Exam 14: Short-Term Financial Planning

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 cash receipts for April 2012?

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.Plato's projected EBIT for March 2012?

Discretionary financing needed can be positive or zero,but not negative.

A set of estimates which corresponds to the worst and best case outcomes is often desired in preparing a financial forecast.

The percent of sales method does not provide a reasonable prediction of asset levels for instances when there are economies of scale in the use of the asset being forecast and when asset purchases are lumpy.

Cash budgets do not provide reasonable predictions for asset requirements when the asset purchases are lumpy.

When forecasting fixed asset requirements,the projected fixed asset balance will

The "percentage" used in the percent of sales calculation can come

Use the "percent of sales method" of preparing pro forma financial statements to determine the projection for next year's cost of goods sold.Make the following assumptions: current year's sales are $27,800,000; current year's cost of goods sold is $17,528,000; sales are expected to rise by 30%.What is the projection for next year's cost of goods sold?

The key ingredient in a firm's financial planning is an accurate sales forecast.

Southeast Wood Products,Inc.reports sales of $20,000,000 and inventory of $4,000,000.Southeast's inventory possesses significant economies of scale.Therefore,if the firm's sales increase by 10%,Southeast's inventory will ________ and if Southeast's sales decrease by 10%,Southeast's inventory will ________.

Which of the following will most likely result in an increase in discretionary funding needed?

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 projected cash balance at the end of March 2012?

What are some examples of spontaneous and discretionary sources of financing?

The term "lumpy asset" means

The percent of sales method provides a more detailed plan for future financing needs than the cash budget because both pro forma income statements and balance sheets are used in the analysis.

When fixed costs are part of a firm's cost structure,the percent of sales method will understate net income and overstate discretionary financing needed,if sales are increasing.

Under what circumstances does a firm violate the basic relationship underlying the percent of sales forecast method?

Potential sources of financing to support an increase in sales include all of the following EXCEPT

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.Plato's projected cumulative short-term borrowing as of April 30,2012?