Exam 4: Financial Planning and Forecasting

In those industries where capacity can be added only in discrete or "lumpy" increments, fixed assets are increased in a manner as sales increase.

What information does a long-term financial plan offer?

Which of the following statements is/are correct about deferred taxes?

Scorch & Burn Fire Extinguishers, Inc.had an operating income (EBIT) of $260,000 last year.The firm had $18,000 in depreciation expenses, $15,000 in interest expenses and $60,000 in selling, general, and administrative expenses.If Scorch & Burn has a marginal tax rate of 40%, what was its after-tax cash flow for last year?

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

All the following current liabilities normally vary directly with sales except:

Pro forma financial statements are used to:

ICU, an eyeglass manufacturer, has current assets of $800,000 and net fixed assets of $1,400,000.The firm expects its sales to climb 25 percent next year from its current level of $3,500,000.ICU's only current liability is accounts payable of $1,200,000.If both current assets and current liabilities will increase proportionately with sales, what additional financing will be needed by ICU next year? Assume ICU has a net profit margin of 6 percent.An increase in net fixed assets of $500,000 will be required.The firm pays out 50 percent of its earnings as dividends.

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.

CU Tech expects sales next year will be $4.8 million, a 25% increase over current sales.CU has total assets of $2.24 million and all assets will increase proportionately with sales.CU has $1.49 million in current liabilities and a current ratio of 1.60 to 1.What total financing will CU need to support the expected sales increase?

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.Next year the company expects to earn $25 million after interest and taxes.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.

Computerized financial planning models may be classified as any of the following except:

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: Cash 30,000 Accaunts Payable 140,000 Accaunts Receivable 90,000 Nates Payable 50,000 Inventaries 110,000 Lang-term Debt 280,000 Net Fixed As5ets 380,000 Camman Stack 40,000 \ 610,000 Retained Earnings 100,000 3010,000

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

Explain the cash flow generation process:

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

After-tax cash flow equals:

Pro forma financial statements display the financial situation of a firm based on:

Cash and cash equivalents include:

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 amount of additional financing required.