Part I. Multiple Choice (24 points)
Executive budget
Budget call
Legislative action
Budget review
Agency requests
3
Shows how profits change with production volume
Shows the profits of each of the organization’s major mission-related activities
Shows program expenses and supporting-services expenses separately
Shows expenses incurred by each managerial unit
The manager of a science museum is trying to decide whether or not to install a new exhibit. The exhibit would entail a single up-front installation cost and would generate admissions revenue in each of the ten years of its estimated useful lifetime. The
amount of revenue is expected to vary from year to year.
An international relief organization has received five-year donor pledge, whereby the donor will donate the same amount each year for five years. The manager plans to invest the donations as they are received, and wants to know how much they will be
worth at the end of year five.
The manager of a soup kitchen is trying to decide which of two refrigerators is more cost-effective. One refrigerator has a higher purchase price, lower annual energy costs, and a longer expected useful lifetime than the other. Otherwise the two refrigerators
are identical.
Which method should not be used because it sometimes generates misleading answers?
Part II. Analytical Problems (42 points)
Machine A
Year Cash outflows Cash inflows
Machine B
Year Cash outflows Cash inflows
0 2,000,000 1 0 2 0 3 0 4 100,000 5 100,000
0 700,000 750,000 800,000 800,000 850,000
0 1,500,000 1 0 2 0 3 100,000 4 200,000 5 200,000
0 700,000 700,000 750,000 750,000 800,000
Part III. Budget Preparation (34 points)
Atlantic Aquarium is a small, three-year-old, not-for-profit aquarium. As the aquarium’s financial manager, you are responsible for preparing an annual operating budget and a semiannual cash budget for fiscal year 2010, which begins on January 1, 2010. (Semiannual means your cash budget must separately show the first half of the year and the second half of the year in side-by-side columns. You do NOT need to include a third column showing the annual total.)
In FY 2010, an estimated 100,000 visitors will visit the aquarium, spread evenly throughout the year. Admissions prices are $10 for general admission and $5 for children and senior citizens. You expect 60% of the visitors to pay the general admission price and the rest to qualify for the discounted price. In addition, you expect the aquarium to earn a $300,000 research grant and $100,000 in contributions. The research grant will be received in January. The contributions will be received evenly throughout the year. The aquarium will begin FY 2010 with $12,000 in cash.
The aquarium’s employees will earn annual salaries and benefits totaling $400,000, to be paid in twelve equal monthly installments during the year. The aquarium plans to pay for $200,000 worth of fish food and other supplies in January and use them evenly throughout the year. The aquarium will hold a special event in December at a cost of $100,000; the Aquarium will pay half of this amount in December and half in January of FY 2011. Utilities will cost $50,000 and will be used and paid for evenly throughout the year. The aquarium expects to receive and pay for $300,000 worth of new equipment in January. The equipment is expected to last 10 years and to have no salvage value. The aquarium owns its own building, which was purchased and renovated three years ago at a cost of $5 million. You estimate that the building has a total useful lifetime of 25 years and no salvage value. The aquarium has no outstanding loans and no plans to borrow.
(Please do not use this space)
8
Please prepare your annual operating budget on this page.
Please prepare your semiannual cash budget on this page.
10
NEW YORK UNIVERSITY
ROBERT F. WAGNER GRADUATE SCHOOL OF PUBLIC SERVICE P11.1021: Financial Management Midterm Examination
Professors Charles, Forsythe and Rose Spring 2009
SOLUTIONS
Name: ________________________________________________
Student ID: ____________________________________________
Section (circle one): Wednesday 12:30 pm Forsythe
Wednesday 6:45 pm Rose
Thursday 12:30 pm Rose
Thursday 6:45 pm Charles
Instructions:
1) Please turn off your cell phone.
2) Print your initials at the top of each page.
3) You may use one page of notes. Please put away all other materials.
4) You may use, but not share, a calculator. Remember to clear it between calculations!
5) Write clearly, show your work, and circle your final answer to each question.
6) When you are done, hand in your exam and your page of notes.
Good luck!
=============================================================== This section is for graders:
2 _____________ 3 _____________ 4 _____________ 5 _____________
6 _____________ 7 _____________ 9 _____________ 10 _____________
Total Exam Points _____________ x 40% of Course Grade = Course Points _____________
1
Part I. Multiple Choice (24 points)
Subtract 1 point for each incorrect answer [minimum points = 0]
2
Subtract 1 point for each incorrect answer [minimum points = 0]
4 Executive budget 1 Budget call
5 Legislative action 3 Budget review
2 Agency requests
Subtract 1/2 point for each incorrect number; if all numbers are incorrect, 0 points.
3
b [1] Shows how profits change with production volume
d [1] Shows the profits of each of the organization’s major mission-related activities
a [1] Shows program expenses and supporting-services expenses separately
e [1] Shows expenses incurred by each managerial unit
The manager of a science museum is trying to decide whether or not to install a new exhibit. The exhibit would entail a single up-front installation cost and would generate admissions revenue in each of the ten years of its estimated useful lifetime. The amount of revenue is expected to vary from year to year. e [1]
An international relief organization has received five-year donor pledge, whereby the donor will donate the same amount each year for five years. The manager plans to invest the donations as they are received, and wants to know how much they will be worth at the end of year five. b [1]
The manager of a soup kitchen is trying to decide which of two refrigerators is more cost-effective. One refrigerator has a higher purchase price, lower annual energy costs, and a longer expected useful lifetime than the other. Otherwise the two refrigerators are identical. a [1]
Which method should not be used because it sometimes generates misleading answers? c [1]
4
Part II. Analytical Problems (42 points)
nper 14 [1] pmt 250 [1] fv 10000 [1]
PV = ($9,435.20) [2] OK if both pmt and fv are negative and solution is positive
Subtract ½ if signs on pmt and fv are different, even if solution is correct Subtract 2 if interest rates are reversed (solution = 10,584.55)
=PV(6%/2,7*2,250,10000) [1]
OK if numbers are wrong, but consistent with part a
OK if rate=.06/2, .03, or 3% and nper=14. Subtract ½ for each error (no % or decimal, 250 and 10000 have different signs, comma in 10000, etc.) Min=0
nper 36 [1] fv 5,000 [1/2]
pmt type=1
monthly rate annual rate
(120) [1/2]
0.78% [1] 9.31% [1]
OK if monthly rate is not reported but annual rate is correct
Subtract ½ if signs on pmt and fv are shown as same, even if solution is correct Subtract ½ for rounding errors (solution = 9.36% or 9.4%)
Subtract 1 for forgetting type=1 (solution = 9.82%) Subtract 2 if PMT=(120)*12 & nper=3 (solution = 7.49%)
nper 36 fv 5,000
rate 4%/12 [1] type = 1
pmt ($130.52) [2]
5
Subtract 1 for forgetting type=1 (solution=130.95)
Subtract 1.5 if rate=4% and nper=3 (solution = 128.34) but subtract 2 if this solution is not divided by 12 (annual solution = 1,540.14)
=PMT(4%/12,3*12,,5000,1) [1]
OK if numbers are wrong, but consistent with part b
Subtract ½ for each error (rounding off to .33%, no placeholder comma, etc.) Min = 0
FC 4000 [1] FR 20000 [1] VC 450 [1] Q 40 [1]
VR = (FC-FR)/Q + VC [1]
VR = $50 [2]
OK if numbers are plugged directly into formula instead of shown separately. Subtract ½ if answer is 50 students instead of $50.
Machine A Machine B
Year Cash outflows Cash inflows Net cash flow Year Cash outflows Cash inflows Net cash flow
0 2,000,000 1 0 2 0 3 0 4 100,000 5 100,000
0 700,000 750,000 800,000 800,000 850,000
(2,000,000) 0 700,000 1 750,000 2 800,000 3 700,000 4 750,000 5
1,500,000 0 0
100,000 200,000 200,000
0 700,000 700,000 750,000 750,000 800,000
(1,500,000) 700,000 700,000 650,000 550,000 600,000
[2] total for showing correct net cash flows Subtract 1/2 pt for each error (min=0)
[2] total for showing correct net cash flows Subtract 1/2 pt for each error (min=0)
NPV = 1,201,545 [2] NPV = 1,285,684 [2] Give full credit for wrong NPVs if consistent with erroneous net cash flows shown.
6
Subtract ½ for each error (-2000000 inside formula, commas in numbers, etc.) Minimum = 0. OK if numbers are wrong but consistent with part a.
volume mix price Original budget 80,000 0.60 1.50
80,000 0.40 1.00
Flex budget 80,000 0.60 1.50 80,000 0.40 1.00
72,000 32,000 |
104,000
72,000 32,000 |
104,000 |
[1]
VMA budget
Actual revenue
Volume variance Mix variance Price variance Total variance
80,000 0.50 80,000 0.50
80,000 0.50 80,000 0.50
0
(4,000) U 10,000 F 6,000 F
1.50 60,000 1.00 40,000
100,000 [1]
1.75 70,000 1.00 40,000
110,000 [1] [1]
[1] [1] [1]
Subtract 1 if mix variance is labeled quantity variance Subtract 2 if signs and/or U/F are reversed
Subtract 3 if volume is not shown as total number of trips and solutions are not correct
Subtract 1 if volume is not shown as total number of trips but solutions are correct (and subtract another 1 if, for this reason, volume and mix variances are flipped)
Subtract 2 for error in mix Subtract 2 for error in price
The transit authority earned more revenue than expected [1] because they raised the subway fare [1], and despite the fact that a smaller share of riders rode the (higher-priced) subway and a larger share rode the (lower-priced) bus [1]. Subtract ½ for saying that subway ridership declined without specifying that total ridership remained the same, or for otherwise being vague about why the mix variance is unfavorable.)
7
Part III. Budget Preparation (34 points)
Atlantic Aquarium is a small, three-year-old, not-for-profit aquarium. As the aquarium’s financial manager, you are responsible for preparing an annual operating budget and a semiannual cash budget for fiscal year 2010, which begins on January 1, 2010. (Semiannual means your cash budget must separately show the first half of the year and the second half of the year in side-by-side columns. You do NOT need to include a third column showing the annual total.)
In FY 2010, an estimated 100,000 visitors will visit the aquarium, spread evenly throughout the year. Admissions prices are $10 for general admission and $5 for children and senior citizens. You expect 60% of the visitors to pay the general admission price and the rest to qualify for the discounted price. In addition, you expect the aquarium to earn a $300,000 research grant and $100,000 in contributions. The research grant will be received in January. The contributions will be received evenly throughout the year. The aquarium will begin FY 2010 with $12,000 in cash.
The aquarium’s employees will earn annual salaries and benefits totaling $400,000, to be paid in twelve equal monthly installments during the year. The aquarium plans to pay for $200,000 worth of fish food and other supplies in January and use them evenly throughout the year. The aquarium will hold a special event in December at a cost of $100,000; the Aquarium will pay half of this amount in December and half in January of FY 2011. Utilities will cost $50,000 and will be used and paid for evenly throughout the year. The aquarium expects to receive and pay for $300,000 worth of new equipment in January. The equipment is expected to last 10 years and to have no salvage value. The aquarium owns its own building, which was purchased and renovated three years ago at a cost of $5 million. You estimate that the building has a total useful lifetime of 25 years and no salvage value. The aquarium has no outstanding loans and no plans to borrow.
(Please do not use this space)
8
Please prepare your annual operating budget on this page.
0.5 pt for complete heading
Atlantic Aquarium Annual operating budget FY 2010
0.5 Revenues and support Admissions
Grants Contributions
0.5 Expenses
Salaries and benefits Supplies
Special events Utilities Depreciation
0.5 Profit
800,000 300,000 100,000 1,200,000
400,000 200,000 100,000 50,000 230,000 980,000 220,000
2 1 1
1 1 1 1 2
1 if = rev – exp even if wrong #
Total = 13 points
Do not give credit for fundamentally wrong formatting (e.g. “ending balance” instead of “profit”) but do give credit for acceptable alternatives (e.g. “surplus”)
Subtract 1/2 point for fundamentally wrong labels (e.g. “equipment” instead of “depreciation”) but not for minor errors (e.g. “salaries” instead of “salaries and benefits”)
Subtract ½ for denoting profit with an “F”
Subtract 1 for showing capital investment in expenses
Subtract 1 if total revenue is not equal to the sum of all revenue Subtract 1 if total expenses is not equal to the sum of all expenses
9
Please prepare your semiannual cash budget on this page.
0.5 pt for complete heading
Atlantic Aquarium Semiannual cash budget FY 2010
0.5 Beginning balance 0.5 Cash receipts
Admissions Grants Contributions
Total cash receipts 0.5 Available cash
0.5 Cash payments Salaries and benefits Supplies
Special events Utilities
Total cash payments 0.5 Subtotal
0.5 Investment
0.5 Ending balance
First half 12,000
400,000 300,000 50,000 750,000 762,000
200,000 200,000 0 25,000 425,000 337,000
(300,000) 37,000
Second half 37,000
400,000 0 50,000 450,000 487,000
200,000 0 50,000 25,000 275,000 212,000 0 212,000
2* if 2nd half bb = 1st half eb, even if wrong #
1 2 1
1 if = bb + cr, even if wrong #
1 2 2 1
1 if = ac – cp, even if wrong # 2
1 if = sub + inv, even if wrong #
Total = 21 points
* Each of these points refers to total credit for both numbers in the row. If one number is right and one is wrong, assign half this amount.
Do not give credit for fundamentally wrong formatting (e.g. “expenses” instead of “payments”) But do give credit for acceptable alternatives (e.g. “disbursements”)
Subtract 2 points for including depreciation
Subtract 1 point if investment/equipment is shown in the cash payment section Subtract 0.5 points for not showing the investment as a negative value Subtract 0.5 points for showing payments as negative values
Subtract 1 point for each inclusion of incorrect items (e.g. “repayment of loan”)
10
Wagner Graduate School of Public Service
Financial Management of Public, Nonprofit, and Health Organizations (P11.1021)
Waiver Exam
The Waiver Exam for P11.1021 has two modules:
Module I reflects the material in the first half of the course. It is most similar to material in a Managerial Accounting class, although it also has elements of Corporate Finance. The exam should take 1 hour but we will allow you 1.5 hours if needed.
Module II reflects the material in the second half of the course. It is most similar to the material from a course in Financial Accounting, although it also contains information typically found in courses on Government Accounting and Not-for-Profit Accounting. The exam should take 1.5 hours, including reviewing the financial statements that are part of the exam, but you may take 2 hours if needed.
You must earn a grade of 70 out of 100 or better to pass a module. If your grade on a waiver exam module is below 70, we believe that you would benefit substantially from taking the course. The P11.1021 course is the foundation for the other courses in the finance specialization. Thus, students who want to pursue the finance specialization should consider taking P11.1021 if your grade on a module on the waiver exam is less than 85.
If you pass both modules, you may waive P11.1021.
If you pass Module I only, then you may take the second half of P11.1021 as a two-credit directed reading in lieu of taking the full P11.1021 course. In this case you will be required to submit all assignments from the second half of the course, and to take the final exam.
If you pass Module II only, you may take the first half of P11.1021 as a two-credit directed reading, in lieu of taking the full course. All homework and assignments for the first half of P11.1021 are required, and the P11.1021 midterm exam will serve as the final exam for the two-credit course.
You may sit for either Module I or Module II, or both. If you choose to sit for only one of the two Modules, you forfeit the opportunity to sit for the other module at a later time. A failed waiver exam module may not be retaken. If you choose to sit for both, it must be done in one sitting, with a brief break between the two modules.
You may bring a financial calculator with time value of money functions to the exam and are encouraged to do so.
To prepare for the exam, students are encouraged to review the syllabus for the course (available on the Wagner website) and to review the course textbook, which is available at the NYU Professional Bookstore on LaGuardia Place or at the NYU Bobst Library.
1021_Waiver_ModuleII_PracticeExam_and_Solution1 1021_Waiver_ModuleI_PracticeExam_and_Solution1 1021_Waiver_Module_II_Practice_Exam_Financial_Statements1