BUSN 278 Midterm Exam Solution

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BUSN 278 Midterm Exam Solution
(TCO 1) Which of the following statements regarding research and development is incorrect?
(TCO 2) Priority budgeting that ranks activities is known as:
(TCO 3) The regression statistic that measures how many standard errors the coefficient is from zero is the
________________
(TCO 4) It is important that budgets be accepted by:
(TCO 5) The qualitative forecasting method that individually questions a panel of experts is ________________
(TCO 6) Which of the following is a disadvantage of the payback technique?
(TCO 1) There are several approaches that may be used to develop the budget. Managers typically prefer an
approach known as participative budgeting. Discuss this form of budgeting and identify its advantages and
disadvantages.
(TCO 2) There are a variety of forecasting techniques that a company may use. Identify and discuss the three main
quantitative approaches used for time series forecasting models.
(TCO 2) Use the table Manufacturing Capacity Utilization to answer the questions below.

Day
1
2
3
4
5
6
7
8

Manufacturing Capacity Utilization

In Percentages
Utilization
Day
82.5
9
81.3
10
81.3
11
79.0
12
76.6
13
78.0
14
78.4
15
78.0

Utilization
78.8
78.7
78.4
80.0
80.7
80.7
80.8

Part (a) What is the project manufacturing capacity utilization for Day 16 using a three day moving average?
Part (b) What is the project manufacturing capacity utilization for Day 16 using a six day moving average?
Part (c) Use the mean absolute deviation (MAD) and mean square error
(TCO 3) Use the table Food and Beverage Sales for Luigis Italian Restaurant to answer the questions below.

Food and Beverage Sales for Luigis Italian Restaurant

($000s)
Month
First Year
Second Year
January
218
237
February
212
215
March
209
223
April
251
174
May
256
174
June
216
135
July
131
142
August
137
145
September
99
110
October
117
117
November
137
151
December
213
208
Part (a) Calculate the regression line and forecast sales for February of Year 3.
Part (b) Calculate the seasonal forecast of sales for February of Year 3.
Part (c) Which forecast do you think is most accurate and why?
(TCO 6) Davis Company is considering two capital investment proposals. Estimates regarding each project are
provided below:

Initial Investment
Annual Net Income
Annual Cash Inflow
Salvage Value
Estimated Useful Life

Project A
$800,000
$50,000
$220,000
$0
5 years

Project B
$650,000
45,000
$200,000
$0
4 years

The company requires a 10% rate of return on all new investments.

Part (a) Calculate the payback period for each project.
Part (b) Calculate the net present value for each project.
Part (c) Which project should Jackson Company accept and why?

(TCO 6) Top Growth Farms, a farming cooperative, is considering purchasing a tractor for $468,000. The machine
has a 10-year life and an estimated salvage value of $32,000. Top Growth uses straight-line depreciation. Top Growth
estimates that the annual cash flow will be $78,000. The required rate of return is 9%.
Part (a) Calculate the payback period.
Part (b) Calculate the net present value.
Part (c) Calculate the accounting rate of return.
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