Strategy, Innovation and Management Control
March, 2014
Entry Test
In order to treat all students equally, no questions will be answered during the test. In
case you do not understand a question, make an assumption. In any case, make sure
that your assumption is explicitly stated in your solution.
Please, make sure you have all pages and your name is marked on each page if you
separate the pages. Answers will only be accepted if given on the solution sheets.
Please consider that each point is equivalent to approximately one minute of working
time.
NAME:
INDEX
1.
2.
3.
4.
5.
Make-or-Buy
Finance & Investment
Accounting
Statistics
Business Judgement
8
20
8
8
6
pt
pt
pt
pt
pt
Total
50 pt
GOOD LUCK!
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Strategy, Innovation and Management Control
March, 2014
1. Make-or-Buy
(8 pt)
After the great results of Austrian athletes at the 2014 Olympic winter games, the manufacturer of official merchandise wants to expand its range of products by a “medalist collection” of scarves. As the company’s CEO, you need to decide whether the production of
the scarves should be done in-house or whether it should be outsourced. The following
figures are available:
•
Net sales price per scarf is EUR 10.20
•
Sales are estimated to reach 38,000 scarves in the first year
•
In case of in-house production, the following costs are incurred:
•
o
Cost of material per scarf EUR 3.70
o
Labor costs per scarf EUR 1.60
o
Other variable costs per scarf EUR 2.20
o
Fixed costs per year amount to EUR 83,400.
Alternatively, the company “Ski 4 You” offers complete production for EUR
372,500.
Would you consider producing the scarves in-house or outsource this activity (indicate
with (X))? Why?
(6 pt)
X
Produce scarves in-house
Outsource the production of scarves
Produce scarves in-house
Calculation: --> Total Costs for Y1=(3.70+1,60+2.20)*38,000+83,400=368,400
Net Sales for Y1= 38,000*10.20=387,600
Profits for Y1=387,600- 368,400=19,200
Outsource the production of the scarves
Calculation: --> Total Costs for Y1= 372,500
Net Sales for Y1=387,600 EUR
Profits for Y1=387,600-372,500=15,100
Please indicate whether the following statements are true (T) or false (F): (2 pt)
F
In case of decision to outsource the production, the company will incur a loss
from this activity.
T
Profit in case of in-house production is EUR 19,200.
T
The contribution margin per piece is EUR 2.70.
F
Total variable costs in case of in-house production are EUR 368,400.
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Strategy, Innovation and Management Control
March, 2014
2. Finance & Investment
(20 pt)
a) Imagine you have 5,500 Efros and you have been offered safe investment into a project, where you will pay 5,000.00 Efros now and 500 Efros in one year. You will receive
600 at the end of year 2 and year 3 and the final payment of 6,000 Efros at the end of
year 4. Alternatively, you can invest all your money in Panco Banco's fund with a stable
annual rate of return of 9%, (which is also your personal benchmark for any investment
strategies).
Would you consider investing in Panco Banco fund only or combine it with the investment
in the abovementioned project (indicate with (X))? Why?
(6 pt)
X
Invest in Panco Banco’s fund only
Combined investment
Invest in Panco Banco's fund only
Calculation: 5,500*1.09^4=~7,764 Efros
Combined investment
Calculation: (500*1.09-500)*1.09^3+600*1.09^2+600*1.09+6000=~7,425 Efros
If combined investment would be riskier and you would have a 1:1 probability
of receiving either 6,300 or 5,700 as your final payment, would you reconsider
your investment strategy (indicate with (X))?
(2 pt)
Yes
X
No
It depends on the degree of risk aversion
If combined investment would be riskier and you would have a 1:1 probability
of receiving either 8,000 or 5,000 as your final payment, would you reconsider
your investment strategy (indicate with (X))?
(2 pt)
Yes
No
X
It depends on the degree of risk aversion
Page 3 / 6
Strategy, Innovation and Management Control
March, 2014
b) You decided to buy a bicycle. The offer is to pay the full price of EUR 500 now in cash
or to pay EUR 320 now plus EUR 100 after one year and again EUR 100 after one more
year. Assume that you can invest money at a risk-free interest rate of 3% per year and
borrow money at an interest rate of 8% per year.
Which alternative do you choose if you have savings of EUR 1,000 (indicate with
(X))? Why?
(6 pt)
X
Pay the full price now
Hire purchase
320+100/1.03 + 100/(1.03*1.03)=511.34>500
Which alternative do you choose if you have no savings and have just borrowed EUR 300
for other personal needs (indicate with (X))? Why?
(4 pt)
Pay the full price now
X
Hire purchase
(assuming that EUR 300 were borrowed for other needs)
Pay the full price now:
Calculation: 800*1.08^3=~1008
Hire Purchase:
Calculation: 620*1.08^3+100*1.08^2/1.03+100*1.08/1.03^2=~996
3. Accounting
(8 pt)
a) An employee is asked by his boss to make a break-even-analysis of the lamp business
unit. The following information is known:
•
Fixed costs are EUR 60,000
•
Variable costs per one lamp are EUR 14
•
Price at which lamp is sold is EUR 22
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Strategy, Innovation and Management Control
March, 2014
What is the break-even number of lamps and the corresponding revenue?
(4 pt)
-(60,000 + 14x) + 22x = 0
7,500 lamps must be sold
Revenue=22*7,500=165,000
b) Please indicate whether the following statements are true (T) or false (F):
(2 pt)
T
It is possible for a firm to make a profit but still have a negative Cash Flow.
T
It is possible for a firm with a positive Cash Flow to report a loss.
F
ROE is equal to profit margin multiplied by equity multiplier.
T
If revenues increase by 17% from February to March and decline by 17% from
March to April, it is an overall decrease of revenues between February and April.
c) Which indicator(s) would you suggest for measuring the size of a bank (indicate with
(X))?
(2 pt)
Revenues
X
Number of employees
Sales
X
Total assets
4. Statistics
a) You roll two dice and add the numbers shown on each of them.
Which result is more likely: 10 or 11?
(8 pt)
(3 pt)
10
What is the probability of 11?
(3 pt)
2/36=1/18
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Strategy, Innovation and Management Control
March, 2014
b) There are 5 male students and 20 female students in a class.
What is the percentage of male students?
(2 pt)
20%
5. Business Judgment
(6 pt)
Please indicate whether the following statements are true (T) or false (F):
F
Every weekday the LIBOR rate is announced by the World Bank.
F
President of 100% family-owned company Mars, Inc. is Frank Mars.
T
European System of Central Banks comprises the European Central Bank and the
national central banks of all EU Member States whether they have adopted the
EUR or not.
T
The current Dow Jones Industrial Average is around 16,340.
F
In February 2014, Facebook acquired Whatsapp for USD 19m.
T
"Das Kapital" was written by K. Marx.
F
DAX is an abbreviation for Deutsche Aktien Exchange.
F
USD, EUR and GBP are the world’s most traded currencies.
T
Christine Lagarde is the current leader of the IMF.
F
From initial five founders of Facebook, Mark Zuckerberg is the only one who still
owns the company.
T
The World Bank Group is located in Washington, D.C.
T
PIIGS is an abbreviation for Portugal, Italy, Ireland, Greece, and Spain.
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