BUSN 278 Midterm Exam

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BUSN 278 Midterm Exam

1. (TCO 1) Why are budgets useful in the planning process? (Points : 5)

They provide management with information about the company’s past performance.
They help communicate goals throughout the organization.
They guarantee the company will be profitable if it meets its objectives.
They enable the budget committee members to earn their paychecks


Question 2. 2. (TCO 2) The qualitative forecasting method that individually questions a panel of experts is _____.
(Points : 5)

executive opinions
sales force polling
the Delphi method
consumer surveys


Question 3. 3. (TCO 3) Which of the following is not used to evaluate the accuracy of regression results? (Points : 5)

Correlation coefficient
Mean square error
Standard error of the estimate
Coefficient of determination


Question 4. 4. (TCO 4) Capital expenditures are incurred for all of the following reasons except _____. (Points : 5)

as preventive maintenance
to counteract competition
decreased production
improvement in product quality


Question 5. 5. (TCO 5) Priority budgeting that ranks activities is known as _____.
(Points : 5)

top-down budgeting
bottom-up budgeting
zero-base budgeting
participative budgeting

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Question 6. 6. (TCO 6) Which of the following ignores the time value of money? (Points : 5)

Internal rate of return
Profitability index
Net present value
Payback period


  1. (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. (Points : 20)


  1. (TCO 2) There are a variety of forecasting techniques that a company may use. Identify and discuss the four main qualitatative approaches, including their advantages and disadvantages. (Points : 20)






Project AProject B
Initial Investment$800,000$650,000
Annual Net Income$50,00045,000
Annual Cash Inflow$220,000$200,000
Salvage Value$0$0
Estimated Useful Life5 years4 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? (Points : 30)



  1. (TCO 6) Corn Doggy Inc. produces and sells corn dogs. The corn dogs are dipped by hand. Austin Beagle, production manager, is considering purchasing a machine that will make the corn dogs. Austin has shopped for machines and found that the machine he wants will cost $262,000. In addition, Austin estimates that the new machine will increase the company’s annual net cash inflows by $40,300. The machine will have a 12-year useful life and no salvage value.Part (a): Calculate the payback period.
    Part (b): Calculate the machine’s internal rate of return.
    Part (c): Calculate the machine’s net present value using a discount rate of 10%.
    Part (d): Assuming Corn Doggy Inc.’s cost of capital is 10%, is the investment acceptable? Why or why not? (Points : 30)





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