Final exam of corporate finance, Exams of Corporate Finance

Download Final exam of corporate finance and more Exams Corporate Finance in PDF only on Docsity! Answers to Final Exams - Short Courses located at www. fm.comitr: 9 Course 1 - Evaluating Financial Performance 1. Which ratio is best used for measuring how well management did in managing the funds provided by shareholders? a. Profit Margin b. Debt to Equity c. Returm on Equity d. Inventory Tumover Answer = c: Shareholders are interested in the return a business generates on the money the shareholder has invested. Therefore, answer c — Return on Equity is correct. Shareholders tend to focus on long term returns vs. managers who focus on profitability. Answer a — Profit Margin would be more applicable to Managers. Financial Managers and people interested in assessing risk would be interested in b — Debt to Equity. Mangers, primarily interested in inventory management, would be interested in d — Inventory Turnover. 2. If sales are $ 600,000 and assets are $ 400,000, then asset turnover is: a 67 b. 1.50 c. 2.00 d. 3.50 Answer = b: The British often refer to sales as tumover since the ultimate reason a business invests in assets is to turn over the asset dollar into a sales dollar. If we divide sales of $ 600,000 by $ 400,000 we get 1.5 — answer is thus b. Average assets is often used in the denominator of the ratio. This tells us for every $ 1.00 we invested into assets, we were able to turn this into $ 1.50 of sales. 3. An extremely high current ratio implies: a. Management is not investing idle assets productively. b. Current assets have been depleted and the company is insolvent. c. Total assets are earning a very low rate of return. d. Current liabilities are higher than current assets. Answer = a: A high current ratio may imply that the company is carrying a lot of current assets on the books and these assets might be better utilized if the company invested or converted these assets into long-term investments. Generally, a business generates a return on its long-term assets and not its liquid or current assets such as cash, accounts receivable, or inventory. These types of assets are sitting around — idle. They don’t produce or generate sales or service customers like your long-term investments in technology would. You gain little by holding idle assets (including non-productive fixed assets) and you tend to gain much more by investing into longer term investments that provide solutions to your customers, make your employees more productive, etc. 4. If we have cash of $ 1,500, accounts receivables of $ 25,500 and current liabilities of $ 30,000, our quick or acid test ratio would be: a 188 b. 1.33 ce 111 d. .90 Answer = d: If you add up your highly liquid assets ($ 1,500) of cash and accounts receivable ($ 25,500), you have total liquid assets of $ 27,000. Now divide this by the total current liabilities of $ 30,000 = .90. For every $ 1.00 of current liabilities, we have $ .90 of liquid assets to cover these liabilities. 5. The number of times we convert receivables into cash during the year is measured by: a. Capital Tumover b. Asset Turnover c. Accounts Receivable Tumover d. Return on Assets Answer = c: The Accounts Receivable Tumover ratio measures the number of times you tum receivables over into cash. It is calculated by dividing your credit sales by the average receivable balance for the period. For example, if you had credit sales for the year of $ 100,000 and your average receivable balance during the year was $ 10,000, then you have a receivable tumover of 10. 6. If our cost of sales are $ 120,000 and our average inventory balance is $ 90,000, then our inventory turnover rate is: a. .50 b. .75 c. 1.00 d. 1.33 3. Taylor Manufacturing has compiled the following production information for manufacturing jugs of beverages: Planned production is 6,000 jugs Materials required per jug: 10 pounds of powder Desired Ending Inventory for Materials: 4,000 pounds Beginning Inventory for Materials: 3,000 pounds Purchase Cost for Materials: $ 2.00 per pound Based on the above information, what is the total cost for planned materials purchased? a. $110,000 b. $120,000 c. $122,000 d. $128,000 Answer = c: During the period, Taylor Manufacturing will need to have 60,000 pounds of powder (6,000 per jug x 10 pounds per jug). We already have 3,000 pounds of powder on hand per our beginning inventory and we want to have 4,000 pounds on hand going into the next period. So you can work through the calculation as follows: Planned production requirements ....... 60,000 (pounds of powder) Less inventory already on hand......... (3,000) Plus desired inventory at end . . 4,000 Planned purchases . . .61,000 Cost perpound........ . .. X $2.00 (cost per pound) Planned purchase amount . . . $ 122,000 4. Which of the following detail budgets will help us prepare the Budgeted Income Statement? a. Direct Labor Budget b. Cash Budget c. Budgeted Balance Sheet d. Year End Balance Sheet Answer = a: The Income Statement is derived by looking at your planned income and costs for the period. So the Direct Labor Budget will represent part of your future costs and this should get reflected into your Budgeted Income Statement. 5. If accounts payable have historically been 20% of sales and we have estimated sales of $200,000, than estimated accounts payable must be: a. $10,000 b. $20,000 c. $30,000 d. $40,000 Answer = d: Simply multiply 20% x $ 200,000 = $ 40,000. 6. Which budget is prepared for determining how much external financing we will need to support estimated sales? a. Cash Budget b. Budgeted Income Statement c. Budgeted Balance Sheet d. Sales Forecast Answer = c: In order to arrive at your financing needs, you will need to prepare a Budgeted Balance Sheet since this statement reflects the two principal sources of financing, debt and equity. 7. A good place to start in preparing the Budgeted Balance Sheet is with the main link between the Income Statement and the Balance Sheet. This link is: a. Cash b. Retained Eamings c. Current Assets d. Long Term Liabilities Answer = b: Since Net Income is closed out to Retained Earnings, this should represent your link between the Income Statement and the Balance Sheet. 8. One way to improve the budgeting process is to include qualitative techniques into forecasting. Which of the following is an example of a qualitative technique? a. 5 Year Trend Analysis b. Ratio Analysis c. Percent of Sales Method d. Interviewing the President of the Company Answer = d: Quantitative characteristics tend to be hard numbers that are measured some how — such as trends, ratios, and percentages. Qualitative characteristics are softer type factors that you can include into planning and budgeting, such as getting the opinions of experts on what they expect to happen. 9. Statistical methods can be used to improve the accuracy of forecasting. This approach is particularly useful for forecasting sales since we are searching for the right fit based on several observations. One popular approach to finding the right statistical fit is to use: a. Exponential Smoothing b. Regression Analysis c. Executive Polling d. Moving Average Answer = b: Regression analysis looks at relationships between variables. The tighter the fit, the higher the relationship and thus, regression analysis can be very useful for forecasting the output of one variable given the input of another variable. 10. Which of the following will contribute to making budgeting a non-value added activity; i.e. the cost of budgeting exceeds the benefit? a. The budgeting process is included within the strategic planning process. b. Detail and Summary Budgets are prepared at the same time and are distributed to management for approval. c. Budgets throughout the organization are automated for enterprise-wide consolidation. d. Line item detail in budgets is based on material thresholds. Answer = b: Before you waste time preparing detail budgets at a department or division level, you have to agree on the high level budgets, such as the enterprise or business unit budget. Once you have approved budgets at a high level, you can then allocate funds down for preparation of lower level budgets. Course 3 - Capital Budgeting Analysis 1. Capital budgeting analysis consists of three distinct stages. The first stage is: a. Discounted Cash Flows b. Simulation c. Decision Analysis d. Net Present Value c. Simple Payback d. Return on Investment Answer = b: Modified Internal Rate of Return is another good economic indicator for evaluating a capital investment. 9. One method for managing project risk is to use: a. Sensitivity Analysis b. Discounted Payback c. Net Investment d. Project Turnover Answer = a: Sensitivity analysis can be used to analyze how changes can impact a project. 10. An additional risk usually associated with an international project is: a. Project payback b. Direct Labor Changes c._ Installation Costs d. Foreign Exchange Rate Risk Answer = d: Changes in the value of foreign currencies over time can introduce additional tisk to international projects. Course 4 - Managing Cash Flow 1. When it comes to managing the disbursement cycle, the objective is to: a. Shorten the disbursement cycle. b. Lengthen the disbursement cycle c. Equalize disbursements with receipts. d. Borrow for all disbursements. Answer = b: You want to lengthen the time you have to disburse funds so you have use of these funds. For example, you gain nothing by paying invoices early to vendors. 2. One way of decreasing the collection time for cash receipts is to: a. Accept cash payments only. b. Issue vendor payments immediately. c. Invoice customers quickly. d. Treat all customers the same. Answer = c: For sales that involve collection, you will want to invoice the customer as quickly as possible in order to collect the cash. 3. We can estimate total cash flow cycle times by calculating three ratios: (a) Average Days in Accounts Receivable, (b) Average Days in Inventory and (c) Average Days in Accounts Payable. Using these three ratios, the formula for calculating the total cash flow cycle time would be: a. (a)-(b)- ©) b. (a)+(b)+ (© c. (ax)x@© d. (a) + (b)- ©) Answer = d: The time cash is tied up in receivables and inventory is added to your cycle time while the time related to disbursements would be subtracted to arrive at the net overall cycle time for all cash. 4. The amount of cash that should be held is a function of four amounts: Transaction Amount (includes compensating balances), Precautionary Amount, Speculative Amount, and Financial Amount. As a general rule, the minimal amount of cash that should be held is: a. Transaction Amount b. Speculative Amount c. Transaction Amount + Precautionary Amount d. Speculative Amount + Financial Amount Answer = c: As a minimum you need to have enough cash on hand to cover your anticipated transactions requiring cash + you want to hold a reserve amount as a pre-caution for unplanned disbursements. 5. Assume the following: Beginning Cash on Hand is $ 4,000, projected cash inflows are $ 28,000 and projected cash outflows are $ 39,000. You want to have an ending cash balance of $ 2,000. Whatis your total projected cash deficit? a. $11,000 b. $ 4,000 c. $ 7,000 d. $ 9,000 Answer = d: Simply calculate your ending cash balance per your beginning balance and changes to cash flow and then add to this amount your desired ending balance: Beginning Cash Balance $ 4,000 Increase or Inflows +28,000 Decrease or Outflows -39,000 Deficit Balance - 7,000 Desired Ending Balance 2,000 Total Deficit 9,000 (covers both the 7,000 deficit + gets you to the desired balance of $ 2,000) 6. Spontaneous financing or trade credit is simply a way of obtaining more cash by: a. Establishing a Line of Credit b. Lengthening the Disbursement Cycle c. Borrowing against your assets d. Selling your receivables Answer = b: If you do things to simply lengthen your cash outflows, then you are creating instant or spontaneous sources of credit or cash. 7. Two common ways of borrowing against accounts receivable are: a. Factoring and Assignment b. Trust Receipts and Blanket Liens c. Leasing and Buy Backs d. Warranties and Options Answer = a: Factoring is selling off the face value of a receivable account to another company which will collect the receivable amount. Assignment is partial transfer of ownership of the account to another company for the purpose of collecting the account. 8. In order to arrange financing against your inventory, your inventory must be: a. Slow moving b. Certified by the IRS c. Highly Marketable d. Obsolete 5. Delphi Corporation has common stock with a listed beta coefficient of 1.40. U.S. Treasury Bonds are paying 6.2% and the overall market rate according to Standard and Poor's is 13.5%. Using the Capital Asset Pricing Model (CAPM), the cost of common stock is: a. 10.22% b. 13.50% c. 16.44% d. 18.33% Answer = c: 16.44%. Cost of using common stock is 6.2% + (1.40 x (13.5% - 6.2%)). 6. Gemini Corporation has summarized its capital structure as follows: Component Cost of Capital Market Value Long-term Bonds 5.8% after tax $150,000 Common Stock 12.5% $ 450,000 Based on the above information, Gemini's weighted average cost of capital is: a. 10.83% b. 11.50% c. 16.70% d. 12.50% Answer = a: Multiply the market weights by each cost of capital component to arrive at the weighted average cost of capital: 5.80% x ($ 150,000 / $ 600,000) = 1.450% 12.50% x ($ 450,000 / $ 600,000) = 9.375% Weighted Average Cost of Capital 10.825 or 10.83% 7. Fleming Corporation has plans to raise $ 2 million in capital by issuing 50,000 shares of $ 20.00 common stock and by issuing $1 million in bonds @ 12% interest. Fleming's tax rate is 40%. Fleming expects EBIT (Eamings Before Interest Taxes) of $ 4.5 million and its current capital structure consists only of common stock - 250,000 shares outstanding. What will EPS (Earnings per Share) be after the financing plan? a $6.67 b. $7.97 c. $8.76 d. $9.00 Answer = c: $ 8.76. Start with EBIT of $ 4,500,000 and deduct interest of $ 120,000 ($ 1,000,000 in bonds x 12%) = $ 4,380,000 taxable income less taxes of $ 1,752,000 ($ 4,380,000 x 40% tax rate. Divide Net Income of $ 2,628,000 by total outstanding common shares of 300,000 (250,000 shares + 50,000 new shares issued). 8. Acommon method for assessing risk associated with financing plans is to calculate: a. Beta Coefficient b. Marginal Cost of Capital c. Breakeven EPS d. Coverage Ratios Answer = d: As you implement a financing plan you will need to evaluate your coverage or liquidity and leverage ratios to see if you have increased risk too much. 9. When a privately held company decides to "go public’, it must go through a process known as: a. b. Cc. d. Initial Public Offering Debt for Equity Swap Stock Buyback Program Option Selling Answer = a: Initial Public Offerings transform private companies into publicly traded companies. 10. When a company raises capital by selling directly to investors without a formal registration with the SEC (Securities & Exchange Commission), this is called a: a. b. Cc. d. Selected Capital Agreement Private Placement Short-term Financing Arrangement Seasoned Filing of Securities Answer = b: A private placement of securities is not subject to the same significant registration rules associated with public offerings. Course 7 - Mergers and Acquisitions (Part 1) 1. Etco Energy and Baltic Energy have decided to merge. Both companies provide similar products and services. This type of merger is called a: a. Diagonal Merger b. Conglomerate c. Horizontal Merger d. Vertical Merger Answer = c: Horizontal mergers involve companies selling similar products and services. 2. Synergy values are the additional values that companies realize through a merger and acquisition. Synergy values can take three forms. Generally speaking, the most significant and common form of synergy is: a. Higher Cost of Capital b. Lower Expenses and Cost c. Higher Production Efficiencies d. Lower Cost of Capital Answer = b: Most mergers create value by simply reducing redundancies in the combined cost structure of the newly formed company. 3. Once a company completes the Pre-Acquisition Review, the next phase within the merger and acquisition process is to: a. Search and screen target companies b. Integrate the two companies c. Initiate Phase II Due Diligence d. Execute a Merger & Acquisition Agreement Answer = a: Once a company makes a decision to pursue a merger for growing the company, the next step would be to research likely candidates or targeted companies. 4. Many mergers begin through a series of negotiations between the two companies. If the two companies decide to seriously investigate the possibility of a merger, they will launch Phase II Due Diligence and execute a: b. Par Value Assigned to Stock c. Selection of Depreciation Methods d. Possible Understatement of Liabilities Answer = d: An understatement of liabilities, such as unrecognized contingent liabilities, is of particular concern when restating the Balance Sheet. 10. Due diligence is particularly important in the case of a reverse merger since it is necessary to “clean the Shell Company.” One important aspect of cleaning the Shell Company is to: a. Confirm ownership of the Shell Company b. Identify cultural and social issues c. Plan for long-term integration d. Evaluate human resource capital Answer = a: It can be important to identify who owns the company since the shell of a company that is selling public has potential problems and these to be investigated back to the owners. Course 7 - Mergers and Acquisitions (Part 2) 1. Assuming we are valuing a going concern, which of the following types of income streams would be most appropriate for valuing the company? a. Earnings Before Interest and Taxes b. Free Cash Flows c. Operating Income After Taxes d. Price to Eamings Ratio Answer = b: Cash flows are often used in a Discounted Cash Flow model to assign a value to a company. The best form of cash flow for the Discounted Cash Flow model is free cash flow; i.e. how much residual cash do you have after you have paid everyone. 2. The following estimates have been made for the year 2006: Operating Income (EBIT) $6,000 Depreciation 500 Cash Taxes to be paid 950 Income from non operating assets 60 No capital investments or changes to working capital are expected. Based on this information, the projected free cash flows for 2006 are: a. b. Cc. d. $5,610. $ 4,550. $4,490 $6,550 Answer = a: $ 6,000 + $500 non cash flow item - $ 950 cash outflow + $ 60 cash inflow = $ 5,610. 3. Marshall Company is considering acquiring Lincoln Associates for $ 600,000. Lincoln has total outstanding liabilities valued at $ 200,000. The total purchase price for Marshall to acquire Lincoln is: a. b. Cc. d. $ 200,000 $ 400,000 $600,000 $800,000 Answer = d: The value of debt assumed must be paid in addition to the cost of acquiring ownership in the target company which is $ 200,000 + $ 600,000 = $ 800,000. 4. The Valuation Process will often analyze several value drivers in order to understand where value comes from. Which of the following value drivers would be least important to the valuation? a. b. c. d. Return on Invested Capital Eamings per Share Cash Flow Return on Investment Economic Value Added Answer = b: Since earings has several distortions in relation to cash flows and how returns or economic income gets generated, Earnings per Share would be the least important of the value drivers. 5. You have been asked to calculate a terminal value for a valuation forecast. The normalized free cash flow within the forecast is $ 11,400. A nominal growth rate of 3% will be applied along with a weighted average cost of capital of 15%. Using the dividend growth model, the terminal value that should be added to the forecast is: a. b. Cc. d. $ 78,280 $ 86,200 $95,000 $97,850 Answer = d: $ 11,400 x 1.03 = $ 11,742 extended annual cash flow beyond the forecast period. Divide this amount by the cost of capital less the growth rate or 12% (15% - 3%). $ 11,400 / .12 = $ 97,850 6. Information from a valuation model for Gemini Corporation is summarized below: Total present value of forecasted free cash flows $150,000 Terminal value added 450,000 Total present value of non-operating assets 20,000 Total present value of outstanding debts 120,000 If Gemini has 20,000 shares of outstanding stock, the value per share of Gemini is: a. b. Cc. d. $15.00 $25.00 $30.00 $35.00 Answer = b: ($ 150,000 + $ 450,000 + $ 20,000 - $ 120,000) / 20,000 shares = $ 25.00 7. Once a merger has been finalized, one of the primary responsibilities of senior executive management as it relates to post merger integration is to: a. b. Cc. d. Facilitate functional integration Develop personnel retention programs Lead change through communication Manage all of the integration projects Answer = c: Senior leadership and executive will need to work hard at communicating what changes will take place, when and how they will get implemented. Mergers super-impose a lot of change on the organization and this must be coordinated and communicated throughout the company from above. 4. One way a large diversified company can create value is to issue new stock to shareholders for a new separate company. This type of restructuring is referred to as a: a. b. Cc. d. Liquidation Merger Leveraged Buy Out Spin Off Answer = d: A large diversified company may increase value by spinning off pieces of the company and issuing new stock for the separate pieces. 5. Value Based Management is a formal approach to managing the organization for the creation of value. In order to successfully implement Value Based Management, it must : a. b. Cc. d. Follow existing accounting principles Be driven by top management Have conformity with financial statements Adjust to existing legacy systems Answer = b: The senior leadership and management must get behind an emphasis on value; otherwise it becomes isolated to a division, department or other organizational unit that is pushing the cause and its success will be severely limited. 6. Stock prices may not fairly represent the value of a company because stock prices are influenced by: a. b. Cc. d. Delays in the release of earnings Market forces such as higher inflation Whisper estimates made by investors Perceptions about management effectiveness Answer = b: Stock prices can change from several market forces, such as a downturn in the economy. Management has little control over the impacts from market forces. 7. Economic Value Added (EVA) is a popular approach to measuring how much value was created. Assume we have NOPAT (Net Operating Profits After Taxes) of $ 100,000. After making all equity equivalent adjustments, we have calculated Total Adjusted Capital of $ 750,000. If weighted average cost of capital is 12%, then EVA is: a. $650,000 b. $150,000 c. $ 88,000 d. $ 10,000 Answer = d: Deduct the cost associated with capital of $ 90,000 ($ 750,000 x .12) from NOPAT of $ 100,000 = $ 10,000. 8. Unlike EVA, we can improve on the accuracy of measuring value by recognizing the impact of inflation on both cash inflows and the outflows for investment. Which of the following approaches to measuring value accounts for the impact of inflation in measuring value? a. Cash Flow Retum on Investment b. Return on Net Assets c. Return on Net Income d. Accounting Rate of Retum Answer = a: Cash Flow Retum on Investment or CFROI includes provisions for adjusting for inflation. 9. What is the Residual Cash Flow for an investment costing $ 50,000 with adjusted operating cash flows of $ 15,000 and a cost of capital of 14%? a $2,500 b. $8,000 c. $12,900 d. $25,000 Answer = b: Deduct the financing costs of $ 7,000 ($ 50,000 x .14) from the operating cash flows of $ 15,000 = $ 8,000. 10. Most elements of value creation tend to be incremental; i.e. they may not be long term sources of value. The most important long term element of value creation is: a. Improving the production process b. Issuing high levels of debt c. Innovative strategizing d. Cost cutting programs Answer = c: The ability to innovate and refresh your products and services can be invaluable to creating value. Other drivers of value such as cost cutting or restructuring have very short lived impacts on value. Course 10 - Strategic Planning 1. Strategic Planning is a process whereby management makes choices about overall direction. One such choice within strategic planning is establishing the: a. Goals of the organization b. Financing of capital assets c. Distribution of stock dividends d. Election of Officers Answer = a: A major output of the strategic planning process is the establishment of goals. 2. Strategic Planning should be used for each of the following except for: a. b. Cc. d. Finding a vision for the organization Determining future strategies or objectives Getting the organization out of crisis Managing the long-term future Answer = c: A company in crisis may need a tum-around plan which is immediate and short- term. If the company can survive the crisis, then it may want to engage in a new long term strategy. 3. Strategic Planning can result in change and people often resist change. People’s resistance to change can be reduced by: a. b. c. d. Making the planning process extremely formal. Categorizing the process as re-engineering. Making the process very experimental. Getting people involved within the process. Answer = d: People need to have a Say in things that impact them; otherwise they will not buy-in and execute on the decisions. Course 11 - The Balanced Scorecard 1. Balanced scorecards consist of four inter-related perspectives. Which perspective or layer will be the main driver or enabler for outcomes within the financial perspective? a. Learning & Growth b. Customer c. Programs d. Templates Answer = b: The customer will buy goods and services and thus, this perspective would drive or impact what takes place at the financial perspective layer. 2. The Balanced Scorecard process captures a cause and effect relationship based on having all parts linked together. Strategic areas link down to goals, strategic goals link down to strategic objectives, and strategic objectives are linked to: a. Mission b. Goals c. Budgets d. Measurements Answer = d: Your objectives should be expressed in terms that imply the measurement and targets. This helps ensure strong linkage between what you are measuring and what you are trying to achieve strategically. 3. Mason Corporation has developed the following three strategic objectives for its balanced scorecard: A= Employee involvement will be enhanced through a new matrix realignment of the organization. B = Customer confidence will be expanded through more personal approaches to service. C = The product delivery system will be expanded to include all new product lines. Where should Mason Corporation place these three objectives within its strategic grid? Customer Internal Processes Learning & Growth a A Cc B b. Cc B A c. B Cc A d. B A Cc Answer = c: A or Employee Involvement is related to the Learning & Growth perspective or layer in the scorecard map or grid. B or Customer confidence is related to the Customer perspective and C or expansion of the product delivery system is related to internal processes. 4. There are two types of measurements: Leading Indicators (lead to end results) and Lagging Indicators (the end results). Which perspective of the Balanced Scorecard would most likely use leading type measurements? Financial Customer Intemal Processes . Learning & Growth Answer = d: If you drill down to lower levels of your scorecard model, such as the Learning & Growth perspective, then you would expect to see more leading type indicators, such as a leadership development program for key managers. The top part of the scorecard model, such as Financial, would have lag indicators such as Return on Sales. aoc Triple K Construction is developing a balanced scorecard. One of the goals for Triple K Construction is: We will meet or exceed the expectation of our customers by providing commercial construction projects that are on time and on budget. Which of the following strategic areas fits with this goal? a. Commitment to Community b. Customer Satisfaction c. Shareholder Value d. Employee Productivity Answer = b: Delivery that meets or exceeds customer expectations would be related to customer satisfaction levels. Triple K Construction has the following strategic objective: We will meet the completion dates on all new construction projects beginning in the year 2003. Which of the following measurements provides the best fit with this strategic objective? a. Percentage of projects completed on time b. Total number of projects in progress c. Construction cost to revenue ratio d. Overall customer satisfaction index Answer = a: The measurement and the objective should fit tightly together. You should be able to understand the objective by simply reading the measurement. If you are measuring percentage of completions that were on time, the you would expect a performance objective related to this measurement. JGT Enterprises has compared its existing programs against its strategic objectives. If a program impacts a strategic objective, then the intersecting box is filled in on the following template: Assess Strategic Impact of also Programs against strategic E £ g z 3 Ss objectives &| £2) 3 3 3 >| » B| 3&5 o|; g Bs| EU! $s Z/ cg &\/ 22) #3 g BB) 2s) og Objectives za;oc HA) On;ae Improve Delivery Times Introduce New Product Features Reduce Distribution Costs Retool Production Process Enhance Quality Control Increase Employee Involvement Which program has the most (highest) strategic impact and which program has the least (little or no) strategic impact on the strategic objectives? Most Strategic Impact Least Strategic Impact a. Product Research Cross Functional b. Automated Distribution Market Study c. Product Research Market Study d. Automated Distribution Product Research Answer = b: Automated Distribution has three strategic impacts per the matrix and the Market Study has none. 8. are tools (usually spreadsheets) for capturing and organizing much of the data that goes into building the Balanced Scorecard a. Templates b. Indexes c. Goals d. Ratios Answer = a: Templates are used to help collect and organize data used in balanced scorecards. 9. Balanced scorecards are appropriate for which type of organization? a. Private sector businesses. b. Non-profit organizations. c. Government agencies. d. Any organization concerned about the execution of its strategy. Answer = d: Any organization that has a strategy should consider using the Balanced Scorecard to measure and monitor strategic execution. 10. Unlike the Balanced Scorecard, the Performance Prism captures the cause and effect relationship of strategies, business processes, and capabilities against: a. Customers b. Stakeholder Groups c. Global Competition d. Employees Answer = b: Stakeholder groups are used in the Performance Prism, taking a broader view of performance than the Balanced Scorecard. Course 12 - Competitive Intelligence Part 1 1. Three information types are described as follows: (1): Knowledge that requires some form of action or response (2): Public information and statistics about a company (3): Analyzed data that is somewhat value added to the decision maker For each, categorize it as to Data, Information, or Intelligence: Data Information Intelligence b. National business magazines c. Local newspapers d. Industry newsletter Answer = c: Since the company is small and local, you should consider focusing your research on local newspapers. Course 12 - Competitive Intelligence Part 2 1. b: Define the key intelligence topic — you need to clearly understand the problem you are trying to solve. 2. d: Market intelligence will be extremely important for new product launches 3. a: SWOT is perhaps the most popular analytical model used since it helps identify core competencies of a company. It is imperative for a company to aggressively defend its core competencies in a competitive environment. 4. d: Supply Chain Operations Reference (SCOR) provides an understanding of a supply chain with overlays into levels. 5. a PEST is a good framework for doing an external scan of: Political, Economic, Social, and Technology. 6. a: The company is introverted and thinking based on the brief description provided. 7. d: Reverse engineering of other products can provide insights into how to design your new product. 8. b: Since the company has a very basic and simple product line and since Florida is one of the growth markets, this should be the primary focus of the company when it comes to selling its swim wear. 9. b: Continue to invest in Collins for growth, grow Maxim in a limited way, and sell off the Stellar business unit. 10. b: Ifa Business Intelligence system pulls from external sources, it will become better aligned with the Competitive Intelligence System. Course 13 - Going Public 1. Whyis it so important to make a company “liquid” through an IPO? a. Realignment of the Balance Sheet b. Generate a return for original investors c. Improve the company’s image d. Secure more control over how the business is managed Answer = b: Investors will want to cash out from their original investments prior to when the company goes public since they have been sitting on the side lines, waiting to generate a return on their original investment when the company was private. 2. A public infrastructure is critically important to ensuring that the company can function as a public company. Which of the following can help build a public structure for a private held company? a. Higher customer retention rates b. Stable cash flows c. Low overhead costs d. Publishing audited financial statements Answer = d: A private company can start to transform itself into a public functioning entity by doing things like publishing audited financial statements. This will make the IPO process easier. 3. The most significant costs associated with an IPO is: a. Registration fees b. Underwriting fees c. Audit fees d. Printing the Prospectus Answer = b: Fees paid to underwriters represent the most significant costs. They are a percentage of the capital raised. 4. It is extremely important to have a great management team. This helps sell the IPO before potential investors. If the management team is weak, one good source for building the management would be: a. Wall Street Analyst b. Academic Researchers c. Retired Senior Executives d. MBA Graduates Answer = c: It is important to sell investors on the fact that the company has some seasoned veterans on the team, giving investors some added confidence about the future success of the company. 5. Which part of the Prospectus provides the investor with an inside perspective from management's viewpoint? a. Management Discussion & Analysis b. Listing of Proceeds c. Risk Factors d. Market Information Answer = a: The MD&A (Management Discussion & Analysis) section is management's own assessment of the company. 6. Which of the following IPO Team Members is responsible for pricing the public offering? a. Audit Firm b. Underwriter c. Senior Management d. Securities & Exchange Commission Answer = b: Underwriters typically set the price of the offering. 7. After filing the Registration Statement and addressing comments from the SEC, the company will launch an intense effort to reach potential investors in a series of face to face meetings, commonly referred to as the: a. Closing Event b. Road Show c. All Hands Meeting d. Post Registration Conference Answer = b: Road shows are intense face-to-face efforts at selling the public offering to potential investors. 8. It is not uncommon for the Lead Underwriter to carry an over-allotment of shares, allowing the Underwriter to purchase stock at the initial offering price after the company has gone public. This is referred to as a: a. Underwriting Cushion b. Trading Bonus c. After Market Support Fee d. Green Shoe Option Answer = d: The Green Shoe Option allows the underwriter to purchase shares in an effort to support the offering price. 7. The Perryville Drug Rehab Program has the following cost data for the most recent year: Rent on Facility.............. $ 7,800.00 Paid Staff for Program . . $ 17,500.00 Printing and Supplies $ 1,200.00 Indirect Costs Allocated to Program $ 2,600.00 Data related to participation for the year: 17 people went through the program. At the end of the program, all participants were drug tested and 15 of the 17 participants were drug free. It is estimated that each drug free participant in the program saves the town of Perryville $ 5,000.00 during the current year. Using current year data only, the net benefit of the Drug Rehab Program to the Town of Perryville is: a. $58,500.00 b. $23,500.00 c. $48,500.00 d. $45,900.00 Answer = d: We can quantify the benefits of the program as $ 5,000 x 15 successful participants = $ 75,000. Subtract from the benefits the costs of the program which is $ 29,100 ($ 7,800 + $ 17,500 + $ 1,200 + $ 2,600). This leaves a net benefit of $ 45,900. 8. From an organization standpoint, the preferred model for performance measurement within the nonprofit sector is: a. Financial Matrix Model b. Three Tiered Model c. The Balanced Scorecard d. Program Input Model Answer = b: Non profits tend to view performance from three tiers as opposed to several perspectives within a scorecard model. 9. Which of the following critical issues is best addressed through a deliberate marketing effort? Identifying best targets for social services Evaluating employee performance Measuring financial health of the organization Reporting direct costs of social programs Answer = a: - Marketing research and analysis can help put focus on what segments the non-profit should try to reach. err 10. Which of the following initiatives can a nonprofit undertake for protecting the unique advantages of its social programs in a highly competitive market? Enterprise Resource Planning Competitive Intelligence Bottom Up Budgeting Time Management aoop Answer = b: Competitive intelligence can help an organization monitor and assess its core advantages in relation to others. Course 17 - Process Improvement b: Converting resources or inputs into outputs is at the core of most processes. c: The purpose behind a process is to service a customer. So meeting or exceeding the customer is critical to the process. 3. ai Process maps such as swim lanes help depict the flow of a process. 4. c: Pareto charts are used to illustrate graphically a ranking or order between elements. 5. a Alternative A has the highest weighted score compared to the other altematives. Alternative A has a score of 3.10 (1.20+1.50+.40) compared to 3.00 (.90+1.50+.60) for Alternative B and 2.90 (1.50+1.00+.40) for Alternative C. d: Level 4 c: Key Process Areas b: Variation d: Critical to Quality or CTQ 0. b: FMEA NP 5S PN Course 18 — Leadership c: Managers Administering when things get done : Providing for the needs of co-workers Interpersonal function : Positive attitude in others : Collaborative Leadership : Show respect for others : Tactical Leader : Leadership Practices Inventory or LPI ECI 360 1 2 3 4. 5. 6. 7 8 9 10. b b c a: d b: Course 19 - Managing Projects : Project Charter : Planning : Work Breakdown Structure : Responsibility Assignment Matrix Scope, Time, and Costs : Earned Value : .75 ($ 120,000 / $ 160,000) : Waterfall : Design, Code and Test to : Enterprise Architecture RODNDANARWNE poosnpas