Exam 14: Short-Term Financial Planning

The "percent of sales method" is a method of preparing pro forma financial statements.All of the following would be examples of how the "percent of sales method" is developed EXCEPT:

Gerentology Associates,a highly profitable company,is considering two growth strategies,one that will achieve sales growth of 20% in one year,and the other that will achieve 20% growth in sales,but over a 4-year time frame.Assuming Gerentology Associates uses the percent of sales method,which of the following statements is true?

Amalgamated Enterprises is planning to purchase some new equipment.With this new equipment,the company expects sales to increase from $8,000,000 to $10,000,000.A portion of the financing for the purchase of the equipment will come from a $1,000,000 new common stock issue.The company knows that its current assets,fixed assets,accounts payable,and accrued expenses increase directly with sales.The company's net profit margin on sales is 8 percent,and the company plans to pay 40 percent of its after-tax earnings in dividends.A copy of the company's current balance sheet is given below. Amalgamated Enterprises Balance Sheet Prepare a pro forma balance sheet for Amalgamated for next year.

Matterhorn,Inc.had the following sales for the past six months.Matterhorn collects its credit sales 30% in the month of sale,60% one month after the sale,and 10% two months after the sale. What are Matterhorn's total cash receipts for the month of April?

What is the percent of sales method of financial forecasting?

Ribbon Industries reported sales of $3 million and net income of $400,000 for 2010.The retained earnings balance at the end of 2012 is $7 million.Ribbon Industries has a dividend payout ratio of 30%.If sales are expected to increase by 25% next year,what will be the projected balance in retained earnings using the percent of sales method?

ABC Corporation began operations on January 1st of this year with a cash balance of $250,000.ABC had sales of $200,000 for the month of January,all on credit.ABC allows its customers 30 days to pay.ABC's expenses for January equal $150,000,and ABC's ending balance in accounts payable at January 31st is $50,000.In its cash budget for January,ABC's ending cash balance should be equal to

A company collects 25% of its sales during the month of sale,65% one month after the sale,and 10% two months after the sale.The company expects sales of $50,000 in August,$80,000 in September,$90,000 in October,and $60,000 in November.How much money is expected to be collected in October?

A corporation that increases it net profit margin will need less discretionary financing,other things being equal.

The cash budget represents a detailed plan of future cash flows.

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 total receipts (collections)for March?

Which of the following items does NOT belong in a cash budget?

Fixed assets are often estimated incorrectly by the percent of sales method because

Forecasts of revenues and their related expenses are the basis on which firms forecast their future financing needs.

Pro forma financial statements depict the end result of the planning period's operations.

A budget

Discretionary financing needed is equal to projected total assets minus projected total liabilities.

What is the primary tool for short-term financial forecasting?

Purchasing supplies on credit and paying for them 45 days later is an example of discretionary financing.

Which of the following is always a non-cash expense?