Fluent Essays

Page 1 of 4 BARUCH COLLEGE, CUNY FALL 2021 MARXE SCHOOL PAF 9140/PATHAK Budgeting and Financial Analysis Midterm Exam Maximum Grade: 20 points; Due 11.59 PM, October 17, 2021 Submit through the Submission Link on the Blackboard INSTRUCTIONS a. This exam is made up of two sections. Section I is comprised of four short descriptive questions and Section II is comprised of three problems that involve calculations. b. Submit answers in a word or pdf file (no JPEGs please). You may paste photos of your work in word file. You may also use Adobe Scan or other scanning apps. c. You may attach excel to show your work, but I won’t grade excel. If you decide to use excel for some calculations, please copy the formula to the answer-sheet. d. If you write the final answer without showing your steps or excel formula, you may not receive the full grade. SECTION I –SHORT ANSWERS (TOTAL – 8 POINTS) 1. A political scientist and a budget analyst walked into a bar. The political scientist makes an argument that the budget-making process is ‘all’ about politics. The budget analyst, on the other hand, argues that politics is an important part of the process, but the budget process has four key steps, and some of these are less political than others. Which four steps in the budget cycle is the analyst referring to? Explain each step in 1-2 lines. Also, briefly mention which steps you think are influenced relatively more by politics. (2 pts) 2. In one or two lines each, explain various kinds of costs that we have discussed in the class: (a) fixed cost, (b) variable cost, (c) total cost, (d) average total cost, (e) marginal cost, (f) direct cost, (g) indirect cost, (h) opportunity cost. (2 pts) 3. During this semester, we have discussed several approaches to budget making. Briefly, summarize the following three budgeting approaches. (2 pts) a. Performance budgeting b. Zero-based budgeting c. Participatory budgeting 4. In his 1959 book, The Theory of Public Finance, Richard Musgrave conceptualized the problem of public finance into three key branches and outlined the role of government in the economy. List the three main roles of government in the economy as outlined by Musgrave, and summarize each in 2-3 lines. (2 pts) Ozkan Serenli Ozkan Serenli Page 2 of 4 SECTION II – BUDGET APPLICATIONS (TOTAL –12 POINTS) 5. Breakeven Analysis for Lexington Academy In a recent report (http://seachangecap.org/wp-content/uploads/2019/03/Closing-the-Gap- A-True-Cost-Analysis-March-2019.pdf), Seachange Capital Partners – a consultancy that works with several nonprofits in the NYC area notes: “New York City is now embarking on an ambitious plan to promote quality early childhood education through the establishment of a unified contracted early childhood education system managed by the New York City Department of Education (DOE). A key part of the City’s work to promote early childhood education will be new procurements of all contracted early childhood education programs... These new procurements represent the largest reorganization of early childhood contracts … and the continuation of the most rapid expansion of contracted early childhood programs since the City began contracting with settlement houses and other community- based early childhood programs during the mayoralty of Fiorello LaGuardia.” Under the new program, assume that the NYC DOE has decided to provide a per- student contribution, and the costs associated with providing the services for “Lexington Academy” are listed below across the three programs: Pre-K for All, Headstart, EarlyLearn. The table shows the common expenses and costs for each of three units within the Academy that provide services to kids of different ages. a. After reading the entire question, identify the mission centers (0.5 point) b. Fill up the box below. Classify the costs you see in Table 1 into these boxes (just their names, not the amounts!) (0.5 point). Fixed Costs Variable Costs Direct Costs ???? ??? Indirect Costs ??? ??? c. Lexington Academy maintains data for each line item by all three units in the organization. However, the information about total spending on “Management and Payroll” and “Building Maintenance and Rent” is available for the entire organization. Convert these indirect costs to direct costs for each mission center using “Number of Teachers” as the cost allocation factor for “Management and Payroll” (not their salary!) and “Number of Classroom Used” as the Cost Allocation Factor for “Building Rent and Maintenance.” (2 points) http://seachangecap.org/wp-content/uploads/2019/03/Closing-the-Gap-A-True-Cost-Analysis-March-2019.pdf http://seachangecap.org/wp-content/uploads/2019/03/Closing-the-Gap-A-True-Cost-Analysis-March-2019.pdf Page 3 of 4 d. Assume that each teacher is paid $55,000 and each kitchen staff is paid $35,000. The organization considers these as fixed costs since they are not hiring more people. The spending on Kitchen and classroom supplies depends on the number of kids and data is available monthly. Given the DOE contribution in the table (price), calculate the breakeven quantity or number of kids that each mission center should enroll to achieve zero funding gap. (3 points) Table 1: FY 2021 – Expenses for Lexington Academy Management and Payroll $362,902 Building Rent and Maintenance $72,144 Pre-K for All (4-5 year olds) Headstart (3 year olds) EarlyLearn (0-3 year olds) No. of Teachers ($55,000 each) 4 3 2 No. of Classrooms Allocated 3 2 1 Kitchen Staff ($35,000 each) 1 1 1 Monthly Kitchen Supplies Per Student $42 $36 $23 Monthly Classroom Supplies Per Student $32 $26 $17 DOE Contribution Per Student Per Year $6,700 $6,200 $5,200 Note: (a) Use DOE contribution as “the price” in the calculations. (b) Both of the variable costs are available monthly, convert them to annual. Page 4 of 4 6. Utility Company Settlement In July 2021, New York State Reached a $86 million settlement with utility companies for failures during natural emergencies and inadequate emergency response plans https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/ny- utilities-to-pay-86m-in-settlements-over-isaias-storm-failures-65516667. Assuming that Con Edison was required to pay a total $80.0 million for Isais response failures and steam outages of 2018 and Central Hudson would pay $2 million, and Frontier Inc would pay $4 million in the settlement. They were offered two choices (a) immediate payment of 90 percent of the total liability or (b) immediate payment of 40 percent of the liability in October 2021, and 20 percent paid during the last quarter of next three years (October 2022, October 2023, and October 2024). Assuming a discount rate of 12 percent, which alternative should EACH of these companies choose and why (show your steps)? (3 pts) 7. The Cost of Hy-Flex Classroom Baruch College intends to hire a vendor to facilitate the upgrade of vertical campus classrooms to HyFlex to facilitate more integration in online and in-person instruction. The project intends to install new cameras, microphones, screens, and projectors in the classroom that could be used to create seamless livestreams and two-way communication. Two companies have submitted the bids as shown below: Jobs Inc. has quoted a lower installation cost and higher maintenance cost per classroom, while the Gates Inc. has quoted a higher installation cost and lower maintenance cost. Which option is better from Baruch’s perspective assuming a discount rate of 8 percent and taking into account the time value of money? (3 pts) Jobs Inc. Gates Inc. Installation Cost (Paid in October 2021) $ 20,000 $27,500 Maintenance Year 1 (Paid in October 2022) $7,000 $4,500 Maintenance Year 2 (Paid in October, 2023) $7,000 $4,500 Maintenance Year 3 (Paid in October, 2024) $7,000 $4,500 Total $41,000.00 $41,000.00 (Note: You do not need excel to solve this. However, if you want to use excel you can also do that.) https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/ny-utilities-to-pay-86m-in-settlements-over-isaias-storm-failures-65516667 https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/ny-utilities-to-pay-86m-in-settlements-over-isaias-storm-failures-65516667