Question 1

Using the percentage of sales method of forecasting,

Accepted Answer

A)  all asset and liability accounts increase or decrease proportionally with sales. 
B)  only asset accounts increase or decrease proportionally with sales. 
C)  accounts payable and accrued expenses are the only liabilities that increase or decrease proportionally with sales. 
D)  all balance sheet accounts increase or decrease proportionally with sales. 
A)  all asset and liability accounts increase or decrease proportionally with sales. 
B)  only asset accounts increase or decrease proportionally with sales. 
C)  accounts payable and accrued expenses are the only liabilities that increase or decrease proportionally with sales. 
D)  all balance sheet accounts increase or decrease proportionally with sales.

Question 2

Financial forecasting is the process of attempting to estimate a firm's future financing requirements.

Accepted Answer

A) True 
 B)False

Question 3

Spontaneous financing is financing obtained at the last minute due to poor financial planning.

Accepted Answer

A) True 
 B)False

Question 4

CraftCo,Inc.'s projected sales for the first six months of 2012 are given below:
 
40% of sales are collected in cash at time of sale,50% are collected in the month following the sale,and the remaining 10% are collected in the second month following the sale.Cost of goods sold is 60% 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 $40,000/month.The company's cash balance as of February 28,2012 will be $25,000.Excess cash will be used to retire short-term borrowing (if any).CraftCo,Inc.has no short term borrowing as of February 28,2012.Assume that the interest rate on short-term borrowing is 1% per month.The company must have a minimum cash balance of $15,000 at the beginning of each month.What is CraftCo,Inc.'s total cash receipts for April 2010?

Accepted Answer

A)  $460,000 
B)  $490,000 
C)  $524,000 
D)  $560,000 
A)  $460,000 
B)  $490,000 
C)  $524,000 
D)  $560,000

Question 5

Which of the following statements is MOST correct concerning the relationship between a company's cash budget and its income statement?

Accepted Answer

A)  If net income is positive for 3 or more months in a row, then cash flow must be positive. 
B)  If net income is positive, then cash flow must be positive. 
C)  If net income is positive, then cash flow could be positive or negative, but if net income is negative, cash flow must also be negative. 
D)  Cash flow could be positive whether net income is positive or negative. 
A)  If net income is positive for 3 or more months in a row, then cash flow must be positive. 
B)  If net income is positive, then cash flow must be positive. 
C)  If net income is positive, then cash flow could be positive or negative, but if net income is negative, cash flow must also be negative. 
D)  Cash flow could be positive whether net income is positive or negative.

Question 6

All of the following are found in the cash budget EXCEPT

Accepted Answer

A)  a net change in cash for the period. 
B)  accounts receivable. 
C)  cash disbursements. 
D)  new financing needed. 
A)  a net change in cash for the period. 
B)  accounts receivable. 
C)  cash disbursements. 
D)  new financing needed.

Question 7

Pro forma statements are important since they formally report the performance of the firm during the previous reporting period.

Accepted Answer

A) True 
 B)False

Question 8

Discretionary financing needed will be zero when the company's sales growth rate is zero.

Accepted Answer

A) True 
 B)False

Question 9

Use the "percent of sales method" of preparing pro forma financial statements to determine the projection for next year's accounts receivable.Make the following assumptions: current year's sales are $45,450,000; current year's cost of goods sold is $26,950,000; sales are expected to rise by 20%.The firm's investment in accounts receivable in the current year is $8,600,000.The firm's marginal tax rate is 35%.What is the projection for next year's accounts receivable?

Accepted Answer

A)  $11,345,000 
B)  $10,320,000 
C)  $9,575,000 
D)  $8,772,000 
A)  $11,345,000 
B)  $10,320,000 
C)  $9,575,000 
D)  $8,772,000

Question 10

Which of the following is a limitation of the "percent of sales method" of preparing pro forma financial statements?

Accepted Answer

A)  A firm's investment in accounts receivable is seldom related to sales volume. 
B)  Not all assets and liabilities increase or decrease as a constant percent of sales. 
C)  Inventory levels are seldom affected by changes in sales volume. 
D)  The dividend payout ratio may change from one year to the next. 
A)  A firm's investment in accounts receivable is seldom related to sales volume. 
B)  Not all assets and liabilities increase or decrease as a constant percent of sales. 
C)  Inventory levels are seldom affected by changes in sales volume. 
D)  The dividend payout ratio may change from one year to the next.

Question 11

The annual cash budget not only shows the amount of financing needed for the year,but also when the funds will be needed.

Accepted Answer

A) True 
 B)False

Question 12

LPD Logistics,Inc.'s projected sales for the first six months of 2010 are given below.
 
20% of sales are collected in the month of the sale,75% are collected in the month following the sale,and 5% are written off as uncollectible.Cost of goods sold is 80% of sales.Purchases are made the month prior to the sales and are paid during the month the purchases are made (i.e.goods sold in March are bought and paid for in February).Total other cash expenses are $35,000/month.The company's cash balance as of February 1,2010 will be $30,000.Excess cash will be used to retire short-term borrowing (if any).LPD has no short term borrowing as of February 28,2010.Assume that the interest rate on short-term borrowing is 1% per month.The company must have a minimum cash balance of $20,000 at the beginning of each month.What is LPD's projected cumulative borrowing as of March 1,2010?

Accepted Answer

A)  $110,000 
B)  $90,000 
C)  $70,000 
D)  -0- 
A)  $110,000 
B)  $90,000 
C)  $70,000 
D)  -0-

Question 13

The cash budget can be used to provide an estimate of the firm's future financing needs.

Accepted Answer

A) True 
 B)False

Question 14

The cash budget for Parker Processed Meats,Inc.is given below for the fourth quarter of 2010:
Parker Processed Meats,Inc.
Cash Budget for the Three Months Ending December 31,2010
   
The expected sales for the period are as follows:
Oct.: $116,000 Nov.: $127,000 Dec.: $95,000
The total depreciation expense for the period will be $12,000.
An interest payment on outstanding debt of $13,000 will be made in December.Using the information given above,construct a pro forma income statement for the final quarter of 2010.

Accepted Answer

Parker Processed Mea

Question 15

DAS,Inc.is preparing its financial forecast for next year and its discretionary financing needed is negative.This means that

Accepted Answer

A)  sales growth must be negative. 
B)  the predicted change in total assets must be negative. 
C)  the predicted change in spontaneous liabilities and retained earnings must be greater than the predicted change in total assets. 
D)  the dividend payout ratio must be greater than the predicted growth rate in sales. 
A)  sales growth must be negative. 
B)  the predicted change in total assets must be negative. 
C)  the predicted change in spontaneous liabilities and retained earnings must be greater than the predicted change in total assets. 
D)  the dividend payout ratio must be greater than the predicted growth rate in sales.

Question 16

Monthly cash receipts in the cash budget are typically made up of cash sales during the month and collections from credit sales from prior months.

Accepted Answer

A) True 
 B)False

Question 17

Using the percentage of sales method,forecasted retained earnings balance is equal to

Accepted Answer

A)  prior year retained earnings plus projected net income less projected dividends. 
B)  the ratio of retained earnings to sales for the current year multiplied by projected sales for next year. 
C)  the retained earnings balance for the current year as no changes are made to this financing account when using the percent of sales method. 
D)  the ratio of retained earnings to sales for the current year multiplied by projected sales for next year, minus dividends paid. 
A)  prior year retained earnings plus projected net income less projected dividends. 
B)  the ratio of retained earnings to sales for the current year multiplied by projected sales for next year. 
C)  the retained earnings balance for the current year as no changes are made to this financing account when using the percent of sales method. 
D)  the ratio of retained earnings to sales for the current year multiplied by projected sales for next year, minus dividends paid.

Question 18

In order to reduce discretionary financing needed,a profitable company could decrease its dividend payout ratio.

Accepted Answer

A) True 
 B)False

Question 19

Plimpton Sales presents income statements for the first three months of this year.Revenues are $1,000,000 in January,$1,200,000 in February,and $1,400,000 in March,while expenses total $800,000 in January,$900,000 February,and $1,000,000 in March.Despite the positive net income,the controller believes Plimpton Sales needs to arrange short-term financing of $300,000 to make payroll the next month.Which of the following statements is MOST correct?

Accepted Answer

A)  The controller must have made a mistake since the company's net income for the three months is $900,000. 
B)  The company's accounts receivable balance has decreased over the past three months. 
C)  The company's accounts payable balance has increased over the past three months. 
D)  The company's accounts receivable balance has increased and the accounts payable balance has decreased over the past three months. 
A)  The controller must have made a mistake since the company's net income for the three months is $900,000. 
B)  The company's accounts receivable balance has decreased over the past three months. 
C)  The company's accounts payable balance has increased over the past three months. 
D)  The company's accounts receivable balance has increased and the accounts payable balance has decreased over the past three months.

Question 20

For a growing firm,external financing needed will most likely be greater than discretionary financing needed due to increases in accounts payable and accruals.

Accepted Answer

A) True 
 B)False

Using the percentage of sales method of forecasting,

Financial forecasting is the process of attempting to estimate a firm's future financing requirements.

Spontaneous financing is financing obtained at the last minute due to poor financial planning.

Which of the following statements is MOST correct concerning the relationship between a company's cash budget and its income statement?

All of the following are found in the cash budget EXCEPT

Pro forma statements are important since they formally report the performance of the firm during the previous reporting period.

Discretionary financing needed will be zero when the company's sales growth rate is zero.

Which of the following is a limitation of the "percent of sales method" of preparing pro forma financial statements?

The annual cash budget not only shows the amount of financing needed for the year,but also when the funds will be needed.

The cash budget can be used to provide an estimate of the firm's future financing needs.

DAS,Inc.is preparing its financial forecast for next year and its discretionary financing needed is negative.This means that

Monthly cash receipts in the cash budget are typically made up of cash sales during the month and collections from credit sales from prior months.

Using the percentage of sales method,forecasted retained earnings balance is equal to

In order to reduce discretionary financing needed,a profitable company could decrease its dividend payout ratio.

For a growing firm,external financing needed will most likely be greater than discretionary financing needed due to increases in accounts payable and accruals.

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Working-Capital Management

International Business Finance

Cash,receivables,and Inventory Management

Filters

Exam 14: Short-Term Financial Planning

Using the percentage of sales method of forecasting,

Financial forecasting is the process of attempting to estimate a firm's future financing requirements.

Spontaneous financing is financing obtained at the last minute due to poor financial planning.

Which of the following statements is MOST correct concerning the relationship between a company's cash budget and its income statement?

All of the following are found in the cash budget EXCEPT

Pro forma statements are important since they formally report the performance of the firm during the previous reporting period.

Discretionary financing needed will be zero when the company's sales growth rate is zero.

Which of the following is a limitation of the "percent of sales method" of preparing pro forma financial statements?

The annual cash budget not only shows the amount of financing needed for the year,but also when the funds will be needed.

The cash budget can be used to provide an estimate of the firm's future financing needs.

DAS,Inc.is preparing its financial forecast for next year and its discretionary financing needed is negative.This means that

Monthly cash receipts in the cash budget are typically made up of cash sales during the month and collections from credit sales from prior months.

Using the percentage of sales method,forecasted retained earnings balance is equal to

In order to reduce discretionary financing needed,a profitable company could decrease its dividend payout ratio.

For a growing firm,external financing needed will most likely be greater than discretionary financing needed due to increases in accounts payable and accruals.

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Working-Capital Management

International Business Finance

Cash,receivables,and Inventory Management

Filters