296 fall 2012.pdf
TRANSCRIPT
HP Printer Case
Management in Engineering
November 14 2012 Dr Abbott Weiss Senior Lecturer
What do you recommend HP should do
Universal power supply raquo Yes raquo No
Why
111712 2
Mfg Eng
MktgController
HP managers around the table
Prod Design 111712 3
Measurements and Behavior
Five functional managers are discussed in the case
a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution
Distribution
How are they measured How does it influence their views on the universal power supply
111712 4
Universal Power Supply - Costs amp Benefits
Costs Benefits
higher cost per unit = $50 lengthen Break-Even Time (BET) problems allocating supply
increase forecast accuracy fewer stockouts fewer lost sales less safety stock required fewer expedited shipments eliminates re-configuration work
111712 5
Key Consequences of this Decision
111712 6
Probability of Worldwide Demand
HP Network Printer Demand Worldwide
60
50
40
30
20
10
0
50
Average demand = 25000 per month Average forecast error = 40 at maturity
31 31
16 16
1 2
7 7
2 1
- 10000 20000 30000 40000 50000 60000
Monthly Demand in Units
111712 7
Prob
abili
ty o
f Mon
thly
Dem
and
Cumulative Demand Probability Curve
HP Network Printer Demand - Cumulative Probability
1 2 7
16
31
50
69
84
93 98 99
0
20
40
60
80
100
120
- 10000 20000 30000 40000 50000 60000
at least this Monthly Demand Worldwide
Cum
ulat
ive
Prob
abili
ty o
f Dem
and
Average demand = 25000 per month Average forecast error = 40 at maturity
2 Standard Deviations gives 98 coverage of possible forecast maxima
111712 8
What happens to forecast error if we have a universal power supply
111712 9
What happens to forecast error if we have a universal power supply
The variability of the forecast errors would combine as follows
21 2 2
2 1 2 σρσσσσ ++= new
where σ
12 are the individual product forecast error standard deviations ρ is the correlation coefficient of the two errors
Letrsquos say your individual forecast value is 10 and σ 12 both equal 04 (40) If the errors are completely
uncorrelated (ρ =0) then the standard deviation of the forecast error of the combined product stream would be 057 or 28 of the combined forecast of 20
If people tend to buy one product or the other and a drop in one always occurs with a rise in the other (perfect negative correlation ρ = -1) then the new standard deviation would be 00
If say world events always cause similar errors in both products (perfect positive correlation ρ = 1) then the new standard deviation would be 080 or 40 of the combined forecast
So you can only get better by combining products
111712 10
What happens to forecast error if we have a universal power supply
The variability of the forecast errors would combine as follows
21 2 2
2 1 2 σρσσσσ ++= new
At start-up the individual errors are 80+ If the errors tend to offset each other then the combined error will be closer to 40
where σ
12 are the individual product forecast error standard deviations ρ is the correlation coefficient of the two errors
Letrsquos say your individual forecast value is 10 and σ 12 both equal 04 (40) If the errors are completely
uncorrelated (ρ =0) then the standard deviation of the forecast error of the combined product stream would be 057 or 28 of the combined forecast of 20
If people tend to buy one product or the other and a drop in one always occurs with a rise in the other (perfect negative correlation ρ = -1) then the new standard deviation would be 00
If say world events always cause similar errors in both products (perfect positive correlation ρ = 1) then the new standard deviation would be 080 or 40 of the combined forecast
So you can only get better by combining products At maturity the individual errors are ~40 If the errors tend to offset each other then the combined error will be closer to 20
111712 11
Key Learnings for Management in Engineering
Engineeringdesign decisions have major impact on operations and customer service
Consider all the costs especially when things do not go according to plan
Measurements and rewards change behavior influence how your company operates
111712 12
Key Takeaways
1 Forecasts are always wrong 2 How wrong (a) a lot or (b) an awful lot 3 Challenge for international markets power localization etc 4 Global supply lines mean long lead times aggravating the problem 5 Design can have a major impact on supply chain flexibility 6 Hard costs will lead you to specialized products Inventory
benefits can be very large but are Soft costs 7 Who is measured on inventory 8 Hidden costs are often invisible or occur much later than the key
decisions which can create them 9 Do the math Think again about what could change the answer 10 Remember that this is one of many decisions over time
111712 14
Key Learnings for Supply Chain Management
Value of postponement
Organizational roles and measurements
International dimensions
111712 15
Value of Postponement HP Network Printer Demand Worldwide
60
40
30Reduced cycle times 50
20
0 - 10000 20000 30000 40000 50000 60000
50
Average demand = 25000 per month Average forecast error = 40 at maturity
31 31
16 16
1 2
7 7
2 1
Monthly Demand in Units Lower forecast errors 10
Smaller safety stocksfewer stockouts Lower obsolescence costs Reduced penalty costsprofit drains
Prob
abili
ty o
f Mon
thly
Dem
and
raquo Reconfiguration and extra handling raquo Premium transportation raquo Prevent lost revenue and profit raquo Prevent loss of market share
Changes during product life cycle
111712 16
Organizational roles and Measurements
Marketing EngineeringDesignProduct Management Finance Manufacturing Procurement LogisticsDistribution General Managers Supplierpartner
111712 17
Organizational roles and Measurements
Accountability BET (Break-Even Time)
How to measure Who pays
Effects of regional PampLs
Costs raquo Product cost raquo Transportation raquo Inventory raquo Obsolescence raquo Stockouts
Net profit
111712 18
International Aspects
Product variety Distance and time for supply Power and regulatory requirements Labeling packaging Forecast complexities Supplier inflexibility Accountability and measurement
111712 19
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Strategic Planning of RampD
- 2 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Outline
Risk Factors in RampD
Strategic Focus
Stage-Gate Process
Technology Choice Case
- 3 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Company Births and Deaths
1995 594000 births amp 497000 deaths
2002 580900 births amp 576200 deaths
2005 670058 births amp 599333 deaths
SBA Office of Advocacy
- 4 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attrition Rate of New-Product Ideas
For every 11 serious ideas 3 enter development 13 are launched 1 succeeds
- 5 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attempts to Start New Business
One success in ten
The odds are much poorer for new ideas
- 6 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Business Plan Funnel
Business Plan Received (600) Listen to presentation (60)
Visit (20) Due Diligence Negotiation (12)
Investment (3) Brookwood Partners
- 7 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Causes of New Product Failure
0
5
10
15
20
25
30
35
40
45
Inadequate MarketAnalysisProduct Problems orDefectsLack of EffectiveMarketing EffortHigher Costs thanAnticipatedCompetitive Strength orReactionPoor Timing of Initiative
Technical or ProductionProblemsAll Other Causes
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
What do you recommend HP should do
Universal power supply raquo Yes raquo No
Why
111712 2
Mfg Eng
MktgController
HP managers around the table
Prod Design 111712 3
Measurements and Behavior
Five functional managers are discussed in the case
a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution
Distribution
How are they measured How does it influence their views on the universal power supply
111712 4
Universal Power Supply - Costs amp Benefits
Costs Benefits
higher cost per unit = $50 lengthen Break-Even Time (BET) problems allocating supply
increase forecast accuracy fewer stockouts fewer lost sales less safety stock required fewer expedited shipments eliminates re-configuration work
111712 5
Key Consequences of this Decision
111712 6
Probability of Worldwide Demand
HP Network Printer Demand Worldwide
60
50
40
30
20
10
0
50
Average demand = 25000 per month Average forecast error = 40 at maturity
31 31
16 16
1 2
7 7
2 1
- 10000 20000 30000 40000 50000 60000
Monthly Demand in Units
111712 7
Prob
abili
ty o
f Mon
thly
Dem
and
Cumulative Demand Probability Curve
HP Network Printer Demand - Cumulative Probability
1 2 7
16
31
50
69
84
93 98 99
0
20
40
60
80
100
120
- 10000 20000 30000 40000 50000 60000
at least this Monthly Demand Worldwide
Cum
ulat
ive
Prob
abili
ty o
f Dem
and
Average demand = 25000 per month Average forecast error = 40 at maturity
2 Standard Deviations gives 98 coverage of possible forecast maxima
111712 8
What happens to forecast error if we have a universal power supply
111712 9
What happens to forecast error if we have a universal power supply
The variability of the forecast errors would combine as follows
21 2 2
2 1 2 σρσσσσ ++= new
where σ
12 are the individual product forecast error standard deviations ρ is the correlation coefficient of the two errors
Letrsquos say your individual forecast value is 10 and σ 12 both equal 04 (40) If the errors are completely
uncorrelated (ρ =0) then the standard deviation of the forecast error of the combined product stream would be 057 or 28 of the combined forecast of 20
If people tend to buy one product or the other and a drop in one always occurs with a rise in the other (perfect negative correlation ρ = -1) then the new standard deviation would be 00
If say world events always cause similar errors in both products (perfect positive correlation ρ = 1) then the new standard deviation would be 080 or 40 of the combined forecast
So you can only get better by combining products
111712 10
What happens to forecast error if we have a universal power supply
The variability of the forecast errors would combine as follows
21 2 2
2 1 2 σρσσσσ ++= new
At start-up the individual errors are 80+ If the errors tend to offset each other then the combined error will be closer to 40
where σ
12 are the individual product forecast error standard deviations ρ is the correlation coefficient of the two errors
Letrsquos say your individual forecast value is 10 and σ 12 both equal 04 (40) If the errors are completely
uncorrelated (ρ =0) then the standard deviation of the forecast error of the combined product stream would be 057 or 28 of the combined forecast of 20
If people tend to buy one product or the other and a drop in one always occurs with a rise in the other (perfect negative correlation ρ = -1) then the new standard deviation would be 00
If say world events always cause similar errors in both products (perfect positive correlation ρ = 1) then the new standard deviation would be 080 or 40 of the combined forecast
So you can only get better by combining products At maturity the individual errors are ~40 If the errors tend to offset each other then the combined error will be closer to 20
111712 11
Key Learnings for Management in Engineering
Engineeringdesign decisions have major impact on operations and customer service
Consider all the costs especially when things do not go according to plan
Measurements and rewards change behavior influence how your company operates
111712 12
Key Takeaways
1 Forecasts are always wrong 2 How wrong (a) a lot or (b) an awful lot 3 Challenge for international markets power localization etc 4 Global supply lines mean long lead times aggravating the problem 5 Design can have a major impact on supply chain flexibility 6 Hard costs will lead you to specialized products Inventory
benefits can be very large but are Soft costs 7 Who is measured on inventory 8 Hidden costs are often invisible or occur much later than the key
decisions which can create them 9 Do the math Think again about what could change the answer 10 Remember that this is one of many decisions over time
111712 14
Key Learnings for Supply Chain Management
Value of postponement
Organizational roles and measurements
International dimensions
111712 15
Value of Postponement HP Network Printer Demand Worldwide
60
40
30Reduced cycle times 50
20
0 - 10000 20000 30000 40000 50000 60000
50
Average demand = 25000 per month Average forecast error = 40 at maturity
31 31
16 16
1 2
7 7
2 1
Monthly Demand in Units Lower forecast errors 10
Smaller safety stocksfewer stockouts Lower obsolescence costs Reduced penalty costsprofit drains
Prob
abili
ty o
f Mon
thly
Dem
and
raquo Reconfiguration and extra handling raquo Premium transportation raquo Prevent lost revenue and profit raquo Prevent loss of market share
Changes during product life cycle
111712 16
Organizational roles and Measurements
Marketing EngineeringDesignProduct Management Finance Manufacturing Procurement LogisticsDistribution General Managers Supplierpartner
111712 17
Organizational roles and Measurements
Accountability BET (Break-Even Time)
How to measure Who pays
Effects of regional PampLs
Costs raquo Product cost raquo Transportation raquo Inventory raquo Obsolescence raquo Stockouts
Net profit
111712 18
International Aspects
Product variety Distance and time for supply Power and regulatory requirements Labeling packaging Forecast complexities Supplier inflexibility Accountability and measurement
111712 19
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Strategic Planning of RampD
- 2 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Outline
Risk Factors in RampD
Strategic Focus
Stage-Gate Process
Technology Choice Case
- 3 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Company Births and Deaths
1995 594000 births amp 497000 deaths
2002 580900 births amp 576200 deaths
2005 670058 births amp 599333 deaths
SBA Office of Advocacy
- 4 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attrition Rate of New-Product Ideas
For every 11 serious ideas 3 enter development 13 are launched 1 succeeds
- 5 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attempts to Start New Business
One success in ten
The odds are much poorer for new ideas
- 6 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Business Plan Funnel
Business Plan Received (600) Listen to presentation (60)
Visit (20) Due Diligence Negotiation (12)
Investment (3) Brookwood Partners
- 7 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Causes of New Product Failure
0
5
10
15
20
25
30
35
40
45
Inadequate MarketAnalysisProduct Problems orDefectsLack of EffectiveMarketing EffortHigher Costs thanAnticipatedCompetitive Strength orReactionPoor Timing of Initiative
Technical or ProductionProblemsAll Other Causes
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Mfg Eng
MktgController
HP managers around the table
Prod Design 111712 3
Measurements and Behavior
Five functional managers are discussed in the case
a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution
Distribution
How are they measured How does it influence their views on the universal power supply
111712 4
Universal Power Supply - Costs amp Benefits
Costs Benefits
higher cost per unit = $50 lengthen Break-Even Time (BET) problems allocating supply
increase forecast accuracy fewer stockouts fewer lost sales less safety stock required fewer expedited shipments eliminates re-configuration work
111712 5
Key Consequences of this Decision
111712 6
Probability of Worldwide Demand
HP Network Printer Demand Worldwide
60
50
40
30
20
10
0
50
Average demand = 25000 per month Average forecast error = 40 at maturity
31 31
16 16
1 2
7 7
2 1
- 10000 20000 30000 40000 50000 60000
Monthly Demand in Units
111712 7
Prob
abili
ty o
f Mon
thly
Dem
and
Cumulative Demand Probability Curve
HP Network Printer Demand - Cumulative Probability
1 2 7
16
31
50
69
84
93 98 99
0
20
40
60
80
100
120
- 10000 20000 30000 40000 50000 60000
at least this Monthly Demand Worldwide
Cum
ulat
ive
Prob
abili
ty o
f Dem
and
Average demand = 25000 per month Average forecast error = 40 at maturity
2 Standard Deviations gives 98 coverage of possible forecast maxima
111712 8
What happens to forecast error if we have a universal power supply
111712 9
What happens to forecast error if we have a universal power supply
The variability of the forecast errors would combine as follows
21 2 2
2 1 2 σρσσσσ ++= new
where σ
12 are the individual product forecast error standard deviations ρ is the correlation coefficient of the two errors
Letrsquos say your individual forecast value is 10 and σ 12 both equal 04 (40) If the errors are completely
uncorrelated (ρ =0) then the standard deviation of the forecast error of the combined product stream would be 057 or 28 of the combined forecast of 20
If people tend to buy one product or the other and a drop in one always occurs with a rise in the other (perfect negative correlation ρ = -1) then the new standard deviation would be 00
If say world events always cause similar errors in both products (perfect positive correlation ρ = 1) then the new standard deviation would be 080 or 40 of the combined forecast
So you can only get better by combining products
111712 10
What happens to forecast error if we have a universal power supply
The variability of the forecast errors would combine as follows
21 2 2
2 1 2 σρσσσσ ++= new
At start-up the individual errors are 80+ If the errors tend to offset each other then the combined error will be closer to 40
where σ
12 are the individual product forecast error standard deviations ρ is the correlation coefficient of the two errors
Letrsquos say your individual forecast value is 10 and σ 12 both equal 04 (40) If the errors are completely
uncorrelated (ρ =0) then the standard deviation of the forecast error of the combined product stream would be 057 or 28 of the combined forecast of 20
If people tend to buy one product or the other and a drop in one always occurs with a rise in the other (perfect negative correlation ρ = -1) then the new standard deviation would be 00
If say world events always cause similar errors in both products (perfect positive correlation ρ = 1) then the new standard deviation would be 080 or 40 of the combined forecast
So you can only get better by combining products At maturity the individual errors are ~40 If the errors tend to offset each other then the combined error will be closer to 20
111712 11
Key Learnings for Management in Engineering
Engineeringdesign decisions have major impact on operations and customer service
Consider all the costs especially when things do not go according to plan
Measurements and rewards change behavior influence how your company operates
111712 12
Key Takeaways
1 Forecasts are always wrong 2 How wrong (a) a lot or (b) an awful lot 3 Challenge for international markets power localization etc 4 Global supply lines mean long lead times aggravating the problem 5 Design can have a major impact on supply chain flexibility 6 Hard costs will lead you to specialized products Inventory
benefits can be very large but are Soft costs 7 Who is measured on inventory 8 Hidden costs are often invisible or occur much later than the key
decisions which can create them 9 Do the math Think again about what could change the answer 10 Remember that this is one of many decisions over time
111712 14
Key Learnings for Supply Chain Management
Value of postponement
Organizational roles and measurements
International dimensions
111712 15
Value of Postponement HP Network Printer Demand Worldwide
60
40
30Reduced cycle times 50
20
0 - 10000 20000 30000 40000 50000 60000
50
Average demand = 25000 per month Average forecast error = 40 at maturity
31 31
16 16
1 2
7 7
2 1
Monthly Demand in Units Lower forecast errors 10
Smaller safety stocksfewer stockouts Lower obsolescence costs Reduced penalty costsprofit drains
Prob
abili
ty o
f Mon
thly
Dem
and
raquo Reconfiguration and extra handling raquo Premium transportation raquo Prevent lost revenue and profit raquo Prevent loss of market share
Changes during product life cycle
111712 16
Organizational roles and Measurements
Marketing EngineeringDesignProduct Management Finance Manufacturing Procurement LogisticsDistribution General Managers Supplierpartner
111712 17
Organizational roles and Measurements
Accountability BET (Break-Even Time)
How to measure Who pays
Effects of regional PampLs
Costs raquo Product cost raquo Transportation raquo Inventory raquo Obsolescence raquo Stockouts
Net profit
111712 18
International Aspects
Product variety Distance and time for supply Power and regulatory requirements Labeling packaging Forecast complexities Supplier inflexibility Accountability and measurement
111712 19
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Strategic Planning of RampD
- 2 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Outline
Risk Factors in RampD
Strategic Focus
Stage-Gate Process
Technology Choice Case
- 3 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Company Births and Deaths
1995 594000 births amp 497000 deaths
2002 580900 births amp 576200 deaths
2005 670058 births amp 599333 deaths
SBA Office of Advocacy
- 4 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attrition Rate of New-Product Ideas
For every 11 serious ideas 3 enter development 13 are launched 1 succeeds
- 5 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attempts to Start New Business
One success in ten
The odds are much poorer for new ideas
- 6 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Business Plan Funnel
Business Plan Received (600) Listen to presentation (60)
Visit (20) Due Diligence Negotiation (12)
Investment (3) Brookwood Partners
- 7 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Causes of New Product Failure
0
5
10
15
20
25
30
35
40
45
Inadequate MarketAnalysisProduct Problems orDefectsLack of EffectiveMarketing EffortHigher Costs thanAnticipatedCompetitive Strength orReactionPoor Timing of Initiative
Technical or ProductionProblemsAll Other Causes
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Measurements and Behavior
Five functional managers are discussed in the case
a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution
Distribution
How are they measured How does it influence their views on the universal power supply
111712 4
Universal Power Supply - Costs amp Benefits
Costs Benefits
higher cost per unit = $50 lengthen Break-Even Time (BET) problems allocating supply
increase forecast accuracy fewer stockouts fewer lost sales less safety stock required fewer expedited shipments eliminates re-configuration work
111712 5
Key Consequences of this Decision
111712 6
Probability of Worldwide Demand
HP Network Printer Demand Worldwide
60
50
40
30
20
10
0
50
Average demand = 25000 per month Average forecast error = 40 at maturity
31 31
16 16
1 2
7 7
2 1
- 10000 20000 30000 40000 50000 60000
Monthly Demand in Units
111712 7
Prob
abili
ty o
f Mon
thly
Dem
and
Cumulative Demand Probability Curve
HP Network Printer Demand - Cumulative Probability
1 2 7
16
31
50
69
84
93 98 99
0
20
40
60
80
100
120
- 10000 20000 30000 40000 50000 60000
at least this Monthly Demand Worldwide
Cum
ulat
ive
Prob
abili
ty o
f Dem
and
Average demand = 25000 per month Average forecast error = 40 at maturity
2 Standard Deviations gives 98 coverage of possible forecast maxima
111712 8
What happens to forecast error if we have a universal power supply
111712 9
What happens to forecast error if we have a universal power supply
The variability of the forecast errors would combine as follows
21 2 2
2 1 2 σρσσσσ ++= new
where σ
12 are the individual product forecast error standard deviations ρ is the correlation coefficient of the two errors
Letrsquos say your individual forecast value is 10 and σ 12 both equal 04 (40) If the errors are completely
uncorrelated (ρ =0) then the standard deviation of the forecast error of the combined product stream would be 057 or 28 of the combined forecast of 20
If people tend to buy one product or the other and a drop in one always occurs with a rise in the other (perfect negative correlation ρ = -1) then the new standard deviation would be 00
If say world events always cause similar errors in both products (perfect positive correlation ρ = 1) then the new standard deviation would be 080 or 40 of the combined forecast
So you can only get better by combining products
111712 10
What happens to forecast error if we have a universal power supply
The variability of the forecast errors would combine as follows
21 2 2
2 1 2 σρσσσσ ++= new
At start-up the individual errors are 80+ If the errors tend to offset each other then the combined error will be closer to 40
where σ
12 are the individual product forecast error standard deviations ρ is the correlation coefficient of the two errors
Letrsquos say your individual forecast value is 10 and σ 12 both equal 04 (40) If the errors are completely
uncorrelated (ρ =0) then the standard deviation of the forecast error of the combined product stream would be 057 or 28 of the combined forecast of 20
If people tend to buy one product or the other and a drop in one always occurs with a rise in the other (perfect negative correlation ρ = -1) then the new standard deviation would be 00
If say world events always cause similar errors in both products (perfect positive correlation ρ = 1) then the new standard deviation would be 080 or 40 of the combined forecast
So you can only get better by combining products At maturity the individual errors are ~40 If the errors tend to offset each other then the combined error will be closer to 20
111712 11
Key Learnings for Management in Engineering
Engineeringdesign decisions have major impact on operations and customer service
Consider all the costs especially when things do not go according to plan
Measurements and rewards change behavior influence how your company operates
111712 12
Key Takeaways
1 Forecasts are always wrong 2 How wrong (a) a lot or (b) an awful lot 3 Challenge for international markets power localization etc 4 Global supply lines mean long lead times aggravating the problem 5 Design can have a major impact on supply chain flexibility 6 Hard costs will lead you to specialized products Inventory
benefits can be very large but are Soft costs 7 Who is measured on inventory 8 Hidden costs are often invisible or occur much later than the key
decisions which can create them 9 Do the math Think again about what could change the answer 10 Remember that this is one of many decisions over time
111712 14
Key Learnings for Supply Chain Management
Value of postponement
Organizational roles and measurements
International dimensions
111712 15
Value of Postponement HP Network Printer Demand Worldwide
60
40
30Reduced cycle times 50
20
0 - 10000 20000 30000 40000 50000 60000
50
Average demand = 25000 per month Average forecast error = 40 at maturity
31 31
16 16
1 2
7 7
2 1
Monthly Demand in Units Lower forecast errors 10
Smaller safety stocksfewer stockouts Lower obsolescence costs Reduced penalty costsprofit drains
Prob
abili
ty o
f Mon
thly
Dem
and
raquo Reconfiguration and extra handling raquo Premium transportation raquo Prevent lost revenue and profit raquo Prevent loss of market share
Changes during product life cycle
111712 16
Organizational roles and Measurements
Marketing EngineeringDesignProduct Management Finance Manufacturing Procurement LogisticsDistribution General Managers Supplierpartner
111712 17
Organizational roles and Measurements
Accountability BET (Break-Even Time)
How to measure Who pays
Effects of regional PampLs
Costs raquo Product cost raquo Transportation raquo Inventory raquo Obsolescence raquo Stockouts
Net profit
111712 18
International Aspects
Product variety Distance and time for supply Power and regulatory requirements Labeling packaging Forecast complexities Supplier inflexibility Accountability and measurement
111712 19
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Strategic Planning of RampD
- 2 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Outline
Risk Factors in RampD
Strategic Focus
Stage-Gate Process
Technology Choice Case
- 3 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Company Births and Deaths
1995 594000 births amp 497000 deaths
2002 580900 births amp 576200 deaths
2005 670058 births amp 599333 deaths
SBA Office of Advocacy
- 4 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attrition Rate of New-Product Ideas
For every 11 serious ideas 3 enter development 13 are launched 1 succeeds
- 5 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attempts to Start New Business
One success in ten
The odds are much poorer for new ideas
- 6 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Business Plan Funnel
Business Plan Received (600) Listen to presentation (60)
Visit (20) Due Diligence Negotiation (12)
Investment (3) Brookwood Partners
- 7 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Causes of New Product Failure
0
5
10
15
20
25
30
35
40
45
Inadequate MarketAnalysisProduct Problems orDefectsLack of EffectiveMarketing EffortHigher Costs thanAnticipatedCompetitive Strength orReactionPoor Timing of Initiative
Technical or ProductionProblemsAll Other Causes
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Universal Power Supply - Costs amp Benefits
Costs Benefits
higher cost per unit = $50 lengthen Break-Even Time (BET) problems allocating supply
increase forecast accuracy fewer stockouts fewer lost sales less safety stock required fewer expedited shipments eliminates re-configuration work
111712 5
Key Consequences of this Decision
111712 6
Probability of Worldwide Demand
HP Network Printer Demand Worldwide
60
50
40
30
20
10
0
50
Average demand = 25000 per month Average forecast error = 40 at maturity
31 31
16 16
1 2
7 7
2 1
- 10000 20000 30000 40000 50000 60000
Monthly Demand in Units
111712 7
Prob
abili
ty o
f Mon
thly
Dem
and
Cumulative Demand Probability Curve
HP Network Printer Demand - Cumulative Probability
1 2 7
16
31
50
69
84
93 98 99
0
20
40
60
80
100
120
- 10000 20000 30000 40000 50000 60000
at least this Monthly Demand Worldwide
Cum
ulat
ive
Prob
abili
ty o
f Dem
and
Average demand = 25000 per month Average forecast error = 40 at maturity
2 Standard Deviations gives 98 coverage of possible forecast maxima
111712 8
What happens to forecast error if we have a universal power supply
111712 9
What happens to forecast error if we have a universal power supply
The variability of the forecast errors would combine as follows
21 2 2
2 1 2 σρσσσσ ++= new
where σ
12 are the individual product forecast error standard deviations ρ is the correlation coefficient of the two errors
Letrsquos say your individual forecast value is 10 and σ 12 both equal 04 (40) If the errors are completely
uncorrelated (ρ =0) then the standard deviation of the forecast error of the combined product stream would be 057 or 28 of the combined forecast of 20
If people tend to buy one product or the other and a drop in one always occurs with a rise in the other (perfect negative correlation ρ = -1) then the new standard deviation would be 00
If say world events always cause similar errors in both products (perfect positive correlation ρ = 1) then the new standard deviation would be 080 or 40 of the combined forecast
So you can only get better by combining products
111712 10
What happens to forecast error if we have a universal power supply
The variability of the forecast errors would combine as follows
21 2 2
2 1 2 σρσσσσ ++= new
At start-up the individual errors are 80+ If the errors tend to offset each other then the combined error will be closer to 40
where σ
12 are the individual product forecast error standard deviations ρ is the correlation coefficient of the two errors
Letrsquos say your individual forecast value is 10 and σ 12 both equal 04 (40) If the errors are completely
uncorrelated (ρ =0) then the standard deviation of the forecast error of the combined product stream would be 057 or 28 of the combined forecast of 20
If people tend to buy one product or the other and a drop in one always occurs with a rise in the other (perfect negative correlation ρ = -1) then the new standard deviation would be 00
If say world events always cause similar errors in both products (perfect positive correlation ρ = 1) then the new standard deviation would be 080 or 40 of the combined forecast
So you can only get better by combining products At maturity the individual errors are ~40 If the errors tend to offset each other then the combined error will be closer to 20
111712 11
Key Learnings for Management in Engineering
Engineeringdesign decisions have major impact on operations and customer service
Consider all the costs especially when things do not go according to plan
Measurements and rewards change behavior influence how your company operates
111712 12
Key Takeaways
1 Forecasts are always wrong 2 How wrong (a) a lot or (b) an awful lot 3 Challenge for international markets power localization etc 4 Global supply lines mean long lead times aggravating the problem 5 Design can have a major impact on supply chain flexibility 6 Hard costs will lead you to specialized products Inventory
benefits can be very large but are Soft costs 7 Who is measured on inventory 8 Hidden costs are often invisible or occur much later than the key
decisions which can create them 9 Do the math Think again about what could change the answer 10 Remember that this is one of many decisions over time
111712 14
Key Learnings for Supply Chain Management
Value of postponement
Organizational roles and measurements
International dimensions
111712 15
Value of Postponement HP Network Printer Demand Worldwide
60
40
30Reduced cycle times 50
20
0 - 10000 20000 30000 40000 50000 60000
50
Average demand = 25000 per month Average forecast error = 40 at maturity
31 31
16 16
1 2
7 7
2 1
Monthly Demand in Units Lower forecast errors 10
Smaller safety stocksfewer stockouts Lower obsolescence costs Reduced penalty costsprofit drains
Prob
abili
ty o
f Mon
thly
Dem
and
raquo Reconfiguration and extra handling raquo Premium transportation raquo Prevent lost revenue and profit raquo Prevent loss of market share
Changes during product life cycle
111712 16
Organizational roles and Measurements
Marketing EngineeringDesignProduct Management Finance Manufacturing Procurement LogisticsDistribution General Managers Supplierpartner
111712 17
Organizational roles and Measurements
Accountability BET (Break-Even Time)
How to measure Who pays
Effects of regional PampLs
Costs raquo Product cost raquo Transportation raquo Inventory raquo Obsolescence raquo Stockouts
Net profit
111712 18
International Aspects
Product variety Distance and time for supply Power and regulatory requirements Labeling packaging Forecast complexities Supplier inflexibility Accountability and measurement
111712 19
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Strategic Planning of RampD
- 2 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Outline
Risk Factors in RampD
Strategic Focus
Stage-Gate Process
Technology Choice Case
- 3 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Company Births and Deaths
1995 594000 births amp 497000 deaths
2002 580900 births amp 576200 deaths
2005 670058 births amp 599333 deaths
SBA Office of Advocacy
- 4 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attrition Rate of New-Product Ideas
For every 11 serious ideas 3 enter development 13 are launched 1 succeeds
- 5 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attempts to Start New Business
One success in ten
The odds are much poorer for new ideas
- 6 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Business Plan Funnel
Business Plan Received (600) Listen to presentation (60)
Visit (20) Due Diligence Negotiation (12)
Investment (3) Brookwood Partners
- 7 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Causes of New Product Failure
0
5
10
15
20
25
30
35
40
45
Inadequate MarketAnalysisProduct Problems orDefectsLack of EffectiveMarketing EffortHigher Costs thanAnticipatedCompetitive Strength orReactionPoor Timing of Initiative
Technical or ProductionProblemsAll Other Causes
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Key Consequences of this Decision
111712 6
Probability of Worldwide Demand
HP Network Printer Demand Worldwide
60
50
40
30
20
10
0
50
Average demand = 25000 per month Average forecast error = 40 at maturity
31 31
16 16
1 2
7 7
2 1
- 10000 20000 30000 40000 50000 60000
Monthly Demand in Units
111712 7
Prob
abili
ty o
f Mon
thly
Dem
and
Cumulative Demand Probability Curve
HP Network Printer Demand - Cumulative Probability
1 2 7
16
31
50
69
84
93 98 99
0
20
40
60
80
100
120
- 10000 20000 30000 40000 50000 60000
at least this Monthly Demand Worldwide
Cum
ulat
ive
Prob
abili
ty o
f Dem
and
Average demand = 25000 per month Average forecast error = 40 at maturity
2 Standard Deviations gives 98 coverage of possible forecast maxima
111712 8
What happens to forecast error if we have a universal power supply
111712 9
What happens to forecast error if we have a universal power supply
The variability of the forecast errors would combine as follows
21 2 2
2 1 2 σρσσσσ ++= new
where σ
12 are the individual product forecast error standard deviations ρ is the correlation coefficient of the two errors
Letrsquos say your individual forecast value is 10 and σ 12 both equal 04 (40) If the errors are completely
uncorrelated (ρ =0) then the standard deviation of the forecast error of the combined product stream would be 057 or 28 of the combined forecast of 20
If people tend to buy one product or the other and a drop in one always occurs with a rise in the other (perfect negative correlation ρ = -1) then the new standard deviation would be 00
If say world events always cause similar errors in both products (perfect positive correlation ρ = 1) then the new standard deviation would be 080 or 40 of the combined forecast
So you can only get better by combining products
111712 10
What happens to forecast error if we have a universal power supply
The variability of the forecast errors would combine as follows
21 2 2
2 1 2 σρσσσσ ++= new
At start-up the individual errors are 80+ If the errors tend to offset each other then the combined error will be closer to 40
where σ
12 are the individual product forecast error standard deviations ρ is the correlation coefficient of the two errors
Letrsquos say your individual forecast value is 10 and σ 12 both equal 04 (40) If the errors are completely
uncorrelated (ρ =0) then the standard deviation of the forecast error of the combined product stream would be 057 or 28 of the combined forecast of 20
If people tend to buy one product or the other and a drop in one always occurs with a rise in the other (perfect negative correlation ρ = -1) then the new standard deviation would be 00
If say world events always cause similar errors in both products (perfect positive correlation ρ = 1) then the new standard deviation would be 080 or 40 of the combined forecast
So you can only get better by combining products At maturity the individual errors are ~40 If the errors tend to offset each other then the combined error will be closer to 20
111712 11
Key Learnings for Management in Engineering
Engineeringdesign decisions have major impact on operations and customer service
Consider all the costs especially when things do not go according to plan
Measurements and rewards change behavior influence how your company operates
111712 12
Key Takeaways
1 Forecasts are always wrong 2 How wrong (a) a lot or (b) an awful lot 3 Challenge for international markets power localization etc 4 Global supply lines mean long lead times aggravating the problem 5 Design can have a major impact on supply chain flexibility 6 Hard costs will lead you to specialized products Inventory
benefits can be very large but are Soft costs 7 Who is measured on inventory 8 Hidden costs are often invisible or occur much later than the key
decisions which can create them 9 Do the math Think again about what could change the answer 10 Remember that this is one of many decisions over time
111712 14
Key Learnings for Supply Chain Management
Value of postponement
Organizational roles and measurements
International dimensions
111712 15
Value of Postponement HP Network Printer Demand Worldwide
60
40
30Reduced cycle times 50
20
0 - 10000 20000 30000 40000 50000 60000
50
Average demand = 25000 per month Average forecast error = 40 at maturity
31 31
16 16
1 2
7 7
2 1
Monthly Demand in Units Lower forecast errors 10
Smaller safety stocksfewer stockouts Lower obsolescence costs Reduced penalty costsprofit drains
Prob
abili
ty o
f Mon
thly
Dem
and
raquo Reconfiguration and extra handling raquo Premium transportation raquo Prevent lost revenue and profit raquo Prevent loss of market share
Changes during product life cycle
111712 16
Organizational roles and Measurements
Marketing EngineeringDesignProduct Management Finance Manufacturing Procurement LogisticsDistribution General Managers Supplierpartner
111712 17
Organizational roles and Measurements
Accountability BET (Break-Even Time)
How to measure Who pays
Effects of regional PampLs
Costs raquo Product cost raquo Transportation raquo Inventory raquo Obsolescence raquo Stockouts
Net profit
111712 18
International Aspects
Product variety Distance and time for supply Power and regulatory requirements Labeling packaging Forecast complexities Supplier inflexibility Accountability and measurement
111712 19
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Strategic Planning of RampD
- 2 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Outline
Risk Factors in RampD
Strategic Focus
Stage-Gate Process
Technology Choice Case
- 3 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Company Births and Deaths
1995 594000 births amp 497000 deaths
2002 580900 births amp 576200 deaths
2005 670058 births amp 599333 deaths
SBA Office of Advocacy
- 4 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attrition Rate of New-Product Ideas
For every 11 serious ideas 3 enter development 13 are launched 1 succeeds
- 5 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attempts to Start New Business
One success in ten
The odds are much poorer for new ideas
- 6 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Business Plan Funnel
Business Plan Received (600) Listen to presentation (60)
Visit (20) Due Diligence Negotiation (12)
Investment (3) Brookwood Partners
- 7 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Causes of New Product Failure
0
5
10
15
20
25
30
35
40
45
Inadequate MarketAnalysisProduct Problems orDefectsLack of EffectiveMarketing EffortHigher Costs thanAnticipatedCompetitive Strength orReactionPoor Timing of Initiative
Technical or ProductionProblemsAll Other Causes
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Probability of Worldwide Demand
HP Network Printer Demand Worldwide
60
50
40
30
20
10
0
50
Average demand = 25000 per month Average forecast error = 40 at maturity
31 31
16 16
1 2
7 7
2 1
- 10000 20000 30000 40000 50000 60000
Monthly Demand in Units
111712 7
Prob
abili
ty o
f Mon
thly
Dem
and
Cumulative Demand Probability Curve
HP Network Printer Demand - Cumulative Probability
1 2 7
16
31
50
69
84
93 98 99
0
20
40
60
80
100
120
- 10000 20000 30000 40000 50000 60000
at least this Monthly Demand Worldwide
Cum
ulat
ive
Prob
abili
ty o
f Dem
and
Average demand = 25000 per month Average forecast error = 40 at maturity
2 Standard Deviations gives 98 coverage of possible forecast maxima
111712 8
What happens to forecast error if we have a universal power supply
111712 9
What happens to forecast error if we have a universal power supply
The variability of the forecast errors would combine as follows
21 2 2
2 1 2 σρσσσσ ++= new
where σ
12 are the individual product forecast error standard deviations ρ is the correlation coefficient of the two errors
Letrsquos say your individual forecast value is 10 and σ 12 both equal 04 (40) If the errors are completely
uncorrelated (ρ =0) then the standard deviation of the forecast error of the combined product stream would be 057 or 28 of the combined forecast of 20
If people tend to buy one product or the other and a drop in one always occurs with a rise in the other (perfect negative correlation ρ = -1) then the new standard deviation would be 00
If say world events always cause similar errors in both products (perfect positive correlation ρ = 1) then the new standard deviation would be 080 or 40 of the combined forecast
So you can only get better by combining products
111712 10
What happens to forecast error if we have a universal power supply
The variability of the forecast errors would combine as follows
21 2 2
2 1 2 σρσσσσ ++= new
At start-up the individual errors are 80+ If the errors tend to offset each other then the combined error will be closer to 40
where σ
12 are the individual product forecast error standard deviations ρ is the correlation coefficient of the two errors
Letrsquos say your individual forecast value is 10 and σ 12 both equal 04 (40) If the errors are completely
uncorrelated (ρ =0) then the standard deviation of the forecast error of the combined product stream would be 057 or 28 of the combined forecast of 20
If people tend to buy one product or the other and a drop in one always occurs with a rise in the other (perfect negative correlation ρ = -1) then the new standard deviation would be 00
If say world events always cause similar errors in both products (perfect positive correlation ρ = 1) then the new standard deviation would be 080 or 40 of the combined forecast
So you can only get better by combining products At maturity the individual errors are ~40 If the errors tend to offset each other then the combined error will be closer to 20
111712 11
Key Learnings for Management in Engineering
Engineeringdesign decisions have major impact on operations and customer service
Consider all the costs especially when things do not go according to plan
Measurements and rewards change behavior influence how your company operates
111712 12
Key Takeaways
1 Forecasts are always wrong 2 How wrong (a) a lot or (b) an awful lot 3 Challenge for international markets power localization etc 4 Global supply lines mean long lead times aggravating the problem 5 Design can have a major impact on supply chain flexibility 6 Hard costs will lead you to specialized products Inventory
benefits can be very large but are Soft costs 7 Who is measured on inventory 8 Hidden costs are often invisible or occur much later than the key
decisions which can create them 9 Do the math Think again about what could change the answer 10 Remember that this is one of many decisions over time
111712 14
Key Learnings for Supply Chain Management
Value of postponement
Organizational roles and measurements
International dimensions
111712 15
Value of Postponement HP Network Printer Demand Worldwide
60
40
30Reduced cycle times 50
20
0 - 10000 20000 30000 40000 50000 60000
50
Average demand = 25000 per month Average forecast error = 40 at maturity
31 31
16 16
1 2
7 7
2 1
Monthly Demand in Units Lower forecast errors 10
Smaller safety stocksfewer stockouts Lower obsolescence costs Reduced penalty costsprofit drains
Prob
abili
ty o
f Mon
thly
Dem
and
raquo Reconfiguration and extra handling raquo Premium transportation raquo Prevent lost revenue and profit raquo Prevent loss of market share
Changes during product life cycle
111712 16
Organizational roles and Measurements
Marketing EngineeringDesignProduct Management Finance Manufacturing Procurement LogisticsDistribution General Managers Supplierpartner
111712 17
Organizational roles and Measurements
Accountability BET (Break-Even Time)
How to measure Who pays
Effects of regional PampLs
Costs raquo Product cost raquo Transportation raquo Inventory raquo Obsolescence raquo Stockouts
Net profit
111712 18
International Aspects
Product variety Distance and time for supply Power and regulatory requirements Labeling packaging Forecast complexities Supplier inflexibility Accountability and measurement
111712 19
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Strategic Planning of RampD
- 2 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Outline
Risk Factors in RampD
Strategic Focus
Stage-Gate Process
Technology Choice Case
- 3 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Company Births and Deaths
1995 594000 births amp 497000 deaths
2002 580900 births amp 576200 deaths
2005 670058 births amp 599333 deaths
SBA Office of Advocacy
- 4 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attrition Rate of New-Product Ideas
For every 11 serious ideas 3 enter development 13 are launched 1 succeeds
- 5 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attempts to Start New Business
One success in ten
The odds are much poorer for new ideas
- 6 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Business Plan Funnel
Business Plan Received (600) Listen to presentation (60)
Visit (20) Due Diligence Negotiation (12)
Investment (3) Brookwood Partners
- 7 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Causes of New Product Failure
0
5
10
15
20
25
30
35
40
45
Inadequate MarketAnalysisProduct Problems orDefectsLack of EffectiveMarketing EffortHigher Costs thanAnticipatedCompetitive Strength orReactionPoor Timing of Initiative
Technical or ProductionProblemsAll Other Causes
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Cumulative Demand Probability Curve
HP Network Printer Demand - Cumulative Probability
1 2 7
16
31
50
69
84
93 98 99
0
20
40
60
80
100
120
- 10000 20000 30000 40000 50000 60000
at least this Monthly Demand Worldwide
Cum
ulat
ive
Prob
abili
ty o
f Dem
and
Average demand = 25000 per month Average forecast error = 40 at maturity
2 Standard Deviations gives 98 coverage of possible forecast maxima
111712 8
What happens to forecast error if we have a universal power supply
111712 9
What happens to forecast error if we have a universal power supply
The variability of the forecast errors would combine as follows
21 2 2
2 1 2 σρσσσσ ++= new
where σ
12 are the individual product forecast error standard deviations ρ is the correlation coefficient of the two errors
Letrsquos say your individual forecast value is 10 and σ 12 both equal 04 (40) If the errors are completely
uncorrelated (ρ =0) then the standard deviation of the forecast error of the combined product stream would be 057 or 28 of the combined forecast of 20
If people tend to buy one product or the other and a drop in one always occurs with a rise in the other (perfect negative correlation ρ = -1) then the new standard deviation would be 00
If say world events always cause similar errors in both products (perfect positive correlation ρ = 1) then the new standard deviation would be 080 or 40 of the combined forecast
So you can only get better by combining products
111712 10
What happens to forecast error if we have a universal power supply
The variability of the forecast errors would combine as follows
21 2 2
2 1 2 σρσσσσ ++= new
At start-up the individual errors are 80+ If the errors tend to offset each other then the combined error will be closer to 40
where σ
12 are the individual product forecast error standard deviations ρ is the correlation coefficient of the two errors
Letrsquos say your individual forecast value is 10 and σ 12 both equal 04 (40) If the errors are completely
uncorrelated (ρ =0) then the standard deviation of the forecast error of the combined product stream would be 057 or 28 of the combined forecast of 20
If people tend to buy one product or the other and a drop in one always occurs with a rise in the other (perfect negative correlation ρ = -1) then the new standard deviation would be 00
If say world events always cause similar errors in both products (perfect positive correlation ρ = 1) then the new standard deviation would be 080 or 40 of the combined forecast
So you can only get better by combining products At maturity the individual errors are ~40 If the errors tend to offset each other then the combined error will be closer to 20
111712 11
Key Learnings for Management in Engineering
Engineeringdesign decisions have major impact on operations and customer service
Consider all the costs especially when things do not go according to plan
Measurements and rewards change behavior influence how your company operates
111712 12
Key Takeaways
1 Forecasts are always wrong 2 How wrong (a) a lot or (b) an awful lot 3 Challenge for international markets power localization etc 4 Global supply lines mean long lead times aggravating the problem 5 Design can have a major impact on supply chain flexibility 6 Hard costs will lead you to specialized products Inventory
benefits can be very large but are Soft costs 7 Who is measured on inventory 8 Hidden costs are often invisible or occur much later than the key
decisions which can create them 9 Do the math Think again about what could change the answer 10 Remember that this is one of many decisions over time
111712 14
Key Learnings for Supply Chain Management
Value of postponement
Organizational roles and measurements
International dimensions
111712 15
Value of Postponement HP Network Printer Demand Worldwide
60
40
30Reduced cycle times 50
20
0 - 10000 20000 30000 40000 50000 60000
50
Average demand = 25000 per month Average forecast error = 40 at maturity
31 31
16 16
1 2
7 7
2 1
Monthly Demand in Units Lower forecast errors 10
Smaller safety stocksfewer stockouts Lower obsolescence costs Reduced penalty costsprofit drains
Prob
abili
ty o
f Mon
thly
Dem
and
raquo Reconfiguration and extra handling raquo Premium transportation raquo Prevent lost revenue and profit raquo Prevent loss of market share
Changes during product life cycle
111712 16
Organizational roles and Measurements
Marketing EngineeringDesignProduct Management Finance Manufacturing Procurement LogisticsDistribution General Managers Supplierpartner
111712 17
Organizational roles and Measurements
Accountability BET (Break-Even Time)
How to measure Who pays
Effects of regional PampLs
Costs raquo Product cost raquo Transportation raquo Inventory raquo Obsolescence raquo Stockouts
Net profit
111712 18
International Aspects
Product variety Distance and time for supply Power and regulatory requirements Labeling packaging Forecast complexities Supplier inflexibility Accountability and measurement
111712 19
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Strategic Planning of RampD
- 2 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Outline
Risk Factors in RampD
Strategic Focus
Stage-Gate Process
Technology Choice Case
- 3 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Company Births and Deaths
1995 594000 births amp 497000 deaths
2002 580900 births amp 576200 deaths
2005 670058 births amp 599333 deaths
SBA Office of Advocacy
- 4 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attrition Rate of New-Product Ideas
For every 11 serious ideas 3 enter development 13 are launched 1 succeeds
- 5 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attempts to Start New Business
One success in ten
The odds are much poorer for new ideas
- 6 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Business Plan Funnel
Business Plan Received (600) Listen to presentation (60)
Visit (20) Due Diligence Negotiation (12)
Investment (3) Brookwood Partners
- 7 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Causes of New Product Failure
0
5
10
15
20
25
30
35
40
45
Inadequate MarketAnalysisProduct Problems orDefectsLack of EffectiveMarketing EffortHigher Costs thanAnticipatedCompetitive Strength orReactionPoor Timing of Initiative
Technical or ProductionProblemsAll Other Causes
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
What happens to forecast error if we have a universal power supply
111712 9
What happens to forecast error if we have a universal power supply
The variability of the forecast errors would combine as follows
21 2 2
2 1 2 σρσσσσ ++= new
where σ
12 are the individual product forecast error standard deviations ρ is the correlation coefficient of the two errors
Letrsquos say your individual forecast value is 10 and σ 12 both equal 04 (40) If the errors are completely
uncorrelated (ρ =0) then the standard deviation of the forecast error of the combined product stream would be 057 or 28 of the combined forecast of 20
If people tend to buy one product or the other and a drop in one always occurs with a rise in the other (perfect negative correlation ρ = -1) then the new standard deviation would be 00
If say world events always cause similar errors in both products (perfect positive correlation ρ = 1) then the new standard deviation would be 080 or 40 of the combined forecast
So you can only get better by combining products
111712 10
What happens to forecast error if we have a universal power supply
The variability of the forecast errors would combine as follows
21 2 2
2 1 2 σρσσσσ ++= new
At start-up the individual errors are 80+ If the errors tend to offset each other then the combined error will be closer to 40
where σ
12 are the individual product forecast error standard deviations ρ is the correlation coefficient of the two errors
Letrsquos say your individual forecast value is 10 and σ 12 both equal 04 (40) If the errors are completely
uncorrelated (ρ =0) then the standard deviation of the forecast error of the combined product stream would be 057 or 28 of the combined forecast of 20
If people tend to buy one product or the other and a drop in one always occurs with a rise in the other (perfect negative correlation ρ = -1) then the new standard deviation would be 00
If say world events always cause similar errors in both products (perfect positive correlation ρ = 1) then the new standard deviation would be 080 or 40 of the combined forecast
So you can only get better by combining products At maturity the individual errors are ~40 If the errors tend to offset each other then the combined error will be closer to 20
111712 11
Key Learnings for Management in Engineering
Engineeringdesign decisions have major impact on operations and customer service
Consider all the costs especially when things do not go according to plan
Measurements and rewards change behavior influence how your company operates
111712 12
Key Takeaways
1 Forecasts are always wrong 2 How wrong (a) a lot or (b) an awful lot 3 Challenge for international markets power localization etc 4 Global supply lines mean long lead times aggravating the problem 5 Design can have a major impact on supply chain flexibility 6 Hard costs will lead you to specialized products Inventory
benefits can be very large but are Soft costs 7 Who is measured on inventory 8 Hidden costs are often invisible or occur much later than the key
decisions which can create them 9 Do the math Think again about what could change the answer 10 Remember that this is one of many decisions over time
111712 14
Key Learnings for Supply Chain Management
Value of postponement
Organizational roles and measurements
International dimensions
111712 15
Value of Postponement HP Network Printer Demand Worldwide
60
40
30Reduced cycle times 50
20
0 - 10000 20000 30000 40000 50000 60000
50
Average demand = 25000 per month Average forecast error = 40 at maturity
31 31
16 16
1 2
7 7
2 1
Monthly Demand in Units Lower forecast errors 10
Smaller safety stocksfewer stockouts Lower obsolescence costs Reduced penalty costsprofit drains
Prob
abili
ty o
f Mon
thly
Dem
and
raquo Reconfiguration and extra handling raquo Premium transportation raquo Prevent lost revenue and profit raquo Prevent loss of market share
Changes during product life cycle
111712 16
Organizational roles and Measurements
Marketing EngineeringDesignProduct Management Finance Manufacturing Procurement LogisticsDistribution General Managers Supplierpartner
111712 17
Organizational roles and Measurements
Accountability BET (Break-Even Time)
How to measure Who pays
Effects of regional PampLs
Costs raquo Product cost raquo Transportation raquo Inventory raquo Obsolescence raquo Stockouts
Net profit
111712 18
International Aspects
Product variety Distance and time for supply Power and regulatory requirements Labeling packaging Forecast complexities Supplier inflexibility Accountability and measurement
111712 19
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Strategic Planning of RampD
- 2 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Outline
Risk Factors in RampD
Strategic Focus
Stage-Gate Process
Technology Choice Case
- 3 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Company Births and Deaths
1995 594000 births amp 497000 deaths
2002 580900 births amp 576200 deaths
2005 670058 births amp 599333 deaths
SBA Office of Advocacy
- 4 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attrition Rate of New-Product Ideas
For every 11 serious ideas 3 enter development 13 are launched 1 succeeds
- 5 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attempts to Start New Business
One success in ten
The odds are much poorer for new ideas
- 6 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Business Plan Funnel
Business Plan Received (600) Listen to presentation (60)
Visit (20) Due Diligence Negotiation (12)
Investment (3) Brookwood Partners
- 7 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Causes of New Product Failure
0
5
10
15
20
25
30
35
40
45
Inadequate MarketAnalysisProduct Problems orDefectsLack of EffectiveMarketing EffortHigher Costs thanAnticipatedCompetitive Strength orReactionPoor Timing of Initiative
Technical or ProductionProblemsAll Other Causes
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
What happens to forecast error if we have a universal power supply
The variability of the forecast errors would combine as follows
21 2 2
2 1 2 σρσσσσ ++= new
where σ
12 are the individual product forecast error standard deviations ρ is the correlation coefficient of the two errors
Letrsquos say your individual forecast value is 10 and σ 12 both equal 04 (40) If the errors are completely
uncorrelated (ρ =0) then the standard deviation of the forecast error of the combined product stream would be 057 or 28 of the combined forecast of 20
If people tend to buy one product or the other and a drop in one always occurs with a rise in the other (perfect negative correlation ρ = -1) then the new standard deviation would be 00
If say world events always cause similar errors in both products (perfect positive correlation ρ = 1) then the new standard deviation would be 080 or 40 of the combined forecast
So you can only get better by combining products
111712 10
What happens to forecast error if we have a universal power supply
The variability of the forecast errors would combine as follows
21 2 2
2 1 2 σρσσσσ ++= new
At start-up the individual errors are 80+ If the errors tend to offset each other then the combined error will be closer to 40
where σ
12 are the individual product forecast error standard deviations ρ is the correlation coefficient of the two errors
Letrsquos say your individual forecast value is 10 and σ 12 both equal 04 (40) If the errors are completely
uncorrelated (ρ =0) then the standard deviation of the forecast error of the combined product stream would be 057 or 28 of the combined forecast of 20
If people tend to buy one product or the other and a drop in one always occurs with a rise in the other (perfect negative correlation ρ = -1) then the new standard deviation would be 00
If say world events always cause similar errors in both products (perfect positive correlation ρ = 1) then the new standard deviation would be 080 or 40 of the combined forecast
So you can only get better by combining products At maturity the individual errors are ~40 If the errors tend to offset each other then the combined error will be closer to 20
111712 11
Key Learnings for Management in Engineering
Engineeringdesign decisions have major impact on operations and customer service
Consider all the costs especially when things do not go according to plan
Measurements and rewards change behavior influence how your company operates
111712 12
Key Takeaways
1 Forecasts are always wrong 2 How wrong (a) a lot or (b) an awful lot 3 Challenge for international markets power localization etc 4 Global supply lines mean long lead times aggravating the problem 5 Design can have a major impact on supply chain flexibility 6 Hard costs will lead you to specialized products Inventory
benefits can be very large but are Soft costs 7 Who is measured on inventory 8 Hidden costs are often invisible or occur much later than the key
decisions which can create them 9 Do the math Think again about what could change the answer 10 Remember that this is one of many decisions over time
111712 14
Key Learnings for Supply Chain Management
Value of postponement
Organizational roles and measurements
International dimensions
111712 15
Value of Postponement HP Network Printer Demand Worldwide
60
40
30Reduced cycle times 50
20
0 - 10000 20000 30000 40000 50000 60000
50
Average demand = 25000 per month Average forecast error = 40 at maturity
31 31
16 16
1 2
7 7
2 1
Monthly Demand in Units Lower forecast errors 10
Smaller safety stocksfewer stockouts Lower obsolescence costs Reduced penalty costsprofit drains
Prob
abili
ty o
f Mon
thly
Dem
and
raquo Reconfiguration and extra handling raquo Premium transportation raquo Prevent lost revenue and profit raquo Prevent loss of market share
Changes during product life cycle
111712 16
Organizational roles and Measurements
Marketing EngineeringDesignProduct Management Finance Manufacturing Procurement LogisticsDistribution General Managers Supplierpartner
111712 17
Organizational roles and Measurements
Accountability BET (Break-Even Time)
How to measure Who pays
Effects of regional PampLs
Costs raquo Product cost raquo Transportation raquo Inventory raquo Obsolescence raquo Stockouts
Net profit
111712 18
International Aspects
Product variety Distance and time for supply Power and regulatory requirements Labeling packaging Forecast complexities Supplier inflexibility Accountability and measurement
111712 19
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Strategic Planning of RampD
- 2 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Outline
Risk Factors in RampD
Strategic Focus
Stage-Gate Process
Technology Choice Case
- 3 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Company Births and Deaths
1995 594000 births amp 497000 deaths
2002 580900 births amp 576200 deaths
2005 670058 births amp 599333 deaths
SBA Office of Advocacy
- 4 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attrition Rate of New-Product Ideas
For every 11 serious ideas 3 enter development 13 are launched 1 succeeds
- 5 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attempts to Start New Business
One success in ten
The odds are much poorer for new ideas
- 6 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Business Plan Funnel
Business Plan Received (600) Listen to presentation (60)
Visit (20) Due Diligence Negotiation (12)
Investment (3) Brookwood Partners
- 7 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Causes of New Product Failure
0
5
10
15
20
25
30
35
40
45
Inadequate MarketAnalysisProduct Problems orDefectsLack of EffectiveMarketing EffortHigher Costs thanAnticipatedCompetitive Strength orReactionPoor Timing of Initiative
Technical or ProductionProblemsAll Other Causes
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
What happens to forecast error if we have a universal power supply
The variability of the forecast errors would combine as follows
21 2 2
2 1 2 σρσσσσ ++= new
At start-up the individual errors are 80+ If the errors tend to offset each other then the combined error will be closer to 40
where σ
12 are the individual product forecast error standard deviations ρ is the correlation coefficient of the two errors
Letrsquos say your individual forecast value is 10 and σ 12 both equal 04 (40) If the errors are completely
uncorrelated (ρ =0) then the standard deviation of the forecast error of the combined product stream would be 057 or 28 of the combined forecast of 20
If people tend to buy one product or the other and a drop in one always occurs with a rise in the other (perfect negative correlation ρ = -1) then the new standard deviation would be 00
If say world events always cause similar errors in both products (perfect positive correlation ρ = 1) then the new standard deviation would be 080 or 40 of the combined forecast
So you can only get better by combining products At maturity the individual errors are ~40 If the errors tend to offset each other then the combined error will be closer to 20
111712 11
Key Learnings for Management in Engineering
Engineeringdesign decisions have major impact on operations and customer service
Consider all the costs especially when things do not go according to plan
Measurements and rewards change behavior influence how your company operates
111712 12
Key Takeaways
1 Forecasts are always wrong 2 How wrong (a) a lot or (b) an awful lot 3 Challenge for international markets power localization etc 4 Global supply lines mean long lead times aggravating the problem 5 Design can have a major impact on supply chain flexibility 6 Hard costs will lead you to specialized products Inventory
benefits can be very large but are Soft costs 7 Who is measured on inventory 8 Hidden costs are often invisible or occur much later than the key
decisions which can create them 9 Do the math Think again about what could change the answer 10 Remember that this is one of many decisions over time
111712 14
Key Learnings for Supply Chain Management
Value of postponement
Organizational roles and measurements
International dimensions
111712 15
Value of Postponement HP Network Printer Demand Worldwide
60
40
30Reduced cycle times 50
20
0 - 10000 20000 30000 40000 50000 60000
50
Average demand = 25000 per month Average forecast error = 40 at maturity
31 31
16 16
1 2
7 7
2 1
Monthly Demand in Units Lower forecast errors 10
Smaller safety stocksfewer stockouts Lower obsolescence costs Reduced penalty costsprofit drains
Prob
abili
ty o
f Mon
thly
Dem
and
raquo Reconfiguration and extra handling raquo Premium transportation raquo Prevent lost revenue and profit raquo Prevent loss of market share
Changes during product life cycle
111712 16
Organizational roles and Measurements
Marketing EngineeringDesignProduct Management Finance Manufacturing Procurement LogisticsDistribution General Managers Supplierpartner
111712 17
Organizational roles and Measurements
Accountability BET (Break-Even Time)
How to measure Who pays
Effects of regional PampLs
Costs raquo Product cost raquo Transportation raquo Inventory raquo Obsolescence raquo Stockouts
Net profit
111712 18
International Aspects
Product variety Distance and time for supply Power and regulatory requirements Labeling packaging Forecast complexities Supplier inflexibility Accountability and measurement
111712 19
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Strategic Planning of RampD
- 2 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Outline
Risk Factors in RampD
Strategic Focus
Stage-Gate Process
Technology Choice Case
- 3 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Company Births and Deaths
1995 594000 births amp 497000 deaths
2002 580900 births amp 576200 deaths
2005 670058 births amp 599333 deaths
SBA Office of Advocacy
- 4 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attrition Rate of New-Product Ideas
For every 11 serious ideas 3 enter development 13 are launched 1 succeeds
- 5 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attempts to Start New Business
One success in ten
The odds are much poorer for new ideas
- 6 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Business Plan Funnel
Business Plan Received (600) Listen to presentation (60)
Visit (20) Due Diligence Negotiation (12)
Investment (3) Brookwood Partners
- 7 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Causes of New Product Failure
0
5
10
15
20
25
30
35
40
45
Inadequate MarketAnalysisProduct Problems orDefectsLack of EffectiveMarketing EffortHigher Costs thanAnticipatedCompetitive Strength orReactionPoor Timing of Initiative
Technical or ProductionProblemsAll Other Causes
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Key Learnings for Management in Engineering
Engineeringdesign decisions have major impact on operations and customer service
Consider all the costs especially when things do not go according to plan
Measurements and rewards change behavior influence how your company operates
111712 12
Key Takeaways
1 Forecasts are always wrong 2 How wrong (a) a lot or (b) an awful lot 3 Challenge for international markets power localization etc 4 Global supply lines mean long lead times aggravating the problem 5 Design can have a major impact on supply chain flexibility 6 Hard costs will lead you to specialized products Inventory
benefits can be very large but are Soft costs 7 Who is measured on inventory 8 Hidden costs are often invisible or occur much later than the key
decisions which can create them 9 Do the math Think again about what could change the answer 10 Remember that this is one of many decisions over time
111712 14
Key Learnings for Supply Chain Management
Value of postponement
Organizational roles and measurements
International dimensions
111712 15
Value of Postponement HP Network Printer Demand Worldwide
60
40
30Reduced cycle times 50
20
0 - 10000 20000 30000 40000 50000 60000
50
Average demand = 25000 per month Average forecast error = 40 at maturity
31 31
16 16
1 2
7 7
2 1
Monthly Demand in Units Lower forecast errors 10
Smaller safety stocksfewer stockouts Lower obsolescence costs Reduced penalty costsprofit drains
Prob
abili
ty o
f Mon
thly
Dem
and
raquo Reconfiguration and extra handling raquo Premium transportation raquo Prevent lost revenue and profit raquo Prevent loss of market share
Changes during product life cycle
111712 16
Organizational roles and Measurements
Marketing EngineeringDesignProduct Management Finance Manufacturing Procurement LogisticsDistribution General Managers Supplierpartner
111712 17
Organizational roles and Measurements
Accountability BET (Break-Even Time)
How to measure Who pays
Effects of regional PampLs
Costs raquo Product cost raquo Transportation raquo Inventory raquo Obsolescence raquo Stockouts
Net profit
111712 18
International Aspects
Product variety Distance and time for supply Power and regulatory requirements Labeling packaging Forecast complexities Supplier inflexibility Accountability and measurement
111712 19
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Strategic Planning of RampD
- 2 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Outline
Risk Factors in RampD
Strategic Focus
Stage-Gate Process
Technology Choice Case
- 3 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Company Births and Deaths
1995 594000 births amp 497000 deaths
2002 580900 births amp 576200 deaths
2005 670058 births amp 599333 deaths
SBA Office of Advocacy
- 4 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attrition Rate of New-Product Ideas
For every 11 serious ideas 3 enter development 13 are launched 1 succeeds
- 5 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attempts to Start New Business
One success in ten
The odds are much poorer for new ideas
- 6 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Business Plan Funnel
Business Plan Received (600) Listen to presentation (60)
Visit (20) Due Diligence Negotiation (12)
Investment (3) Brookwood Partners
- 7 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Causes of New Product Failure
0
5
10
15
20
25
30
35
40
45
Inadequate MarketAnalysisProduct Problems orDefectsLack of EffectiveMarketing EffortHigher Costs thanAnticipatedCompetitive Strength orReactionPoor Timing of Initiative
Technical or ProductionProblemsAll Other Causes
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Key Takeaways
1 Forecasts are always wrong 2 How wrong (a) a lot or (b) an awful lot 3 Challenge for international markets power localization etc 4 Global supply lines mean long lead times aggravating the problem 5 Design can have a major impact on supply chain flexibility 6 Hard costs will lead you to specialized products Inventory
benefits can be very large but are Soft costs 7 Who is measured on inventory 8 Hidden costs are often invisible or occur much later than the key
decisions which can create them 9 Do the math Think again about what could change the answer 10 Remember that this is one of many decisions over time
111712 14
Key Learnings for Supply Chain Management
Value of postponement
Organizational roles and measurements
International dimensions
111712 15
Value of Postponement HP Network Printer Demand Worldwide
60
40
30Reduced cycle times 50
20
0 - 10000 20000 30000 40000 50000 60000
50
Average demand = 25000 per month Average forecast error = 40 at maturity
31 31
16 16
1 2
7 7
2 1
Monthly Demand in Units Lower forecast errors 10
Smaller safety stocksfewer stockouts Lower obsolescence costs Reduced penalty costsprofit drains
Prob
abili
ty o
f Mon
thly
Dem
and
raquo Reconfiguration and extra handling raquo Premium transportation raquo Prevent lost revenue and profit raquo Prevent loss of market share
Changes during product life cycle
111712 16
Organizational roles and Measurements
Marketing EngineeringDesignProduct Management Finance Manufacturing Procurement LogisticsDistribution General Managers Supplierpartner
111712 17
Organizational roles and Measurements
Accountability BET (Break-Even Time)
How to measure Who pays
Effects of regional PampLs
Costs raquo Product cost raquo Transportation raquo Inventory raquo Obsolescence raquo Stockouts
Net profit
111712 18
International Aspects
Product variety Distance and time for supply Power and regulatory requirements Labeling packaging Forecast complexities Supplier inflexibility Accountability and measurement
111712 19
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Strategic Planning of RampD
- 2 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Outline
Risk Factors in RampD
Strategic Focus
Stage-Gate Process
Technology Choice Case
- 3 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Company Births and Deaths
1995 594000 births amp 497000 deaths
2002 580900 births amp 576200 deaths
2005 670058 births amp 599333 deaths
SBA Office of Advocacy
- 4 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attrition Rate of New-Product Ideas
For every 11 serious ideas 3 enter development 13 are launched 1 succeeds
- 5 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attempts to Start New Business
One success in ten
The odds are much poorer for new ideas
- 6 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Business Plan Funnel
Business Plan Received (600) Listen to presentation (60)
Visit (20) Due Diligence Negotiation (12)
Investment (3) Brookwood Partners
- 7 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Causes of New Product Failure
0
5
10
15
20
25
30
35
40
45
Inadequate MarketAnalysisProduct Problems orDefectsLack of EffectiveMarketing EffortHigher Costs thanAnticipatedCompetitive Strength orReactionPoor Timing of Initiative
Technical or ProductionProblemsAll Other Causes
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Key Learnings for Supply Chain Management
Value of postponement
Organizational roles and measurements
International dimensions
111712 15
Value of Postponement HP Network Printer Demand Worldwide
60
40
30Reduced cycle times 50
20
0 - 10000 20000 30000 40000 50000 60000
50
Average demand = 25000 per month Average forecast error = 40 at maturity
31 31
16 16
1 2
7 7
2 1
Monthly Demand in Units Lower forecast errors 10
Smaller safety stocksfewer stockouts Lower obsolescence costs Reduced penalty costsprofit drains
Prob
abili
ty o
f Mon
thly
Dem
and
raquo Reconfiguration and extra handling raquo Premium transportation raquo Prevent lost revenue and profit raquo Prevent loss of market share
Changes during product life cycle
111712 16
Organizational roles and Measurements
Marketing EngineeringDesignProduct Management Finance Manufacturing Procurement LogisticsDistribution General Managers Supplierpartner
111712 17
Organizational roles and Measurements
Accountability BET (Break-Even Time)
How to measure Who pays
Effects of regional PampLs
Costs raquo Product cost raquo Transportation raquo Inventory raquo Obsolescence raquo Stockouts
Net profit
111712 18
International Aspects
Product variety Distance and time for supply Power and regulatory requirements Labeling packaging Forecast complexities Supplier inflexibility Accountability and measurement
111712 19
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Strategic Planning of RampD
- 2 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Outline
Risk Factors in RampD
Strategic Focus
Stage-Gate Process
Technology Choice Case
- 3 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Company Births and Deaths
1995 594000 births amp 497000 deaths
2002 580900 births amp 576200 deaths
2005 670058 births amp 599333 deaths
SBA Office of Advocacy
- 4 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attrition Rate of New-Product Ideas
For every 11 serious ideas 3 enter development 13 are launched 1 succeeds
- 5 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attempts to Start New Business
One success in ten
The odds are much poorer for new ideas
- 6 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Business Plan Funnel
Business Plan Received (600) Listen to presentation (60)
Visit (20) Due Diligence Negotiation (12)
Investment (3) Brookwood Partners
- 7 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Causes of New Product Failure
0
5
10
15
20
25
30
35
40
45
Inadequate MarketAnalysisProduct Problems orDefectsLack of EffectiveMarketing EffortHigher Costs thanAnticipatedCompetitive Strength orReactionPoor Timing of Initiative
Technical or ProductionProblemsAll Other Causes
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Value of Postponement HP Network Printer Demand Worldwide
60
40
30Reduced cycle times 50
20
0 - 10000 20000 30000 40000 50000 60000
50
Average demand = 25000 per month Average forecast error = 40 at maturity
31 31
16 16
1 2
7 7
2 1
Monthly Demand in Units Lower forecast errors 10
Smaller safety stocksfewer stockouts Lower obsolescence costs Reduced penalty costsprofit drains
Prob
abili
ty o
f Mon
thly
Dem
and
raquo Reconfiguration and extra handling raquo Premium transportation raquo Prevent lost revenue and profit raquo Prevent loss of market share
Changes during product life cycle
111712 16
Organizational roles and Measurements
Marketing EngineeringDesignProduct Management Finance Manufacturing Procurement LogisticsDistribution General Managers Supplierpartner
111712 17
Organizational roles and Measurements
Accountability BET (Break-Even Time)
How to measure Who pays
Effects of regional PampLs
Costs raquo Product cost raquo Transportation raquo Inventory raquo Obsolescence raquo Stockouts
Net profit
111712 18
International Aspects
Product variety Distance and time for supply Power and regulatory requirements Labeling packaging Forecast complexities Supplier inflexibility Accountability and measurement
111712 19
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Strategic Planning of RampD
- 2 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Outline
Risk Factors in RampD
Strategic Focus
Stage-Gate Process
Technology Choice Case
- 3 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Company Births and Deaths
1995 594000 births amp 497000 deaths
2002 580900 births amp 576200 deaths
2005 670058 births amp 599333 deaths
SBA Office of Advocacy
- 4 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attrition Rate of New-Product Ideas
For every 11 serious ideas 3 enter development 13 are launched 1 succeeds
- 5 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attempts to Start New Business
One success in ten
The odds are much poorer for new ideas
- 6 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Business Plan Funnel
Business Plan Received (600) Listen to presentation (60)
Visit (20) Due Diligence Negotiation (12)
Investment (3) Brookwood Partners
- 7 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Causes of New Product Failure
0
5
10
15
20
25
30
35
40
45
Inadequate MarketAnalysisProduct Problems orDefectsLack of EffectiveMarketing EffortHigher Costs thanAnticipatedCompetitive Strength orReactionPoor Timing of Initiative
Technical or ProductionProblemsAll Other Causes
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Organizational roles and Measurements
Marketing EngineeringDesignProduct Management Finance Manufacturing Procurement LogisticsDistribution General Managers Supplierpartner
111712 17
Organizational roles and Measurements
Accountability BET (Break-Even Time)
How to measure Who pays
Effects of regional PampLs
Costs raquo Product cost raquo Transportation raquo Inventory raquo Obsolescence raquo Stockouts
Net profit
111712 18
International Aspects
Product variety Distance and time for supply Power and regulatory requirements Labeling packaging Forecast complexities Supplier inflexibility Accountability and measurement
111712 19
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Strategic Planning of RampD
- 2 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Outline
Risk Factors in RampD
Strategic Focus
Stage-Gate Process
Technology Choice Case
- 3 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Company Births and Deaths
1995 594000 births amp 497000 deaths
2002 580900 births amp 576200 deaths
2005 670058 births amp 599333 deaths
SBA Office of Advocacy
- 4 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attrition Rate of New-Product Ideas
For every 11 serious ideas 3 enter development 13 are launched 1 succeeds
- 5 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attempts to Start New Business
One success in ten
The odds are much poorer for new ideas
- 6 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Business Plan Funnel
Business Plan Received (600) Listen to presentation (60)
Visit (20) Due Diligence Negotiation (12)
Investment (3) Brookwood Partners
- 7 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Causes of New Product Failure
0
5
10
15
20
25
30
35
40
45
Inadequate MarketAnalysisProduct Problems orDefectsLack of EffectiveMarketing EffortHigher Costs thanAnticipatedCompetitive Strength orReactionPoor Timing of Initiative
Technical or ProductionProblemsAll Other Causes
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Organizational roles and Measurements
Accountability BET (Break-Even Time)
How to measure Who pays
Effects of regional PampLs
Costs raquo Product cost raquo Transportation raquo Inventory raquo Obsolescence raquo Stockouts
Net profit
111712 18
International Aspects
Product variety Distance and time for supply Power and regulatory requirements Labeling packaging Forecast complexities Supplier inflexibility Accountability and measurement
111712 19
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Strategic Planning of RampD
- 2 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Outline
Risk Factors in RampD
Strategic Focus
Stage-Gate Process
Technology Choice Case
- 3 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Company Births and Deaths
1995 594000 births amp 497000 deaths
2002 580900 births amp 576200 deaths
2005 670058 births amp 599333 deaths
SBA Office of Advocacy
- 4 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attrition Rate of New-Product Ideas
For every 11 serious ideas 3 enter development 13 are launched 1 succeeds
- 5 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attempts to Start New Business
One success in ten
The odds are much poorer for new ideas
- 6 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Business Plan Funnel
Business Plan Received (600) Listen to presentation (60)
Visit (20) Due Diligence Negotiation (12)
Investment (3) Brookwood Partners
- 7 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Causes of New Product Failure
0
5
10
15
20
25
30
35
40
45
Inadequate MarketAnalysisProduct Problems orDefectsLack of EffectiveMarketing EffortHigher Costs thanAnticipatedCompetitive Strength orReactionPoor Timing of Initiative
Technical or ProductionProblemsAll Other Causes
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
International Aspects
Product variety Distance and time for supply Power and regulatory requirements Labeling packaging Forecast complexities Supplier inflexibility Accountability and measurement
111712 19
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Strategic Planning of RampD
- 2 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Outline
Risk Factors in RampD
Strategic Focus
Stage-Gate Process
Technology Choice Case
- 3 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Company Births and Deaths
1995 594000 births amp 497000 deaths
2002 580900 births amp 576200 deaths
2005 670058 births amp 599333 deaths
SBA Office of Advocacy
- 4 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attrition Rate of New-Product Ideas
For every 11 serious ideas 3 enter development 13 are launched 1 succeeds
- 5 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attempts to Start New Business
One success in ten
The odds are much poorer for new ideas
- 6 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Business Plan Funnel
Business Plan Received (600) Listen to presentation (60)
Visit (20) Due Diligence Negotiation (12)
Investment (3) Brookwood Partners
- 7 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Causes of New Product Failure
0
5
10
15
20
25
30
35
40
45
Inadequate MarketAnalysisProduct Problems orDefectsLack of EffectiveMarketing EffortHigher Costs thanAnticipatedCompetitive Strength orReactionPoor Timing of Initiative
Technical or ProductionProblemsAll Other Causes
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Strategic Planning of RampD
- 2 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Outline
Risk Factors in RampD
Strategic Focus
Stage-Gate Process
Technology Choice Case
- 3 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Company Births and Deaths
1995 594000 births amp 497000 deaths
2002 580900 births amp 576200 deaths
2005 670058 births amp 599333 deaths
SBA Office of Advocacy
- 4 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attrition Rate of New-Product Ideas
For every 11 serious ideas 3 enter development 13 are launched 1 succeeds
- 5 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attempts to Start New Business
One success in ten
The odds are much poorer for new ideas
- 6 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Business Plan Funnel
Business Plan Received (600) Listen to presentation (60)
Visit (20) Due Diligence Negotiation (12)
Investment (3) Brookwood Partners
- 7 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Causes of New Product Failure
0
5
10
15
20
25
30
35
40
45
Inadequate MarketAnalysisProduct Problems orDefectsLack of EffectiveMarketing EffortHigher Costs thanAnticipatedCompetitive Strength orReactionPoor Timing of Initiative
Technical or ProductionProblemsAll Other Causes
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Strategic Planning of RampD
- 2 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Outline
Risk Factors in RampD
Strategic Focus
Stage-Gate Process
Technology Choice Case
- 3 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Company Births and Deaths
1995 594000 births amp 497000 deaths
2002 580900 births amp 576200 deaths
2005 670058 births amp 599333 deaths
SBA Office of Advocacy
- 4 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attrition Rate of New-Product Ideas
For every 11 serious ideas 3 enter development 13 are launched 1 succeeds
- 5 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attempts to Start New Business
One success in ten
The odds are much poorer for new ideas
- 6 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Business Plan Funnel
Business Plan Received (600) Listen to presentation (60)
Visit (20) Due Diligence Negotiation (12)
Investment (3) Brookwood Partners
- 7 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Causes of New Product Failure
0
5
10
15
20
25
30
35
40
45
Inadequate MarketAnalysisProduct Problems orDefectsLack of EffectiveMarketing EffortHigher Costs thanAnticipatedCompetitive Strength orReactionPoor Timing of Initiative
Technical or ProductionProblemsAll Other Causes
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 2 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Outline
Risk Factors in RampD
Strategic Focus
Stage-Gate Process
Technology Choice Case
- 3 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Company Births and Deaths
1995 594000 births amp 497000 deaths
2002 580900 births amp 576200 deaths
2005 670058 births amp 599333 deaths
SBA Office of Advocacy
- 4 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attrition Rate of New-Product Ideas
For every 11 serious ideas 3 enter development 13 are launched 1 succeeds
- 5 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attempts to Start New Business
One success in ten
The odds are much poorer for new ideas
- 6 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Business Plan Funnel
Business Plan Received (600) Listen to presentation (60)
Visit (20) Due Diligence Negotiation (12)
Investment (3) Brookwood Partners
- 7 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Causes of New Product Failure
0
5
10
15
20
25
30
35
40
45
Inadequate MarketAnalysisProduct Problems orDefectsLack of EffectiveMarketing EffortHigher Costs thanAnticipatedCompetitive Strength orReactionPoor Timing of Initiative
Technical or ProductionProblemsAll Other Causes
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 3 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Company Births and Deaths
1995 594000 births amp 497000 deaths
2002 580900 births amp 576200 deaths
2005 670058 births amp 599333 deaths
SBA Office of Advocacy
- 4 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attrition Rate of New-Product Ideas
For every 11 serious ideas 3 enter development 13 are launched 1 succeeds
- 5 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attempts to Start New Business
One success in ten
The odds are much poorer for new ideas
- 6 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Business Plan Funnel
Business Plan Received (600) Listen to presentation (60)
Visit (20) Due Diligence Negotiation (12)
Investment (3) Brookwood Partners
- 7 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Causes of New Product Failure
0
5
10
15
20
25
30
35
40
45
Inadequate MarketAnalysisProduct Problems orDefectsLack of EffectiveMarketing EffortHigher Costs thanAnticipatedCompetitive Strength orReactionPoor Timing of Initiative
Technical or ProductionProblemsAll Other Causes
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 4 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attrition Rate of New-Product Ideas
For every 11 serious ideas 3 enter development 13 are launched 1 succeeds
- 5 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attempts to Start New Business
One success in ten
The odds are much poorer for new ideas
- 6 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Business Plan Funnel
Business Plan Received (600) Listen to presentation (60)
Visit (20) Due Diligence Negotiation (12)
Investment (3) Brookwood Partners
- 7 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Causes of New Product Failure
0
5
10
15
20
25
30
35
40
45
Inadequate MarketAnalysisProduct Problems orDefectsLack of EffectiveMarketing EffortHigher Costs thanAnticipatedCompetitive Strength orReactionPoor Timing of Initiative
Technical or ProductionProblemsAll Other Causes
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 5 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Attempts to Start New Business
One success in ten
The odds are much poorer for new ideas
- 6 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Business Plan Funnel
Business Plan Received (600) Listen to presentation (60)
Visit (20) Due Diligence Negotiation (12)
Investment (3) Brookwood Partners
- 7 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Causes of New Product Failure
0
5
10
15
20
25
30
35
40
45
Inadequate MarketAnalysisProduct Problems orDefectsLack of EffectiveMarketing EffortHigher Costs thanAnticipatedCompetitive Strength orReactionPoor Timing of Initiative
Technical or ProductionProblemsAll Other Causes
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 6 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Business Plan Funnel
Business Plan Received (600) Listen to presentation (60)
Visit (20) Due Diligence Negotiation (12)
Investment (3) Brookwood Partners
- 7 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Causes of New Product Failure
0
5
10
15
20
25
30
35
40
45
Inadequate MarketAnalysisProduct Problems orDefectsLack of EffectiveMarketing EffortHigher Costs thanAnticipatedCompetitive Strength orReactionPoor Timing of Initiative
Technical or ProductionProblemsAll Other Causes
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 7 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Causes of New Product Failure
0
5
10
15
20
25
30
35
40
45
Inadequate MarketAnalysisProduct Problems orDefectsLack of EffectiveMarketing EffortHigher Costs thanAnticipatedCompetitive Strength orReactionPoor Timing of Initiative
Technical or ProductionProblemsAll Other Causes
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 8 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Failures not merely negligence
Attributable to lack of minus understanding customer requirements
minus creating dramatic differences in current capabilities
minus understanding additional capabilities
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 9 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Technology
Inc
rea
se
d R
isk
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 10 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Product
New Technology
Inc
rea
se
d R
isk
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 11 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 12 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
The Suicide Square
New Market New Product
New Technology
Inc
rea
se
d R
isk
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 13 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Risk Matrices
Existing New
Technology
Ma
rket
s
New
Existing
Low Risk Low Returns
Market Risk Ordinary Returns
Market and Tech Risk ldquoThe Death Zonerdquo
Technology Risk High Returns
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 14 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1981 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Vinyl records to audio market
Sell floppy disks to the PC market
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 15 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
CD Risk Matrix 1985-1996 Sony Philips Matsushita
Existing New
Technology
Ma
rket
s
New
Existing
Sell CDrsquos to the PC market
Sell CDrsquos to the Audio market
Sell DVDrsquos to the Video market
Sell DVDrsquos to the Video Game market
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 16 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Management
Strategic focus
Business process
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 17 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Focus Choose attractive strategic markets or market
segments to participate in
Find ldquoBeaconsrdquo in selected markets and market segments
Identify core competencies needed to address products markets and applications
Plan a product market application competency succession strategy
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 18 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Product What we supply to add value Market Who we supply the value to Application How customers use the product to realize value
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 19 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
Automotive
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 20 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW Group
GM Opel
BMW Rover
Ford
Hose
ampTubing
Assemblies
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 21 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Business
PRODUCT MARKET APPLICATION
VW
GM
BMW
Ford
Hose
ampTubing
Assemblies
AC Systems
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 22 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Technology Strategy vs Corporate Strategy
Identify the firmrsquos ldquoCore Competencyrdquo
Specify the types of products markets applications and technologies for focus
Specify the role technology innovation plays in achieving the firms overall objectives
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 23 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Strategic Resources Focus and Risk
Assign resources to reflect strategic focus
Assign resources according to the acceptable level of risk
Reconcile differences between the stated strategy and specified resources
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 24 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Stage ndash Gate Process
Develop Develop Launch
1st 2nd 3rd nthSTAGE
Ideas
Go No-Go Screen
Go No-Go Screen
Go No-Go Screen
Investigate
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Modified Stage-Gate with Continuous Customer Interaction
Development New product
IDEA Strategic
focus
Customer
Customer
n-th Development
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 26 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Concurrent Business Development
Cross-disciplinary teams Knowledge must broaden
minus Engineers are ldquotechnicalrdquo experts but must understand the business
minus Managers are ldquobusinessrdquo experts but must understand the technology
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 27 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Case Study Technology Choice
Grumman Corporation
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 28 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology
Will the technology satisfy a market sometime in the future (Market Need) minus Does it provide improved performance minus Does it reduce costs minus Is its market penetration rate acceptable
When will the product become significant (Timing)
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 29 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Basic Factors in Evaluating a Technology (cont)
Will the technology be commercially viable (Economics)
minus Does the market exist or will it be created minus Does the potential market size justify the
investment minus Is the production process feasible and practical minus Is the product profitable to manufacture
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solar grid parity is close
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 31 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 32 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Solarrsquos Challenge Scale
202 287 401 560 750 1256
1815 2536
4279
7910
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MW
s
Global Cell Production
Despite record growth generation from PV still is only 02 of total global electricity
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
- 33 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Our energy supply will change and PV will
play a big role
2050 2100
Renewables bull Hydro bull Solar Electric bull Wind bull Bio-fuels bull Geothermal
1800 1850 1900 1950 2000
Nuclear
Wood
Coal
Oil
Gas
100
80
60
40
20
0
Hydro
Year Source Energy Information Agency
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012 For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
HP Printer Case Study amp Questions
Due Wednesday November 14 2012
Read Hewlett-Packard Company Universal Power Supply for Printer Design (p357)
The questions on the last page of the case study (p 365) are there to stimulate your thoughts as you analyze the case For the written assignment please answer the following questions in less than one page 1) What do you recommend HP do about the universal power supply and why 2) Five functional managers are discussed in the case a) Marketing b) Product Design amp Development c) Finance d) Manufacturing Engineering e) Distribution What do you believe are the primary measures of each departments performance and how do they affect the managerrsquos views about this decision
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Self-Unloader Dry Bulk Ships Case Study amp Questions
Read the SUL Company case study For your written assignment I want you to calculate the premium (expressed as a percentage) that the self-unloader shipowner must charge compared to the owner of a standard bulker This premium should be evaluated for a ship that costs $60 million to build (includes an additional $12 million in vessel cost for the self-unloader) and has a daily operating cost (opex) of $8900 The premium must provide an equivalent return on capital (ROC) and return on equity (ROE) when compared to the original values for the standard bulker (See guidelines below as to how to do this) In class we will discuss
The above calculation assumes that the self-unloader spends the same time in port as a standard bulker What impact does it have that the self-unloader has a faster unloading rate and therefore a shorter time in port How do you quantify this impact
What should SUL Corsquos pricing policy be From a shipownerrsquos viewpoint what are the prorsquos and conrsquos of being a self
unloader shipowner Should SUL Co build the ship described in the case studyspreadsheet How does the down market affect SUL Corsquos decision
Guidelines for the SUL Mendoza Investment Model To modify capital costs Change cell F7 from a value of $48000000 to $60000000 To change operating expenses Change cell V8 from a value of $7000 to $8900 To change the time charter equivalent (TCE) rate Think of the TCE rate as the amount that the shipowner charges for the use of his ship each day To see the impact of increasing the TCE by X change cell F17 from 0 to X Hit ldquoEnterrdquo For your homework just state the PERCENTAGE PREMIUM plus 3 reasons why you think that SUL Co willmdashor will notmdashbe able to obtain this premium
This assignment sheet was prepared by Nathan L Pratt and Henry S Marcus as an introduction to working with the referenced investment model Some information in this spreadsheet (the inputs relating to TCE and interest rates in particular) has been disguised at the request of the author of the spreadsheet
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Ethics ndash Group Homework Assignment
Read Ethics Scenarios (p 233)
For the written assignment please answer the following question in one paragraph as a group for your scenario
What would you do and why
If your entire group doesnrsquot agree on one answer you may add a paragraph with the minorityrsquos opinion
See the scenario assignments by group below
Team Scenario U01 1 U02 2 U03 3 U04 4 U05 5 U06 6 U07 7 U08 8 G01 9 G02 10 G03 11
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in Engineering Fall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2011
Professor Henry Marcus Professor Jung-Hoon Chun
and Dr Abbott Weiss
Accounting Quiz
October 31 2011
DO NOT OPEN this quiz until instructed to do so This quiz is CLOSED BOOK Put your name on top of every pagemdashthese pages may be separated for grading Write your solutions in the space provided Should you need extra space write in
the back of the page with the problem Blue books will be provided for your own use but will not be graded Be neat and write legibly
Fill in your name and the names of the people sitting next to you If you are at the end of a row write ldquoXrdquo in the space provided
Your name Name of person to your left Name of person to your right
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
1 2 3 4 5
2962961 Quiz 1 Name______________________________________
Problem Grade Points 20 40 25 15 5
Total 105
2
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Quiz 1 Name______________________________________
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
If you canrsquot find the value for A please use the number 90 If you canrsquot find the value for I please use the number (150)
2011 2010 2009 Assets Cash 160 110 (a) Accounts Receivable 100 60 70 Inventory 150 (d) 80 Land 40 40 40 Property plant and equipment 160 140 (b)
Liabilities and Stockholderrsquos Equity Accounts Payable 50 110 175 Loan 150 200 200 Contributed Capital 310 310 310 Retained Earnings (g) (e ) (300)
PampL Income 1500 1300 900 Expenses (h) (1100) (1200) Net Income 300 (f) (300) Dividends 100 0 (c )
Cash Flow Net cash increase (decrease) from operating activities 220 55 (275) Net cash increase (decrease) from Investing activities (20) (35) (145) Net cash increase (decrease) from Financing activities (i) 0 510
(a)
(b)
3
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Quiz 1 Name______________________________________
(c)
(d)
(e)
(f)
(g)
(h)
(i)
4
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Quiz 1 Name______________________________________
Question 2 Recording Transactions (40 points)
Test Corp (ldquothe Companyrdquo) made the following transactions during 2010 fiscal years (assume that they are listed in chronological order)
1 The business was started on January 1st by the owner when she contributed $10000 in cash 2 On January 1st the Company paid rent for two years in the total amount of $2400 3 On January 1st the Company purchased computers in the amount of $900 The computers
have a useful life of 3 years and a salvage value of 0 4 The Company provided service to customers and recognized $3000 revenue on account (did
not receive cash) 5 The Company Collected $1500 cash from customers 6 On July 1 the company borrowed $2000 from M-E Bank at an interest rate of 10 for 12
months The interest is payable on June 30 2011 7 On December 31 the Company distributed dividends in the amount of $600 to the owners
(a) Record ALL the effects of each of the events above on the table provided below Mark an increase with a + and a decrease with ( )
(b) Evaluate the effect of each transaction on the Leverage ratio (circle whether the ratio will increasenot changedecrease)
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange
5
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Quiz 1 Name______________________________________
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivable (including
other)
Equipment Interest Payable Loan Shareholders
Equity
decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease Increase Nochange decrease
6
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Quiz 1 Name______________________________________
Question 3 Cash Flow Statement (25 points)
Use the balance sheet and income statement on the FOLLOWING PAGES (PAGE 8-9) to generate a cash flow statement for 2011 in the space below
CASH FLOW STATEMENT (2011) Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
7
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
8
2962961 Quiz 1 Name______________________________________
CONSOLIDATED BALANCE SHEETS FOR TEST CORPORATION
Oct 31 2011 Oct 31 2010
ASSETS Current Assets
Cash and Cash Equivalents 420 150 Accounts Receivables 90 40 Inventory 300 680
Total Current Assets 810 870 Property Plant and Equipment Property Plant and Equipment 470 470 Less Cumulative Depreciation (210) (180) Total Property Plant and Equipment 260 290
Total Assets 1070 1160 LIABILITIES Current Liabilities
Accounts Payable 310 150 Other Current Liabilities 200 300
Total Current Liabilities 510 450 Long-term Liabilities
Loan 0 400 Total Long-term Liabilities 0 400 Total Liabilities 510 850 SHAREHOLDERrsquoS EQUITY Paid-in Capital 230 80 Retained Earnings 330 230 Total Stockholder Equity 560 310
Total Liabilities amp Stockholdersrsquo Equity 1070 1160 On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
8
ASSET
ASSETS
ASSETS
ASSETS
S
LIABILITIES
SHAREHOLDERrsquoS EQUITY
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Quiz 1 Name______________________________________
CONSOLIDATED INCOME STATEMENT FOR TEST CORPORATION
Period Ending Oct 31 2011
Total Revenue 2000 Cost of Goods Sold 1225 Gross Profit 775
Research Development 250 Selling General and Administrative 170 Depreciation and amortization 30 Total Operating Expenses 450
Operating Income or Loss 425
Finance Expenses 25 Income Before Tax 400
Income Tax Expense 100 Net Income From Continuing Ops 200
Non-recurring Events
Loss from stolen property 100
Net Income 100
On the first day of the period (Nov 1 2010) a property with a book value of 100 and a cumulative depreciation of 0 (zero) as of Oct 31 2010 was stolen and the company recognized its value as a loss in the PampL
9
Operating Expenses
Non-recurring Events
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Quiz 1 Name______________________________________
Question 4 Ratios (15 points)
Company ldquoWinBigrdquois interested in raising funding for a new activity Here is the companyrsquos Balance sheet for January 1st 2011 (the day in which the company is trying to raise the money)
Cash 150000 Accounts Payable 160000 Accounts Receivable 130000 Accrued Expenses 40000
Land 300000 Long Term Loan 100000
Shareholders Equity 80000 Paid in Capital 110000 Retained Earnings 90000
The company received two funding alternatives
1 A loan in a sum of $100000 fully due at the end of the year carrying a 5 interest payable at the end of the year In addition the company must maintain a debt to equity ratio equal or lower than 125
2 A loan in a sum of $100000 fully due at the end of the year carrying a 6 interest payable at the end of the year In addition the company must maintain a debt to assets ratio equal or lower than 075
The loan in the companyrsquos balance sheet above is a previous loan (not one of these alternatives)
(a) Which of these alternatives WinBig should choose in order to maintain the requirements detailed above Explain your answer and show your calculations
Bonus Question
5 Which of the following could cause an increase in the Current Ratio (5 points)
a Purchasing inventory with cash b Purchasing inventory on credit (Accounts Payable) c Purchasing fixed assets with cash d None of the above
10
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Midterm Exam Answer Key Question 1 There are generally multiple valid equations to get to the correct answers These are just examples Also note the order of performing these calculations is not simply ai Up to -2 marks per error
a) Assets = Liabilities + Shareholder Equity a+70+80+40+b=175+200+310+(300) a = 90
b) Net Cash from Investing = (Incr in Land) + (Incr in PPE) (145) = (40) -b b = 105
c) REend = REbegin + NI - Dividends (300) = 0 + (300) - c c = 0
d) Assets = Liabilities + Shareholder Equity 110+60+d+40+140=110+200+310+e d=170
e) REend = REbegn + NI - Dividends e = (300)+f-0 e=(100)
f) NI = Income + Expenses f = 1300 + (1100) f = 200
g) REend = REbegin+NI-Dividends g = e + 300-100 g = 100
h) NI = Income + Expenses 300=1500+h h=(1200)
i) Net Cash from Financing = Incr in Cash - Net Cash from Operating - Net Cash from Investing i = 50-220-(20) i = (150)
1
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Question 2 Recording Transactions (40 points) We accepted two alternative calculations for the Leverage Ratio (Debt to Equity Ratio or The Current Ratio) Accordingly there were multiple right answers to some of the sections (for the effect on the Leverage Ratio part) The correct answers are marked in Bold and Underlined
Each Transaction was worth 4 points (including 1 point for the effect on the ratio)
You were required to record ALL the effects of each of the transactions Recording the ones listed below provides a complete answer Here are some comments about reoccurring mistakes
1 Transaction 2B is the end of year adjustment for the prepaid rent expenses 2 Transaction 3B is depreciation (End of year) 3 Transaction 6B is required to record interest expenses for the period from July 1st to
December 31 of 2010
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable Loan Shareholders
Equity
1 +10000 +10000
Increase Nochange decrease
2A - on 1110 (2400) +2400
Increase Nochange decrease
2B - on 123110
(1200) (1200)
Increase Nochange decrease
3A -on 1110 (900) +900
Increase Nochange decrease
3B -on 123110 (300) (300)
Increase Nochange decrease
4 +3000 +3000
Increase Nochange decrease
5 +1500 (1500)
Increase Nochange decrease
2
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
ASSETS LIABILITIES EQUITY Mark the effect on Leverage
Ratio Transaction Cash
Accounts Receivab
le (includin g other)
Equipme nt
Interest Payable
Loan Shareholders
Equity
Increase 6A -on Nochange 7110 +2000 +2000 decrease 6B -on Increase
123110 Nochange decrease
+100 (100) Increase Nochange
7 (600) (600) decrease Not
Total 9600 2700 600 100 2000 10800 required
Question 3 Cash Flow Statement
In the next page you can find the complete answer for this question The maximum score for a complete answer for each line is described on the right column In addition for every additional entry (something that should not appear in this report but you added it anyway) we reduced 1 point
Here are some comments about reoccurring mistakes
1 Since the Income statement includes a loss of 100$ (due to the stolen property) which did not have an effect on cash - you were required to add an adjustment in the Non Cash adjustments part
2 Although it seems the PPampE did not change during the year (Beginning Balance and Ending Balance are the same) since we know property in a value of 100$ was stolen (reduced the PPampE by a 100$) than we must assume the company purchased additional PPampE in the same amount
3
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Period Ending 3l-0ct-ll
Net Income l00
Non Cash Adjustments Increase in Cumulative Depreciation 30 Increase in Accounts Receivable -50 Decrease in Inventory 380 Increase in Accounts Payable 160 Decrease in Other Current Liabilities -100
Loss from stolen property 100
Max score
05
333331
2
Net Cash Increase from Operating Activities 620
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment -100
Net Cash Decrease from Investing Activities -100
Cash Flow From Financing Activities Payment of Long Term Loan -400 3 Issuance of Stocks (Paid in Capital) 150 3 Net Cash Decrease from Financing Activities -250
Total Increase in Cash during the year 2011 270
Beginning Cash Balance 150
Ending Cash Balance 420
05
25 Total
4
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Question 4 IShareholders Equity was meant to read IShare Capital such that you were supposed to add all three lines to get $280000 in Shareholder Equity However if you directly used Shareholder Equity of $80000 and made the correct conclusion given that choice you were not penalized Also if you elected to use long-term debt in these ratios instead of the more common total liabilities you should have realized that a one-year loan is not long-term debt In real life you would clarify these conditions with your debtors Also note that taking a loan provides cash assets in addition to showing up as a liability with interest Up to 5 marks per calculation 5 marks for conclusion There were 4 possible correct solutions
If equity is $80000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 506 gt 125 = FAIL Shareholder Equity 80000 80000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $80000 and debt is considered to be long-term debt WinBig should choose alternative 2 since it is the only possibility
Long-term Debt 100000 1 DE = = = 125 = 125 = FAIL Shareholder Equity 80000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be total liabilities WinBig should choose alternative 2 since it is the only possibility
Total Liabilities 160000+40000+100000+100000105 4050001 DE = = = = 145 gt 125 = FAIL Shareholder Equity 280000 280000
Total Liabilities 160000+40000+100000+100000106 406000 2 DA = = = = 060 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
If equity is $280000 and debt is considered to be long-term debt WinBig should choose alternative 1 since both are possible but alternative 1 has a lower interest rate
Long-term Debt 100000 1 DE = = = 036 lt 125 = OK Shareholder Equity 280000
Long-term Debt 100000 1000002 DA = = = = 015 lt 075 = OK Total Assets 150000+130000+300000+100000 680000
5
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
Question (onus)
urrent Assets ACurrent Ratio = = urrent Liabilities
a) (A+- )B = AB
b) (A+)(B+) AB if AB 1 c) (A-)B AB
The answer is b could increase current ratio if the ratio is currently less than unity 5 marks with good explanation 2 marks for what could have been a lucky guess with a missingincorrectincomplete or otherwise unsatisfactory explanation
6
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Management for Engineers
Fall 2012
Professor Henry Marcus Professor Jung-Hoon Chun
Accounting Quiz
Question 1 Financial Interpolation (20 points)
Complete the missing values from (a) to (i) in the chart below Show your calculations (write an equation and solve it) Note that the first year of operations is 2009 Answers without calculations will not get credit
(a) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $300 + 500 + 400 + (a)Land + 500 = 300 + 400 + 600 + 500 Land = $100
2011 2010 2009
Assets Cash 400 500 300
Accounts Receivable (g) 400 500 Inventory 300 (d) 400 Land 400 300 (a) Property plant and equipment 800 600 500
Liabilities and Stockholderrsquos Equity Accounts Payable 400 700 300
Loan 800 500 400 Contributed Capital 900 400 600 Retained Earnings 300 (e) 500
PampL Income (h) 1300 (b)
Expenses (700) (f) (300) Net Income (100) 500 600 Dividends (i) 600 (c)
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Quiz 1 Name_____________________________________
2
(b) (3 points)
Net income = Sales + Expenses $600 = (b)Sales - 300 Sales = $900
(c) (3 points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $500 = $0 + 600 ndash (c)Dividends Dividends = $100
(d) (3 points) amp (e) (4 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $500 + 400 + (d)Inventory + 300 + 600 = 700 + 500 + 400 + (e)Retained earnings Ending retained earnings = Beginning retained earnings + Net income ndash Dividends (e)Retained earnings = $500 + 500 ndash 600 (e)Retained earnings = $400
(d)Inventory = $200
(f) (3 points)
Net income = Sales + Expenses $500 = $1300 + (f)Expenses Expenses = -$800 (800)
(g) (3 points)
Total assets = Total liabilities + Total stockholdersrsquo equity $400 + (g)Accounts receivable + 300 + 400 + 800 = 400+ 800 + 900 + 300 Accounts receivable = $500
(h) (3 points)
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Quiz 1 Name_____________________________________
3
Net income = Sales + Expenses -$100 = (h)Sales - 700 Expenses = $600
(i) (3points)
Ending retained earnings = Beginning retained earnings + Net income ndash Dividends $300 = 400 - 100 ndash (i)Dividends Dividends = $0
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Quiz 1 Name_____________________________________
4
Question 2 Recording Transactions (40 points)
For each event in (a) ndash (e)
(i) Record the transaction using the balance sheet equation Be specific about account names Be sure to label each account as Asset (A) Liability (L) or Equity (E) Equity (E) includes income statement items (eg revenue and expense accounts) and dividends
(ii) Indicate the effect of each transaction (ie increase decrease or no effect) on the ratio indicated in the question Please use the following ratio definitions shown below
(iii)Treat each transaction independently When determining the effect of the transaction on
the Current Ratio assume that prior to the transaction the ratio is 1 and that the leverage ratio is 050 When determining the effect of the transaction on Return on Assets and Return on Equity assume that prior to the transaction the ratio is 010 and 020 respectively
Definition Assume that the ratio value
prior to the transaction is Current Ratio Current Assets 100 Current Liabilities Leverage Ratio Total Liabilities 050 Total Assets ROA Net Income 010 Average Total Assets ROE Net Income 020 Average Shareholders Equity
(iv) Ignore taxes
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Quiz 1 Name_____________________________________
5
Question 2 Recording transactions (continued)
The first event is given as an example
Recognized $8000 of sales expense of which $2500 is paid in cash and the rest is on credit
ASSETS LIABILITIES EQUITY
Mark the effect on
Ratio
Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (2500) (5500) (8000)
Return on Equity Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Quiz 1 Name_____________________________________
6
Question 2 Recording transactions (continued)
(a) (8 points) Recorded $12000 in depreciation expense
(b) (8 points) Provided service to the customer and recognized $20000 revenue on account
(c) (8 points) Paid a $12000 dividend in cash
(d) (8 points) Received $12000 from a customer for a payment of accounts receivable
(e) (8 points) Purchased $10000 of inventory on account
ASSETS LIABILITIES EQUITY Mark the effect on
Ratio Transaction Cash Accounts Receivable Inventory Accounts
Payable Shareholdersrsquo
Equity
(a) (8 points) (12000) (12000)
Return on Assets Increase No change Decrease
(b) (8 points) 20000 20000
Leverage Ratio Increase No change Decrease
(c) (8 points) (12000) (12000)
Return on Equity Increase No change Decrease
(d) (8 points) 12000 (12000)
Current Ratio Increase No change Decrease
(e) (8 points) 10000 10000
Return on Assets Increase No change Decrease
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Quiz 1 Name_____________________________________
7
Calculation of financial statement effects
(a)
(b)
(c)
(d)
(e)
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Quiz 1 Name_____________________________________
8
Question 4 Ratios (15 points)
For each of the following transactions first indicate the transaction ABC should have recorded and whether each account represents an asset (A) liability (L) or shareholderrsquos equity (SE) Then indicate how each of these accounting errors would affect ABC Incrsquos return on assets return on shareholderrsquos equity and debt to equity ratio That is after each error would the firmrsquos ROA ROE and Leverage ratio be too high too low or the same Consider each of the errors independently
Assume that ROA and ROE before each error are below one and above 0 (that is 0 lt ROA lt1 and 0 lt ROE lt1) and that the Leverage ratio before each error is equal to 050 Ignore taxes
For instance if ABC should have recorded the receipt of $10000 cash and a related decrease in accounts receivable the entry should appear as
Cash (A) $10000
Accounts Receivable (A) $10000
A (5 points) ABC incurs research and development (RampD) expense of $10000 in the current year Rather than record an expense ABC capitalizes $10000 of RampD as an asset There are no other entries related to this transaction during the current year Note that ABC normally pays RampD expenses in cash
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation
Accounts Payable
Retained Earnings
(10000) (10000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Quiz 1 Name_____________________________________
9
B (5 points) ABC receives a loan in the amount of $20000 from the bank The company mistakenly records the loan as a common stock issuance
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings 20000 20000
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
C (5 points) During a physical inventory count at yearend ABC realizes that 200 units of inventory costing $20000 are missing however ABC fails to update its accounting records
The transaction ABC should have recorded is
ASSETS LIABILITIES EQUITY
Cash Accounts Receivable Inventory
Accumulated Depreciation Loan Retained
Earnings (20000) (20000)
The effect of the error on the ratio is
ROA higher than lower than the same
ROE higher than lower than the same
Leverage higher than lower than the same
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
2962961 Quiz 1 Name_____________________________________
10
Problem Grade Points 1 20 2 40 3 25 4 15
Total 100
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
You will often have a chance to develop or evaluate business propositions If you do
nothing else at least cover these elements
Presenting Business Opportunities Document Simply and Clearly
Customer Need
What unmet customer need exists that you are addressing Which customers What are
the characteristics of the need and those customers
Proposed Solution
How do you plan to fulfill the need described What alternatives are available (or could
be) to the customers and why is your solution preferred How is our solution better than
the competition What are the key elements of the solution proposed How do you plan
to implement When
Costs
What are the major costs and assets of delivering this solution Provide enough detail so
we understand them well
Price and Profit
What do we plan to charge the customer What are their expectations What are the
margins and the net profits
Risks
What are the important things that could go wrong What are our plans to minimize the
occurrence or the cost of those risks
Dr Abbott Weiss
Senior Lecturer
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms
MIT OpenCourseWarehttpocwmitedu
296 2961 6930 10806 16653 Management in EngineeringFall 2012
For information about citing these materials or our Terms of Use visit httpocwmiteduterms