FIU MAN4504 EXAM 2

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QUESTION 1

A regional bookstore chain wants to build a distribution center that is centrally located for its eight retail outlets. It will most likely employ which of the following tools of analysis?

assembly line balancing

load-distance analysis

center-of-gravity method

linear programming

locational cost-volume analysis

3.33334 points

QUESTION 2

A product has a demand of 4000 units per year. Ordering cost is $20, and holding cost is $4 per unit per year. The cost-minimizing solution for this product is to order:

all 4000 units at one time.

200 units per order.

every 20 days.

10 times per year.

none of the above

3.33334 points

QUESTION 3

Adding a complementary product to what is currently being produced is a demand management strategy used when:

demand exceeds capacity.

capacity exceeds demand for a product that has stable demand.

the existing product has seasonal or cyclical demand.

price increases have failed to bring about demand management.

efficiency exceeds 100 percent.

3.33334 points

QUESTION 4

An inventory decision rule states, “When the inventory level goes down to 14 gearboxes, 100 gearboxes will be ordered.” Which of the following statements is TRUE?

One hundred is the reorder point, and 14 is the order quantity.

Fourteen is the reorder point, and 100 is the order quantity.

The number 100 is a function of demand during lead time.

Fourteen is the safety stock, and 100 is the reorder point.

None of the above is true.

3.33334 points

QUESTION 5

A county wants to build one centrally-located processing facility to serve the county’s four recycling drop-off locations. The four drop-offs have characteristics as given in the table below. What is the approximate center of gravity of these four locations?

Location X-coordinate Y-coordinate Tonnage
Drop-off point A 1 8 10
Drop-off point B 6 7 35
Drop-off point C 6 2 25
Drop-off point D 4 7 50

 

(4.75, 6.04)

(17, 24)

(33.5, 135.4)

(6, 4.25)

(570, 725)

3.33334 points

QUESTION 6

Retail inventory that is unaccounted for between receipt and time of sale is known as shrinkage.

True

False

3.33334 points

QUESTION 7

The purpose of safety stock is to:

replace failed units with good ones.

eliminate the possibility of a stockout.

eliminate the likelihood of a stockout due to erroneous inventory tally.

control the likelihood of a stockout due to variable demand and/or lead time.

protect the firm from a sudden decrease in demand.

3.33334 points

QUESTION 8

The reorder point is the inventory level at which action is taken to replenish the stocked item.

True

False

3.33334 points

QUESTION 9

Break-even analysis is a powerful analytical tool, but is useful only when the organization produces a single product.

True

False

3.33334 points

QUESTION 10

FedEx chose Memphis, Tennessee, as its U.S. hub because:

the city is in the center of the United States, geographically.

the airport has relatively few hours of bad weather closures.

it needed a means to reach cities to which it did not have direct flights.

the firm believed that a hub system was superior to traditional city-to-city flight scheduling.

All of the above are true.

3.33334 points

QUESTION 11

In the simple EOQ model, if annual demand were to increase, the EOQ would increase proportionately.

True

False

3.33334 points

QUESTION 12

Which of the following would NOT generally be a motive for a firm to hold inventories?

to decouple various parts of the production process

to provide a selection of goods for anticipated customer demand and to separate the firm from fluctuations in that demand

to take advantage of quantity discounts

to minimize holding costs

to hedge against inflation

3.33334 points

QUESTION 13

An example of an intangible cost, as it relates to location decisions, is the quality of education.

True

False

3.33334 points

QUESTION 14

In location planning, environmental regulations, cost and availability of utilities, and taxes are:

global factors.

country factors.

regional/community factors.

site-related factors.

none of the above.

3.33334 points

QUESTION 15

Which item to order and with which supplier the order should be placed are the two fundamental issues in inventory management.

True

False

3.33334 points

QUESTION 16

Holding costs are $35 per unit per year, the ordering cost is $120 per order, and sales are relatively constant at 300 per month. (a) What is the optimal order quantity? (b) What are the annual holding and setup costs?

order size is 540 and annual inventory costs are 158

order size is 751 and annual inventory costs are 5000

order size is 157 and annual inventory costs are 5499

none of the above

3.33334 points

QUESTION 17

The bottleneck time is always at least as long as the throughput time.

True

False

3.33334 points

QUESTION 18

Utilization is the number of units a facility can hold, receive, store, or produce in a period of time.

True

False

3.33334 points

QUESTION 19

One function of inventory is to take advantage of quantity discounts.

True

False

3.33334 points

QUESTION 20

Intangible costs include which of the following?

quality of prospective employees

quality of education

availability of public transportation

all of the above

none of the above

3.33334 points

QUESTION 21

The theory of constraints is a body of knowledge that deals with anything that limits an organization’s ability to achieve its goals.

True

False

3.33334 points

QUESTION 22

Break-even analysis identifies the volume at which fixed costs and revenue are equal.

True

False

3.33334 points

QUESTION 23

Currency risk is based on what assumption?

Firms that do not continuously innovate will lose market share.

Values of foreign currencies continually rise and fall in most countries.

Changing product lines by reacting to every current trend may alienate the customer base.

The value of one dollar today is greater than the value of one dollar to be received one year from now.

The U.S. stock market fluctuates daily.

3.33334 points

QUESTION 24

Joe’s Camera shop has a favorite model that has annual sales of 145. The cost to place an order to replenish inventory is $25 per order, and annual inventory holding cost per unit is $20. Assume the store is open 350 days per year.

optimal order size = 19 units, N= 8 orders, optimal number of days between orders is 45.9 days, annual inventory cost= 380.79

optimal order size = 19 units, N= 9 orders, optimal number of days between orders is 59 days, annual inventory cost= 380.79

optimal order size = 11 units, N= 19 orders, optimal number of days between orders is 95 days, annual inventory cost= 190.40

none of the above

3.33334 points

QUESTION 25

Price changes are useful for matching the level of demand to the capacity of a facility.

True

False

3.33334 points

QUESTION 26

Which of the following statements regarding FedEx is TRUE?

Its hub in Memphis, Tennessee, was selected because of its low cost.

Memphis, Tennessee, is the only hub in the company’s global flight network.

FedEx believes the hub system helps reduce mishandling and delays due to better controls.

FedEx uses a hub system in the United States, but a city-to-city network in other countries.

Memphis is FedEx’s only hub airport in the United States.

3.33334 points

QUESTION 27

To find the throughput time with simultaneous processes, compute the time over all paths and choose the shortest path through the system.

True

False

3.33334 points

QUESTION 28

Lists have been developed that rank countries on issues such as “competitiveness” and “corruption.”

True

False

3.33334 points

QUESTION 29

The proper quantity of safety stock is typically determined by:

using a single-period model.

carrying sufficient safety stock so as to eliminate all stockouts.

multiplying the EOQ by the desired service level.

setting the level of safety stock so that a given stockout risk is not exceeded.

minimizing total costs.

3.33334 points

QUESTION 30

Substantial research has proved that the only successful method of dealing with bottlenecks is to increase the bottleneck’s capacity.

True

False

3.33334 points

 

 

 
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Growing Pains At Modern Office Supply

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Case Application

“Growing Pains at Modern Office Supply” (pages 236-237 in the text).

After reading the case annotated above, answer the following questions as noted on page 237 of the text:

  1. What important elements are missing in the performance management process?  In what ways would improving the performance management process help improve discipline and morale at Modern Office Supply?
  2. Explain ways the form used for hourly employees contributes to errors and distortions in the appraisal process.  How would you revise the form to reduce those errors?  Explain other steps that need to be taken to further reduce distortions in the process.
  3. What type of appraisal method would you recommend that would be more effective for the hourly employees?  Construct an appropriate form for the delivery driver position.
  4. How can the appraisal process for the managers be improved?
  5. Research:  Find two online examples of performance appraisals for hourly employees that are more effective than the example in the case.  Explain the elements that make your examples more effective (Be specific)

Do not submit in traditional paper format. Please number/Separate each response, 1 thru 5.

Your finished product should be a minimum of 2 (full) to 3 pages.

Include a title page and a references page (for your examples in item 5).

The requirements below must be met for your paper to be accepted and graded:

  • Write between 750 – 1,250 words (approximately 3 – 5 pages) using Microsoft Word in APA style, see example below.
  • Use font size 12 and 1” margins.
  • Include cover page and reference page.
  • At least 80% of your paper must be original content/writing.
  • No more than 20% of your content/information may come from references.
  • Use at least three references from outside the course material, one reference must be from EBSCOhost. Text book, lectures, and other materials in the course may be used, but are not counted toward the three reference requirement.
  • Cite all reference material (data, dates, graphs, quotes, paraphrased words, values, etc.) in the paper and list on a reference page in APA style.

References must come from sources such as, scholarly journals found in EBSCOhost, CNN, online newspapers such as, The Wall Street Journal, government websites, etc. Sources such as, Wikis, Yahoo Answers, eHow, blogs, etc. are not acceptable for academic writing.

 
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FPC Replacement Project Analysis Worksheet

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1. The equipment has a delivered cost of $205,000. An additional $4,000 is required to install and test the new system.

2. The new pumping system is classified by the IRS as 5-year property, although it has an 8-year estimated service life. For assets classified by the IRS as 5-year property, the Modified Accelerated Cost Recovery System (MACRS) permits the company to depreciate the asset over 6 years at the following rates: Year 1 = 20 percent, Year 2 = 32 percent, Year 3 = 19 percent, Year 4 = 12 percent, Year 5 = 11 percent, Year 6 = 6 percent. At the end of 8 years, the salvage value is expected to be around 5 percent of the original purchase price, so the best estimate of salvage value at the end of the equipment’s service life is $5,300, with removal costs of $1,200.

3. The existing pumping system was purchased at $45,000 eight years ago and has been depreciated on a straight-line basis over its economic life of 10 years. If the existing system is removed from the well and crated for pickup, it can be sold for $3,500 before tax. It will cost $1,000 to remove the system and crate it.

4. At the time of replacement, the firm will need to increase its net working capital requirements by $4,500 to support inventories.

5. The new pumping system offers lower maintenance costs and frees personnel who would otherwise have to monitor the system. In addition, it reduces product wastage because of a higher cooling efficiency. In total, it is estimated that the yearly savings will amount to $25,000 if the new pumping system is used.

6. The firm has its target debt ratio of 30 percent, and its cost of new debt is 10 percent. Its expected dividend per share next year, D1, is $2.00 with a future growth rate of 6 percent per year. The firm’s current stock price, P0, is $40.00. The firm uses its overall weighted average cost of capital in evaluating average risk projects, and the replacement project is perceived to be of average risk.

7. The firm’s federal-plus-state tax rate is 30 percent, and this rate is projected to remain fairly constant into the future.

 

QUESTIONS (Please show all your work either through Excel formulas/equations on the Cash Flow Estimation Worksheet or in separate tables at the bottom of your spreadsheet)

1. Compute the firm’s weighted average cost of capital given the info/data in the case. What other approaches/methods can be used to measure the firm’s cost of equity and thus its WACC? To that end, what additional info/data would you need? (Hint: A firm’s weighted average cost of capital is equal to ???????? = ????????(????????)(1 – t) + ????????????????, where ???????? and ???????? are the weights of debt and equity in the capital structure; ???????? and ???????? are the respective costs of debt and equity; and t is the corporate tax rate; Do no round up your WACC figure.)

2. Develop a capital budgeting schedule using the attached Cash Flow Estimation Worksheet (Excel spreadsheet) that should list all relevant cash flow items and amounts related to the replacement project over the 8-year expected life of the new pumping system.

 

3. Based on the capital budgeting schedule, evaluate the replacement project by computing NV, IRR, MIRR, and Payback Period. Would you recommend to accept or reject the replacement project based solely on your DCF analysis so far?

4. Before you make the final accept/reject decision, what other factors and approaches would you consider further? Discuss also how to PRACTICALLY take into account those factors and approaches in the capital budgeting decision process, whenever applicable

Sheet1

FALCONVILLE PUMP COMPANY – CASH FLOW ESTIMATION WORK WORKSHEET
Input Data New pump
Cost of NEW equipment 209000 Annual dep. of old equipment
Salvage value new equipment 10450 OLD equipment’s depreciable life left
Cost of old equipment Old equipment’s depreciated years
Depreciation of old equipment till date Annal cost savings
Salvage value of old equipment Removal cost of old equipment
Tax rate Removal cost of new equipment
WACC Net working capital requirement
t=0 t=1 t=2 t=3 t=4 t=5 t=6 t=7 t=8
I INVESTMENT OUTLAY
1
2
3
4
5
6
II OPERATING CASH FLOWS OVER THE PROJECT’S LIFE
7
8
9
10
11
12
III TERMINAL YEAR CASH FLOWS
13
14
15
16
17
IV NET CASH FLOWS
18
V RESULTS
NPV =
IRR =
MIRR =
Payback period =
DECISION BASED ON YOUR ANALYSIS:
ANSWERS TO QUESTIONS:
Q#1:
Q#2:
Q#3:
Q#4:

Sheet2

Sheet3

 
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Chapter 7 Exercise

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Chapter 7  

1.You just graduated and accepted the job of your dreams. You will be making $4,000 a month and renting an apartment that will cost you $950 a month. You have no other debt. (Use the 28/36 rule from Chapter 5.)

 

2.You pick out a new car and the dealer is offering 0% interest for 60 months or a $4,000 cash-back bonus. Your negotiated price is $25,000. Your credit union is currently offering a special 3.5% for 60-month car loans.

 

a. What will be your monthly car payment if you accept the 0% interest offer? (Round your answer to 2 decimal places.)

 

 

b. What will be your monthly car payment if you accept the $4,000 cash-back bonus and finance the purchase at your credit union? (Round your answer to 2 decimal places.)

 

 

c. Should you accept the 0% interest offer or the cash-back bonus?

 

 

 

 

3.You are ready to purchase your first home. Your annual salary is $42,000. You have been able to save $15,000 for a down payment, and the only debt you currently owe is your student loan with a payment of $150 a month and your car payment of $350 a month. (Use the 28/36 rule from Chapter 5.)

 

a. Given your current situation, how much can you afford for a house payment?

 

 

b. If you no longer have a car payment, what monthly mortgage payment could you qualify for, given your outstanding credit history?

 

4.What is the loan payment on a 30-year, fixed-rate/fixed-term mortgage loan of $100,000 at 8%?

 

 

5.You are looking to finance your home. The bank is offering a three-year ARM (adjustable-rate mortgage) with an introductory rate of 3.5%. It has a 3% adjustment cap per adjustment period, with an 8% lifetime adjustment. The rate is 4% over the one-year LIBOR rate, which is currently 1.25%.

 

a. What will your interest rate be after three years if the LIBOR rate does not change? (Round your answer to 2 decimal places.)

 

 

b. In three years, what it the maximum interest rate you could be charged? (Round your answer to 2 decimal places.)

 

 

c-1. If the LIBOR increases 1% per year for the next 10 years, up to 11.25%, what is the maximum interest rate you will pay? (Round your answer to 2 decimal places.)

 

 

c-2. When will that maximum interest rate take effect?
   

 

 

 

 

6.Kim would like to purchase a new vehicle. Currently, she pays rent of $600 a month, credit card charges of $120 a month, and a student loan payment of $230 a month. Her gross monthly income is $4,000. Assume she wants to finance the vehicle for 3 years at 4 percent interest. What is the most she can afford as a car loan payment? Apply the standard 28/36 rule.

[removed]

 

 

7.You should expect a new vehicle to lose how much of its value within the first three years?

[removed]

[removed] 35 – 40%

20 – 25%
[removed] 25 – 30%
[removed] 15 – 20%
[removed] 10 – 15%

New vehicles generally depreciate 35% to 40% within the first three years.

 

 

 

 

 

 

 

 

8.Which of these statements is correct?

[removed]

[removed]
Auto leases tend to be better than purchases for individuals who drive more miles per year than the average person.

 
[removed]  

Lease payments tend to be lower than auto loan payments with the same duration.
[removed] Loan rates are generally lower for a used vehicle as compared to a new vehicle.
[removed] Individuals who lease vehicles tend to keep them longer than individuals who purchase vehicles.

 

You can usually terminate a vehicle lease early without incurring any penalty.

 
 
 

 

 

Lease payments tend to be lower than purchase payments because you are only paying for the depreciation during the lease period.

 

9.Which one of the following is a disadvantage of renting versus buying a house?

[removed]

[removed] increased free time
[removed] lower initial costs

 
[removed] potential annual payment increases
[removed] unexpected repair costs

capital gain if property values rise

 

 

10.Luis purchased a home costing $350,000 three years ago. He paid 20 percent down in cash and borrowed the remainder. Since that time, home values in his neighborhood have declined by 10 percent. Over the past three years, Luis has paid $4,900 on the principal balance of his mortgage. How much equity does he currently have in his home? Has his equity increased or decreased since he purchased the home?

[removed]

 

 

11.Private mortgage insurance is generally required if your down payment on a house is less than what percentage of the purchase price?

 

 

 

12.Theresa is concerned about lowering her monthly costs. Which of the following should she do when considering a home purchase to help address her concern regarding costs?

[removed]

[removed] avoid homes in high-risk insurance areas
[removed] look for a low-maintenance, small yard
[removed] locate a home close to her place of employment
[removed] compare property taxes from one area to another

 

13. An adjustable-rate mortgage has a 3-year adjustment period, an introductory rate of 5%, an adjustable rate equal to the LIBOR plus 4%, an adjustment period cap of 3%, a lifetime rate cap of 10%, and a floor of 4%. Assume this is the end of year 3 and the LIBOR is currently 5%. What interest rate will be charged in year 4?

 

 

14. Which one of the following fees that must be paid at closing, is stated correctly?

 

 

15. Home equity lines of credit:

[removed]

[removed] are fixed-rate, fixed-term loans.
[removed] charge interest that is non-deductible for tax purposes.
[removed] generally charge higher rates than typical credit cards.

are adjustable-rate loans.

are unsecured debts.

 

 

 

 

16.You had a $2,300 balance last month after your payment on your credit card. You charged one pair of shoes on the 10th for $230. Your card has a minimum finance charge fee of $5 per month and an APR of 12%. What is your total balance due this period if the card’s fees are calculated via the adjusted balance method?

 

 

17.You have a credit card balance of $44. You have made no charges this past month. Your card has a minimum finance charge fee of $5 per month and an APR of 9%. What is your total balance due this period if the card’s fees are calculated via the average daily balance method? (Do not round intermediate calculations.)

 

 

  
 
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