Question 1

What is the equation to determine the estimated additional funds needed (AFN)?

Accepted Answer

A)  Estimated AFN = Forecasted increase in assets + Forecasted increase in liabilities + Forecasted increase in retained earnings 
B)  Estimated AFN = Forecasted increase in assets - Financing feedbacks + forecasted increase in retained earnings 
C)  Estimated AFN = Forecasted increase in assets - Financing feedbacks - spontaneously generated funds 
D)  Estimated AFN = forecasted increase in liabilities + Financing feedbacks + spontaneously generated funds 
E)  Estimated AFN = Forecasted increase in assets - Forecasted increase in liabilities - forecasted increase in retained earnings 
A)  Estimated AFN = Forecasted increase in assets + Forecasted increase in liabilities + Forecasted increase in retained earnings 
B)  Estimated AFN = Forecasted increase in assets - Financing feedbacks + forecasted increase in retained earnings 
C)  Estimated AFN = Forecasted increase in assets - Financing feedbacks - spontaneously generated funds 
D)  Estimated AFN = forecasted increase in liabilities + Financing feedbacks + spontaneously generated funds 
E)  Estimated AFN = Forecasted increase in assets - Forecasted increase in liabilities - forecasted increase in retained earnings

Question 2

Funds that are obtained from routine business transactions are known as _____.

Accepted Answer

A)  spontaneously generated funds 
B)  additional funds needed 
C)  cash flows from financing activities 
D)  internally financed funds 
E)  financial feedback funds 
A)  spontaneously generated funds 
B)  additional funds needed 
C)  cash flows from financing activities 
D)  internally financed funds 
E)  financial feedback funds

Question 3

Trident Food Corporation generated the following income statement for the most recent fiscal year: $$\begin{array} { l c } 
\text { Sales revenues } & \$ 150,000 \
\text { Variable cost of sales } & \frac { ( 112,500 ) } { 37,500 } \
\text { Gross profit } & \frac { ( 24,000 ) } { 13,500 } \
\text { Fixed operating costs } & \frac { ( 10,000 ) } { 3,500 } \
\text { Net operating income (EBIT) } & \underline { ( 1,400 ) } \
\text { Interest } & \frac { 2,100 } { \text { Earnings before taxes } }
\end{array}$$
What is the degree of operating leverage for Trident Food?

Accepted Answer

A)  2.78× 
B)  10.71× 
C)  3.86× 
D)  3.00× 
E)  4.00× 
A)  2.78× 
B)  10.71× 
C)  3.86× 
D)  3.00× 
E)  4.00×

Question 4

Projected statements must be analyzed to determine if they meet the targets by _____.

Accepted Answer

A)  preparing financial ratios 
B)  preparing the statement of cash flows 
C)  determining economies of scale 
D)  calculating lumpy assets 
E)  preparing budgetary notes 
A)  preparing financial ratios 
B)  preparing the statement of cash flows 
C)  determining economies of scale 
D)  calculating lumpy assets 
E)  preparing budgetary notes

Question 5

Additional funds needed (AFN) will be negative if:

Accepted Answer

A)  assets that can be acquired only in large, discrete amounts are acquired. 
B)  the plant and equipment of the firm is increased to achieve additional growth. 
C)  the amount of internal financing expected is decreased because of an increase in operations of the firm. 
D)  there are economies of scale in the use of many types of assets. 
E)  the amount of internally generated funds is more than sufficient to support the forecasted increase in sales. 
A)  assets that can be acquired only in large, discrete amounts are acquired. 
B)  the plant and equipment of the firm is increased to achieve additional growth. 
C)  the amount of internal financing expected is decreased because of an increase in operations of the firm. 
D)  there are economies of scale in the use of many types of assets. 
E)  the amount of internally generated funds is more than sufficient to support the forecasted increase in sales.

Question 6

If a firm does not meet its forecasted sales level, leverage will result in a magnified increase in income compared to what is expected.

Accepted Answer

A) True 
 B)False

Question 7

The degree of financial leverage (DFL) is defined as the percentage change in _____ that results from a given percentage change in earnings before interest and tax (EBIT).

Accepted Answer

A)  sales 
B)  net operating income (NOI) 
C)  operating fixed costs 
D)  net income 
E)  earnings per share (EPS) 
A)  sales 
B)  net operating income (NOI) 
C)  operating fixed costs 
D)  net income 
E)  earnings per share (EPS)

Question 8

When there are economies of scale, a firm's _____ is likely to change as the size of the firm changes.

Accepted Answer

A)  days sales outstanding ratio 
B)  total assets turnover ratio 
C)  variable cost of goods sold ratio 
D)  times interest earned ratio 
E)  return on assets ratio 
A)  days sales outstanding ratio 
B)  total assets turnover ratio 
C)  variable cost of goods sold ratio 
D)  times interest earned ratio 
E)  return on assets ratio

Question 9

Assume that a firm did not operate at full capacity in the current year. The firm should increase its plant and equipment only if:

Accepted Answer

A)  its variable cost of goods sold ratio changes in the next year with an increase in operations. 
B)  the additional sales forecasted in the next year exceed the unused capacity of the existing assets. 
C)  the internally generated funds are in surplus to support the forecasted increase in sales. 
D)  the addition of fixed assets in large, discrete units results in economies of scale. 
E)  fixed operating costs are not recovered by the revenue from each unit sold by the firm. 
A)  its variable cost of goods sold ratio changes in the next year with an increase in operations. 
B)  the additional sales forecasted in the next year exceed the unused capacity of the existing assets. 
C)  the internally generated funds are in surplus to support the forecasted increase in sales. 
D)  the addition of fixed assets in large, discrete units results in economies of scale. 
E)  fixed operating costs are not recovered by the revenue from each unit sold by the firm.

Question 10

A firm should scale back the projected level of operations if the funds required to meet the sales forecast are easily available.

Accepted Answer

A) True 
 B)False

Question 11

The process of determining whether the forecast meets the firm's financial targets is known as _____.

Accepted Answer

A)  operating breakeven analysis 
B)  economies of scale 
C)  leverage analysis 
D)  financial statement analysis 
E)  strategic planning 
A)  operating breakeven analysis 
B)  economies of scale 
C)  leverage analysis 
D)  financial statement analysis 
E)  strategic planning

Question 12

What is the formula for calculating the full-capacity sales of a firm?

Accepted Answer

A)  Full-capacity sales = Existing sales level ÷ Percent of capacity used to generate existing sales level 
B)  Full-capacity sales = Future sales level ÷ (1 - Percent of capacity used to generate future sales level) 
C)  Full-capacity sales = Existing sales level ÷ Percent of capacity used to generate future sales level 
D)  Full-capacity sales = Future sales level ÷ (1 + Percent of capacity used to generate existing level of assets) 
E)  Full-capacity sales = Existing sales level ÷ (1 - Percent of capacity used to generate future level of assets) 
A)  Full-capacity sales = Existing sales level ÷ Percent of capacity used to generate existing sales level 
B)  Full-capacity sales = Future sales level ÷ (1 - Percent of capacity used to generate future sales level) 
C)  Full-capacity sales = Existing sales level ÷ Percent of capacity used to generate future sales level 
D)  Full-capacity sales = Future sales level ÷ (1 + Percent of capacity used to generate existing level of assets) 
E)  Full-capacity sales = Existing sales level ÷ (1 - Percent of capacity used to generate future level of assets)

Question 13

If the projected operating results are unsatisfactory, management can reformulate its plans and develop targets that are more reasonable for the coming year.

Accepted Answer

A) True 
 B)False

Question 14

At the financial control phase, a firm is concerned with:

Accepted Answer

A)  the amount of funds generated internally. 
B)  determining how much money it will need during a given period. 
C)  determining its financial breakeven point. 
D)  the degree of financial leverage that is acceptable. 
E)  implementing financial plans and dealing with feedback. 
A)  the amount of funds generated internally. 
B)  determining how much money it will need during a given period. 
C)  determining its financial breakeven point. 
D)  the degree of financial leverage that is acceptable. 
E)  implementing financial plans and dealing with feedback.

Question 15

Which of the following is an effect of an over optimistic sales forecast?

Accepted Answer

A)  High inventory turnover ratios 
B)  High costs for depreciation 
C)  Low costs for storage 
D)  High rates of return on equity 
E)  Low levels of plant and equipment 
A)  High inventory turnover ratios 
B)  High costs for depreciation 
C)  Low costs for storage 
D)  High rates of return on equity 
E)  Low levels of plant and equipment

Question 16

Expert Analysts Resources (EAR) has provided you with the following information about three companies you are currently evaluating:
Company Degree of Operating Leverage (DOL) Degree of Financial Leverage (DFL)
Acme 1.5× 6.0×
Apex 3.0× 4.0×
Alps 5.0× 2.0×
_____ would be considered riskiest because _____.

Accepted Answer

A)  Acme; its DFL equals 6.0, which is the highest leverage associated with any of the three firms 
B)  Acme; its degree of total leverage (DTL) is almost equal to 10× 
C)  Apex; it has the highest degree of total leverage (DTL) among the three firms 
D)  Alps; it has the highest DOL among the three firms 
E)  Acme; it has the lowest DOL among the three firms 
A)  Acme; its DFL equals 6.0, which is the highest leverage associated with any of the three firms 
B)  Acme; its degree of total leverage (DTL) is almost equal to 10× 
C)  Apex; it has the highest degree of total leverage (DTL) among the three firms 
D)  Alps; it has the highest DOL among the three firms 
E)  Acme; it has the lowest DOL among the three firms

Question 17

By definition, a firm's financial breakeven point represents the level of net operating income (NOI) at which its:

Accepted Answer

A)  stock value is maximized. 
B)  earnings before interest and taxes (EBIT) is equal to zero. 
C)  earnings per share (EPS) is equal to zero. 
D)  tax paid is equal to zero. 
E)  interest expense is equal to zero. 
A)  stock value is maximized. 
B)  earnings before interest and taxes (EBIT) is equal to zero. 
C)  earnings per share (EPS) is equal to zero. 
D)  tax paid is equal to zero. 
E)  interest expense is equal to zero.

Question 18

To determine the additional funds needed to support the level of forecasted operations, _____.

Accepted Answer

A)  subtract the spontaneously generated funds from the sales forecast 
B)  subtract all the operating costs from the sales forecast 
C)  add the funds generated internally to the spontaneously generated funds 
D)  subtract the funds generated internally from the required funds 
E)  add the spontaneously generated funds to the retained earnings plus 
A)  subtract the spontaneously generated funds from the sales forecast 
B)  subtract all the operating costs from the sales forecast 
C)  add the funds generated internally to the spontaneously generated funds 
D)  subtract the funds generated internally from the required funds 
E)  add the spontaneously generated funds to the retained earnings plus

Question 19

Which of the following leverages considers the effect on earnings per share (EPS) of the changing operating income (EBIT)?

Accepted Answer

A)  Operating leverage 
B)  Total leverage 
C)  Combined leverage 
D)  Contribution leverage 
E)  Financial leverage 
A)  Operating leverage 
B)  Total leverage 
C)  Combined leverage 
D)  Contribution leverage 
E)  Financial leverage

Question 20

Better management of inventory results in a more frequent turnover of products.

Accepted Answer

A) True 
 B)False

What is the equation to determine the estimated additional funds needed (AFN)?

Funds that are obtained from routine business transactions are known as _____.

Trident Food Corporation generated the following income statement for the most recent fiscal year: Sales revenues \ 150,000 Variable cost of sales Gross profit Fixed operating costs Net operating income (EBIT) Interest What is the degree of operating leverage for Trident Food?

Projected statements must be analyzed to determine if they meet the targets by _____.

Additional funds needed (AFN) will be negative if:

If a firm does not meet its forecasted sales level, leverage will result in a magnified increase in income compared to what is expected.

The degree of financial leverage (DFL) is defined as the percentage change in _____ that results from a given percentage change in earnings before interest and tax (EBIT).

When there are economies of scale, a firm's _____ is likely to change as the size of the firm changes.

Assume that a firm did not operate at full capacity in the current year. The firm should increase its plant and equipment only if:

A firm should scale back the projected level of operations if the funds required to meet the sales forecast are easily available.

The process of determining whether the forecast meets the firm's financial targets is known as _____.

What is the formula for calculating the full-capacity sales of a firm?

If the projected operating results are unsatisfactory, management can reformulate its plans and develop targets that are more reasonable for the coming year.

At the financial control phase, a firm is concerned with:

Which of the following is an effect of an over optimistic sales forecast?

By definition, a firm's financial breakeven point represents the level of net operating income (NOI) at which its:

To determine the additional funds needed to support the level of forecasted operations, _____.

Which of the following leverages considers the effect on earnings per share (EPS) of the changing operating income (EBIT)?

Better management of inventory results in a more frequent turnover of products.

An Overview of Managerial Finance

Analysis of Financial Statements

The Financial Environment: Markets, Institutions, and Investment Banking

Time Value of Money

The Cost of Money Interest Rates

Bonds Debtcharacteristics and Valuation

Stocks Equity Characteristics and Valuation

Risk and Rates of Return

Capital Budgeting Techniques

Project Cash Flows and Risk

The Cost of Capital

Capital Structure

Distribution of Retained Earnings: Dividends and Stock Repurchases

Managing Short-Term Financing Liabilities

Managing Short-Term Assets

Filters

Exam 16: Financial Planning and Control

What is the equation to determine the estimated additional funds needed (AFN)?

Funds that are obtained from routine business transactions are known as _____.

Trident Food Corporation generated the following income statement for the most recent fiscal year: Sales revenues \ 150,000 Variable cost of sales Gross profit Fixed operating costs Net operating income (EBIT) Interest What is the degree of operating leverage for Trident Food?

Projected statements must be analyzed to determine if they meet the targets by _____.

Additional funds needed (AFN) will be negative if:

If a firm does not meet its forecasted sales level, leverage will result in a magnified increase in income compared to what is expected.

The degree of financial leverage (DFL) is defined as the percentage change in _____ that results from a given percentage change in earnings before interest and tax (EBIT).

When there are economies of scale, a firm's _____ is likely to change as the size of the firm changes.

Assume that a firm did not operate at full capacity in the current year. The firm should increase its plant and equipment only if:

A firm should scale back the projected level of operations if the funds required to meet the sales forecast are easily available.

The process of determining whether the forecast meets the firm's financial targets is known as _____.

What is the formula for calculating the full-capacity sales of a firm?

If the projected operating results are unsatisfactory, management can reformulate its plans and develop targets that are more reasonable for the coming year.

At the financial control phase, a firm is concerned with:

Which of the following is an effect of an over optimistic sales forecast?

By definition, a firm's financial breakeven point represents the level of net operating income (NOI) at which its:

To determine the additional funds needed to support the level of forecasted operations, _____.

Which of the following leverages considers the effect on earnings per share (EPS) of the changing operating income (EBIT)?

Better management of inventory results in a more frequent turnover of products.

An Overview of Managerial Finance

Analysis of Financial Statements

The Financial Environment: Markets, Institutions, and Investment Banking

Time Value of Money

The Cost of Money Interest Rates

Bonds Debtcharacteristics and Valuation

Stocks Equity Characteristics and Valuation

Risk and Rates of Return

Capital Budgeting Techniques

Project Cash Flows and Risk

The Cost of Capital

Capital Structure

Distribution of Retained Earnings: Dividends and Stock Repurchases

Managing Short-Term Financing Liabilities

Managing Short-Term Assets

Filters