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CompXM Capsim Examination Notes

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Post Graduate Diploma in Management

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BOD QUIZ

Q1) Rank the following companies from high to low cumulative profit, (in descending order, 1=highest, 4=lowest).

Answer 1) From Selected Financial Statistic see cumulative profit and arrange in the order given (Need

to follow courier report given)

Q2) Chester has a new design for their product Cell next round that can reduce their material cost of

producing units from $8 to $7. Chester passes on half of all cost savings by cutting the current

price to customers. For simplicity:

  • Use current labor costs of $4 - Assume all period costs as reported on Chester's Income Statement

(Annual Rpt Pg 2) will remain the same.

Determine how many units (000) of product Cell would need to be sold next round to break even on

the product.

ANS 2) Follow courier report Break even= period cost/current price –new material cost- labour cost Material and labour cost given in question Period cost find from income statement or Calculate from financial summary (Depreciation+SGA) Current price = list price of product cell from courier report New price = 19 - (8.14-7)/2 = $18. Contribution margin per unit = current price –new material cost- labour cost Breakeven unit = period cost/contribution , margin

Q3) When you accepted the CEO position for company Andrews, you discovered that you had inherited a profitable company with a leading market share. Your contract has ended, and you have accepted a new position as CEO of another company. The board has asked you to prepare a briefing for the incoming CEO that will replace you. In good essay form, address the following questions:

  1. What have you done during your tenure to create or enhance a competitive advantage?
  2. What major threats does the company face today?
  3. What would be your vision for Andrews four years from now? (Answer 3) subjective question, follow courier report , do give ROS,ROI etc figures while writing (No wrong or right answer for this) Q4) Assuming no brokerage fees, calculate the amount of cash needed to retire Baldwin's 11 bond early Answer 4) 11 this means year 2011 bond at 11% (Look for this bond in that summary) (Face value bond /100) = Number of bonds (Refer bond summary)

Cash to retire= (No of bonds *closing price)+brokerage fees Face value of per bond is 100 always Q5) Your company Andrews has a bond retiring in 2008. This bond has an interest rate of 13%, a face value of $10,300,000 and a closing price of $102. Since your company had sold these 10 year bonds at $100, you would be buying them back at Answer 5) Face value of per bond is 100 always

Premium

Explanation:

Since the closing price of the bond is $102, the bond will be repurchased at a premium since this

price is higher than the par of $100.

(if below 100 than discount)

Q6)

Answer 6) don’t know what to do

Q7) Looking at the industry Balance Sheets, suppose each company wants to increase its

leverage to 3 by issuing bonds and purchasing plant and equipment. Which

of the following company actions would accomplish that goal?

Answer 7) Total assets/Total Equity Formula

Chester's Total Liabilities would rise to 120,988,000. Chester could buy 60,494,000 additional plant and equipment. Look for financial summary for all competitor and calculate normally and check whose leverage will increased to 3.

Q8) From the Chester management team's perspective, how would the following actions by Andrews worry them? Rank order the tactics below from (1) most worrisome to Chester to (5) least worrisome to Chester

Answer 8) Given the focus more on revenue and then on cost (Subjective)

the ranking is as follows:

1. Andrews introduces a new Nano product

2. Andrews invests in TQM to reduce R&D cycle time.

3. Andrews increases automation levels on product Ark to 6.

4. Andrews increases their Ark promotion budget from $1,200 to $1,

5. Andrews extends their credit terms to 90 days

Q9)

Answer 9) Don’t know

Q10)

Answer 10) Don’t know

Q11)

  • A cost leader competes on price by reducing costs and passing the savings to customers.

  • A broad player competes in all parts of the market.

  • A niche player competes in selected parts of the market.

Which of these four statements best describes this competitor?

Answer 15) Analyse the other player’s strategy

Q 16) Which description best fits Baldwin in your industry? For clarity:

  • A differentiator competes through good designs, high awareness, and easy accessibility.

  • A cost leader competes on price by reducing costs and passing the savings to customers.

  • A broad player competes in all parts of the market.

  • A niche player competes in selected parts of the market.

Which of these four statements best describes this competitor?

Answer 16) Analyse the other player’s strategy

((For analyzing look for new products introduced, pricing , promotion, awareness , accessibility score,

market share etc))

Q 17) You want to forecast market demand using historical data. Which tool provides you with the best quantitative estimate of future conditions? Answer 17) Regression Analysis.

Note:

Linear Programming – Transportation

Scenario Analysis - Contingency, example one variable is changed, WHAT IF

Ratio Analysis – Financial summaries of the company

Economic Order Quantity – Production

SWAG analysis – Intuition based

Q 18) The Andrews company currently has the following balances in their equity accounts:

Common Stock $11,121 Retained earnings $41,

Suppose next year the Andrews company generates $46,300 in Net Profit,

and declares and pays $16,000 in Dividends. What will Andrews ending balance in Retained Earnings

be next year?

Answer 18) Retained earnings + net income - dividends = current retained earnings 41044+46300-16000 = 71344

Q 19) Your company acquires inventory on account. Select the impact on your financial statements. ( ) Increasing assets only. ( ) Increasing assets and liabilities. ( ) Increasing liabilities only. ( ) Increasing liabilities and decreasing assets. Answer 19) Journal entry

Stock To creditors (Journal entry) Increasing assets and liabilities.

Assets stock increase and liabilities increase debt

Q 20) Select what will be the most correct calculation of retained earnings for next year.

( ) Add next year's gross income to this year's retained earnings.

( ) Add next year's net income to this year's retained earnings.

( ) Add next year's net income minus dividends paid to this year's retained earnings.

Answer 20) Add next year's net income minus dividends paid to this year's retained earnings.

(Formulas as given earlier)

Q 21) This year Baldwin achieved an ROE of 43%. Suppose the Board of Directors

of Baldwin mandates that management take measures to increase financial Leverage

(=Assets/Equity) next year.

Assuming Sales, Profits, and Assets remain the same next year,

what effect would you expect this new Leverage policy will have on Baldwin ROE?

Answer 21) Baldwin ROE will increase since ROI = net income/equity

As leverage is asset/equity , asset remains so equity have to decrease to increase leverage and net

income remains same so roe increase

Q 22) Your Competitive Intelligence team reports that a wave of product liability lawsuits is

likely to cause Digby to pull the product Dot entirely off the

market this year. Assume Digby scraps all capacity and

inventory this round, completely writing off those assets and

escrowing the proceeds to a settlement fund, and assume these

lawsuits will have no effect on any other products of Digby or

other companies. Without Digby's product Dot how much can

the industry currently produce in the Core segment? Consider

only products primarily in the Core segment last year. Ignore

current inventories. Figures in thousands (000).

Answer 22)

(No forecast, production because question has asked on how many it can produce)

Production capacity = Sum of all products in Core segment’s capacity next round ignoring dot’s

capacity

Production capacity can be used to produce 2 the amount of product (due to second shift potential).

  • follow production analysis in courier report Q 23) Product Bam is being produced on both first and second shifts by company Baldwin. Compare the incremental cost of purchasing an additional unit of first shift capacity with the additional labor costs of producing that unit on second shift. It costs $3/unit in labor to produce Bam on first shift, second shift labor costs are 50% higher. At the current automation level of 8 it costs $38/unit of first shift capacity. Assume the only fixed costs of purchasing first shift capacity will be Depreciation on a 15 year straight line. Ignore material costs and SG&A expenses which are the same on both shifts. Which of the following statements are true? ( ) Producing units on first shift is always more profitable than second shift because second shift labor rates are higher.

the number of hours. Since productivity increase labour efficiency

increases so less people needed

The company needs 18% less people to do the same amount of work.

Q 31) Chester has a leverage of 1 This means that: (Assume leverage is calculated as

Assets/Equity) (IMPORTANT QUESTION)

( ) $1 of assets is funded with $1 of equity and $0 of debt.

( ) $1 of assets is funded with $1 of debt and $0 of equity.

( ) Assets are funded with 91% debt.

( ) Assets are funded with 91% equity

Answer 31)

This means that $1 of assets is funded with $1 of debt and $0 of equity. Equity= Assets/Equity – 1 = 1 – 1 = $0. debt = Assets/Equity – Equity = 1- $0. = $ Q 32) Midyear on July 31st, the Digby Corporation's balance sheet reported: Total Assets of $104 million Total Common Stock of $5 million Cash of $8 million Retained Earnings of $16 million. What were the Digby Corporation's total liabilities? Answer 32) Total asset = total equity and liabilities Cash is already included in assets. So , Total Asset - (Retained Earnings + Stock)] million Q 33) Digby Corporation is considering their dividend policy for this year. They are projecting a $5 profit. Given the proforma balance sheet below, what is Digby Corporation planning to pay in dividends this year. (See full question in question book) Answer 33) (This Year Retained Earnings - Last Year Retained Earnings)]mil. Answer 17$- 14$ Note, cash , inventory ,depreciation etc has no effect on giving divided. Dividend is paid out of retained earnings Q 34) Given Baldwin Corporation’s Q2 balance sheet, compute the missing balance sheet amounts: (See full question in question book) Answer 33) Current Assets [Current Assets = Cash + AR + Inv] Current Liabilities [Current Liabilities = Curr Debt + AP] Total Equity [Total Equity = Common Stock + Retained Earnings] Total Assets [Total Assets = Current Assets + Fixed Assets]

(Normal calculation of balance sheet amount as done in finance) Q 35) Digby Corporation uses the accrual method of accounting. When it sells the first unit of inventory for its product called Dast during the year, it also matches which of these expenses with that sale: ( ) The promotion budget for the Dast product. ( ) The R&D on the Dast product. ( ) The material cost and labor cost of the Dast unit. ( ) The depreciation on the Dast production line. Answer 35) The material cost and labor cost of the Dast unit , Since those are direct cost Q 36) What if last year the Andrews Corporation issued 208,000 shares at $42. per share. The effect on the balance sheet would have been: ( ) Common Stock increased $8,736,000; Retained Earnings decreased $8,736,000. ( ) Cash increased $8,736,000; Common Stock decreased $8,736,000. ( ) Cash increased $8,736,000 Common Stock increased $8,736,000. ( ) Retained Earnings increased $8,736,000; Cash increased $8,736, Answer 36) Cash increased $8,736,000 Common Stock increased $8,736,000. When equity is raised cash inflows and equity also increases Q 37) In anticipation of Digby Corporation’s new product Digle, the company purchased new plant and equipment for $27,360,000. The plant and equipment is expected to be used for 15 years, and has a planned salvage value of $0. Assuming straight-line depreciation, how much will Digle expense in depreciation next year? Answer 37) 27360000-0/15= 1824000 as PLANT value-SALVAGE VALUE/ESTIMATED LIFE YEAR Q 38) Some income or expense transactions are unusual and do not reflect the normal business of the company. These are captured in an Other (unusual income or expenses) line (or something similarly labeled) in the income statement. For example, a brokerage fee for the sale of common stock would not be a normal operating expense for a manufacturer. Which of the following transactions would also be included in the Other (unusual income or expenses) line? ( ) Build $21,800,000 in inventory. ( ) Increase Accounts Payable by $3,270,000. ( ) Sell used plant and equipment with a depreciated value of $32,700,000 for $35,970,000.

Answer 42) [(Sum period costs including 2 * Promo and 2*Sales) / (Price - material cost - labor cost)] thousand units Periodic cost includes promotion and sales so we will increase Or other method (Existing SGA + Depreciation+ Increase in SGA)/ (SP-Material cost-labor cost) Q 43) On the Income Statement, which of the following would be classified as a variable cost? ( ) Direct Labor Expense ( ) R&D Expense ( ) Promotion Expense ( ) Depreciation Expense Answer 43) Direct Labor Expense is in income statement (VC) follow income statement in courier report Q 44) Between January 1st and December 31st of 2006, Chester Corporation paid its employees $23. However, its Income Statement shows a direct labor expense of $24 million. Which of the following statements accurately explains the difference. Answer 44) Direct labor cost is the labor component of the inventory that was sold, and may include inventory produced in prior years (See income statement in courier report)

Q 45) Chester Corporation’s cash flow statement shows an increase in cash of

$1,847,357.

Which of the following transactions contributed to the cash increase? ( ) A decrease in accounts payable of $710, ( ) A decrease in accounts receivable of $330, ( ) A decrease in long term bonds of $1,154, ( ) An increase in inventory of $759,

Answer 45) A decrease in accounts receivable of $330,114 (Received cash from Debtors reduce so cash increase) Q 46) Andrews Corporation earned a profit of $22 last year. Andrews' profit would be placed in which category on the cash flow statement? ( ) Nowhere. Profits are not cash ( ) Cash flow from operations ( ) Cash flow from investing activities

( ) Cash flow from financing activities Answer 46) Cash flow from operations (Follow cash flow statement in courier report)

Q 47) Looking at the bond market summary, if Baldwin Corp. were to retire the

oldest bond early this round how much is the difference that the company will pay per $100 of face value (excluding brokerage fees)? Answer 47) No of bonds: (face value price/100) ((Oldest per bond price (close price) – face value per bond i 100= discount if negative /premium if + (follow bond summary) If value wise multiply by no of bonds [Bond Close - 100 as a percent] Check Bond Market Summary in courier report Q 48) If Chester Corp. were to buy all of it's shares outstanding at its current price, how much would it cost Chester Corp, excluding brokerage fees? Answer 48) Check Stock Market Summary in courier report (Buy back question) [Shares Outstanding * Stock Price] million Basically, (close priceno of shares) Q 49) Chester Corp. has a surplus of cash. If Chester Corp. would have used all of their cash to pay off liabilities what would their leverage have been? Answer 48) [(Total assets - cash) / equity] (see from financial summary) Q 50) Which company has the least amount of free cash flow? Answer 50) Cash flow from operation – cash flow from investing (See from financial statistics from courier report) Q 51) Which company has the most days of working capital? Answer 51) working capital/365 days , calculate for all companies and sees whose maximum ((See from financial statistics from courier report) Q 52) Chester's current book value is $21. If the company issued $10 million of their outstanding stock at last year's stock price, what would be the new book value? (Assume everything else remains constant. Answer 52) (total equity exisitng+(10millionclosingprice)/ 10million+no of old shares ) (From stock summary in courier report Q 53) Digby Corp. is planning to purchase 50 units of plant capacity for each product line. How much more in depreciation would the company have to spend with this purchase? Answer 53) Automation cost: [50 * (6 + (4 * automation)) / 15] for all products So do individually for each product line since automation will be different

SP-(VC/786)=contribution per unit 786 = break even units VC: find from financial statistics in courier report Period cost: 4189 Period cost/contribution per unit=786 ignore interest expense Q 62) A market condition in which purchasers are so few that the actions of any one of them can materially affect price and the costs that competitors must pay. ( ) Monopoly : one seller many buyer ( ) Monopsony : many seller one buyer ( ) Oligopoly : few seller many buyer ( ) Oligopsony : many seller few buyer

Ans 62) Oligopsony

Q 63) Refer to the HR Reports in the Inquirer. Through past investments in recruiting and training Baldwin has obtained a productivity index of 109%. This means that Baldwin's labor costs would be increased by 9% if it did not have these productivity improvements. This is a competitive advantage that Baldwin can sustain or even widen further if its competitors have no HR initiatives. Now, refer to the Income Statement in Baldwin's Annual Report. How much did Baldwin's productivity improvements save it in direct labor costs (in thousands) last year? Ans 63) [Direct labor * productivity index over 100 (9 % MULTIPLIED AND THAT MUCH LABOUR COST SAVED) (Refer to courier report income statement) Q 64) The Chester's balance sheet has $76,011,000 in equity. Further, the company is expecting $3,000,000 in net income next year. Assuming no dividends are paid and no stock is issued, what would their Book Value be next year? Ans 64) [( Total Equity + 3 million) / shares outstanding] , shares outstanding in stock summary in courier report Q 65) Of Chester Corporation’s products, which earned the highest Net Margin as a percentage of its sales? Ans 65) Normal calculate NM/SALES CALCUALATE (From income statement in courier report) Q 66) The Baldwin's workforce complement will grow by 10% (rounded to the nearest person) next year. Ignoring downsizing from automating, what would their total recruiting cost be? Assume Baldwin spends the same amount extra above the $1,000 recruiting base as they did last year.

ANS 66) Total employee last year = workforce needed complement + new employees ( see HR

summary in courier report)

Number of employees this year = 501*(1+10%) = 551

Increase in employee = current employees- employees last year

Amount spend on recruitment = recruiting spend + increase in recruiting spend (1000 given in

question)*increase in employee

i [110% of last year workforce * (1000 + extra recruiting expense)] (if total recruiting spend asked)

Follow HR summary report

Q 67) The Digby company will continue to train their existing workforce at their current level to help

reduce turnover and improve productivity next year. Employee training costs $20 per hour. How much

would their training costs per employee be to the nearest dollar?

Ans 67) Training cost: [Training hours * $20 per hour] (Follow hr summary in courier report

for training hours)

Q 68) If Digby were to increase their workforce complement by 10% (rounded to the

nearest person), how much will the company spend on benefits next year?

Answer: I don’t know

Q 69) Chester Corp. is downsizing the size of their workforce by 10% (to the nearest person) next year from various strategic initiatives. How much will the company pay in separation costs if each worker receives $5,000 when separated?

Ans 69) [Complement * decrease percentage * $5,000]

Total employee last year(Complement) = workforce needed complement + new employees ( see HR

summary in courier report)

Q 70) The Digby company will sell 100 units (x1000) of capacity from their Dim product line. Each unit of capacity is worth $6 plus $4 per automation rating. The Digby company will sell the capacity for 35% off. How much do they receive when the capacity is sold?

Ans 70) Total Number of Units: 100*1000=100000 units

Each unit of capacity is worth =$6+4$=$

Selling price=@35% off then S is 10*(1-0) =$6.

When capacity will be sold they will receive= $6*100000=$

Closing cash (9749+8000=17749)

Logic for this question: Moslty getting rid of the entire inventory because cash is coming and in all

cash is going

Q 76) City is a product of the Chester company which is primarily in the Nano segment, but is

also sold in another segment. Chester starts to create their sales forecast by assuming all

policies (R&D, Marketing, and Production) for all competitors are equal this year over last.

For this question assume that all 708 of units of City are sold in the Nano segment. If the

competitive environment remains unchanged what will be the City product’s demand next

year (in 000’s)?

Ans 76) last year’s sales * growth rate (Given 708b units , find growth rate from courier report)

Q 77) Which of these products below is inside the positioning fine cut of 2 segments at year

end?

Ans 77) With the help of perceptual see the products which are in the centre of the circle in different

segment (See perceptual in courier report)

Q 78) Investing $2,000,000 in TQM's Channel Support Systems initiative will at a minimum

increase demand for your products 1% in this and in all future rounds. (Refer to the TQM

Initiative worksheet in the CompXM Decisions menu.) Looking at the Round 0 Inquirer for

Andrews, last year's sales were $179,789,193. Assuming similar sales next year, the 1%

increase in demand will provide $3,056,416 of additional revenue. With the overall

contribution margin of 34%, after direct costs this revenue will add $1,057,520 to the bottom

line. For simplicity, assume that the demand increase and margins will remain at last year's

levels. How long will it take to achieve payback on the initial $2,000,000 TQM investment,

rounded to the nearest month? IMPORTANT QUESTION

Ans 78) [12 * investment / (margin * sales increase)] months

(12* $2,000,000)/(34%* $3,056,416)

Q 79) Which product had the lowest combined per unit Material and Labor costs at the end of

December, 2006 in the Core market segment?

Ans 79) see production analysis in courier report and add material cost+labour cost

Q 80) In order to sell a product at a profit the product must be priced higher than the total of

what it costs you to build the unit, plus period expenses, and plus overhead.

At the end of last year the broad cost leader Chester had an Elite product Cozy. Use the

Inquirer's Production Analysis to find Cozy's production cost, (labor+materials). Exclude

possible inventory carrying costs. Assume period expenses and overhead total 1/2 of their

production cost. What is the minimum price the product could have been sold for to cover

the unit cost, period expenses, and overhead?

Ans 80) [(Material + labor )* 1] (see production analysis in courier report) (1 because overhead is

also there of about ½ of direct labour+direct material)

Q 81) How big will the market be in four years?

Ans 81) industry demand (1+g)^4 for each segment and see

Q 82) It is January 2nd. Senior management of Digby meets to determine their investment

plan for the year. They decide to fully fund a plant and equipment purchase by issuing 50,

shares of stock plus a new bond issue. The CFO happily notes this will raise their Leverage

(=assets/equity) to a new target of 3. Assume the stock can be issued at yesterday’s stock

price ($27). Which of the following statements are true? Check all that apply. (See full

question in courier report)

Ans 82) option 1 & 5 confirm

Digby will issue stock totaling $1,350,

Long term debt will increase from $66,467,200 to $67,817,700 (because equity of 67817700 added)

For working capital and asset check courier report

Q 83) Last year the Chester company increased their equity. In 2007 their equity was $37,669.

Last year (2008) it increased to $41,399.

What are causes of change in equity? Check all that apply (See full question in courier report)

Ans 83)

 A change of plant and equipment of$10,310.

 A change in cash of -$4,845.

 Plant Improvements of $10,

 Issue and retirement of stock.

Q 84) Review the Inquirer to determine Digby’s current strategy. Where will they seek a

competitive advantage? From the following list, select the top five sources of competitive

advantage that Digby would be most likely to pursue. (See full question in courier report)

Ans 84) Don’t know

But mostly: (Not sure)

 Increase demand through TQM initiatives

 Seek excellent product designs, high awareness, and high accessibility

 Seek high automation levels

 Accept lower plant utilization and higher capacities to insure sufficient capacity is available to

meet demand

 Reduce cost of goods through TQM initiatives

Q 85) Company Baldwin invested $45,300,000 in plant and equipment last year. The plant

investment was funded with bonds at a face value of $24,178,667 at 13% interest, and equity

of $21,121,333. Depreciation is 15 years straight line. For this transaction alone which of the

following statements are true?

Ans 85)

 On the Balance sheet, Plant & Equipment increased by $45,300,000.

 On the Balance sheet, Long Term Debt changed by $24,178,

 Depreciation increased by $3,020,000.

Sales and Promo budget next year will increase demand--and aversely affect your sales.

Examine the profitability of this scenario to Chester. For simplicity, assume the following:

  • Price remains unchanged at $20.
  • Variable costs reported on the Production Analysis Report remain constant: material stays

at $6/unit and labor at $2/unit.

  • Promo and Sales budgets double from $950,000 and $1,000,000 respectively.
  • No inventory carry costs. –

All other period costs are fixed and remain the same as reported on last year's Annual

Report. Estimate how many units of Cozy would have to be sold to reach break even.

Ans 89)

[(Sum period costs including 2 * Promo and 2*Sales) / (Price - material cost - labor cost)] thousand

units

Similar question done earlier

Q 90) Chester has a new design for their product Camp next round that can reduce their

material cost of producing units from $10 to $9. For simplicity:

  • Use current labor costs of $5.
  • Assume all period costs as reported on Chester's Income Statement (Annual Rpt Pg 2) will

remain the same.

Determine how many units (000) of product Camp would need to be sold next round to break

even on the product

Ans 90) deprecation+sga/list price-material cost(new)-labour cost (segment report+financial

summary in courier report)

Similar question done earlier

NOTES

1) Break even= period cost/SP-LABOUR-MATERIALCOST

PERIOD COST = (Depreciation+SGA) Contribution margin per unit = current price –new material cost- labour cost Sometimes period cost also takes into account of selling & promotion expense of that period 2) (Face value bond /100) = Number of bonds (Refer bond summary) Cash to retire= (No of bonds *closing price)+brokerage fees

3) Leverage: Total assets/Total Equity

4) Demand forecast: Industry deamd * growth * apna ccs/total css

  1. retained earning+net income-dividends = current retained earnings
  2. Dividend yield: d0(1+g)/p

7) CA-CL = Working capital

8) [Working Capital/365] = working capital days

9) Free Cash Flow = Cash Flow From Operations - Capital Expenditures or Cash flow from

operations - cash flows from investing

10)Productivity refers to the amount of work that has been completed within a specific time limit.

Productivity is calculated by the total amount of work done with the number of hours. Since

productivity increase labour efficiency increases so less people needed , so always productivity

increase , less labour needed

11)Depreciation = PLANT value -SALVAGE VALUE/ESTIMATED LIFE YEAR 12)Contribution Margin [Contribution Margin = Sales- Var Costs] Net Margin [Net Margin = Sales- (Var Costs + Period Cost)] Net Profit [Net Profit = EBIT - (Interst + Taxes)] 13)Break even: [(Sum period costs including 2 * Promo and 2Sales) / (Price - material cost - labor cost)] thousand units 14)) Automation cost: [units (6 + (4 * automation)) / 15]

Important topics for BOD

 Break even

 Bond retire

 Leverage

 FORECAST DEMAND

 Retained earnings

 ROI sums

 Free cash flow

 Book value related sums in equity

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CompXM Capsim Examination Notes

Course: Post Graduate Diploma in Management

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BOD QUIZ
Q1) Rank the following companies from high to low cumulative profit, (in descending order, 1=highest,
4=lowest).
Answer 1) From Selected Financial Statistic see cumulative profit and arrange in the order given (Need
to follow courier report given)
Q2) Chester has a new design for their product Cell next round that can reduce their material cost of
producing units from $8.13 to $7.32. Chester passes on half of all cost savings by cutting the current
price to customers. For simplicity:
- Use current labor costs of $4.02 - Assume all period costs as reported on Chester's Income Statement
(Annual Rpt Pg 2) will remain the same.
Determine how many units (000) of product Cell would need to be sold next round to break even on
the product.
ANS 2) Follow courier report
Break even= period cost/current price –new material cost- labour cost
Material and labour cost given in question
Period cost find from income statement or Calculate from financial summary (Depreciation+SGA)
Current price = list price of product cell from courier report
New price = 19 - (8.14-7.32)/2 = $18.59
Contribution margin per unit = current price –new material cost- labour cost
Breakeven unit = period cost/contribution , margin
Q3) When you accepted the CEO position for company Andrews, you discovered that you had
inherited a profitable company with a leading market share. Your contract has ended, and you
have accepted a new position as CEO of another company. The board has asked you to prepare a
briefing for the incoming CEO that will replace you. In good essay form, address the following
questions:
1. What have you done during your tenure to create or enhance a competitive advantage?
2. What major threats does the company face today?
3. What would be your vision for Andrews four years from now?
(Answer 3) subjective question, follow courier report , do give ROS,ROI etc figures while writing (No
wrong or right answer for this)
Q4) Assuming no brokerage fees, calculate the amount of cash needed to retire Baldwin's
11.1S2011 bond early
Answer 4) 11.1S2011 this means year 2011 bond at 11.1% (Look for this bond in that summary)
(Face value bond /100) = Number of bonds (Refer bond summary)

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