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RESEC 324: Small Business Finance

Spring 2023

Exam 2:  Thursday April 20^th 2023 (100 points)

1. What would both of the the Markup percents (Mc% & Ms%) be for a Jeep Grand Cherokee, if it costs the used car dealer $8,110 but he sells it for $14,750?

a. Mc%?

b. Ms%?

2. Suppose this dealer has a second Jeep the invoice price of which is $5,750. If he decides to mark it up by 60% (Ms%). How much should he price it for customers?

3. What would the markup amount (Ms) be on this second Jeep?

Consider the following data from Corner Breakfast Shop:

Salaries: $3900 a month

Paper supplies:

(Cups, plates, utensils, and napkins) $0.20 per meal

Rent: $750   a month

Material:

(Bagels, cream cheese, coffee, sugar)             $0.85 per meal

Insurance: $35     a week

Property taxes $ 4260 a year

Price for Bagel, cream cheese, and coffee is $2.50.

4. Find the Annual Break-even Quantity (BEQ).

5. Find the Break-even Revenue (BER), using the short method.

6. Find the Break-even Revenue (BER), using the long method.

7. For how much would you sell a product that cost you $975 if you want to achieve a 125%  markup?

8. How much would you gain?  

A company sells its product for $50, given the following expenses:

Item Frequency Expenses ($)

Workers’ wages per unit 20

Admin. Salaries annual 50,000

Rent monthly 800

Utilities quarterly 300

Insurance weekly 50

Material per unit 7

Taxes semiannually 700

9.   Calculate the break-even quantity (BEQ).

10. Calulate the break-even revenue using the short method

11. Calulate the break-even revenue using the long method

Consider the following figures for the two lines of products in a hair product company:

Hair shampoo line, where its net profit is $72,000 and total asset is $135,000.

Hair Dye line, where net profit is $50,000 and total asset invested is $120,000.

12. Which line of product is more efficient?

13. Find the profitability of the hair shampoo section

14. Find the earning power of the hair dye section

True/False Questions:

15. As a form of business ownership, sole proprietorship does not have to comply with any federal legal requirements.

16. One of the big disadvantages to corporation is the shareholders’ limited liability.

17. One of the significant assets to business partnership is the “complementarity of partners”. 

18. A business plan is only needed in the forming and starting up stage of a new venture in order to attract investors and secure the needed capital. 

19.  The confidentiality statement in a business plan is to show the potential investors how high the entrepreneur’s confidence is.

20.  Although the “Executive Summary” comes in the beginning of a completed business plan, it should be written last in the process of preparing the plan.

21. In sole proprietorship, the sole responsibility would most likely weigh heavily on one person, and may cause the owner-manager to burn out.

22. Legal contracts between business partners are not required by law but it is strongly recommended by experts.

23. The Contribution Margin can be measured by the amount of loss the firm would incur on    each unit produced below the break-even point.  

24. Higher efficiency would be achieved by a combination of higher total asset turnover and lower net profit margin.

Multiple Choice Questions:

25. The following are advantages of Sole Proprietorship except:

a. No formal organizational structure

b. More freedom to take actions

c. Concentrated liability

d. Simpler tax procedures

26. The following are disadvantages of Corporation except:

a. Double taxation

b. Heavy federal and state legal requirements

c. Separation between shareholder and business

d. Limited liabilities for shareholders

27. An entrepreneurial profit is:

a. the absolute difference between total revenue and total cost

b. the difference between total revenue and total cost including taxes

c. The amount earned above and beyond what the entrepreneur would have earned had he chosen to invest time and money somewhere else.

d. Only the excess equity earned over a capital sold.

28. While the “vision” of a firm is ----------; the “mission” is -----------:

a. about what ultimately is going to be achieved;  about how to achieve it.

b. seeing the future; concerning about the present only.

c. the leadership’s task;  a grass-root movement

d. very short statement; a lengthy document.  

29.  A focused and targetable segment of consumers who may be convinced to see the proposed business and know about its product is called:

a.  target market

b. market share

c. market niche

d. business share

30. In Limited Partnership (LP), partners share capital and profits but they do not share ……

a.  liability

b.  operation

c.  liability and operation

d.  none of the above

31. In classifying business partners, an actual owner who is neither active nor known to the public is called………

a. dormant partner

b. silent partner

c. shadow partner

d. nominal partner

32. Net profit margin is net profit divided by:

a. taxes and interest

b. gross profit

c. revenue

33. Total asset turnover is sales revenue divided by:

a. net profit

b. #days in a year

c. total assets

34. The break-even point can be measured by:

a. # of products sold

b. amount of dollars of sales

c. days, weeks, months of production

d. All of the above

RESEC 324: Small Business Finance Spring 2023

Professor M.J. Alhabeeb

ANSWER SHEET of EXAM 2

 Please fill out this sheet and submit it to moodle along with your math workout sheet

For questions 1-14 , please write the calculated figure.

1a

Markup = Selling price - cost= 14750 – 8110=6640

Ms = markup / selling price * 100= 6640 / 14750 * 100 = 45.02 %

1b

Mc = markup / cost * 100 = 6640 / 8110 * 100  = 81.87 %

2.  

Selling price = Cost ( 1 + Markup % )= 5750 *( 1 + 0.6 )= 9200

Markup = selling price – cost = 9200 - 5750= 3450

3.

Ms= markup / selling price =(2.5-0.85- 0.2)/2.5=0.58

4

Fixed Cost= Annual Salary+ Annual Rent + Insurance + Property Tax= (3900*12 + 35*52 + 4260+750*12)= $61880

Contribution per unit= Selling price- Variable cost= Sales Price- Material- Paper Supplies= 2.5-0.85- 0.2= $1.45

Break Even Quantity= Fixed Cost/ Contribution per unit= 61880/1.45= 42675.86 units= 42676 units

5.

contribution margin ratio = contribution margin per meal/selling price per meal=1.45/2.5=0.58

Break even revenue-short method = annual fixed cost/contribution margin ratio

= 61880/0.58=106,690

6.

Break Even Revenue=[Total fixed cost /Variable cost per unit]*Selling price per unit = 61880/1.05*2.5=106,690

7.

Selling price = cost price * ( 1 + markup) = 975 * ( 1 + 1.25 ) = 975 * 2.25 = 2193.75

8

selling price of the goods = 2193.75

gains = selling price - cost = 2193.75 - 975 = 1218.75

9

Contribution per unit=Selling Price per unit-Variable Cot per unit = 50-20-7=23

Contribution margin ratio=Contribution per unit/Selling Price per unit = 23/50=46%

Total fixed cost=50000+800*12+300*4+50*52+700*2=64800

Break-Even Quantity=Total fixed cost /Contribution per unit

=$64,800/$23=2817

10

Break Even Revenue=Total fixed cost /Contribution Margin = $64,800/46%=$140,870

11

Break Even Revenue=[Total fixed cost /Variable cost per unit]*Selling price per unit =($64,800/$23)*50=$140,870

12.

Hair shampoo line is more efficent

13

profitability of the hair shampoo section = Net profit / total Asset = 72000/135000 = 53.33%

14

Earning power of Hair dye section = Net profit / total Asset = 50000/120000 = 41.67%

For questions (15-34), please put an X at the right answer

15. a.  True………..

b.  False………. X

16.  a.  True………..

b.  False………. X

17.  a.  True……….. X

b.  False……….

18. a.  True………..

b.  False………. X

19. a.  True………..

b.  False………. X

20. a.  True……….. X

b.  False……….

21. a.  True……….. X

b.  False……….

22. a.  True……….. X

b.  False……….

23. a.  True……….. X

b.  False……….

24.  a.  True………..

b.  False………. X

25. a. No formal organizational structure……………

b. More freedom to take actions……………

c. Concentrated liability……………X

d. Simpler tax procedures……………

26. a. Double taxation……………

b. Heavy federal and state legal requirements……………

c. Separation between shareholder and business……………

d. Limited liabilities for shareholders……………X

27. a. the absolute difference between total revenue and total cost……………

b. the difference between total revenue and total cost including taxes……………

c. The amount earned above and beyond what the entrepreneur would have earned had he chosen to        invest time and money somewhere else. ……………X

d. Only the excess equity earned over a capital sold. ……………

28.   a. about what ultimately is going to be achieved;   about how to achieve it. ……………X

b. seeing the future;  concerning about the present only. ……………

c. the leadership’s task;   a grass-root movement……………

d. very short statement;  a lengthy document. ……………

29.  a.  target market……………

b. market share……………

c. market niche……………X

d. business share……………

30. a.  liability ……………

b.  operation……………

c.  liability and operation……………X

d.  none of the above……………

31. a. dormant partner……………X

b. silent partner……………

c. shadow partner……………

d. nominal partner……………

32. a. taxes and interest……………

b. gross profit……………

c. revenue……………X

33. a. net profit……………

b.#of days in a year……………

c. total assets……………X

34. a. #0f products sold……………

b. amount of dollars collected……………

c. units of time……………

d. all of the above……………X