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Entry Test. Please consider that each point is equivalent to approximately one minute of working time. INDEX

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(1)

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:

I

NDEX

1. Make-or-Buy 8 pt

2. Finance & Investment 20 pt

3. Accounting 8 pt

4. Statistics 8 pt

5. Business Judgement 6 pt

Total 50 pt

(2)

1.

Make-or-Buy

(8 pt)

After the great results of Austrian athletes at the 2014 Olympic winter games, the manu-facturer of official merchandise wants to expand its range of products by a “medalist col-lection” 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.

(3)

2.

Finance & Investment

(20 pt)

a) Imagine you have 5,500 Efros and you have been offered safe investment into a pro-ject, 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

(4)

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

(5)

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

(8 pt)

a) You roll two dice and add the numbers shown on each of them.

Which result is more likely: 10 or 11? (3 pt)

10

What is the probability of 11? (3 pt)

(6)

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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