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UNIVERSITY AT ALBANY
Rockefeller College of Public Affairs and Policy
PAD-501: Financial Management
Midterm Examination
Fall 2008
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. We 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
vii. Special Purpose
(6 points) 2. Because of the downturn in the New York economy, the mayor of Knox thinks that
uncollectible taxes are likely to increase from 5% of total tax bills to 10% in the
coming fiscal year. The total value of all of the properties in the Town of Knox is
$300,000,000 and the approved budget is $3,500,000. Properties are assessed at their
full value. $5,000,000 worth of town properties is exempt from taxation. To minimize
tax increases in the coming fiscal year, the mayor and town council have decided to
take $500,000 out of the town’s rainy-day fund and apply that money toward the
coming year’s budget. How much does the Village have to charge per $1,000 of
assessed valuation to raise the needed $3.5 million? Show your calculations. You may
round your answer to the nearest penny.
SOLUTION
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Mill rate rounded to the nearest penny.
(18 points) 5. Answer the following questions about the time value of money.
(2) a. If interest rates rise, the prices for outstanding bonds will? (Choose one of the
answers below.)
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(4) b. How much would you have to deposit today to have $1,500 at the end of three and
one-half years if interest is compounded monthly at 3.3% per year? You may round
your answer to the nearest penny.
(4) d. If you can buy a laptop computer for $985 and the computer dealer offers to lease
it to you for $49 per month for 24 months, what annual interest rate would you be
paying?
(6) e. If United Way of the Capital Region sold a $1,000,000 par-value bond with a 4%
annual coupon-rate paying interest twice each year with exactly nine years left to
maturity and a current market interest rate of 4.2%, how much would the United
Way receive from that sale? You may round the bond’s value to the nearest penny.
(8 points) 6. Mead 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
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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?
Month 1 Month 2 Month 3
Expected Number of Seniors Fed 300 350 400
7. Answer the following questions about break-even analysis:
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(2 points) B. If a soup kitchen has marginal revenues of $4.50 per meal delivered, marginal
expenses of $4.25 per meal, $20,000 of monthly fixed costs and can produce
75,000 meals per month, it will (circle the correct answer)
SECTION TWO – PROBLEMS
(10 points) 1. Insert a 10-point time value of money problem here
(10 points) 2. 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.
Period Gravel Sure-Pack
0 $200,000 $300,000 $300,000.00
1 $15,000
2 $15,000
3 $15,000
4 $15,000
5 $15,000 $45,000 $29,246.91
6 $15,000
7 $15,000
8 $15,000
9 $15,000
10 $15,000 $45,000 $19,008.49
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12
13
14
15
PV of Road Maintenance
$96,264.87 $48,255.40
If Westerlo’s cost of capital is 9%, which alternative should they choose? Support
your answer with the appropriate time-value-of-money calculations.
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SOLUTION
(15 points) 3. 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.
Regardless of the number of sites, the Center will need a primary researcher at
$60,000 per year and 2 associate researchers at $35,0000 each per year to do the
study. Supervising the site studies is the responsibility of the associate researchers.
Each associate researcher will be able to supervise up to eight sites. Research
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assistants are needed to transcribe field notes and provide support for the associate
researchers. These part-time research assistants are each paid $6,000 and are only
able to support 3 site studies each. The center must budget 30% of the salary of the
primary and associate researchers for fringe benefits.
Based on past experience, the Center estimates that it will need $2,500 for supplies.
Researchers will have to travel to each research site. Each trip will cost $20 and the
center expects that 40 trips will be made to each site during the study.
Prepare a flexible budget of revenues and expenses for a study that includes 9 sites,
12 sites, and 15 sites.
(7 points) 4. 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) 5. 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.
a. Bourne’s total daily food-expense variance
b. the portion of the daily food-expense variance that was due to volume
c. the portion of the daily food-expense variance that was due to quantity
d. the portion of the daily food-expense variance that was due to cost