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business
understanding management

Questions and Answers of Understanding Management

34. The formula for calculating the break-even point can be adapted to reflect simultaneous changes in the selling price, variable cost and fixed cost. Mark the statement as T (True) or F (False).
33. Other things being equal, an increase in the selling price would raise the break-even point. Mark the statement as T (True) or F (False).
32. It is possible to determine the required sales for earning a target level of profit from the break-even chart. Mark the statement as T (True) or F (False).
31. Margin of safety ratio is the margin of safety expressed as a percentage of actual sales. Mark the statement as T (True) or F (False).
30. Margin of safety is the excess of break-even sales over actual sales. Mark the statement as T (True) or F (False).
29. The PN ratio is defined as the ratio of sales to contribution margin. Mark the statement as T (True) or F (False).
28. An essential requirement of the BEP analysis is that all costs should be classified as being either fixed or variable. Mark the statement as T (True) or F (False).
27. Sensitivity analysis deals with determining how are NPV and IRR likely to be affected if the inputs are changed by a certain measure. Mark the statement as T (True) or F (False).
26. The technique of simulation calls for a reasonable assessment of the probability distributions of the various factors determining the net present value of a project. Mark the statement as T
25. Decision-tree approach to analysis of risky proposals is suitable when a large number of possible outcomes are involved. Mark the statement as T (True) or F (False).
24. For a normally distributed NPV, the EVPI is obtained by finding the product of standard deviation and the normal loss integral. Mark the statement as T (True) or F (False).
23. When cash flows are independent, the variance of the NPV distribution is obtained as the summation of the discounted variances of various periods. Mark the statement as T (True) or F (False).
22. In statistical distribution approach of considering risky investment proposals, the net cash flow from an investment in each period is viewed as a random variable. Mark the statement as T (True)
21. The risk-adjusted discount rate is obtained by adjusting the risk-free rate of return upward by a suitable risk premium. Mark the statement as T (True) or F (False).
20. The certainty-equivalent approach calls for adjusting the numerator and denominator of the equation of the present value. Mark the statement as T (True) or F (False).
19. It is possible to obtain multiple rates of return for a series of cash flows relating to a project. Mark the statement as T (True) or F (False).
18. IRR is the rate of return which makes NPV = 0. Mark the statement as T (True) or F (False).
17. Both the NPV and IRR approaches yield identical accept-reject decisions and rankings of the given set of investment projects. Mark the statement as T (True) or F (False).
16. The internal rate of return is the rate at which an investment is repaid by proceeds from a project. Mark the statement as T (True) or F (False).
15. When using the NPV approach, choice between mutually exclusive projects should be made after due consideration of their lives. Mark the statement as T (True) or F (False).
14. The NPV of a project is the aggregate of present value of all the inflows resulting from it. Mark the statement as T (True) or F (False).
13. The payback method ignores 'the bigger the better' principle. Mark the statement as T (True) or F (False).
12. The payback period of a proposal is the time period required to recover the original investment made. Mark the statement as T (True) or F (False).
11. The criteria for judging the acceptability of the investment proposals include (i) 'the bigger the better'principle, and (ii) 'the bird in hand' principle. Mark the statement as T (True) or F
10. If r = 0.05, then a perpetuity would be equal to 20 years' purchase. Mark the statement as T (True) or F (False).
9. The (final) amount of a perpetuity is infinity. Mark the statement as T (True) or F (False).
8. The present value of an annuity is the equal to A(l - R-n)lr, where R = 1 - r. Mark the statement as T (True) or F (False).
7. The amount of an annuity can be obtained by summing up the compounded amounts of all the payments. Mark the statement as T (True) or F (False).
6. Deferred annuity is an annuity contingent upon the happening of some event. Mark the statement as T (True) or F (False).
5. Perpetuity is a series of periodical payments which never terminates. Mark the statement as T (True) or F (False).
4. Annuity certain refers to an annuity without default. Mark the statement as T (True) or F (False).
3. Annuities are defined as payments made only at the end of every year. Mark the statement as T (True) or F (False).
2. Compounding can be with any periodicity-annual, semi-annual, quarterly, monthly and so forth. Mark the statement as T (True) or F (False).
1. Time value of money is the bridge connecting the present and future amounts of money. Mark the statement as T (True) or F (False).
A firm manufactures a uniform product whose selling price is Rs 10. It has a capacity of 10,000 units. The variable costs are Rs 2.50 per unit. The fixed costs are estimated at Rs 30,000 upto
A project requires an initial cash outlay of Rs 60,000 and offers an annual expected cash inflow of Rs 30,000 for three years, and has no salvage value. The risk coefficients for the three years are
An instrument transformer manufacturer in an industrial town is considering the purchase of an ultrasonic welding machine WELDAL, to replace an existing manually operated machine. The existing
Companies are required to pay income-tax on book profits which are affected by the depreciation policy adopted by them. Suppose that a company has bought a machine for Rs 1,20,000, to be depreciated
(a) A freehold estate is bought for Rs 2,750. At what rent should it be let so that the owner may receive 4% pa, compounded annually, on his purchase money?(b) A man borrows Rs 500 at 5% rate of
Considering the data given in Example 18.24, recalculate the break-even sales in each of the following situations:(a) when the selling price increases by 25%,(b) when the variable cost decreases to
The Hi-Hi Electronics is engaged in producing a certain component which is sold at a uniform price of Rs 8 each. The variable cost of producing the component amounts to Rs 4.80 per unit while the
Reconsider Example 18.21. Assume that the cash flows are the same as given but they are perfectly correlated. Work out the expected NPV and its standard deviation. Also calculate the probability that
A company is trying to choose between two investment proposals A and 8. Project A has a standard deviation of Rs 6,500 while project B has a standard deviation of Rs 7,200. The firm's financial
Calculate I RR of the project A in Example 18.13.
A company is deciding to choose between two mutually exclusive projects A and B.Project A requires an initial investment of Rs 3,00,000 and is expected to generate cash flow of Rs 1,50,000 per annum
Determine the present value of a perpetual annuity of Rs 1,000 starting in 4 years from now, and carrying an interest of 5%.
If an annuity of Rs 3,000 for 5 years at 8% is to begin in 3 years' time from now, what would be its present value?
How many years' purchase should be given for a freehold estate if the rate of interest is 8% p.a.?
A freehold estate is bought for Rs 4,00,000. At what rent should it be let so that the owner may receive 12% on the purchase money?
X purchased a colour TV from the OWNATV shop for Rs 12,800. He made a down payment of Rs 4,000 and agreed to pay the balance in 24 equal monthly payments. If interest charged was 12%compounded
(a) Find the compound value of Rs 5,000 at the end of 4 years when the interest rate is 6%per annum.(b) What is the compound amount at the end of 9 months if Rs 20,000 is borrowed at 8% per annum
8. Mr.Xis invited to play a game in which he is to toss a coin until the difference in the number of heads and tails tossed is equal to 5. He is required to pay rupee one for each toss of the coin
5. In the morning of each working day, the manager of the Small Departmental Store has to decide whether he needs additional help to restock the shelves. It is known from experience that if extra
1. Customers arrive at a milk booth for the required service. Assume that inter-arrival and service times are constants and given by 1.8 and 4 time units respectively. Simulate the system by hand
6. What are pseudo-random numbers? Are they not random in nature?
5. Discuss Monte Carlo Simulation. Illustrate how would You use it in situations of (i) queuing, and (ii)inventory control.
4. Define a simulation model. Distinguish between deterministic and stochastic simulation models.
3. "Simulation is typically the process of carrying out sampling experiments on the models of the system rather than the system itself." Elucidate this statement by taking some examples.
2. "When it becomes difficult to use an optimisation technique for solving a problem, one has to resort to simulation". Discuss.
1. What is simulation? Describe the simulation process. State the major two reasons for using simulation to solve a problem. What are the advantages and limitations of simulation?
20. Solutions to decision problems by simulation would be identical to the solutions obtained by applying mathematical techniques. Mark the statement as T (True) or F (False).
19. Simulation cannot be used in those cases where mathematical methods can be used. Mark the statement as T (True) or F (False).
18. If random numbers are available in the range of (0, 1 ), they can be converted into random numbers in the range of (0, 100) by multiplication by a constant 100. Mark the statement as T (True) or
17. The random numbers generated by mid-square method are actually pseudo-random numbers. Mark the statement as T (True) or F (False).
16. The mid-square method can be used without fail for generating random numbers series of any length. Mark the statement as T (True) or F (False).
15. In random numbers, various digits appear in a definite, orderly fashion. Mark the statement as T (True) or F (False).
14. A random number generator is a device or procedure by which random numbers are obtained. Mark the statement as T (True) or F (False).
13. Randomness is a key requirement of the Monte Carlo simulation. Mark the statement as T (True) or F (False).
12. Averaging the observations Yields a better estimate of the output of simulation model. Mark the statement as T (True) or F (False).
11. Monte Carlo simulation involves modelling a stochastic system with the objective of predicting the system's behaviour. Mark the statement as T (True) or F (False).
10. Any simulation model is akin to a statistical experiment whose output is subject to statistical error. Mark the statement as T (True) or F (False).
9. The output ofa simulation model is independent of the size of the simulation run. Mark the statement as T (True) or F (False).
8. A simulation may be physical or mathematical, a mental conception or a combination. Mark the statement as T (True) or F (False).
7. Construction of an appropriate model and experimentation with the model constructed are the core activities in simulation. Mark the statement as T (True) or F (False).
6. In general terms, simulation aims to determine how the system under consideration would behave in certain conditions. Mark the statement as T (True) or F (False).
5. Simulation always involves developing a physical model of some real phenomenon and then performing experiments on the model evolved. Mark the statement as T (True) or F (False).
4. In simulation, an attempt is made to copy a real system and the parameters are manipulated in an artificial environment. Mark the statement as T (True) or F (False).
3. Simulation is an optimising technique. Mark the statement as T (True) or F (False).
2. Simulation is a useful tool to employ to study the impact of system changes when experimentation with the real system is not feasible. Mark the statement as T (True) or F (False).
1. A number of decision-making situations do not lend themselves to application of mathematical methods. Mark the statement as T (True) or F (False).
A company receives consignments each of 25 components. From the past experience of the company it is determined that of all the consignments, 40% contain no defectives; 35% contain one defective; 12%
17. The purchase manager of Sigma Steel Company has to buy 1,000 tons of scrap for the next month's production. The purchases can be done only on Mondays, the day when ships arrive at the port. The
16. An investor has 5,000 shares ofa particular company which she wants to sell on or before the fifth day from this day, i.e., Monday. Assume that price of the share fluctuates between Rs 40 and Rs
7. "Solution to dynamic programming problems is obtained by backward recursion." Explain and illustrate backward recursion in this statement
6. Distinguish between deterministic and probabilistic dynamic programming.
5. Give some examples where dynamic programming may be used.
4. Explain the following in the context of dynamic programming:(a) Stages(b) States(c) PaYofffunction(d) Recursive relationship
3. Explain the steps involved in solution to dynamic programming problems.
2. What is a stage in dynamic programming?
1. Explain dynamic programming. How is it different from linear programming?
25. An LPP with minimisation type of objective function cannot be solved using dynamic programming. Mark the statements as T (True) or F (False).
24. The recursive relationship essentially formalizes the working backward or rollback procedure. Mark the statements as T (True) or F (False).
23. A state also means the information that is needed at any stage to make an optimal decision. Mark the statements as T (True) or F (False).
22. In probabilistic dynamic programming, there is a probability distribution for what the next state would be. Mark the statements as T (True) or F (False).
21. A deterministic dynamic programming problem is one in which the state at the next stage is completely determined by state and policy decision taken at the current stage. Mark the statements as T
20. Working forward from the initial stage to the final stage is the last step of a dynamic programming problem solution. Mark the statements as T (True) or F (False).
19. In dynamic programming, the optimal solution depends on the current state and how you reach there. Mark the statements as T (True) or F (False).
18. The recursive relationship identifies the optimal policy for stage n, irrespective of whether or not the optimal policy for stage n + 1 is available. Mark the statements as T (True) or F (False).
17. To solve a dynamic programming problem, it is necessary to define an optimal payoff function for every stage and state. Mark the statements as T (True) or F (False).
16. In dynamic programming, the decision process is designed to obtain an optimal policy for the entire problem, which consists of determining optimal policy decision at each stage for each of its

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