nves
tment/(
mar
gin*s
alesi
ncr
ease)
]mont
hs

(
12*$2,
000,
000)
/(
34.
6%*$3,
056,
416)

Q 79)Whi
chproducthadt
hel
owestcombinedperuni
tMat
eri
alandLaborcost
satt
heendof
December
,2006intheCor
emarketsegment
?

Ans79)seepr
oduct
i
onanal
ysi
sincour
ierr
epor
tandaddmat
eri
alcos
t+l
abourcost

Q 80)I
nor dert
osellaproductataprofitt
heproductmustbepri
cedhi
ghert
hant
het
otalof
whatitcostsyout
obui l
dtheunit,pl
usper i
odexpenses,andpl
usover
head.

Downloaded by JAYESH VAYA (jayesh.vaya73@nmims.edu.in)

 lOMoARcPSD|9024298

Attheendofl astyeart
hebr oadcostleaderChesterhadanElit
eproductCozy.Usethe
I
nqui r
er'sProductionAnalysist
ofindCozy'spr oduct
ioncost
,(l
abor+mater
ial
s).Excl
ude
possibleinventorycarr
yingcosts.Assumeper iodexpensesandoverheadtot
al1/2ofthei
r
productioncost .Whatistheminimum pricetheproductcoul
dhavebeensol dfortocoverthe
unitcost,peri
odexpenses,andover head?

Ans80)[(
Mat
eri
al+labor)*1.5](seeproducti
onanalysi
sincour
ierr
epor
t)(
1.5becauseov
erheadi
s
al
sother
eofabout½ ofdi
rectlabour+di
rectmater
ial
)

Q 81)How bi
gwi
llt
hemar
ketbei
nfouryear
s?

Ans81)i
ndus
trydemand(
1+g)
^4f
oreachsegmentandsee

Q 82)ItisJanuar y2nd.Seni ormanagementofDi gbymeetstodeter

mi nethei
rinvestment
planfortheyear .Theydeci detofull
yf undaplantandequi
pmentpur chasebyi ssui
ng50,000
sharesofstockpl usanew bondi ssue.TheCFO happilynot
esthiswi l
lrai
setheirLever
age
(=assets/
equity)toanew t argetof3.0.Assumethestockcanbeissuedatyest erday’
sstock
price($27.
01).Whi chofthef oll
owingst at
ementsaretr
ue?Checkallthatappl
y.( Seeful
l
questionincour ierrepor
t)

Ans82)opt
ion1&5confir
m

Di
gbywi
l
lissues
tockt
otal
i
ng$1,
350,
500

Longt
erm debtwi
l
lincr
easef
rom $66,
467,
200t
o$67,
817,
700 (
becauseequi
tyof67817700added)

Forwor
kingcapi
t
alandas
setcheckcour
ierr
epor
t

Q 83)LastyeartheChestercompanyincreasedt
hei
requi
ty.I
n2007t
hei
requi
tywas$37,
669.
Lastyear(2008)iti
ncr
easedto$41,399.

Whatar
ecausesofchangei
nequi
ty?Checkal
lthatappl
y(Seef
ullquest
ioni
ncour
ierr
epor
t)

Ans83)

 Achangeofpl
antandequi
pmentof
$10,
310.
 Achangei
ncashof-$4,
845.
 Pl
antI
mprovement
sof$10,31
 I
ssueandret
ir
ementofst
ock.

Q 84)Review t
heInquir
ert
odeter
mineDigby’
scur rentstrat
egy.Wher ewil
ltheyseeka
compet i
ti
veadvantage?Fr
om t
hefol
lowingli
st,selectthetopfivesourcesofcompeti
ti
ve
advantagethatDi
gbywouldbemostlikel
ytopur sue.(Seefullquesti
onincourierr
eport
)

Ans84)Don’
tknow

Butmos
tl
y:(
Notsur
e)

 I
ncreasedemandt hroughTQM i ni
t
iati
ves
 Seekexcel
lentproductdesigns,hi
ghawar eness,andhi
ghaccessibil
i
ty
 Seekhighautomationlevels
 Acceptl
owerplantutil
i
z at
ionandhighercapacit
i
est oi
nsur
esuffici
entcapaci
tyi
sav
ail
abl
eto
meetdemand
 Reducecostofgoodst hroughTQM init
iat
i
v es

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 lOMoARcPSD|9024298

Q 85)CompanyBal dwininvested$45,
300,
000inplantandequi
pmentl astyear.Theplant
i
nvestmentwasf undedwi t
hbondsataf aceval
ueof$24,178,
667at13.6% interest
,andequit
y
of$21,121,
333.Depreci
ati
oni s15yearsst
rai
ghtli
ne.Forthi
stransact
ionalonewhi chofthe
fol
lowingstat
ementsaret r
ue?

Ans85)

 OntheBal
ancesheet,Plant&Equi pmentincr
easedby$45,300,
000.
 OntheBal
ancesheet,LongTer m Debtchangedby$24,178,667
 Depr
eci
ati
onincr
easedby$3, 020,000.

Q 86)Review t
heInquirert
odeter
mineBaldwin'scurrentstr
ategy.Wher ewil
ltheyseeka
compet i
ti
veadvantage?From t
hefol
lowi
nglist,sel
ectthefivesour cesofcompetiti
ve
advantagethatBaldwinwouldbemostli
kelytopur sue.(Seefullquesti
onincourierrepor
t)

Ans86)Don’
tknow

Q 87)Di
gbyCor
porati
oni
sconsi
der
ingaddi
ngcapaci
tyt
othei
rDaf
tpr
oduct
,cur
rent
ly
automat
edto7.
0.Assume:

-Theywi
lluset
henew capaci
tynextyeart
omakeandsel
l200addi
ti
onaluni
ts.

-Eachuni
tofcapaci
tywi
llcost$34.
00.

-Daf
t'
spr
icewi
llbeunchangedat$34.
00.

-Mat
eri
alcost
swi
llr
emai
n$13.
94nextyear
.

-Laborcost
swi
llr
emai
n$5.
47onfir
stshi
ft
,and$8.
09onsecondshi
ft
.

-Bondi
nter
estwi
llr
emai
n13.
3% nextyear
.

-Depr
eci
ati
onwi
llbest
rai
ghtl
ineover15year
s.

-SG&Acostscanbei
gnor
edbecauset
heywoul
dbet
hesamewi
thorwi
thoutt
henew
capaci
ty.

Whi
choft
hef
oll
owi
ngt
act
icswi
llyi
eldt
hehi
ghestROIi
nthei
rfir
styearofpr
oduct
ion?

Ans87)

Scenar
io1buyi
ng200capaci
ty
:

Pr
ofit
/l
oss
:200*
((34+13.
94+5.
47)
-34)

Scenar
io2buyi
ng100capaci
ty

Pr
ofit
/l
oss
:100*
((13.
94+5.
47)
+100*
(13.
94+8.
09)
-34)

Fi
ndwhi
chhasmi
ni
mum l
oss

Dep&i
nter
esti
gnor
ed

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 lOMoARcPSD|9024298

Al
way
spur
chasewi
t
hst
ocksi
ncenoi
nter
estwi
l
lbebor
ne

Fi
ndwhi
chhasmi
ni
mum l
oss

Q 88)TheAndrewst eam hasjustpurchased$56,892,

000ofplantandequi pmentthathasan
esti
matedusefulli
feof15year s.Supposeattheendof15year st hi
splantandequipmentcan
besalvagedfor$5,689,
200( 1/
10thofit
sorigi
nalcost)
.Whatwi llbethebookvalueofthis
purchase(excl
udingallotherPlantandEquipment)aft
eri
tsfirstyearofuse?

Ans88)

56892000-
5689200/
15=3413520

56892000-
3413520=$53,
478,
480atsecondy
ear

Q 89)Aspartofyourcompeti
ti
veanalysis,younot icethatatChesterCorporationthePromo
andSalesbudgetsoftheCozyproductar eprett
yl ow.Youwonderhow doubl i
ngCozy's
SalesandPromobudgetnextyearwillincreasedemand- -
andaverselyaffectyoursales.
Examinetheprofit
abi
li
tyoft
hisscenari
ot oChest er.Forsimpli
cit
y,assumet hefol
lowing:

-Pr
icer
emai
nsunchangedat$20.
00.

-Vari
abl
ecost
sreportedonthePr
oduct
ionAnal
ysi
sRepor
tremai
nconst
ant
:mat
eri
alst
ays
at$6.
65/
uni
tandlaborat$2.
83/
uni
t.

-Pr
omoandSal
esbudget
sdoubl
efr
om $950,
000and$1,
000,
000r
espect
ivel
y.

-Noi
nvent
orycar
rycost
s.–

Allot
herperi
odcostsarefixedandremai
nthesameasrepor
tedonlastyear'
sAnnual
Repor
t.Est
imatehow manyuni t
sofCozywouldhavet
obesoldtor
eachbr eakeven.

Ans89)

[
(Sum per
iodcos
tsi
ncl
udi
ng2*Pr
omoand2*
Sal
es)/(
Pri
ce-mat
eri
alcos
t-l
aborcos
t)]t
housand
uni
ts

Si
mil
arques
ti
ondoneear
li
er

Q 90)Chesterhasanew desi
gnfort
heirproductCampnextr oundthatcanr
educet
hei
r
materi
alcostofproduci
ngunitsf
rom $10.
01to$9.01.Forsi
mpl i
cit
y:

-Usecur
rentl
aborcost
sof$5.
64

-Assumeal
lperi
odcost
sasr
epor
tedonChest
er'
sIncomeSt
atement(
AnnualRptPg2)wi
ll
remai
nthesame.

Deter
minehow manyuni
ts(
000)ofpr
oductCampwoul
dneedt
obesol
dnextr
oundt
obr
eak
evenonthepr
oduct

Ans90)depr
ecati
on+sga/
li
stpr
ice-
mat
eri
alcost
(new)
-l
abourcost(
segmentr
epor
t+financi
al
summaryincour
ierr
eport
)

Si
mil
arques
ti
ondoneear
li
er

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 lOMoARcPSD|9024298

NOTES
1) Break even= period cost/SP-LABOUR-MATERIALCOST
PERIOD COST = (Depreciation+SGA)
Contribution margin per unit = current price –new material cost- labour cost
Sometimes period cost also takes into account of selling & promotion expense of that
period
2) (Face value bond /100) = Number of bonds (Refer bond summary)
Cash to retire= (No of bonds *closing price)+brokerage fees
3) Leverage: Tot alasset s/
TotalEqui ty
4) Demandf or ecast:Industry deamd * growth * apna ccs/total css
5) retained earning+net income-dividends = current retained earnings
6) Dividend yield: d0(1+g)/p0
7) CA- CL= Wor kingcapi tal
8) [Wor kingCapi t
al/
365]=wor kingcapi taldays

9) Free Cash Flow = Cash Flow From Operations - Capital Expenditures or C ash flow f rom
oper ations-cashflowsf rom i nvest ing
10) Product ivi t
yr ef er
stot heamountofwor kthathasbeencompl etedwit
hi naspeci fict
imel imi t
.
Product ivi t
yi scal culatedbyt het ot
alamountofwor kdonewi t
hthenumberofhour s.Since
productivity increase labour efficiency increases so less people needed , so always productivity
increase , less labour needed
11) Depreciation = PLANT value -SALVAGE VALUE/ESTIMATED LIFE YEAR
12)Contribution Margin [Contribution Margin = Sales- Var Costs] Net Margin [Net Margin
= Sales- (Var Costs + Period Cost)] Net Profit [Net Profit = EBIT - (Interst + Taxes)]

13) Break even: [(Sum period costs including 2 * Promo and 2*Sales) / (Price - material
cost - labor cost)] thousand units
14) ) Automation cost: [units* (6 + (4 * automation)) / 15]

Important topics for BOD

 Break even
 Bond retire
 Leverage
 FORECAST DEMAND
 Retained earnings
 ROI sums
 Free cash flow
 Book value related sums in equity

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