Question 1

After-tax cash flow equals ____________.

Accepted Answer

A)  earnings after tax plus non-cash charges 
B)  net earnings plus deferred expenses 
C)  net earnings plus depreciation 
D)  earnings after tax 
A)  earnings after tax plus non-cash charges 
B)  net earnings plus deferred expenses 
C)  net earnings plus depreciation 
D)  earnings after tax

Question 2

Ship-to-Shore earned $280,000 after taxes last year. Its expenses included depreciation of $55,000, interest expenses of $40,000, and deferred taxes of $20,000. The company also purchased two new fresh water fishing boats for $40,000 ($20,000) each. What is Ship-to-Shore's after-tax cash flow for last year?

Accepted Answer

A)  $395,000 
B)  $355,000 
C)  $315,000 
D)  $280,000 
A)  $395,000 
B)  $355,000 
C)  $315,000 
D)  $280,000

Question 3

Why would a firm want to develop a cash budget since it is only a projection of cash inflows and outflows over some future period of time?

Accepted Answer

Cash budgets are useful in determining t

Question 4

Which of the following is an example of a deterministic model?

Accepted Answer

A)  profit optimization model 
B)  budget simulator 
C)  probabilistic set 
D)  discriminant model 
A)  profit optimization model 
B)  budget simulator 
C)  probabilistic set 
D)  discriminant model

Question 5

The kind of analysis that consists of rerunning the model to determine the effect on the output variables of changes in the input variables is __________.

Accepted Answer

A)  simulation 
B)  scenario analysis 
C)  sensitivity analysis 
D)  probabilitistic analysis 
A)  simulation 
B)  scenario analysis 
C)  sensitivity analysis 
D)  probabilitistic analysis

Question 6

A downside of financing expansion by selling new shares of stock is that do so _____________.

Accepted Answer

A)  dilutes ownership in the firm 
B)  incurs higher financial risk 
C)  reduces the prosperity of the firm 
D)  All of these are correct 
A)  dilutes ownership in the firm 
B)  incurs higher financial risk 
C)  reduces the prosperity of the firm 
D)  All of these are correct

Question 7

____ financial planning models seek to maximize (or minimize) the value of some objective function, such as profits (or costs).

Accepted Answer

A)  Deterministic 
B)  Optimization 
C)  Probabilistic 
D)  None of these are correct 
A)  Deterministic 
B)  Optimization 
C)  Probabilistic 
D)  None of these are correct

Question 8

In the percentage of sales forecasting method, which of the following is assumed to increase proportionately with sales?

Accepted Answer

A)  cash 
B)  accounts receivable 
C)  accounts payable 
D)  All these are correct 
A)  cash 
B)  accounts receivable 
C)  accounts payable 
D)  All these are correct

Question 9

In using the percentage of sales forecasting method, the assumption is that ______________.

Accepted Answer

A)  there is a direct relationship between long-term debt and sales 
B)  inventories will increase proportionately with sales 
C)  there is a direct relationship between notes payable and sales 
D)  accounts payable will not increase proportionally with sales 
A)  there is a direct relationship between long-term debt and sales 
B)  inventories will increase proportionately with sales 
C)  there is a direct relationship between notes payable and sales 
D)  accounts payable will not increase proportionally with sales

Question 10

Short-term operational plans are generally conducted over what time frame?

Accepted Answer

A)  3-6 months 
B)  8-12 months 
C)  12-18 months 
D)  2-5 years 
A)  3-6 months 
B)  8-12 months 
C)  12-18 months 
D)  2-5 years

Question 11

Which of the following would indicate how much actual cash the firm has on hand?

Accepted Answer

A)  income statement 
B)  balance sheet 
C)  statement of cash flows 
D)  None of these are correct 
A)  income statement 
B)  balance sheet 
C)  statement of cash flows 
D)  None of these are correct

Question 12

Lullaby Lane Bedding Inc. needs to determine the amount of growth the firm could experience without having to obtain external financing. The current sales level is $800,000, the net profit margin is 6%, and the dividend payout ratio is 40%. Assume the firm is currently operating at full capacity and all assets will increase proportionately with sales. Lane's current balance sheet follows: $\begin{array}{|l|c|r|r|}
\hline\text { Cash } & \$ 30,000& \text { Accounts Payable } & \$ 140,000 \
\hline \text { Accounts Receivable } & 90,000& \text { Notes Payable } & 50,000 \
\hline \text { Inventories } & 110,000 &\text { Long-term Debt } & 280,000 \
\hline \text { Net Fixed Assets } & \underline{380,000}& \text { Common Stock } & 40,000 \
\hline&\$610,000&\text { Retained Earnings }&100,000\
\hline&&&\$610,000\
\hline
\end{array}$

Accepted Answer

A)  6.53% 
B)  1.09% 
C)  11.97% 
D)  13.50% 
A)  6.53% 
B)  1.09% 
C)  11.97% 
D)  13.50%

Question 13

In preparing a statement of cash flows, the ____ method involves adjusting net income to reconcile it to net cash flows from operating activities.

Accepted Answer

A)  direct 
B)  indirect 
C)  accrual 
D)  None of these are correct 
A)  direct 
B)  indirect 
C)  accrual 
D)  None of these are correct

Question 14

Which of the following is an advantage of a cash budget over the percentage of sales method? 
I. A cash budget can more precisely estimate the amount of financing needed.
II. A cash budget can better estimate the timing of financing needs.

Accepted Answer

A)  Only statement I is correct. 
B)  Only statement II is correct. 
C)  Both statements I and II are correct. 
D)  Neither statement I nor II is correct. 
A)  Only statement I is correct. 
B)  Only statement II is correct. 
C)  Both statements I and II are correct. 
D)  Neither statement I nor II is correct.

Question 15

The Danville Company is considering a $50 million expansion (capital expenditure) program next year. The company wants to determine approximately how much additional financing will be needed if the expansion program is undertaken. The company expects to earn $25 million after interest and taxes next year. The company also plans to increase its dividends from $5 million to $7 million. If the expansion program is accepted, the company expects working capital requirements to increase by approximately $8 million next year. Long-term debt retirement obligations total $3 million next year, and depreciation is expected to be $13 million. No fixed assets are expected to be sold next year.

Accepted Answer

A)  $30 million 
B)  $43 million 
C)  $32 million 
D)  $22 million 
A)  $30 million 
B)  $43 million 
C)  $32 million 
D)  $22 million

Question 16

In 1998, Hepler Company's sales were $26 million and its total assets were $10 million. Current liabilities were $4 million, and total equity was $2 million. Hepler Company's sales for 1999 are forecasted to be $34 million, earnings after taxes are expected to be 5 percent of sales, and dividends of $800,000 are expected to be paid. Assuming that the ratios "assets to sales" and "current liabilities to sales" in 1998 remain the same in 1999, determine the approximate amount of additional financing required.

Accepted Answer

A)  $1,746,154 
B)  $1,446,154 
C)  $6,946,154 
D)  $946,154 
A)  $1,746,154 
B)  $1,446,154 
C)  $6,946,154 
D)  $946,154

Question 17

The percentage of sales forecasting method assumes which of the following?

Accepted Answer

A)  present asset levels are suboptimal with respect to present sales 
B)  present asset levels are optimal with respect to present sales 
C)  most items on the balance sheet are indirectly proportional to sales 
D)  none of these are correct 
A)  present asset levels are suboptimal with respect to present sales 
B)  present asset levels are optimal with respect to present sales 
C)  most items on the balance sheet are indirectly proportional to sales 
D)  none of these are correct

Question 18

Cash and cash equivalents include which of the following? 
I. Highly liquid investments
II. Currency on hand

Accepted Answer

A)  Only statement I is correct. 
B)  Only statement II is correct. 
C)  Both statements I and II are correct. 
D)  Neither statement I nor II is correct. 
A)  Only statement I is correct. 
B)  Only statement II is correct. 
C)  Both statements I and II are correct. 
D)  Neither statement I nor II is correct.

Question 19

Calculate United's total assets if the firm expects sales to grow 15 percent this year and the earnings after tax will be $50,000. United paid $20,000 in dividends last year and expects to increase dividends 10 percent this year. The firm will need additional financing of $25,000 to finance the expected growth. United started the year with $40,000 in accounts payable, $30,000 in notes payable, and $100,000 in long-term debt. The company is operating at full capacity.

Accepted Answer

A)  $393,333 
B)  $590,000 
C)  $226,667 
D)  $616,000 
A)  $393,333 
B)  $590,000 
C)  $226,667 
D)  $616,000

Question 20

In developing a firm's financial plan, the firm develops a strategic plan and an operational plan. What is the difference between a strategic plan and an operational plan?

Accepted Answer

A strategic plan is long range in nature

Exam 4: Financial Planning and Forecasting

After-tax cash flow equals ____________.

Why would a firm want to develop a cash budget since it is only a projection of cash inflows and outflows over some future period of time?

Which of the following is an example of a deterministic model?

The kind of analysis that consists of rerunning the model to determine the effect on the output variables of changes in the input variables is __________.

A downside of financing expansion by selling new shares of stock is that do so _____________.

____ financial planning models seek to maximize (or minimize) the value of some objective function, such as profits (or costs).

In the percentage of sales forecasting method, which of the following is assumed to increase proportionately with sales?

In using the percentage of sales forecasting method, the assumption is that ______________.

Short-term operational plans are generally conducted over what time frame?

Which of the following would indicate how much actual cash the firm has on hand?

In preparing a statement of cash flows, the ____ method involves adjusting net income to reconcile it to net cash flows from operating activities.

Which of the following is an advantage of a cash budget over the percentage of sales method? I. A cash budget can more precisely estimate the amount of financing needed. II. A cash budget can better estimate the timing of financing needs.

The percentage of sales forecasting method assumes which of the following?

Cash and cash equivalents include which of the following? I. Highly liquid investments II. Currency on hand

In developing a firm's financial plan, the firm develops a strategic plan and an operational plan. What is the difference between a strategic plan and an operational plan?

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

The Time Value of Money

Continuous Compounding and Discounting

Fixed Income Securities: Characteristics and Valuation

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Mutually Exclusive Investments Having Unequal Lives

Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital

Capital Structure Concepts

Breakeven Analysis

Capital Structure Management in Practice

Dividend Policy

Working Capital Policy and Short-Term Financing

The Management of Cash and Marketable Securities

The Management of Accounts Receivable and Inventories

Lease and Intermediate Term Financing

Financing With Derivatives

Bond Refunding Analysis

Risk Management

International Financial Management

Corporate Restructuring

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