FARMINGDALE STATE UNIVERSITY OF NEW YORK BUSINESS ADMINISTRATION DEPARTMENT BUS 201 REVIEW FOR EXAM #2 1 .

How would electronic funds transfer affect the use of "float"? A) Increase its use somewhat B) Decrease its use somewhat C) Virtually eliminate its use D) Have no effect on its use [Link] A) B) C) D) is a way to protect your accounts receivable position. increases risk. is a legal agreement to buy or sell a financial futures contract. can be carried out with a futures contract.

[Link] with a high degree of operating leverage are A) easily capable of surviving large changes in sales volume B) usually trading off lower levels of risk for higher profits. C) significantly affected by changes in interest rates. D) trading off higher fixed costs for lower per-unit variable costs. 4. Financial leverage is concerned with the relation between A) changes in volume and changes in EPS. B) changes in volume and changes in EBIT. C) changes in EBIT and changes in EPS. D) changes in EBIT and changes in operating income. 5. A firm would be indifferent between financing plans when A) debt is equal to equity. B) return on assets equals return on equity. C) the cost of borrowed funds equals the return on equity. D) the cost of borrowed funds equals the return on assets. [Link] term structure of interest rates is influenced by A) inflation. B) money supply. C) Federal Reserve activities. D) all of the above are true

7. International cash management systems are more complex than domestic cash management systems because A) many developing countries still use a cash payments system. B) some countries rely on electronic funds transfer more than the U.S. C) liquidity management, involving short-term cash balances and deficits, has to be managed across international boundaries and time zones and is subject to the risks of currency fluctuations. D) none of the above 8. Novelty Gifts, Inc. is experiencing some inventory control problems. The manager, Wanda LaRue, currently orders 5,000 units four times each year to handle annual demand of 20,000 units. Each order costs $15 and each unit costs $1.50 to carry. Ms. LaRue maintains a safety stock of 200 units. a) What is Novelty Gifts' current total annual inventory cost? b) Calculate the economic ordering quantity (EOQ). c) What is average inventory under EOQ if Ms. LaRue maintains a safety stock of 200 units. d) Calculate total annual inventory cost under EOQ. Use the following to answer questions 9-12: S a le s ( 3 0 ,0 0 0 u n its ) V a ria b le c o s ts C o n trib u tio n s m a rg in F ix e d m a n u fa c tu rin g c o s ts O p e ra tin g In c o m e In te re s t E a rn in g s B e fo re T a x e s T a x e s (3 0 % ) N e t In c o m e S h a re s O u ts ta n d in g $ 1 5 0 ,0 0 0 1 0 0 ,8 0 0 $ 4 9 ,2 0 0 2 4 ,0 0 0 $ 2 5 ,2 0 0 1 8 ,0 0 0 $ 7 ,2 0 0 2 ,1 6 0 $ 5 ,0 4 0 600

9. This firm's break-even point is A) 4,800 units B) 14,634 units C) 7,142 units D) 18,000 units

[Link] Degree of Operating Leverage (DOL) is A) 1.58x B) 1.95x C) 3.50x D) 1.40x [Link] Degree of Financial Leverage (DFL) is A) 3.50x B) 1.40x C) 1.95x D) 1.58x [Link] Degree of Combined Leverage (D.C.L.) is A) 3.08x B) 5.45x C) 2.73x D) 6.83x [Link] the break-even point, a firm's profits are A) greater than zero. B) less than zero. C) equal to zero. D) Not enough information to tell [Link] break-even point can be calculated as A) variable costs divided by contribution margin. B) total costs divided by contribution margin. C) variable cost times contribution margin. D) fixed cost divided by contribution margin. 15. Hazardous Toys Company produces boomerangs that sell for $8 each and have a variable cost of $7.50. Fixed costs are $15,000. a.) Compute the break even point in units

b.) Find the sales (in units) needed to earn a profit of $25,000.

16. The Sosa Company produces baseball gloves. The companys income statement figures for the year 2004 are as follows: Sales ( 20,000 gloves at $60 each) Less: variable costs (20,000 gloves at $20) Fixed costs Earnings before interest & taxes (EBIT) Interest expense Earnings before taxes (EBT) Income tax expense (30%) Earnings after taxes (EAT) $1,200,000 400,000 600,000 200,000 80,000 $120,000 36,000 $84,000

Given the above income statement figures, compute the following: a.) Degree of operating leverage (% change in operating income/% change in unit volume)

b.) Degree of financial leverage (% change in EPS/% change in EBIT)

c.) Degree of combined leverage (% change in EPS/% change in salves (volume))

17. Tobin Supplies company expects sales next year to be $500,000. Inventory and accounts receivable will increase $90,000 to accommodate this sales level. The company has a steady profit margin of 12 % with a 40% dividend payout. How much external financing will Tobin Supplies Company have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing.

18. Rons checkbook shows a balance of $400. A recent statement from the bank (received last week) shows that all checks written as of the statement date have been paid except numbers 325 and 326, which were for $35 and $58, respectively. Since the statement date, checks 327, 328, and 329 have been written for $22, $45, and $17, respectively. There is an 80% probability that checks 325 and 326 have been paid by this time. There is a 50% probability that checks 327, 328, and 329 have been paid a.) What is the total value of the five checks outstanding?

b.) What is the expected value of payments for the five checks outstanding?

c.) What is the difference between parts a and b? This represents a type of float.

19. Marys Womens Wear has the following schedule for aging of accounts receivable. Month of Sales Age of Account Amounts April 0-30 $88,000 March 31-60 44,000 February 61-90 33,000 January 91-120 55,000 Total receivables $220,000 a) Fill in the % of amt. due column for each month. % of amt. due ___________ ___________ ___________ ___________ 100%

b) If the firm had $960,000 in credit sales over the four month period, compute the average collection period. Average daily sales should be based on a 120 day period.

c) If the firm likes to see its bills collected in 30 days, should it be satisfied with the average collection period?

d) Disregarding your answer to part c and considering the aging schedule for accounts receivable, should the company be satisfied?

e) What additional information does the aging schedule bring to the company that the average collection period may not show?

20. Nowlin Pipe & Steel has projected sales of 72,000 pripes this year, an ordering cost of $6 per order, and carrying costs of $2.40 per pipe. a.) What is the economic ordering quantity?

b.) How many orders will be placed during the year?

c.) What will the average inventory be?