Exam 14: Short-Term Financial Planning

AFB,Inc.is expecting sales to increase by 20% next year,but its net fixed assets are expected to remain at their current level.This is an example of

It is often the case that the planning process has its greatest value when the resulting forecasts have the most error,because the planning process offers its greatest value when the future is the most uncertain.

Accounts payable and accrued expenses are known as discretionary sources of financing.

Budgets should not be used for performance evaluation because there is too much uncertainty involved and this makes it unfair to the person being evaluated.

All of the following are useful purposes of pro forma financial statements EXCEPT

The percent of sales method does not accurately estimate the balances for lumpy assets.Which of the following statements best describes the possible errors?

Which of the following is a spontaneous source of financing?

The balance sheet of the Emery Company is presented below: Emery Company Balance Sheet March 31,2010 (Millions of Dollars) For the year ending March 31,2010,Jackson had sales of $58 million.The common stockholders receive all net earnings of the firm in the form of cash dividends,leaving no funds from earnings available to the firm for expansion (assume that depreciation expense is just equal to the cost of replacing worn-out assets). Construct a pro forma balance sheet for March 31,2011 for an expected level of sales of $75.4 million.Assume current assets and accounts payable vary as a percent of sales,and fixed assets remain at the present level.Use notes payable as discretionary financing.

Rawhide Outfitters had projected its sales for the first six months of 2012 to be as follows: Cost of goods sold is 60% of sales.Purchases are made and paid for two months prior to the sale.40% of sales are collected in the month of the sale,40% are collected in the month following the sale,and the remaining 20% in the second month following the sale.Total other cash expenses are $40,000/month.The company's cash balance as of March 1st,2012 is projected to be $40,000,and the company wants to maintain a minimum cash balance of $15,000.Excess cash will be used to retire short-term borrowing (if any exists).Fielding has no short-term borrowing as of March 1st,2012.Assume that the interest rate on short-term borrowing is 1% per month.How much short term financing is needed by March 30,2012?

The first step involved in predicting financing needs is

The forecasted retained earnings balance is equal to (current retained earnings/current sales)times projected sales for next year.

At a minimum,the sales forecast for the coming year would reflect

Plato Industries' projected sales for the first six months of 2012 are given below: 20% of sales are collected in cash at time of sale,50% are collected in the month following the sale,and the remaining 30% are collected in the second month following the sale.Cost of goods sold is 85% of sales.Purchases are made in the month prior to the sales,and payments for purchases are made in the month of the sale.Total other cash expenses are $70,000/month.The company's cash balance as of February 28,2012 will be $10,000.Excess cash will be used to retire short-term borrowing (if any).Plato has no short term borrowing as of February 28,2012.Ignore any interest on short-term borrowing.The company must have a minimum cash balance of $40,000 at the beginning of each month.What is Plato Industries' total disbursement in May?

Discretionary financing accounts include all of the following EXCEPT

Which of the following statements would NOT be a valid use of pro forma financial statements?

A budget is a forecast of future events.

Using the percent of sales method and assuming that no excess capacity exists,a 20% increase in sales will result in

Notes payable and bonds payable are spontaneous liabilities.

The percent of sales method can be used to forecast

In the percent of sales method,a company's asset requirements are based on the company's projected sales level.