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UNIVERSITY AT ALBANY
Rockefeller College of Public Affairs and Policy
PAD-501: Financial Management
Midterm Examination
Spring 2010
Your Name: ______________________________________________
Turn off all cell phones and pagers during the exam
Directions:
1) You may use one page of notes. Place all other materials on the floor.
2) You may use, but not share a calculator. Remember to clear your calculator
4) Show all your work. I can only give you partial credit if you show how you
approached the problem! For the time value of money computations show what
5) The points for each question are indicated in parentheses next to the question.
6) Look through the exam before you begin.
Good Luck.
SOLUTIONS
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SECTION ONE – SHORT ANSWERS
(8 points) 1. Select from the following to answer questions A to D. Note: some questions may
have multiple answers and answers may be used more than once.
i. Zero-Based
ii. Formula
iii. Cash
iv. Operating
v. Capital
vi. Flexible
(7 points) 2. Answer the following questions about real-estate tax-rate calculations for the Town
of Knox.
a. (1 point) If the value of taxable properties in Knox rises from $300 million to
$310 million and the amount that the Town needs to raise does not change, the
mill rate that the Town charges its citizens will: (circle the appropriate answer
below)
b. (3 points) The Town needs to raise $5,000,000 to fund its Fiscal Year 2011
budget. Because of the economic condition, the town clerk expects uncollectable
taxes to rise from their historical average of 5% to 7.5% this year. What must the
total value of the tax bills sent to property owners be to raise the needed amount?
You may round your answer to the nearest dollar.
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c. (2 points) Assuming there are no tax-exempt properties in Knox and total property
values are equal to $310 million, how much would the Town have to charge
property owners per thousand dollars of property value? You may round your
answer to the nearest penny.
d. (1 point) If there were $20,000,000 worth of tax-exempt properties in Knox and
nothing else changed, the mill rate Town charges its citizens would (circle the
appropriate answer below)
(2 points) 4. Define marginal costs in terms of variable costs, fixed costs and total costs.
(17 points) 5. Answer the following questions about the time value of money.
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(1) a. If interest rates rise, the prices for outstanding bonds will? (Choose one of the
answers below.)
(4) b. How much would you have at the end of 20 years if interest on a $100 deposit was
compounded monthly at 3.6%?
(2) c. If you were asked to analyze the state’s decision to invest $1.2 billion in the AMD
(4) d. If an auto dealer offers to sell you a car and finance it for 60 months with monthly
car payments of $399 and the market rate for auto loans is 6.6%, how much is the
dealer charging you for the car? You may round your answer to the nearest penny.
(6) e. If you sold a $10,000 bond with a coupon rate of 10% that with exactly 5 years –
10 coupon payments – left to maturity and current market interest rates were 5.7%,
how much would you receive for the bond? You may round the bond’s value to the
nearest penny.
SOLUTION
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(5 points) 6. Answer the following questions about break-even analysis:
A. (2 points) In break-even analysis, an increase in variable cost per unit: (circle the
correct answer)
B. A soup kitchen has marginal revenues of $5.00 per meal delivered, marginal
expenses of $4.00 per meal, $250,000 of annual fixed costs and annual donations
of $150,000.
a. (1 point) What is its contribution margin?
b. (2 points) The organization will (circle the correct answer)
(2 points) 7. Name two formats that may be used for an operating budget?
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(2 points) 8. Under accrual accounting, the expense related to the use of a piece of equipment is
called?
(2 points) 9. Give two examples of specific line item expenses that might appear on an operating
budget.
SECTION TWO – PROBLEMS
(10 points) 1. Westerlo needs to resurface a section of its roads this spring. The town council is
considering using one of two technologies. The first involves putting down stone and
gravel and grading the road on an annual basis. The second involves the application
of a road surface called sure-pack. Sure-Pack only requires maintenance every five
years. Based on experience, the counselors know the gravel road will last ten years.
The folks in Berne, the next town up route 1, Sure-Packed their roads and expect to
get 15 years from them before they will need to be resurfaced again. The cash flows
for each alternative are shown in the table below.
PV of Road Maintenance
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If Westerlo’s cost of capital is 9%, which alternative should they choose? Support
your answer with the appropriate time-value-of-money calculations.
(15 points) 2. The Teaching & Learning Research Center at UAlbany needs to prepare a budget for
a research proposal to do an in-depth study of Rensselaer County’s after-school
programs. The County is willing to pay $17,500 for each site studied, up to 15 sites.
A report must be submitted within a year of the start of the project.
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Prepare a flexible budget of revenues and expenses for a study that includes 9 sites,
12 sites, and 15 sites.
(8 points) 3. The Modern Arts Center is thinking about bringing an impressionist exhibit to
Saratoga for 30 days. The Center expects 200 people per day to visit the exhibit, each
paying the $10 entrance fee. Daily costs for security, extra power, and added
custodial services will be $1500. What is the maximum amount that the Center can
afford to spend on fixed costs, such as organizing and bringing the exhibit to town,
and still break-even? Hint, “break–even quantity” in this problem is measured in
days.
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(10 points) 4. The Bourne Free Animal Shelter provides food and shelter for stray and abused dogs.
The projected consumption of food is 3 pounds per day per dog. The clinic
estimates the cost of the food will be $0.85 per pound. It has budgeted feeding an
average of 90 dogs per day. This means that it expects to use 3 pounds of food per
dog, per day on average. The clinic actually fed an average of 120 dogs per day.
Each dog consumed 3.5 pounds of food and the average price per pound of food was
$0.65. Indicate whether each of the variances is favorable or unfavorable.
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(10 points) 5. Troy Meals on Wheels has a contract with the city to feed homebound elderly
people. Under the contract, MMW earns $140 per month for each person enrolled in
the program. MMW expects to deliver meals to the number of seniors shown below.
The city pays one-half of the amount MMW bills one month after the services are
delivered, and one-half two months after billing. It costs MMW $125 for food and
fuel for each person it feeds. Suppliers demand payment one month after food and
fuel is used. This is MMW’s first year of operation. It started the year with $17,000 in
cash.
a. What is MMW’s expected surplus or deficit for the first quarter based solely on
contract revenue, food and fuel expenses?
b. What does MMW’s expect its cash balance to be at the end of the first quarter
based solely on contract revenue, food and fuel expenses?