Q&A Hero

Q: How many dollars in average profits are generated per dollar of average investment? is answered using a. accounting return on investment. b. net present value. c. internal rate of return. d. investment outlay valuation.

Q: Describe how the U.S. Cash for Clunkers program unintentionally contributed to the bullwhip effect in the automobile industry.

Q: Tres has received a large contract and has taken a loan to buy inventory. Considering the timing of the loan, Tres may be ____________ to complete the contract. a. selling short b. pledging receivables c. mortgaging d. factoring

Q: Identify the four primary causes of the bullwhip effect and the remedy for each.

Q: IRR a. takes into account that cash received today is more valuable than cash received later. b. estimates the rate of return that can be expected from an investment. c. estimates the current value of future cash flows. d. compares the present value of future cash flows with cash outlay.

Q: The U.S. ________ program, designed to stimulate the economy and improve fuel efficiency, produced an unintended bullwhip effect in the automobile industry.

Q: The payback period and accounting return on investment techniques a. recognize the economic life of a project. b. ignore the time value of money. c. consider only the return for the first year of the investment. d. are more difficult to use than the net present value method.

Q: Suppose that in month 1, both the retailer and the wholesaler in a supply chain ordered 20,000 units. Then in month 2, the retailer decreases its order size by 1000 units. If the wholesaler then decreases its order size in month 2 by 700 units, which of the following is TRUE? A) The wholesaler is contributing to the bullwhip effect. B) The wholesaler is providing a dampening (anti-bullwhip) effect. C) The bullwhip measure for the wholesaler equals 0.70. D) Neither amplification nor smoothing is present. E) The wholesaler is providing both amplification and smoothing.

Q: If the variance of orders of a manufacturer equals 800, and the variance of orders of its supplier equals 750, what is happening at this part of the supply chain? A) The bullwhip effect is present. B) The supplier is providing a dampening (anti-bullwhip) effect. C) The bullwhip measure for the supplier equals 1.067 D) Neither amplification nor smoothing is present. E) Both amplification and smoothing are present.

Q: Accounts receivable financing a. allows small businesses to extend credit to customers. b. delays the time a company receives money from receivables. c. means borrowing money against the firms accounts receivable. d. is not a suggested practice due to the cost.

Q: Which statement is true concerning inventory management programs? a. A yearly inventory for accounting purposed should be sufficient for most small businesses. b. Keeping stock for just in case is suggested for customer satisfaction and is needed for inventory. c. Software programs supplemented by a required physical inventory will assist in inventory control. d. Slow moving items in a companys inventory are limited concerns since they can be marked down and sold.

Q: What is the value of the bullwhip measure for a company with a standard deviation of demand equal to 20, and a variance of orders equal to 450? A) 0.889 B) 22.5 C) 1.125 D) 0.044 E) 50

Q: Under the NPV method, the rate of return required to satisfy the firms investors is the a. opportunity cost. b. internal rate of return. c. cost of capital. d. accounting return on investment.

Q: What value of the bullwhip measure would indicate that a dampening scenario exists? A) greater than 1 B) greater than 0 C) less than 0 D) less than 1 E) 0

Q: What value of the bullwhip measure would indicate that the bullwhip effect exists? A) greater than 1 B) greater than 0 C) less than 0 D) less than 1 E) 1

Q: A company with accounts payables of $35,000 and cost of goods sold of $300,000 would have days in payables of a. 24 days. b. 32 days. c. 43 days. d. The answer is not one of the above choices.

Q: Which question do all types of capital budgeting techniques try to answer? a. Do the future benefits from the investment exceed the cost of making the investment? b. Is the investment too expensive? c. Will the firm's cash flows be adequate to pay for the investment? d. Will the investment's time requirements fit the needs of the company?

Q: What is the formula for the bullwhip measure? A) variance of orders / variance of demand B) variance of orders - variance of demand C) variance of demand / variance of orders D) variance of orders2 / variance of demand2 E) variance of demand - variance of orders

Q: Discounted cash flow techniques answer the question of: a. Do the cash returns of the investment exceed the cash outlays? b. How does the present value of future benefits from the investment compare to the investment outlay? c. How long will it take to recover the original investment outlay? d. How much average profit is generated per dollar of average investment?

Q: Which of the following is the prescribed remedy when the bullwhip effect is caused by shortage gaming? A) share demand information B) channel coordination C) increase capacity D) price stabilization E) allocate orders based on past demand

Q: Accounts payable ____ cash available for the firm when payment is made. a. increase the amount of b. reduce the amount of c. have no effect on the d. represent all of the

Q: Which of the following is NOT a remedy for the bullwhip effect? A) share demand information B) channel coordination C) order batching D) price stabilization E) allocate orders based on past demand

Q: The number of days, on average, that a firm is extending credit to its customers is called a. cash conversion period b. days in inventory. c. days sales outstanding. d. cash flow cycle.

Q: Which of the following is NOT a potential cause of the bullwhip effect? A) shortage gaming B) channel coordination C) order batching D) demand forecast errors E) price fluctuations

Q: A bullwhip measure value greater than zero indicates that the bullwhip effect exists.

Q: Cash deposits during a month less checks written during the same period equal a. net cash flow. b. net profit. c. net working capital. d. operating profit.

Q: The overarching solution to the bullwhip effect is simply for supply chain members to share information and work together.

Q: Assuming that cash is available, payment for an account payable with terms of 3/10, net 30 should be made on day a. 3. b. 10. c. 13. d. 30.

Q: The bullwhip effect can occur when orders decrease as well as when they increase.

Q: Madeleine would like to know how long it takes, on average, from the time inventory is received until it is sold. Madeleine is interested in the: a. days in credit. b. days in inventory. c. days in payables. d. days sales outstanding.

Q: The bullwhip effect describes the tendency for larger order size fluctuations in the supply chain as orders move from suppliers toward retailers.

Q: Many small business owners do not use discounted cash flow techniques. What are the reasons why they do not?

Q: Suzy Jones is trying to decide whether to use one or two suppliers for the motors than go into the chain saws that her company produces. She wants to use local suppliers because her firm runs a JIT operation. Her factory is located in a coastal town that is prone to hurricanes. She estimates that the probability in any year of a "super-event" that might shut down all suppliers at the same time for at least two weeks is 5%. Such a total shutdown would cost the company approximately $100,000. She estimates the "unique-event" risk for any of the suppliers to be 10%. Assuming that the marginal cost of managing an additional supplier is $12,000 per year, should Suzy use one or two suppliers?

Q: Average annual after-tax profits per year divided by the average book value of the investment equals a. payback period technique. b. average investment outlay. c. average investment capability. d. accounting return on investment.

Q: Consider the disaster risk decision tree model. (a) Derive a formula to represent the amount that the probability of all suppliers being disrupted simultaneously, P(n), will increase if the super-event probability S is doubled. (b) Test your formula by computing the amount of increase if the original S equals 1% and there are two suppliers, each with U = 4%.

Q: Calculate the annual interest rate associated with each of the following terms: a. 2/5, net 30 b. 2/10, net 20 c. 3/15, net 30.

Q: Walsh Construction is considering two options for its supplier portfolio. Option 1 uses two local suppliers. Each has a "unique-event" risk of 8%, and the probability of a "super-even" that would disable both at the same time is estimated to be 2.5%. Option 2 uses two suppliers located in different countries. Each has a "unique-event" risk of 18%, and the probability of a "super-event" that would disable both at the same time is estimated to be 1.2%. (a) What is the probability that both suppliers will be disrupted using option 1? (b) What is the probability that both suppliers will be disrupted using option 2? (c) Which option would provide the lowest risk of a total shutdown?

Q: The terms 2/10, net 45 offer a. a 2 percent discount on purchases paid for within 45 days. b. a 10 percent discount on purchases paid for within 2 days. c. a 2 percent discount on purchases paid for within 10 days. d. a 10 percent discount on purchases paid for within 45 days.

Q: After defining capital budgeting, give examples of the types of capital budgeting decisions a small business owner would make.

Q: For the disaster risk decision tree model, explain why an increase in S and an increase in U have the opposite impact on the choice of how many suppliers to use. What is the implication of these two phenomena taken together?

Q: In the disaster risk decision tree model, a(n) ________ disrupts all suppliers simultaneously.

Q: Lester is watching the bank balance decline throughout the month and hopes his company wont run out of money before it runs out of month. Lester is concerned about the net cash flow, which is: a. is the difference between cash inflows and outflows. b. is the difference between revenues and expenses. c. is the same as net profit. d. is the same as working capital plus inventory.

Q: Discuss cash flow characteristics of firms that have a cash culture in relation to the recession.

Q: Suppose that the manager of a company has estimated the probability of a super-event sometime during the next three years that will disrupt all suppliers as 2%. In addition, the firm currently uses four suppliers for its main component, and the manager estimates the probability of a unique-event that would disrupt one of them sometime during the next three years to be 20%. Supplier management costs during this period are $50,000 per supplier. The financial cost incurred if all four suppliers are disrupted at the same time is estimated to be $10,000,000. What is the expected monetary value (cost) of the current supplier diversification arrangement? A) $412,800 B) $415,680 C) $10,200,000 D) $215,680 E) $8,240,000

Q: How does the present value of future benefits from the investment compare to the initial investment outlay? is answered using a. analysis of long-term investment. b. discounted cash flow analysis. c. investment outlay valuation. d. ratio analysis.

Q: Suppose that the manager of a company has estimated the probability of a super-event sometime during the next five years that will disrupt all suppliers as 0.23%. In addition, the firm currently uses three suppliers for its main component, and the manager estimates the probability of a unique-event that would disrupt one of them sometime during the next five years to be 1.4%. What is the probability that all three suppliers will be disrupted at the same time at some point during the next five years? A) 4.4203% B) 0.2300% C) 4.4300% D) 0.2297% E) 0.2303%

Q: Ralph has always enjoyed fireworks and has set up a booth between June 4th through July 4th. Additional inventory is scheduled to be sent throughout the month. Ralph is now wondering if he has ordered too much. List three reasons that could have motivated Ralph in his inventory buying.

Q: Under the disaster risk decision tree model, which of the following conditions would create the HIGHEST incentive to use FEWER suppliers? A) lower L, lower C B) lower L, higher C C) higher L, lower C D) higher L, higher C E) lower L, higher C, lower S

Q: Under the disaster risk decision tree model, which of the following conditions would create the HIGHEST incentive to use MORE suppliers? A) lower S, lower U B) lower S, higher U C) higher S, lower U D) higher S, higher U E) higher S, higher U, higher C

Q: Owen was surprised when he calculated the percentage annual interest rate on his accounts payable. He discovered that failure to take advantage of the discount offered by suppliers a. makes small difference since a business does not pay a high interest rate. b. makes a large difference since a business pays a high interest rate. c. has no effect on cash flow since the interest rates are so low. d. will have erratic effects on rates for the use of a suppliers money.

Q: Jane has started a gift basket company that specializes in regional products. Several corporations use her baskets for the holidays, to welcome new employees, and for their sales staff to use as gifts for corporate clients. Because she noticed her average collection period from last quarter to this quarter had doubled to 60 days, she then realized the companys days in inventory has increased from 30 to 40 days and the days in payables dropped from 35 to 30 days. After calculating each quarters cash conversion periods, what do the changes indicate?

Q: Consider the disaster risk decision tree model. Using the notation from the model, what is the expected monetary value (cost) of choosing two suppliers? A) 2C B) [1-P(2)] 2C + P(2) (L + 2C) C) 2C + SL D) P(2) 2C + [1-P(2)] (L + 2C) E) 2C + (S+U2)L

Q: Nadine would like to improve the management of inventory in her company. One of her first activities should be to: a. discount current items. b. discover how long items have been there. c. organize current items by skew number. d. purchase new items.

Q: Which of the following is NOT an element of the disaster risk decision tree model? A) the buyer's financial loss incurred in a supply cycle if supplier i were disrupted B) the marginal cost of managing a supplier C) the buyer's financial loss incurred in a supply cycle if all suppliers were disrupted D) the probability of a "super-event" that would disrupt all suppliers simultaneously E) the probability of a "unique-event" that would disrupt only one supplier

Q: What technique does the text use to determine the best number of suppliers to manage disaster risk? A) linear programming B) factor weighting technique C) transportation model D) decision tree E) simulation

Q: What are key issues in managing accounts payable?

Q: In the disaster risk model, as the probability of a super-event (S) increases, the advantage of utilizing multiple suppliers increases.

Q: Net cash flow and revenue are a. opposites. b. different. c. identical. d. identical after adjustment for depreciation.

Q: Advantage Milling Devices is preparing to buy a new machine for precision milling of special metal alloys. This device can earn $300 per hour, and can run 3,000 hours per year. The machine is expected to be this productive for four years. If the interest rate is 6%, what is the net present value of the annual cash flows? What is the net present value if the interest rate is not 6%, but 9%? Why does present value fall when interest rates rise?

Q: Discuss the importance of working capital management and how it relates to the working-capital cycle of a small business.

Q: The main purpose of capital budgeting is to help managers make decisions about a. discounts to offer to customers. b. long-term investments. c. non-financial constraints on expansion. d. short-term investments.

Q: A new machine tool is expected to generate receipts as follows: $5,000 in year one; $3,000 in year two, nothing in the next year, and $2,000 in the fourth year. At an interest rate of 6%, what is the net present value of these receipts? Is this a better net present value than $2,500 each year over four years? Explain.

Q: After discussing three techniques for making capital budgeting decisions, which one(s) incorporate the time value of money?

Q: Health Care Systems of the South is about to buy an expensive piece of diagnostic equipment. The company estimates that it will generate uniform revenues of $500,000 for each of the next eight years. What is the present value of this stream of earnings, at an interest rate of 6%? What is the net present value if the machine lasts only six years, not eight? If the equipment cost $2,750,000, should the company purchase it?

Q: Margaret has just sold merchandise to a small beauty salon and has given the salon 45 days to pay the invoice. She is at the beginning of a. the life cycle of receivables. b. the cash conversion period. c. the working capital management cycle. d. the inventory management cycle.

Q: What are the four limitations of the net present value technique?

Q: Shelly is a photographer who sells her original copyrighted photographs to regional and national magazines for illustrations of written articles. She has noticed a slowdown in payment and needs suggestions as to what she can do to decrease her average collection period.

Q: ________ is a means of determining the discounted value of a series of future cash receipts.

Q: Why do small business managers tend to overbuy inventory? a. They forecast greater demand than is realistic b. Vendors insist that prices may be going down. c. They dont want to disappoint vendors and suppliers. d. Maximizing inventory is a good way to decrease taxes.

Q: A capacity alternative has an initial cost of $50,000 and cash flow of $20,000 for each of the next four years. If the cost of capital is 5 percent, what is the approximate net present value of this investment? A) $20,920 B) $26,160 C) $49,840 D) $70,920 E) $106,990

Q: After identifying the stages of the accounts receivables life cycle, discuss areas that are of concern in the process.

Q: A capacity alternative has an initial cost of $50,000 and cash flow of $20,000 for each of the next four years. If the cost of capital is 5 percent, the net present value of this investment is: A) greater than $80,000 but less than $130,000. B) greater than $130,000. C) less than $30,000. D) impossible to calculate, because no interest rate is given. E) impossible to calculate, because variable costs are not known.

Q: Net present value will be greater: A) as a fixed set of cash receipts occurs later rather than earlier. B) if the future value of a cash flow is smaller. C) for one end-of-year receipt of $1200 than for twelve monthly receipts of $100 each. D) for a 4% discount rate than for a 6% discount rate. E) All of the above are true.

Q: An understanding of the present value of a future dollar is important when one is using a. the payback period method. b. discounted cash flow techniques. c. the accounting return on investment technique. d. the investment outlay valuation technique.

Q: Compare the two investment proposals below, using the payback period technique. The projected cost of each investment proposal is $100,000. Project A Project B Year (Cash flow) (Cash flow) 1 $25,000 $25,000 2 20,000 20,000 3 10,000 40,000 4 10,000 30,000 5 - 10,000

Q: Net present value: A) is gross domestic product less depreciation. B) is sales volume less sales and excise taxes. C) is profit after taxes. D) ignores the time value of money. E) is the discounted value of a series of future cash receipts.

Q: Inventory is called a necessary evil; it is "necessary" because a. it ties up funds that are not actively productive. b. supply and demand cannot be managed precisely with day-to-day operations. c. it reduces cash when it is sold. d. it deteriorates so therefore a certain percent is lost to spoilage and waste.

Q: The net present value of $10,000 to be received in exactly three years is considerably greater than $10,000.

Q: According to The American Society for Quality, what features are necessary for TQM?

Q: One limitation of the net present value approach to investments is that investments with identical net present values may have very different cash flows.