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capital for investments of similar risk using the
weighted average cost of capital (WACC):
WACC =
(1
− t)rD (D / V ) + rE (E / V )
3
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298101
Marriott Corporation: The Cost of Capital
where D and E are the market values of the debt and equity, respectively, rD is the pretax cost of
debt, rE is the aftertax cost of equity, V is the value of the firm ( V = D + E), and τ is the corporate tax
rate. Marriott used this approach to determine the cost of
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UPS Cost of debt=rd(1T) Cost of Debt=.038(1.368) 2.4% 
FDX Cost of debt=rd(1T) Cost of Debt=.05(1.359) 3.2% 
AAWW Cost of debt=rd(1T) Cost of Debt=.105(1.386) 6.4% 
IV. Weighted Average Cost of Capital
A. Inputs
Company % of Debt Aftertax Cost of %of Preferred StockCost of Preferred % of Common Equity Cost of Common 
 (liabilities/assets) Debt
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BGA1 Task 4 308.1.805,12
The weighted average cost of capital for this company is 9.48%.
Cost of capital is often used in net present value analysis as the discount rate, which is the rate that other investments would return that have similar risks. Cost of capital is the total of all of the actual costs of a company’s debts and equities. These costs include such factors as interest, tax expense, and equity costs. It is what percentage it costs the company to tie up its capital, so in order for an investment to be desirable, it must return a percentage greater than what it takes for the company to cover its capital costs. In a net present value analysis, the cost of capital is
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or brokerage fees of owners. It expected to have available RM450,000 of retained earnings in the coming year; once these retained earnings are exhausted, the firm will used new equity as the form of equity financing. (tax rate = 40%)
(a) Calculate after tax cost of debt. (6 marks)
(b) Calculate cost of preference share. (3 marks)
(c) Calculate cost of retained earnings. (7 marks)
(d) Calculate cost of new common share. (4 marks)
(e) The firm uses the following weights based on target capital structure proportions to calculate its weighted average cost of capital (WACC). What is the firm’s WACC? (5 marks)
Source of capital Weight
Longterm debt 40%
Preference shares
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available AFTER the firm has paid all of it’s expenses.
g. What is the weighted average cost of capital?
The weighted cost of capital is the cost of capital used to analyze capital budgeting decisions is the weighted average of the various components’ costs.
h. How do free cash flows and the weighted average cost of capital interact to determine a firm’s value?
Free cash flows and the weighted average cost of capital interact to determine a firm’s value through this equation:
Value = (FCF1/(1+WACC)1)+ (FCF2/(1+WACC)2) + ...infinity
i. Who are the providers (savers) and users (borrowers) of capital? How is capital transferred between savers and borrowers?
The provider (saver) of capital would be a household and a user (borrower) of capital wold be a corporation. Capital is transferred between providers and users using banks, investment banking and direct transactions.
Source = Brigham, Ehrhardt. Financial Management: Theory & Practice. 13. VitalSource Bookshelf. South Western Educational Publishing, 03/2010
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present value could not cover the cost of the project.
An important factor in the net present value is the discount rate. The present value of the project’s expected cash flows inversely relates to the discount rate. When one goes up the other goes down.
Weighted Average Cost of Capital
The weighted average cost of capital (WACC) is the weighted average of the required return for equity and the required return for debt. The WACC is the overall required return an organization uses to determine the feasibility of capital projects. WACC is important as a measurement of the bottom line an investment must return to add value for shareholders. Companies with a lower WACC have a
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Capital Budgeting Scenarios Paper
Megan Bailey
FIN/486
3/21/2016
Beverley Loyd
Capital Budgeting Scenarios Paper
The selected proposal to purchase a laborsaving piece of equipment that will last five years assumes the discount rate or the weighted average cost of capital is 10%. Since the labor content is at 12% of $10 million in annual sales, this can be noted as an annual labor cost of $1.2 million (10,000,000 x 0.12). The new piece of equipment is expected to save 20% of labor annually, resulting in a $240,000 reduction in cost each year over the next five years (1,200,000 x 0.20). The cost of the new piece of equipment is $200,000
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LongTerm Financing Paper
For a publicly traded company, shareholder value is the part of its capitalization that is equity as opposed to longterm debt. In the case of only one type of stock, this would roughly be the number of outstanding shares times current share price. Things like dividends augment shareholder value while issuing of shares (stock options) lower it. This Shareholder value added should be compared to average/required increase in value, also known as cost of capital. For a privately held company, the value of the firm after debt must be estimated using one of several valuation methods, such as discounted cash flow or others. Discounted Cash Flow (DCF) is used to
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based on the residual income technique that has been used since the early
20th century. Residual income is a performance measure normally used for assessing
the performance of divisions, in which a finance charge is deducted from the profits of
the division. The finance charge is calculated as the net assets of the division,
multiplied by an interest rate – normally the company’s weighted average cost of
capital.
Example 1
Division A made a profit of $10,000 during the most recent financial year. The capital
used by the division (equity plus longterm debt) was $70,000. The weighted average
cost of capital of the company is 13%, and this is used when calculating the finance
charge
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Finance Management
March 08, 2014
Rodney Schilling
Argosy University
Professor Charlie Merritt
Introduction
Argosy wheel industries are considering a three year expansion project. The Schilling Group is hired to evaluate the progression which involves long term opportunities for investment. We will provide a comprehensive report that outlines and illustrates several techniques that will show and evaluate capital projects, methods used for project selection, weighted average cost to the firm and the cash flow that is anticipated for the project. We will also incorporate the risk into the calculations from two projects. In this report we explain our findings
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requires a company to be more careful about resource mobilisation, resource allocation and investment decisions. EVA can also be shown as:
EVA = NOPAT – (TCE x WACC)
Where, TCE = Total Capital Employed
WACC = Weighted Average Cost of Capital
While calculating NOPAT, nonoperating items like dividend/interest in securities invested outside the business, nonoperation expenses etc. will not be considered. The total capital employed is the sum of shareholders funds as well as loan funds. But this does not include investments outside the business. To determine WACC, cost of debt is taken after tax cost and cost of equity is measured on the basis of Capital Asset Pricing Model (CAPM
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NI = Net Income
NOPAT = Net Operating Profit after Tax
FCFF = Free Cashflow to Firm
ΔWCR = Working Capital Requirement
PPE=Fixed Assets (?) (PPE= Property Plant and Equipment)
Investment> Fixed Assets
AT = Asset Turnover
TA = Total Assets
S = Sales
A = Assets
E=Equity
FCFF=NOPAT+DA+ΔWCRInvestment
WCR = AR+InvestmentAP
Watch out! ΔWCR = ΔWCR(math)
ROA = Return on Assets
WACC = Weighted average Cost of Capital
CAPEX = Capital Expenditure (further??)
???DuPont analysis: ROE = Net Margin*AT*(Asset/Equity)
Accounts Recievables
DE=Total Debt/Equity
ROE = NI/Equity
TA=TCL+E (true?) or TA=TL+E???
L+EE=TL
L+E=E+TCL+LTD
TCL=AP+STD
TL=TCL+LTD???
AT = S/TA
ROE = NI
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% bonds, 60% common equity and 10% preferred equity, what is the weighted cost of capital of the firm? (10 pts)
5. Should the firm use this WACC for all projects? Explain and provide examples as appropriate. (10 pts)
6. Recompute the net present value of the project based on the cost of capital you found. Do you still believe that your earlier recommendation for accepting or rejecting the project was adequate? Why or why not? (5 pts)
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important purpose is to estimate economic profit, which is in order to judge Helen Buono who is correct or not. According to the case 15, the weighted average cost of capital (WACC) is 9.30% in Exhibit 1 and the capital employed is 16 in Exhibit 3. Along with the formula in this case, which is economic profit equals to (ROC minus Hurdle rate) times capital employed will equal $0.032 billions. If the firm to invest assets into both segments, there is 75% invested in the telecommunication services in Exhibit 1, the WACC is should still be 9.30%. According to the same method above, the result is $0.0448, which is much higher than previous result, so all assets of firm were invested only in the telecommunications segment is best way.
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. Despite the complexity of the calculations involved, the purpose of DCF analysis is just to estimate the money you'd receive from an investment and to adjust for the time value of money. A valuation method used to estimate the attractiveness of an investment opportunity. Discounted cash flow (DCF) analysis uses future free cash flow projections and discounts them (most often using the weighted average cost of capital) to arrive at a present value, which is used to evaluate the potential for investment. If the value arrived at through DCF analysis is higher than the current cost of the investment, the opportunity may be a good one.
The incremental annual cash flow has shown in table 3
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. Weights are industryspecific. Ratings are companyspecific.
Multiply weights by ratings: Multiply each factor weight with its rating. This will calculate the weighted score for each factor.
Total all weighted scores: Add all weighted scores for each factor. This will calculate the total weighted score for the company.
You can find more details about this approach as well as about possible values that the EFE matrix can take on the IFE matrix page.
EFE matrix example
Total weighted score of 2.46 indicates that the business has slightly less than average ability to respond to external factors. (See the page on IFE matrix for an explanation of what category the 2.46 figure falls to
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.
Yield to maturity on company debt (Maturity 2025)
N  PV  PMT  FV  I/YR 
24  $1228.30  $30.00  $1000.00  3.64% 
After tax cost of debt
Rd, AT=Rd, BT(1T)= 9.28% x (10.40)= 5.57%
VF Corporation’s WACC is 9.05%. This means if VF Corporation is making decision for future, the project’s rate of return must be higher than WACC rate of 9.05% in order to maintain profit.
Weighted Average Cost of Capital
Component  Value  Weight  Rate 
Debt (before tax)  $4,507,396  0.47  9.28% 
Preferred Stock  0  0  0 
Common Equity  $5,125,625  0.53  8.84% 
Weighted Average Cost of Capital (WACC)  9.05% 
Company Stock Value
VF Corporation’s stock
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factors than DDM when determining the value. Considering both CAPM and DDM rely on future assumptions, neither is considered a perfect investment tool.
Debt and Equity
Determining the company debt, equity, and weighted average cost of capital (WACC) helps determine stock research and provides details into the returns shareholders should expect in the longterm. WACC is the minimum return that company’s need in order to satisfy investors. Additionally, knowing the company’s equity and debt gives insight into what is needed for the company to break even on its investments. The two types of capitals include debt and equity. WACC is used by companies to determine the cost necessary to raise capital
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addtional capital.
There are two main ways to estimate the value of firm. One is absolute valuation method which including free cash flow to equity method( FCFE ) and free cash flow to firm method( FCFF ). Another one is relative valuation method which uses relative valuation techniques such as price earing ratio( P/E) and EBITDA multiple. In this case, FCFF has been used to estimate the value of the firm.
In this case, the financial data from Southwset Airlines has been used to estimate the weighted average cost of capital( WACC ) of JetBlue Airways. This mainly becasue Southwset Airlines belongs to lowfare airlines just as JetBlue Airways, and it has the longest history and grows stably
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facilities, capital, personnel, and so forth.
Capability The model should be sophisticated enough to deal with multiple
time periods, simulate various situations both internal and external to the
project (e.g., strikes, interest rate changes), and optimize the decision.
Flexibility – The model should have the ability to be easily modified, or to be
selfadjusting in response to changes in the firm’s environment (e.g. tax laws
change, new technological advancements alter risk levels, and, above all, the
organization’s goals change).
Ease of Use  The model should be reasonably convenient, not take a long time
to execute, and be easy to use and understand.
Cost  Datagathering and modeling costs
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100 percent equity; thus, there is no interest expense. The company has a 10 percent weighted average cost of capital. The company assigns a 7 percent cost of capital for its lowrisk projects, a 10 percent cost of capital for its averagerisk projects, and a 13 percent cost for its aboveaverage risk projects. Makaby estimates that this new store has average risk, so therefore the proposed project’s cost of capital is 10 percent.
a) What are the project’s aftertax cash flows for each of the four years?
b) The CFO estimates that the store can be sold after four years for $7.5 million. Makaby’s tax rate is 40 percent. What is the store’s aftertax salvage value at t = 4
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Weighted Average Cost of Capital  412 
13.10  Estimating Eastman Chemical's Cost of Capital  415 
13.11  Flotation Costs and the Weighted Average Cost of Capital  417 
 The Basic Approach  417 
 Flotation Costs and NPV  418 
 Internal Equity and Flotation Costs  419 
 Summary and Conclusions  419 
 Concept Questions  420 
 Questions and Problems  421 
Appendix 13A: Economic Value Added and the Measurement of Financial Performance  426 
 Mini Case: The Cost of Capital for Goff Computer, Inc.  426 
PART IV: Capital Structure and Dividend Policy
14 Efficient Capital Markets and Behavioral Challenges 428
14.1  Can Financing Decisions
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increase in net working capital we look at the difference between current assets and current liabilities from the current year compared to the prior year.
Next, we calculated CAPM, the Capital Asset Pricing Model. The formula to computer CAPM is KRF + β (KM  KRF ). To calculate CAPM we need the risk free rate and the market free rate and beta. We are given all three of these variables. The risk free rate for the market is 4.69% and the risk free rate is 4.93% and beta was calculated using the industry average of 1.6. When we input these values we get 12.95% as the equity cost of capital.
Then we calculated the weighted average cost of capital (WACC). To compute WACC we used the following
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, moderate)
29. Globalization of the location decision is the result of all of the following except
a. market economics
b. higher quality of labor overseas
c. ease of capital flow between countries
d. high differences in labor costs
e. more rapid, reliable travel and shipping
b (Factors that affect location decisions, moderate)
30. In location planning, environmental regulations, cost and availability of utilities, and taxes are
a. global factors
b. country factors
c. regional/community factors
d. siterelated factors
e. none of the above
c (Factors that affect location decisions
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the capital structure of Pepsico and how the choices that the company makes affects their return on investment and their risk profile. The traditional theory of capital structure theorizes, “when the Weighted Average Cost of Capital (WACC) is minimized, and the market value of assets are maximized, an optimal structure of capital exists.” Pepsico analyzes their capital structure annually with their Board, including dividend policies and share repurchase activity. Longterm debt and solvency analysis will also be used to examine their capital structure in terms of financing sources and their ability to satisfy longterm debt and investment obligations.
A review of Pepsico’s decisions in
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:
• within industries
• among accounting periods
• throughout the accounting period
• among firms
Click here to download STR 581 Week 6 Capstone Final Examination Part 3
29. If a company’s weighted average cost of capital is less than the required return on equity, then the firm:
• is financed with more than 50% debt
• is perceived to be safe
• partnership
• has debt in its capital structure
30. Your firm has an equity multiplier of 2.47. What is the debttoequity ratio?
• 0
• 1.74
• 0.60
• 1.47
31. The accumulation of accounting data on the basis of the individual manager who has the authority to make daytoday decisions about activities in an
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After computing our weighted mispricing of TIPS for each date in our sample, we noticed that not only did mispricing exist during the crisis period from 20082009, but it also reflected throughout the entire sampling period. During the Lehman bankruptcy in 2008, mispricing rose to approximately $9 while in some other earlier periods, we noticed average mispricing was approximately $3 and over. With regards to signs of mispricing, there were a few negative mispricing occurrences which only constituted of about 3% of our observation; which we assumed that a significant part of this percentage owed its relevance to the first four pairs of bonds constructed and not errors or outliers. Also, the
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;
v) Launch initiatives to keep rivals off balance; and
vi) Grow faster than industry, taking market share from rivals.
b) Fortify and defend the strategy. Relates to sealing off areas or cracks that may invite other competitors to attack or challenge the company.
i) Increase advertising and research and development
ii) Provide higher levels of customer service
iii) Introduce more brands to match attributes of rivals
iv) Add personalized services to boost buyer loyalty
v) Keep prices reasonable and quality attractive
vi) Build new capacity ahead of market demand
vii) invest enough to remain cost competitive
viii) Potent feasible alternative
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cracked the top 10 list.  0.05  2  0.1 
TOTAL  1.0   2.85 
Total Weighted Score indicates that Ford has above average ability to respond to the external factor. It means that Ford does take advantage of the existing opportunities and minimize their threats.
INTERNAL FACTOR EVALUATION (IFE) MATRIX
Table below shows the IFE Matrix for Ford.
KEY INTERNAL FACTORS  WEIGHT  RATING  WEIGHTED SCORE 
STRENGTH    
1. Ford received $5.9 billion in Energy Department loans to help retool its plants in Illinois, Kentucky, Michigan, Missouri and Ohio to produce 13 fuelefficient models, including 5,000 to 10,000 electric cars per year starting in 2011.  0.1  4  0.4 
2
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valuation method do you believe most clearly
represents the true value of Encore’s Share?
(7 Marks)
B. Answer the following questions:
a. How does a bond issuer decide on the appropriate coupon rate to set on its bonds?
Explain the difference between the coupon rate and the required return on a bond.
(5 Marks)
b. Companies pay rating agencies such as the Standard and Poor Rating Service, to rate
their bonds, and the costs can be substantial. However, companies are not required
to have their bonds rated in the first place; doing so is strictly voluntary. Why do you
think they do it?
(5 Marks)
Page 3 of 6
QUESTION 2: WEIGHTED AVERAGE COST OF CAPITAL
(22 Marks)
Defence
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a whole and we find that it may be overvalued by the market.
PART I: DCF Valuation
In our intrinsic valuation approach, Boston Beer Company’s future free cash flows of the next ten years are projected in the spreadsheet. Present value of the company at the end of 1995 is calculated by discounting ten year’s free cash flows and terminal value by weighted average cost of capital. As we can see from the spreadsheet, the company fair value is $210.78 million. Subtracting the debt level of $1.95 million, the equity value is therefore $208.83 million.
Appendix 1 includes the full valuation model we used. The key assumptions we made and the calculation methods we used are listed as
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If the company were to recapitalize, debt would be issued, and the funds received would be used to repurchase stock. PizzaPalace is in the 40 percent stateplusfederal corporate tax bracket, its beta is 1.0, the riskfree rate is 6 percent, and the market risk premium is 6 percent.

a. Provide a brief overview of capital structure effects. Be sure to identify the ways in which capital structure can affect the weighted average cost of capital and free cash flows.
Answer: The basic definitions
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Q
T
C
How much to order?
When to order?
What will be the relevant costs?
It measures the effectiveness of inventory management
Inventory turns
Annual cost of goods sold $
= _________________________
Average value of inventory $
For exampleAnnual cost of goods sold – US $ 1,000,000
Average inventory value : US$ 100,000
Inventory turns = $ 1,000,000/ $ 100,000 = 10
Item Cost Direct material, direct labor, factory O/H,
Transportation, Customs duties, Insurance
Carrying Cost 1. Cost of Capital – Interest paid on the money tied up
2. Storage costs  Space, personnel, and equipment
3. Risk costs Obsolescence, damage, pilferage, insurance
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inventory is usually accomplished using one of three methods. FIFO (first in, first out), LIFO (last in, first out), and weighted average. With the FIFO method, the first items purchased would be the first items removed from the inventory. The LIFO method removes the most recently purchased inventory items first. Weighted average is a compromise between FIFO and LIFO. When weighted average is used the total cost of inventory available for sale is divided by the totally number of units available for sale. When weighted average is used the cost of goods sold is reflective of the total period’s operations but the inventory valuation is not representative of future cash flows. Weighted
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Financial Analysis project:
Franco Nevada Corp VS. Kinross Gold
RSM219H1 A Team assignment
L0801 – Instructor Ralph Tassone
Amen Hammad 1000365311
Hao Xu1000668155
Shaobo Hou 1000127016
Andrei Baican 1000589945
Anastasia Ionas 999896554
Ratio analysis
Working capital= current assets current liabilities
Current ratio = current assets current liabilities
Inventory turnover = Cost of goods soldAverage inventory
Debt to total asset = Total liabilitiesTotal assets
Earnings per share ratio = Net earnings available to common shareholdersweighted average number of common share
Gross profit margin = Gross profitnet sales
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of their company, as insiders own 76% of voting class B stock; therefore, equity financing is sufficient for them. This is also good for Kelly Services because they are able to share the burden of risk with their investors.
WACC and CAPM
Weighted Average Cost of Capital (WACC) is the rate that Kelly Services is expected to pay to finance their assets. Since Kelly Services can potentially raise money from many different sources and different securities generate different returns, WACC is used to generate the weighted average of all financing activities. WACC changes based on the capital structure of the firm therefore, minimizing WACC is a good strategy to find the most appropriate
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.
Estimating the Cost of Capital
In order to calculate the cost of capital of Ameritrade we will use the Capital Asset Pricing Model. This model helps estimate the required rate of return of a certain investment for the given risk. In the case of Ameritrade, we can use this method by finding the most accurate risk free rate, market risk premium and asset beta. We can then find the return on assets by using the following formula:
Ra= Rf+ βa (RmRf)
To find the asset Beta (βa), we need to find the weighted average β of equity and the weighted average β of debt. We consider the β of debt to be 0, as debt has no relationship with market risk and it is evident from the balance sheet
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tax rate was 40%. In order to sustain its operations and thus generate sales and cash flows in the future, the firm was required to make $800 of capital expenditures on new fixed assets and to invest $500 in net operating working capital. What was its free cash flow?
A.$1,000
B.$1,100
C.$1,200
D.$1,300
E.$1,400
4) For 2005, Bargain Basement Stores reported $11,500 of sales and $5,000 of operating costs (including depreciation). The company has $20,500 of investorsupplied operating assets (or capital), the weighted average cost of that capital (the WACC) was 10%, and the federalplusstate income tax rate was 40%. What was the firm's Economic Value Added (EVA), i.e., how
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calculated by adding the average collection period with inventory turnover in days and subtracting the average payment period:
CCC AR * 365 / Sales Inventory* 365 / COGS AP * 365 / COGS
(1)
where AR, AP and COGS denote accounts receivable, accounts payable and cost of goods sold respectively. Hence, through combining the vital components of a firm’s liquidity and short term operating efficiency, CCC can be argued to be at the core of working capital management. However, Shin and Soenen (1998) suggest a similar alternative measure of working capital management, specifically Net Trade Cycle (NTC) which is basically very similar to CCC in that, it also concentrates on the three main
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of capital (to 2d.p.). (5 marks)
b) What impact will each of the following events have on a firm’s weighted average cost of capital? i. The corporate tax rate is lowered. The firm increases its leverage. ii. iii. The firm’s stock price falls dramatically. The Government imposes a stamp duty on the floatation of share. iv. The firm sells a division and replaces it with a less risky project. (10 marks) v.
2
Question 4 Andrea’s Garage decided to acquire a new Computerized Diagnostic Center for its Montego Bay Service center. The Diagnostic Center is estimated to cost $9,000,000 and an additional $1,000,000 for installation and training of staff. The present value of the tax writeoff
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.
• when the products are sold.
• after each unit is produced.
• on production cost reports.
Want help? Click to download STR 581 Final Exam Questions With Answers
28. The convention of consistency refers to consistent use of accounting principles:
• within industries
• among accounting periods
• throughout the accounting period
• among firms
29. If a company’s weighted average cost of capital is less than the required return on equity, then the firm:
• is financed with more than 50% debt
• is perceived to be safe
• partnership
• has debt in its capital structure
30. Your firm has an equity multiplier of 2.47. What is the debt
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raising Capital 1  
9 Weighted Average cost of Capital, Optimum Capital Structure, Inventory, Accounts payable, Effect of 2 1 
 Inflation on Working Capital Management   
10 Instruments of LongTerm Finance 1  
11 Internal Financing and Dividend Policy
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, largely through 100 per cent captive power generation that costs the company 4.5 cents per kilowatthour; well below Indian utility costs, and about 30 per cent lower than the global average. Similarly, its capital cost is 2530 per cent lower than its international peers due to its legendary speed in plant commissioning and its relentless focus on reducing the weighted average cost of capital (WACC) that, at 13 per cent, is the lowest of any major Indian firm. A Bias for Growth Comparing major Indian companies in key industries with their global competitors shows that Indian companies are running a major risk. They suffer from a profound bias for growth. There is nothing wrong with this bias, as
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Japanese yen and the US dollar, others are pegged, or linked. They may be pegged to the value of another currency, such as the US dollar or the euro, or to a basket, or weighted average, of currencies. *
That movement of capital can also increase currency instability because foreign investors could stop investing at any time and withdraw their money, causing the foreign exchange value to quickly plummet. This has happened in countries like Brazil where foreign investors caused the currency value to increase when they invested in Brazilian companies in the early 2000s. This initially created a positive effect for Brazil, but now that foreign investors are withdrawing their money — causing a
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201. Which of the following are factors of production? Output in a production function Productivity → Land, labor, capital, and entrepreneurship Implicit and explicit costs  202. The period in which at least one input is fixed in quantity is the: Long run. Production run. → Short run. Investment decision. 
203. The change in total output associated with one additional unit of input is the: Opportunity cost of the output. Average productivity. → Marginal physical product. Marginal cost.  204. If a firm could hire all the workers it wanted at a zero wage (i.e., the workers are volunteers), the firm should hire: Enough workers to produce the output where diminishing
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Case 13: Southeastern University
Situation:
* Southeastern University was one of the largest universities in the state.
* Total enrollment of more than 25000 students and approximately 3500 staff.
* Had 12 faculties at the university, over 20 continuing education diploma and certificate programs and 3 affiliated colleges.
* Its purchasing department was centralized and it has a detailed policy.
* Purchasing director Blake Hyatt, reported to the university’s VP of administration.
* Maintained a list of approximately 1200 approved suppliers, adjusted every 35 years.
* Follows a weighted average vendor selection system
* Volume of
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Reliance operates during the next year, do some services deserve more attention than others? (Hint: What is their relative contribution to the WACM % and to the total contribution margin? Which services?)
7. How can the budgetary weighted average contribution margin (WACM) percentage be used to help control the actual operations of Reliance?
8. If a budgetary weighted average contribution margin (WACM) percentage has been developed with an expected level of revenue and a planned fixed cost and the budgetary WACM percentage is in fact achieved in the
next (future) time period, could the organization still face losses if the total revenue drops below the budgeted level or total fixed
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