A company is comprised of two divisions, each of which manufactures a single product. Division A manufactures a product which can be sold in a perfect external market or transferred as an intermediate product to division B. Division B finishes the intermediate product and sells this in a perfect external market.
Due to company policy, internal transfers are recorded at the external market price. At this transfer price both divisions make a profit from their activities.
Which of the following will NOT be achieved by the company's transfer pricing policy?
To which technique for dealing with risk and uncertainty do ALL of the following statements apply?
• It requires that only one factor is considered at a time.
• It identifies areas which are crucial to a project, which can then be monitored if the project is chosen.
• It does not provide an indication of the likelihood of any change in the factors.
• Following the calculation, it requires the exercising of judgement to decide whether to accept or reject a project.
A company has recently developed a new lawnmower with an estimated market life of 5 years. Production and sale of the lawnmower will require investment in new production equipment costing $750,000. It is expected that this equipment could be sold back to the original vendor for $50,000 at the end of five years.
Purchase of the equipment would be financed by a 5 year fixed rate bank loan at an interest rate of 6%.
A manager already employed by the company would be moved from their current position to manage production of the new lawnmower. Their original position would be filled by a new recruit on a fixed annual salary of $35,000.
Which of the following statements is NOT correct?
A company comprises several divisions.
One of these divisions was originally expected to earn an operating profit next year of $800,000 on net assets of $4 million.
However, the divisional manager is considering investing in a project that would generate a project return on investment (ROI) of 38% on additional net assets of $500,000.
What would be the divisional ROI next year if the project was implemented?
Give your answer to the nearest percentage.
In order to remain competitive an organization wishes to achieve cost savings for one of its existing products.
Which of the following correctly describes methods which the organization can use to achieve these cost savings?
Select ALL that apply.
A very large organization is financed by both debt and equity. It evaluates all projects on the basis of their net present value (NPV) using an organization wide weighted average cost of capital as the discount rate.
For a small project, which TWO of the following would affect the project's cash flows AND the discount rate?
A learning curve applies to the manufacture of the first 256 units of a product.
During the manufacture of the first 255 units, the time taken to produce each successive unit is expected to:
A manager must decide which one of three projects should be implemented. For each project the possible outcomes and their associated probabilities can be estimated reliably. The manager has decided to make the decision based solely on which project has the highest expected value of profit.
Which of the following statements are correct?
Select ALL that apply.
A company is investing in a huge diversification project. The plan is to develop and sell a whole new product line that they have never sold before. They've already started a massive marketing campaign for this new
product line and they are getting good feedback in their market research.
They've had to use debt funding in order to finance the project, but they hope that the returns will be worth the investment and restructuring. If they are successful they will be a step ahead of all their competitors and offer
something none of them can.
What is the risk appetite of this company?
Product WB currently sells for $13 per unit. Annual demand at that price is 20,000 units. If the price increases to $15, the annual demand falls by 500 units.
What is the formula for the demand curve?
