Question 1

Which of the following is the first step involved in constructing pro forma financial statements?

Accepted Answer

A)  Forecasting the next period's balance sheet 
B)  Determining the additional funds needed (AFN) to support expected growth 
C)  Forecasting the income statement 
D)  Implementing the financing feedbacks 
E)  Determining the operating breakeven point 
A)  Forecasting the next period's balance sheet 
B)  Determining the additional funds needed (AFN) to support expected growth 
C)  Forecasting the income statement 
D)  Implementing the financing feedbacks 
E)  Determining the operating breakeven point

Question 2

Operating breakeven analysis deals with:

Accepted Answer

A)  the assets and liabilities recorded in the pro forma balance sheet. 
B)  the net cash flows from operating activities recorded in the statement of cash flows. 
C)  the noncash items included in operating activities. 
D)  the revenues and expenses associated with a firm's normal production and selling operations. 
E)  the interest payments to bondholders and the dividend payments to preferred stockholders. 
A)  the assets and liabilities recorded in the pro forma balance sheet. 
B)  the net cash flows from operating activities recorded in the statement of cash flows. 
C)  the noncash items included in operating activities. 
D)  the revenues and expenses associated with a firm's normal production and selling operations. 
E)  the interest payments to bondholders and the dividend payments to preferred stockholders.

Question 3

By definition, a firm's operating breakeven point represents the level of production and sales at which:

Accepted Answer

A)  additional funds needed equal zero. 
B)  variable costs equal operating revenue. 
C)  fixed variable costs equal operating revenue. 
D)  net operating income equals zero. 
E)  the cost of equity equals the cost of debt. 
A)  additional funds needed equal zero. 
B)  variable costs equal operating revenue. 
C)  fixed variable costs equal operating revenue. 
D)  net operating income equals zero. 
E)  the cost of equity equals the cost of debt.

Question 4

Which of the following is the most important ingredient of the financial planning process of a firm?

Accepted Answer

A)  Expense forecast 
B)  External financing forecast 
C)  Sales forecast 
D)  Internal fund generation forecast 
E)  Capital requirements forecast 
A)  Expense forecast 
B)  External financing forecast 
C)  Sales forecast 
D)  Internal fund generation forecast 
E)  Capital requirements forecast

Question 5

Everything else equal, a firm can reduce its operating breakeven point by:

Accepted Answer

A)  increasing its fixed costs. 
B)  decreasing the selling price of the product that is sold. 
C)  increasing the contribution margin. 
D)  increasing the variable cost per unit. 
E)  decreasing the earnings per share. 
A)  increasing its fixed costs. 
B)  decreasing the selling price of the product that is sold. 
C)  increasing the contribution margin. 
D)  increasing the variable cost per unit. 
E)  decreasing the earnings per share.

Question 6

Following is the balance sheet of Cyan Inc.:  
Fixed and current assets are fully utilized, and the sales/assets and sales/spontaneous liabilities ratios remain constant. Next year, the firm expects sales to increase by 50 percent. It also expects to retain $2,000 of next year's earnings within the firm. What is the next year's additional external funding requirement, or additional funds needed (AFN)?

Accepted Answer

A)  No additional funds are required. 
B)  $3,500 
C)  $4,500 
D)  $5,500 
E)  $6,500 
A)  No additional funds are required. 
B)  $3,500 
C)  $4,500 
D)  $5,500 
E)  $6,500

Question 7

Which of the following statements is true of the financial breakeven point?

Accepted Answer

A)  It determines the impact of a firm's financing mix on its earnings per share. 
B)  It determines the level of sales of a new product required for the firm to achieve profitability. 
C)  It determines the effects of a general expansion in the level of a firm's operations. 
D)  It analyzes the consequences of purchasing modernization projects where the fixed investment in equipment is increased. 
E)  It represents the level of production and sales at which net operating income is zero. 
A)  It determines the impact of a firm's financing mix on its earnings per share. 
B)  It determines the level of sales of a new product required for the firm to achieve profitability. 
C)  It determines the effects of a general expansion in the level of a firm's operations. 
D)  It analyzes the consequences of purchasing modernization projects where the fixed investment in equipment is increased. 
E)  It represents the level of production and sales at which net operating income is zero.

Question 8

If the forecasted sales level is not met, which of the following will lead to a lower than expected addition to retained earnings?

Accepted Answer

A)  A decrease in production facilities 
B)  An increase in fixed charges on external financing 
C)  Assets being turned over quickly 
D)  A significant increase in income 
E)  Inventories being built up quickly 
A)  A decrease in production facilities 
B)  An increase in fixed charges on external financing 
C)  Assets being turned over quickly 
D)  A significant increase in income 
E)  Inventories being built up quickly

Question 9

Considering each action independently and holding other things constant, which of the following reduces a firm's need for additional capital?

Accepted Answer

A)  An increase in the dividend payout ratio 
B)  A decrease in the days sales outstanding 
C)  A decrease in the profit margin 
D)  An increase in expected sales growth 
E)  A decrease in the accrual accounts (accrued wages and taxes) 
A)  An increase in the dividend payout ratio 
B)  A decrease in the days sales outstanding 
C)  A decrease in the profit margin 
D)  An increase in expected sales growth 
E)  A decrease in the accrual accounts (accrued wages and taxes)

Question 10

Financial breakeven analysis determines the operating income at which the _____ is equal to zero.

Accepted Answer

A)  earnings before interest and tax (EBIT) 
B)  degree of operating leverage 
C)  earnings per share 
D)  degree of financial leverage (DFL) 
E)  gross profit 
A)  earnings before interest and tax (EBIT) 
B)  degree of operating leverage 
C)  earnings per share 
D)  degree of financial leverage (DFL) 
E)  gross profit

Question 11

Which of the following is the objective of preparing the income statement for the coming year?

Accepted Answer

A)  To determine the current liabilities that change naturally with changes in sales 
B)  To determine funds that a firm must raise externally through new borrowing or by selling new stock 
C)  To determine the value of stock in the coming year 
D)  To determine the amount of retained earnings the company expects to generate during the year 
E)  To determine the total of cash flows from various activities during the year 
A)  To determine the current liabilities that change naturally with changes in sales 
B)  To determine funds that a firm must raise externally through new borrowing or by selling new stock 
C)  To determine the value of stock in the coming year 
D)  To determine the amount of retained earnings the company expects to generate during the year 
E)  To determine the total of cash flows from various activities during the year

Question 12

Lumpy assets are assets that cannot be acquired in small increments; they must be obtained in large, discrete amounts.

Accepted Answer

A) True 
 B)False

Question 13

If a firm does not meet its forecasted sales level, then leverage will result in a magnified loss in income compared to what is expected because:

Accepted Answer

A)  retained earnings will increase rapidly. 
B)  inventories will be built very slowly. 
C)  production facilities will be expanded greatly. 
D)  additional external funds needed will be reduced. 
E)  sales operations will be reduced drastically. 
A)  retained earnings will increase rapidly. 
B)  inventories will be built very slowly. 
C)  production facilities will be expanded greatly. 
D)  additional external funds needed will be reduced. 
E)  sales operations will be reduced drastically.

Question 14

Which of the following figures is considered to forecast the sales of a firm?

Accepted Answer

A)  Sales during the past five to 10 years 
B)  Sales of competitors 
C)  Average sales of the industry 
D)  Additional funds needed to increase sales 
E)  Sales financed through internal equity 
A)  Sales during the past five to 10 years 
B)  Sales of competitors 
C)  Average sales of the industry 
D)  Additional funds needed to increase sales 
E)  Sales financed through internal equity

Question 15

One of the assumptions made in forecasting financial requirements based on the forecasted income statement is that:

Accepted Answer

A)  costs in the next year will remain the same as the previous year. 
B)  costs will increase at the same rate as sales. 
C)  costs in the next year will be an average of the costs of the three previous years. 
D)  costs will move in the opposite direction of sales. 
E)  costs will be according to the industry standards. 
A)  costs in the next year will remain the same as the previous year. 
B)  costs will increase at the same rate as sales. 
C)  costs in the next year will be an average of the costs of the three previous years. 
D)  costs will move in the opposite direction of sales. 
E)  costs will be according to the industry standards.

Question 16

Assets that cannot be acquired in small increments, but instead must be obtained in large, discrete units, are referred to as _____.

Accepted Answer

A)  current assets 
B)  lumpy assets 
C)  spontaneously generated assets 
D)  excess capacity assets 
E)  long-term assets 
A)  current assets 
B)  lumpy assets 
C)  spontaneously generated assets 
D)  excess capacity assets 
E)  long-term assets

Question 17

Any deviation from projections must be dealt with to improve future forecasts.

Accepted Answer

A) True 
 B)False

Question 18

The method of forecasting financial requirements based on forecasted financial statements is known as the _____.

Accepted Answer

A)  pro forma cash flow statements method 
B)  pro forma retained earnings method 
C)  forecasted income and expense method 
D)  projected operating cash flow method 
E)  projected balance sheet method 
A)  pro forma cash flow statements method 
B)  pro forma retained earnings method 
C)  forecasted income and expense method 
D)  projected operating cash flow method 
E)  projected balance sheet method

Question 19

The percentage change in earnings before interest and tax (EBIT) associated with a given percentage change in sales is known as the _____.

Accepted Answer

A)  degree of financial leverage 
B)  degree of total leverage 
C)  degree of operating leverage 
D)  degree of combined leverage 
E)  degree of contribution margin leverage 
A)  degree of financial leverage 
B)  degree of total leverage 
C)  degree of operating leverage 
D)  degree of combined leverage 
E)  degree of contribution margin leverage

Question 20

Financial leverage occurs because of the existence of fixed financial costs such as _____.

Accepted Answer

A)  insurance expenses 
B)  preferred dividends 
C)  common stock dividends 
D)  depreciation 
E)  rent 
A)  insurance expenses 
B)  preferred dividends 
C)  common stock dividends 
D)  depreciation 
E)  rent

Which of the following is the first step involved in constructing pro forma financial statements?

Operating breakeven analysis deals with:

By definition, a firm's operating breakeven point represents the level of production and sales at which:

Which of the following is the most important ingredient of the financial planning process of a firm?

Everything else equal, a firm can reduce its operating breakeven point by:

Which of the following statements is true of the financial breakeven point?

If the forecasted sales level is not met, which of the following will lead to a lower than expected addition to retained earnings?

Considering each action independently and holding other things constant, which of the following reduces a firm's need for additional capital?

Financial breakeven analysis determines the operating income at which the _____ is equal to zero.

Which of the following is the objective of preparing the income statement for the coming year?

Lumpy assets are assets that cannot be acquired in small increments; they must be obtained in large, discrete amounts.

If a firm does not meet its forecasted sales level, then leverage will result in a magnified loss in income compared to what is expected because:

Which of the following figures is considered to forecast the sales of a firm?

One of the assumptions made in forecasting financial requirements based on the forecasted income statement is that:

Assets that cannot be acquired in small increments, but instead must be obtained in large, discrete units, are referred to as _____.

Any deviation from projections must be dealt with to improve future forecasts.

The method of forecasting financial requirements based on forecasted financial statements is known as the _____.

The percentage change in earnings before interest and tax (EBIT) associated with a given percentage change in sales is known as the _____.

Financial leverage occurs because of the existence of fixed financial costs such as _____.

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

Which of the following is the first step involved in constructing pro forma financial statements?

Operating breakeven analysis deals with:

By definition, a firm's operating breakeven point represents the level of production and sales at which:

Which of the following is the most important ingredient of the financial planning process of a firm?

Everything else equal, a firm can reduce its operating breakeven point by:

Which of the following statements is true of the financial breakeven point?

If the forecasted sales level is not met, which of the following will lead to a lower than expected addition to retained earnings?

Considering each action independently and holding other things constant, which of the following reduces a firm's need for additional capital?

Financial breakeven analysis determines the operating income at which the _____ is equal to zero.

Which of the following is the objective of preparing the income statement for the coming year?

Lumpy assets are assets that cannot be acquired in small increments; they must be obtained in large, discrete amounts.

If a firm does not meet its forecasted sales level, then leverage will result in a magnified loss in income compared to what is expected because:

Which of the following figures is considered to forecast the sales of a firm?

One of the assumptions made in forecasting financial requirements based on the forecasted income statement is that:

Assets that cannot be acquired in small increments, but instead must be obtained in large, discrete units, are referred to as _____.

Any deviation from projections must be dealt with to improve future forecasts.

The method of forecasting financial requirements based on forecasted financial statements is known as the _____.

The percentage change in earnings before interest and tax (EBIT) associated with a given percentage change in sales is known as the _____.

Financial leverage occurs because of the existence of fixed financial costs such as _____.

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