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Multiple choice –5 points each
1. An “integrated” project management approach is one that:
a. Develops new products with the use of multi-functional teams
b. Exposes the front-loading of baselines
c. Allows the project to equate the defined scope with authorized resources, both within the master schedule
d. Focuses on performance that falls outside of a predetermined baseline
2. The three dimensions of performance in Earned Value Project Management are:
a. Actual Cost, Earned Value, and Schedule Variance
b. Actual Cost, Earned Value, and Planned Value
c. Actual Cost, Planned Value, and Scheduled Variance
d. Cost Variance, Planned Value, and Schedule Variance
3. At some point in the life of a project, the project manager determined the following data on a $1,250,000 authorized budget project: amount of earned value $350,000. At that point, the value of the planned work was $750,000, and actual cost was $750,000. Based on this information, the Schedule Performance Index for this project was:
a. 0.28
b. 0.47
c. 0.53
d. 0.60
4. Using the data provided in Question No. 3 above, and assuming a linear cost function, the project manager can estimate that actual cost of the project would be closest to (figures rounded to nearest hundred thousand):
a. $4,500,000
b. $2,400,000
c. $2,700,000
d. $2,100,000
5. Using Earned Value Management in projects, multi-functional control account plans should have:
a. A Precise Scope of work, a Schedule, a Budget, and a CAP Manager
b. A point of Management control from WBS, Homogenous Work scope, Multiple Functions, and Earned Value Performance Measured
c. Organizational Breakdown Structure, Work Breakdown Structure, Control Account Plans, and Points of Management Control
d. None of the above
Exercises – 25 points each
6. Project UMUC is to produce 300 widgets and is scheduled to take five weeks. Each unit is planned to cost $90. The project is severely cost constrained. Performance data for the project at the end of week three is presented below:
• 190 total units were planned to be produced
• 200 units have actually been produced
• The financial manager reported that the business had actually spent $15,000 on the project by the end of week three.
Answer the following questions; show all work:
a. Quantify cost variance. Is the project ahead or behind budget?
b. Quantify schedule variance. Is the project ahead or behind schedule?
c. Quantify cost performance efficiency. Is the project performing better or worse than planned?
d. Quantify schedule performance efficiency. Is the project performing better or worse than planned?
e. What is the forecast of project cost at completion assuming current cost performance efficiency remains the same? How much budget variance is expected at completion?
f. What is the forecast of funding needed to complete the project (from this point forward)?
g. What cost performance efficiency would be required for the remainder of the project to complete the project within the original budget?
h. As the project financial manager, what recommendations would you make?
7. Pinto Co. produces all-terrain vehicles (ATVs). The once successful line is no longer selling well, so the company is considering production of a new improved 4 passenger ATV. This can be done by buying needed production equipment. The after tax cash flow for buying this equipment is $900,000, at the beginning of Year 0. The alternative to produce the same output, is to lease that same equipment through four equal payments of $238,000 each year paid at the beginning of the year. The required rate of return (hurdle rate) for this business is 12 percent. Assume no taxes. Revenue from sales of the new 4 passenger ATV is expected to be:
• Year 1 – $425,000
• Year 2 – $300,000
• Year 3 – $170,000
• Year 4 – $90,000
Calculate the net present value of both the new purchase option and the lease option. Show all work. Determine the best option for Pinto and justify your answer. (20 pts.)
8. This question is based on the information provided in the abbreviated year-end Income Statement and abbreviated year-end Balance Sheet for EVM Corporation shown below.
EVM Corporation Income Statement for the Calendar Year (January 1 – December 31) Thousands of dollars (except stock price, earnings per share, and dividends per share)
Net sales $3000
Cost and expenses: $2734
EBIT $266
Less interest expense: $66
Earnings before taxes $200
Taxes $80
Net income before preferred dividends $120
Dividends to preferred stockholders $8
Net income available to common stock holders $112
Per share common stock:
Stock Price $26.50
Earnings per share $2.24
Dividends per share $1.84
EVM Corporation Balance Sheet (Average of beginning and end of year) Assets (thousands of dollars) Liabilities and Equity (thousands of dollars)
Cash $50 Accounts payable $60
Market securities $0 Notes payable $100
Accounts receivable $375 Accrued Wages $10
Inventories $300 Accrued Taxes $130
Total Current Assets: $700 Total Current Liabilities: $300
Net plant and equipment: $1300 Total Long Term Debt: $800
Total Stock Holder’s Equity: $925
Total Assets: $2025 Total liabilities and equity: $2025
8a. Calculate the EVM financial ratios contained in the following table
Financial Ratios EVM Values Industry Values
Current Ratio 2.5 times
Quick (Acid) Ratio 1.0 times
Total Debt to Total Assets 40%
Return on Assets (ROA) 9%
Price/Earnings Ratio 12.5 times
8b. Compare your results to the industry ratios and describe what EVM should do to improve its position in the market.
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