2. a Weakness of the Internal Rate of Return Method for Screening Investment Projects Is That

I JUST WANT TO KNOW IF YOU ANSWERED THE TWO NEW ONES.... IT LOOKS LIKE YOU TAKE PAYMENTS FOR OF THE Same ones. We agreed to 90 for the other two ....You took 60 dollars recently.. I owe you 30 .. Is that correct?Use the following information to answer this question.Financial statements for Larkins Company appear below:Larkins CompanyStatement of Financial PositionDecember 31, Year 2 and Year 1(dollars in thousands)Year 2 Year 1Current assets:Cash and marketable securitiesAccounts receivable, netInventoryPrepaid expensesTotal current assetsNoncurrent assets:Plant & equipment, net$180210130505701,540$180180120505301,480Total assets $2,110 $2,010Current liabilities:Accounts payableAccrued liabilitiesNotes payable, short termTotal current liabilitiesNoncurrent liabilities:Bonds payableTotal liabilitiesStockholders' equity:Preferred stock, $20 par, 10%Common stock, $10 parAdditional paid-in capital--common stockRetained earningsTotal stockholders' equityTotal liabilities & stockholders' equity$10060902504807301201802408401,380$2,110

$130 601203105008101201802406601,200$2,010Larkins CompanyIncome StatementFor the Year Ended December 31, Year 2(dollars in thousands)Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. Themarket price of a share of common stock on December 31, Year 2 was $150.Sales (all on account)Cost of goods soldGross marginSelling and administrative expenseNet operating incomeInterest expenseNet income before taxesIncome taxes (30%)Net income$2,7601,93083033050050450135$3151. Larkins Company's return on common stockholders' equity for Year 2 was closest to:

B. 24.4%.

2. A weakness of the internal rate of return method for screening investment projects is that

.D. implicitly assumes that the company is able to reinvest cash flows from the project at the internal rate of return.

Use the following information to answer this question.Financial statements for Larkins Company appear below:Larkins CompanyStatement of Financial PositionDecember 31, Year 2 and Year 1(dollars in thousands)Year 2 Year 1Current assets:Cash and marketable securitiesAccounts receivable, netInventoryPrepaid expensesTotal current assetsNoncurrent assets:Plant & equipment, net$180210130505701,540$180180120505301,480Total assets $2,110 $2,010Current liabilities:Accounts payableAccrued liabilities$10060$13060Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. Themarket price of a share of common stock on December 31, Year 2 was $150.Notes payable, short termTotal current liabilitiesNoncurrent liabilities:Bonds payableTotal liabilitiesStockholders' equity:Preferred stock, $20 par, 10%Common stock, $10 parAdditional paid-in capital--common stockRetained earningsTotal stockholders' equityTotal liabilities & stockholders' equity902504807301201802408401,380$2,1101203105008101201802406601,200$2,010Larkins CompanyIncome StatementFor the Year Ended December 31, Year 2(dollars in thousands)Sales (all on account)Cost of goods soldGross marginSelling and administrative expenseNet operating incomeInterest expenseNet income before taxesIncome taxes (30%)Net income$2,7601,93083033050050450135$3153. Larkins Company's return on total assets for Year 2 was closest to:

C. 15.3%.

4. Cridwell Company's selling and administrative expenses for last year totaled $210,000. During the year,the company's prepaid expense account balance increased by $18,000, and accrued liabilities increased by$12,000. Depreciation charges for the year were $24,000. Based on this information, selling andadministrative expenses adjusted to a cash basis under the direct method on the statement of cash flowswould be

D. $192,000.

5. Kava Inc. manufactures industrial components. One of its products, which is used in the construction ofindustrial air conditioners, is known as K65. Data concerning this product are given below:Per UnitThe above per unit data are based on annual production of 4,000 units of the component. Direct labor canbe considered to be a variable cost. (Source: CMA, adapted)The company has received a special, one-time-only order for 500 units of component K65. There wouldbe no variable selling expense on this special order, and the total fixed manufacturing overhead and fixedselling and administrative expenses of the company wouldn't be affected by the order. Assuming that Kavahas excess capacity and can fill the order without cutting back on the production of any product, what isthe minimum price per unit on the special order below which the company shouldn't go?Selling price $180Direct materials $29Direct labor $5Variable manufacturing overhead $4Fixed manufacturing overhead $21Variable selling expense $2Fixed selling and administrative expense $17

A. $38

6. Ignore income taxes in this problem.) Purvell Company has just acquired a new machine. Data on themachine follow:The company uses straight-line depreciation and a $5,000 salvage value. (The company considers salvagevalue in making depreciation deductions.) Assume cash flows occur uniformly throughout a year.The simple rate of return would be closest toPurchase cost $50,000Annual cost savings $15,000Life of the machine 8 years

D. 18.75%.

7. (Ignore income taxes in this problem.) The following data pertain to an investment:The net present value of the proposed investment isCost of the investment $18,955Life of the project 5 yearsAnnual cost savings $5,000Estimated salvage value $1,000Discount rate 10%

D. $621.

Use the following information to answer this question.Financial statements for Larkins Company appear below:Larkins CompanyStatement of Financial PositionDecember 31, Year 2 and Year 1(dollars in thousands)Year 2 Year 1Current assets:Cash and marketable securitiesAccounts receivable, netInventoryPrepaid expensesTotal current assetsNoncurrent assets:Plant & equipment, net$180210130505701,540$180180120505301,480Total assets $2,110 $2,010Current liabilities:Accounts payableAccrued liabilitiesNotes payable, short termTotal current liabilitiesNoncurrent liabilities:Bonds payableTotal liabilitiesStockholders' equity:Preferred stock, $20 par, 10%Common stock, $10 parAdditional paid-in capital--common stockRetained earningsTotal stockholders' equityTotal liabilities & stockholders' equity$10060902504807301201802408401,380$2,110$130601203105008101201802406601,200$2,010Larkins CompanyIncome StatementFor the Year Ended December 31, Year 2(dollars in thousands)Sales (all on account)Cost of goods soldGross marginSelling and administrative expenseNet operating incomeInterest expenseNet income before taxes$2,7601,93083033050050450Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. Themarket price of a share of common stock on December 31, Year 2 was $150.Income taxes (30%)Net income135$3158. Larkins Company's dividend payout ratio for Year 2 was closest to:

A. 42.9%

9. (Ignore income taxes in this problem.) The Keego Company is planning a $200,000 equipmentinvestment that has an estimated five-year life with no estimated salvage value. The company has projectedthe following annual cash flows for the investment:Assuming that the cash inflows occur evenly over the year, the payback period for the investment is______years.Year Cash Inflows1 $120,0002 60,0003 40,0004 40,0005 40,000Total $300,000

A. 2.50

10 Use the following information to answer this question.Financial statements for Larkins Company appear below:Larkins CompanyStatement of Financial PositionDecember 31, Year 2 and Year 1(dollars in thousands)Year 2 Year 1Current assets:Cash and marketable securitiesAccounts receivable, netInventoryPrepaid expensesTotal current assets$18021013050570$18018012050530Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. Themarket price of a share of common stock on December 31, Year 2 was $150.Noncurrent assets:Plant & equipment, net 1,540 1,480Total assets $2,110 $2,010Current liabilities:Accounts payableAccrued liabilitiesNotes payable, short termTotal current liabilitiesNoncurrent liabilities:Bonds payableTotal liabilitiesStockholders' equity:Preferred stock, $20 par, 10%Common stock, $10 parAdditional paid-in capital—

common stockRetained earningsTotal stockholders' equityTotal liabilities & stockholders' equity$100

60

90250

480730

120

180

240

8401,380

$2,110

$130601203105008101201802406601,200$2,010Larkins CompanyIncome StatementFor the Year Ended December 31, Year 2(dollars in thousands)Sales (all on account)Cost of goods soldGross marginSelling and administrative expenseNet operating incomeInterest expenseNet income before taxesIncome taxes (30%)Net income$2,7601,93083033050050450135$31510. Larkins Company's earnings per share of common stock for Year 2 was closest to:

B. $16.83.

11. Which of the following would be classified as a financing activity on the statement of cash flows?A. Dividends paid to shareholders of the company on the company's common stock

12. A project profitability index greater than zero for a project indicates that

A. the discount rate is less than the internal rate of return.

13. Fonics Corporation is considering the following three competing investment proposals:Using the project profitability index, how would the above investments be ranked (highest to lowest)?Aye Bee CeeInitial investment required $62,000 $74,000 $95,000Net present value $10,000 $8,000 $12,000Internal rate of return 15% 17% 18%

D. Aye, Cee, Bee

14. VIM Company purchased $100,000 in inventory from its suppliers on credit terms. The company'sacid-test ratio would most likely

.D. decrease.

15. The net present value method assumes that the project's cash flows are reinvested at the

D. discount rate used in the net present value calculation.

16. Part N19 is used by Malouf Corporation to make one of its products. A total of 7,000 units of this partare produced and used every year. The company's Accounting Department reports the following costs ofproducing the part at this level of activity:An outside supplier has offered to make the part and sell it to the company for $24.50 each. If this offer isaccepted, the supervisor's salary and all of the variable costs, including the direct labor, can be avoided.Per UnitDirect materials $2.20Direct labor $8.50Variable manufacturing overhead $1.30Supervisor’s salary $5.80Depreciation of special equipment $7.20Allocated general overhead $4.60The special equipment used to make the part was purchased many years ago and has no salvage value orother use. The allocated general overhead represents fixed costs of the entire company, none of whichwould be avoided if the part were purchased instead of produced internally. In addition, the space used tomake part N19 could be used to make more of one of the company's other products, generating anadditional segment margin of $25,000 per year for that product. What would be the impact on thecompany's overall net operating income of buying part N19 from the outside supplier?

D. Net operating income would decline by $21,900 per year.

17. Which of the following would be considered a "use" of cash for the purpose of constructing a statementof cash flows?

B. Purchasing equipment

18. Centerville Company's debt-to-equity ratio is 0.60 Total assets are $320,000, current assets are$170,000, and working capital is $80,000. Centerville's long-term liabilities must be

C. $30,000.

.19. Degner Inc. has some material that originally cost $19,500. The material has a scrap value of $13,300as is, but if reworked at a cost of $2,100, it could be sold for $14,000. What would be the incrementaleffect on the company's overall profit of reworking and selling the material rather than selling it as is asscrap?A. -$1,400

Use the following information to answer this question.The most recent balance sheet and income statement of Teramoto Corporation appear below:Comparative Balance SheetEndingBalanceBeginningBalanceAssets:

Cash and cash equivalents

Accounts receivable

Inventory

Plant and equipment

Less accumulated depreciation

Total assets

$4353

7358

2301

$450$355

969490

286$367End of examLiabilities and stockholders' equityAccounts payableWages payableTaxes payableBonds payableDeferred taxesCommon stockRetained earningsTotal liabilities and stockholders' equity$572115212055261$450$481813202150197$367Income StatementSalesCost of good soldGross marginSelling and administrative expenseNet operating incomeIncome taxesNet income$89358730618911735$8220. The net cash provided by (used by) investing activities for the year

C. ($92)

his is the other oneUse the following information to answer this question.Moorhouse Clinic uses client visits as its measure of activity. During December, the clinic budgeted for3,700 client visits, but its actual level of activity was 3,690 client visits. The clinic has provided thefollowing data concerning the formulas used in its budgeting and its actual results for December:Data used in budgeting:Fixed element Variable elementper month per client-visitRevenue ____-____ $25.10Personnel expenses $27,100 $7.10Medical supplies 1,500 4.50Occupancy expenses 6,000 1.00Administrative expenses 3,000 0.10Total expenses $37,600 $12.70Actual resultsfor December:Revenue $96,299Personnel expenses $51,009Medical supplies $17,425Occupancy expenses $9,240Administrative expenses $3,2391. The personnel expenses in the planning budget for December would be closest toA. $53,299.B. $51,147.C. $53,370.D. $51,009.2. Lyons Company consists of two divisions, A and B. Lyons Company reported a contribution margin of$50,000 for Division A and had a contribution margin ratio of 30% in Division B, when sales in Division Bwere $200,000. Net operating income for the company was $25,000, and traceable fixed expenses were$40,000. Lyons Company's common fixed expenses wereA. $40,000.B. $85,000.C. $70,000.D. $45,000.Use the following information to answer this question.The Adams Company, a merchandising firm, has budgeted its activity for November according to thefollowing information:• Sales were at $450,000, all for cash.• Merchandise inventory on October 31 was $200,000.• The cash balance on November 1 was $18,000.• Selling and administrative expenses are budgeted at $60,000 for November and are paid for in cash.• Budgeted depreciation for November is $25,000.• The planned merchandise inventory on November 30 is $230,000.• The cost of goods sold is 70% of the selling price.• All purchases are paid for in cash.3. The budgeted cash disbursements for November areA. $375,000.B. $405,000.C. $530,000.D. $345,000.Use the following information to answer this question.Cole Laboratories makes and sells a lawn fertilizer called Fastgro. The company has developed standardcosts for one bag of Fastgro as follows:Standard Standard CostQuantity per bagDirect material 20 pounds $8.00Direct labor 0.1 hours $1.10Variable overhead 0.1 hours $0.40The company had no beginning inventories of any kind on January 1. Variable overhead is applied toproduction on the basis of standard direct-labor hours. During January, the company recorded the followingactivity:• Production of Fastgro: 4,000 bags• Direct materials purchased: 85,000 pounds at a cost of $32,300• Direct-labor worked: 390 hours at a cost of $4,875• Variable overhead incurred: $1,475• Inventory of direct materials on January 31: 3,000 pounds4. The labor rate variance for January isA. $585 U.B. $475 F.C. $475 U.D. $585 F.Use the following information to answer this question.Werber Clinic uses client visits as its measure of activity. During January, the clinic budgeted for 2,700client visits, but its actual level of activity was 2,730 client visits. The clinic has provided the following dataconcerning the formulas used in its budgeting and its actual results for January:Data used in budgeting:Fixed element Variable elementper month per client-visitRevenue ___-___ $33.60Personnel expenses $22,100 $8.70Medical supplies 1,100 6.60Occupancy expenses 5,600 1.60Administrative expenses 3,700 0.40Total expenses $32,500 $17.30Actual resultsfor January:Revenue $93,408Personnel expenses $46,251Medical supplies $19,348Occupancy expenses $9,508Administrative expenses $4,7725. The activity variance for personnel expenses in January would be closest toA. $261 F.B. $661 U.C. $661 F.D. $261 U.Use the following information to answer this question.Moorhouse Clinic uses client visits as its measure of activity. During December, the clinic budgeted for3,700 client visits, but its actual level of activity was 3,690 client visits. The clinic has provided thefollowing data concerning the formulas used in its budgeting and its actual results for December:Data used in budgeting:Fixed element Variable elementper month per client-visitRevenue ____-____ $25.10Personnel expenses $27,100 $7.10Medical supplies 1,500 4.50Occupancy expenses 6,000 1.00Administrative expenses 3,000 0.10Total expenses $37,600 $12.70Actual resultsfor December:Revenue $96,299Personnel expenses $51,009Medical supplies $17,425Occupancy expenses $9,240Administrative expenses $3,2396. The revenue variance for December would be closest toA. $3,429 F.B. $3,680 U.C. $3,680 F.D. $3,429 U.7. Last year, the House of Orange had sales of $826,650, net operating income of $81,000, and operatingassets of $84,000 at the beginning of the year and $90,000 at the end of the year. What was the company'sturnover rounded to the nearest tenth?A. 9.2B. 9.8C. 10.2D. 9.5Use the following information to answer this question.Moorhouse Clinic uses client visits as its measure of activity. During December, the clinic budgeted for3,700 client visits, but its actual level of activity was 3,690 client visits. The clinic has provided thefollowing data concerning the formulas used in its budgeting and its actual results for December:Data used in budgeting:Fixed element Variable elementper month per client-visitRevenue ____-____ $25.10Personnel expenses $27,100 $7.10Medical supplies 1,500 4.50Occupancy expenses 6,000 1.00Administrative expenses 3,000 0.10Total expenses $37,600 $12.70Actual resultsfor December:Revenue $96,299Personnel expenses $51,009Medical supplies $17,425Occupancy expenses $9,240Administrative expenses $3,2398. The activity variance for personnel expenses in December would be closest toA. $2,361 F.B. $71 U.C. $2,361 U.D. $71 F.Use the following information to answer this question.Cole Laboratories makes and sells a lawn fertilizer called Fastgro. The company has developed standardcosts for one bag of Fastgro as follows:Standard Standard CostQuantity per bagDirect material 20 pounds $8.00Direct labor 0.1 hours $1.10Variable overhead 0.1 hours $0.40The company had no beginning inventories of any kind on January 1. Variable overhead is applied toproduction on the basis of standard direct-labor hours. During January, the company recorded the followingactivity:• Production of Fastgro: 4,000 bags• Direct materials purchased: 85,000 pounds at a cost of $32,300• Direct-labor worked: 390 hours at a cost of $4,875• Variable overhead incurred: $1,475• Inventory of direct materials on January 31: 3,000 pounds9. The total variance (both rate and efficiency) for variable overhead for January isA. $40 F.B. $125 F.C. $85 F.D. $100 U.10. Division X of Charter Corporation makes and sells a single product which is used by manufacturers offork lift trucks. Presently it sells 12,000 units per year to outside customers at $24 per unit. The annualcapacity is 20,000 units and the variable cost to make each unit is $16. Division Y of Charter Corporationwould like to buy 10,000 units a year from Division X to use in its products. There would be no costsavings from transferring the units within the company rather than selling them on the outside market.What should be the lowest acceptable transfer price from the perspective of Division X?A. $17.60B. $21.40C. $16.00D. $24.00Use the following information to answer this question.Werber Clinic uses client visits as its measure of activity. During January, the clinic budgeted for 2,700client visits, but its actual level of activity was 2,730 client visits. The clinic has provided the following dataconcerning the formulas used in its budgeting and its actual results for January:Data used in budgeting:Fixed element Variable elementper month per client-visitRevenue ___-___ $33.60Personnel expenses $22,100 $8.70Medical supplies 1,100 6.60Occupancy expenses 5,600 1.60Administrative expenses 3,700 0.40Total expenses $32,500 $17.30Actual resultsfor January:Revenue $93,408Personnel expenses $46,251Medical supplies $19,348Occupancy expenses $9,508Administrative expenses $4,77211. The activity variance for net operating income in January would be closest toA. $2,019 F.B. $489 U.C. $489 F.D. $2,019 U.Use the following information to answer this question.Moorhouse Clinic uses client visits as its measure of activity. During December, the clinic budgeted for3,700 client visits, but its actual level of activity was 3,690 client visits. The clinic has provided thefollowing data concerning the formulas used in its budgeting and its actual results for December:Data used in budgeting:Fixed element Variable elementper month per client-visitRevenue ____-____ $25.10Personnel expenses $27,100 $7.10Medical supplies 1,500 4.50Occupancy expenses 6,000 1.00Administrative expenses 3,000 0.10Total expenses $37,600 $12.70Actual resultsfor December:Revenue $96,299Personnel expenses $51,009Medical supplies $17,425Occupancy expenses $9,240Administrative expenses $3,23912. The spending variance for medical supplies in December would be closest toA. $680 U.B. $725 F.C. $680 F.D. $725 U.13. The budget or schedule that provides necessary input data for the direct-labor budget is theA. production budget.B. schedule of cash collections.C. cash budget.D. raw materials purchases budget.14. Super Drive is a computer hard-drive manufacturer. The company's balance sheet for the fiscal yearended on November 30 appears below:Super Drive, Inc.Statement of Financial PositionFor the year ended November 30Assets:Cash $52,000Accounts receivable 150,000Inventory 315,000Property, plant, and equipment 1,000,000Total Assets $1,517,000Liabilities and stockholders' equity:Accounts payable $175,000Common stock 900,000Retained earnings 442,000Total liabilities andstockholders' equity $1,517,000Additional information regarding Super Drive's operations appears below:• Sales are budgeted at $520,000 for December and $500,000 for January.• Collections are expected to be 60% in the month of sale and 40% in the month following sale. There areno bad debts.• 80% of the disk-drive components are purchased in the month prior to the month of the sale, and 20%are purchased in the month of the sale. Purchased components comprise 40% of the cost of goods sold.• Payment for components purchased is made in the month following the purchase.• Assume that the cost of goods sold is 80% of sales.The budgeted cash collections for the upcoming December should beA. $520,000.B. $208,000.C. $462,000.D. $402,000.Use the following information to answer this question.Cole Laboratories makes and sells a lawn fertilizer called Fastgro. The company has developed standardcosts for one bag of Fastgro as follows:Standard Standard CostQuantity per bagDirect material 20 pounds $8.00Direct labor 0.1 hours $1.10Variable overhead 0.1 hours $0.40The company had no beginning inventories of any kind on January 1. Variable overhead is applied toproduction on the basis of standard direct-labor hours. During January, the company recorded the followingactivity:• Production of Fastgro: 4,000 bags• Direct materials purchased: 85,000 pounds at a cost of $32,300• Direct-labor worked: 390 hours at a cost of $4,875• Variable overhead incurred: $1,475• Inventory of direct materials on January 31: 3,000 pounds15. The materials quantity variance for January isA. $800 U.B. $300 F.C. $750 F.D. $300 U.Use the following information to answer this question.Cole Laboratories makes and sells a lawn fertilizer called Fastgro. The company has developed standardcosts for one bag of Fastgro as follows:Standard Standard CostQuantity per bagDirect material 20 pounds $8.00Direct labor 0.1 hours $1.10Variable overhead 0.1 hours $0.40The company had no beginning inventories of any kind on January 1. Variable overhead is applied toproduction on the basis of standard direct-labor hours. During January, the company recorded the followingactivity:• Production of Fastgro: 4,000 bags• Direct materials purchased: 85,000 pounds at a cost of $32,300• Direct-labor worked: 390 hours at a cost of $4,875• Variable overhead incurred: $1,475• Inventory of direct materials on January 31: 3,000 pounds16. The materials price variance for January isA. $1,300 U.B. $1,700 F.C. $1,640 U.D. $1,640 F.17. Coles Company, Inc. makes and sells a single product, Product R. Three yards of Material K areneeded to make one unit of Product R. Budgeted production of Product R for the next five months is asfollows:The company wants to maintain monthly ending inventories of Material K equal to 20% of the followingmonth's production needs. On July 31, this requirement wasn't met because only 2,500 yards of Material Kwere on hand. The cost of Material K is $0.85 per yard. The company wants to prepare a Direct MaterialsPurchase Budget for the rest of the year.The total cost of Material K to be purchased in August isAugust14,000unitsSeptember14,500unitsOctober15,500unitsNovember12,600unitsDecember11,900unitsA. $48,200.B. $42,300.C. $33,840.D. $40,970.18. Manufacturing Cycle Efficiency (MCE) is computed asA. Value-Added Time divided by Throughput Time.B. Value-Added Time divided by Delivery Cycle Time.C. Throughput Time divided by Delivery Cycle Time.D. Process Time divided by Delivery Cycle Time.Use the following information to answer this question.The Adams Company, a merchandising firm, has budgeted its activity for November according to thefollowing information:• Sales were at $450,000, all for cash.• Merchandise inventory on October 31 was $200,000.• The cash balance on November 1 was $18,000.• Selling and administrative expenses are budgeted at $60,000 for November and are paid for in cash.End of exam• Budgeted depreciation for November is $25,000.• The planned merchandise inventory on November 30 is $230,000.• The cost of goods sold is 70% of the selling price.• All purchases are paid for in cash.19. The budgeted net income for November isA. $50,000.B. $75,000.C. $135,000.D. $68,000.20. The LFM Company makes and sells a single product, Product T. Each unit of Product T requires 1.3hours of direct labor at a rate of $9.10 per direct-labor hour. LFM Company needs to prepare a direct-laborbudget for the second quarter of next year. The budgeted direct-labor cost per unit of Product T would beA. $11.83.B. $7.00.C. $10.40.D. $9.10.