Question 1

Short-term financial decisions

Accepted Answer

A) involve short-lived assets. 
B) involve short-lived liabilities. 
C) are easily reversed. 
D) involve short-lived assets, involve short-lived liabilities, and are easily reversed. 
A) involve short-lived assets. 
B) involve short-lived liabilities. 
C) are easily reversed. 
D) involve short-lived assets, involve short-lived liabilities, and are easily reversed.

Question 2

Cash inflow, in cash budgeting, comes mainly from

Accepted Answer

A) collections on accounts receivable. 
B) short-term debt. 
C) issue of securities. 
D) sale of seasoned equity. 
A) collections on accounts receivable. 
B) short-term debt. 
C) issue of securities. 
D) sale of seasoned equity.

Question 3

Discuss the reasons why a company should prepare a cash budget.

Accepted Answer

There are two very important reasons for

Question 4

The most important function of a short-term financial plan is

Accepted Answer

A) to develop a cash budget. 
B) to cover the forecasted requirements in the most economical way possible. 
C) to help develop the long-term financial plan. 
D) None of these answers are correct. 
A) to develop a cash budget. 
B) to cover the forecasted requirements in the most economical way possible. 
C) to help develop the long-term financial plan. 
D) None of these answers are correct.

Question 5

Last year Axle Inc. reported total assets of $400, equity of $200, net income of $50, dividends of $10, and earnings retained in the period of $40. What is Axle Inc.'s sustainable growth rate?

Accepted Answer

A) 25.0 percent 
B) 57.1 percent 
C) 20.0 percent 
D) 71.4 percent 
A) 25.0 percent 
B) 57.1 percent 
C) 20.0 percent 
D) 71.4 percent

Question 6

Assume the following data: Total current assets = $852; Total current liabilities = $406; Long-term debt = $442. Calculate net working capital.

Accepted Answer

A) $446 
B) $852 
C) $410 
D) $4 
A) $446 
B) $852 
C) $410 
D) $4

Question 7

Small companies in relatively high-risk industries are more likely to hold large cash surpluses.

Accepted Answer

A) True 
 B)False

Question 8

Discuss the process of preparing a financial plan.

Accepted Answer

The process of preparing a financial pla

Question 9

The firm's internal growth rate is defined as

Accepted Answer

A) retained earnings/net income. 
B) reinvested earnings/net assets. 
C) retained earnings/total assets. 
D) net income/net assets. 
A) retained earnings/net income. 
B) reinvested earnings/net assets. 
C) retained earnings/total assets. 
D) net income/net assets.

Question 10

A company has forecast sales in the first three months of the year as follows (figures in millions): January, $90; February, $20; March, $30. 70 percent of sales are usually paid for in the month that they take place and 30 percent in the following month. Receivables at the end of December were $20 million. What are the forecasted collections on accounts receivable in March?

Accepted Answer

A) $27 million 
B) $50 million 
C) $23 million 
D) $35 million 
A) $27 million 
B) $50 million 
C) $23 million 
D) $35 million

Question 11

Strategy B, as portrayed in Chapter 29, implies that the firm is a short-term lender during a part of the year and a short-term borrower during the rest of the year.

Accepted Answer

A) True 
 B)False

Question 12

A firm can achieve a higher growth rate (within limits)without raising external capital by

Accepted Answer

A) increasing the proportion of debt in its capital structure. 
B) increasing its current ratio. 
C) decreasing its inventory turnover. 
D) increasing its plowback ratio. 
A) increasing the proportion of debt in its capital structure. 
B) increasing its current ratio. 
C) decreasing its inventory turnover. 
D) increasing its plowback ratio.

Question 13

Last year Foley Inc. reported net fixed assets of $400, net working capital of $100, net income of $120, dividends of $70, and earnings retained in the period of $50. What is Foley Inc.'s internal growth rate?

Accepted Answer

A) 17.5 percent 
B) 30.0 percent 
C) 10.0 percent 
D) 12.5 percent 
A) 17.5 percent 
B) 30.0 percent 
C) 10.0 percent 
D) 12.5 percent

Question 14

How does one calculate external capital required?

Accepted Answer

External capital required is c

Question 15

A firm that chooses Strategy B, as portrayed in Chapter 29, should plan to

Accepted Answer

A) maintain a high ratio of current assets to sales. 
B) use low or no short-term debt and more long-term financing. 
C) repurchase a substantial number of shares. 
D) be a short-term lender during a part of the year and a borrower during the rest. 
A) maintain a high ratio of current assets to sales. 
B) use low or no short-term debt and more long-term financing. 
C) repurchase a substantial number of shares. 
D) be a short-term lender during a part of the year and a borrower during the rest.

Question 16

Depreciation is not included as a source of cash because it is an expense.

Accepted Answer

A) True 
 B)False

Question 17

The cash budget is the primary short-term financial planning tool. The key reason(s)that a treasurer creates a cash budget is (are)
I.to estimate the firm's investment in assets;
II.to estimate the size and timing of the firm's new cash flows;
III.to prepare for potential financing needs

Accepted Answer

A) I only 
B) II and III only 
C) II only 
D) III only 
A) I only 
B) II and III only 
C) II only 
D) III only

Question 18

Which model do firms typically use to prepare a pro-forma long-term financial plan?

Accepted Answer

A pro-forma long-term financial plan is

Question 19

Short-term financial decisions are conceptually easier to make than long-term decisions.

Accepted Answer

A) True 
 B)False

Question 20

A firm can meet its cumulative capital requirement via

Accepted Answer

A) long-term financing. 
B) short-term financing. 
C) long-term financing and short-term financing. 
D) None of these answers are correct. 
A) long-term financing. 
B) short-term financing. 
C) long-term financing and short-term financing. 
D) None of these answers are correct.

Exam 29: Financial Planning

Short-term financial decisions

Cash inflow, in cash budgeting, comes mainly from

Discuss the reasons why a company should prepare a cash budget.

The most important function of a short-term financial plan is

Last year Axle Inc. reported total assets of $400, equity of $200, net income of $50, dividends of $10, and earnings retained in the period of $40. What is Axle Inc.'s sustainable growth rate?

Assume the following data: Total current assets = $852; Total current liabilities = $406; Long-term debt = $442. Calculate net working capital.

Small companies in relatively high-risk industries are more likely to hold large cash surpluses.

Discuss the process of preparing a financial plan.

The firm's internal growth rate is defined as

Strategy B, as portrayed in Chapter 29, implies that the firm is a short-term lender during a part of the year and a short-term borrower during the rest of the year.

A firm can achieve a higher growth rate (within limits)without raising external capital by

Last year Foley Inc. reported net fixed assets of $400, net working capital of $100, net income of $120, dividends of $70, and earnings retained in the period of $50. What is Foley Inc.'s internal growth rate?

How does one calculate external capital required?

A firm that chooses Strategy B, as portrayed in Chapter 29, should plan to

Depreciation is not included as a source of cash because it is an expense.

The cash budget is the primary short-term financial planning tool. The key reason(s)that a treasurer creates a cash budget is (are) I.to estimate the firm's investment in assets; II.to estimate the size and timing of the firm's new cash flows; III.to prepare for potential financing needs

Which model do firms typically use to prepare a pro-forma long-term financial plan?

Short-term financial decisions are conceptually easier to make than long-term decisions.

A firm can meet its cumulative capital requirement via

Introduction to Corporate Finance

How to Calculate Present Values

Valuing Bonds

The Value of Common Stocks

Net Present Value and Other Investment Criteria

Making Investment Decisions With the Net Present Value Rule

Introduction to Risk and Return

Portfolio Theory and the Capital Asset Pricing Model

Risk and the Cost of Capital

Project Analysis

How to Ensure That Projects Truly Have Positive Npvs

Agency Problems and Investment

Efficient Markets and Behavioral Finance

An Overview of Corporate Financing

How Corporations Issue Securities

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Real Options

Credit Risk and the Value of Corporate Debt

The Many Different Kinds of Debt

Leasing

Managing Risk

Managing International Risks

Financial Analysis

Working Capital Management

Mergers

Corporate Restructuring

Governance and Corporate Control Around the World

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