Exam 4: Financial Planning and Forecasting

Getrag expects its sales to increase 20% next year from its current level of $4.7 million. Getrag has current assets of $660,000, net fixed assets of $1.5 million, and current liabilities of $462,000. All assets are expected to grow proportionately with sales. If Getrag has a net profit margin of 10%, what additional financing will be needed to support the increase in sales? Getrag does not pay dividends.

Dippity Doo-Dah Party Dips has revenues of $50,000, general & administrative expenses of $35,000, interest expense of $4,000, and depreciation expense of $4,200. The firm is in the 38% tax bracket. What would be the firm's cash flow from operations?

What is the purpose of a financial plan?

The third step in the preparation of a cash budget is the determination of ____________.

The Hudson River Line Company has a balance sheet as of the end of the year as follows: Cash \ 5,000 Accounts Payable \ 15,000 Accounts Receivable 20,000 Notes Payable 10,000 Inventories 40,000 Total Current Liab. 25,000 Total Current Assets \ 65,000\mid Long-term Debt 30,000 Fixed Assets, net 50,000 Stockholder's Equity 60,000 Total Assets \ 115,000\mid Total Liabilities \& Equity \ 115,000 Last year, the firm had sales of $148,750. This year the company expects sales to increase 25%, to generate earnings after tax of $16,000, and to pay a dividend of $5,000. Hudson operated its fixed assets at 85% capacity last year. What additional financing will be needed to support the sales increase?

The first step in cash budget preparation is the ____________.

Each of the following is used to forecast the amount of additional financing (i.e., cash) a company will need in some future period EXCEPT:

Jones Company's sales last year were $25 million, and its total assets were $8 million. Accounts payable were $2 million, and common stock and retained earnings were $5 million. Jones' sales are forecasted to be $30 million this year, earnings after tax are expected to be 3% of sales, and dividends of $250,000 are expected to be paid. Assuming that the ratio of assets to sales and current liabilities to sales remain the same this year as last year, determine the amount of additional financing required.

Great Subs believes it can increase sales by 50% without any increase in net fixed assets. Earnings after tax are expected to be $2,000. The company pays no dividends. What additional financing will Subs need to fund this growth? Subs' current balance sheet is as follows: Cash \ 2,500 Accounts Payable \ 5,600 Accounts Rec. 4,400 Notes Payable 10,000 Inventory 6,000 Long-term Debt 15,000 Fixed Assets, net 47,700 Stockholders' Equity 30,000 \6 0,600 \6 0,600

Which of the following statements is (are) correct about deferred taxes? I. Deferred taxes can occur because of geographical problems with the location of corporate headquarters. II. Deferred taxes can occur because some companies use the straight-line depreciation method to calculate Income reported to stockholders and accelerated depreciation to calculate taxable income. This practice Reduces taxes owed.

Pro forma financial statements are used to ___________.

Unlike long-term financial forecasts, short-term financial forecasts (one year or less) tend to be more ___________.

The percentage of sales forecasting method is used by management to forecast the amount of _____________.

Peerless believes that its sales next year will increase 20 percent from the current level of $800,000. Management calculates that assets must increase $110,000 to support the new sales level, and current liabilities will increase $70,000. What total financing will be needed?

Operational plans are generally conducted at two levels. Which length of time is typically considered long-term?

Pro forma financial statements show the results of some ____ event rather than a(n) ____ event.

Computerized financial planning models may be classified as any of the following EXCEPT ____________.

____ is the statistical technique that helps the analyst classify observations (firms) into two or more predetermined groups based on certain characteristics of the observation.

In 20X3, Fillmore Company's sales were $12 million. Its balance sheet at year-end 20X3 is shown below. Fillmore's 20X4 sales are expected to be $15 million, and its 20X5 sales are expected to be $18 million. Earnings after tax in both years is expected to be 5.0% of sales, and annual dividends of $250,000 are expected to be paid in both 20X4 and 20X5. The company presently has excess plant and equipment capacity. As a result, assume that the net fixed asset figure on the balance sheet will remain constant for both 20X4 and 20X5. Assuming that the ratios of assets (except fixed assets, net) to sales and accounts payable to sales in 20X3 remain the same in 20X4 and 20X5, calculate the total amount, i.e., one number, of external financing required during the 2-year period from 20X4 through 20X5, using the percentage of sales method. Fillmore Co. Balance Sheet (December 31, 20X3) ($ millions) Current assets: Current liabilities: Cash \ 0.2 Accts. payable \ 0.6 Accts. Rec. 1.2 Notes payable 0.7 Inventory 2.0 Long-term debt 1.5 Fixed assets, net 2.6 Stockhol ders' equity 2.2 \6 .0 \6 .0

Explain the cash flow generation process.