Question 1

Operating breakeven analysis deals with the:

Accepted Answer

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

Question 2

Operating costs that do not change when production levels change are called ______ costs

Accepted Answer

A) variable 
B) lumpy 
C) direct 
D) fixed 
E) forecasting 
A) variable 
B) lumpy 
C) direct 
D) fixed 
E) forecasting

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

A firm utilizes 75 percent of its plant capacity to produce the current year's sales of $3,000,000. What is the firm's full-capacity sales?

Accepted Answer

A) $12,000,000 
B) $2,250,000 
C) $3,000,000 
D) $3,750,000 
E) $4,000,000 
A) $12,000,000 
B) $2,250,000 
C) $3,000,000 
D) $3,750,000 
E) $4,000,000

Question 5

If a firm is operating at its full capacity, future increases in sales will require _____.

Accepted Answer

A) it to attain economies of scale in its operations 
B) it to issue new long-term debt 
C) large amounts of new spontaneously generated funds to support expected growth 
D) additional fixed assets 
E) lumpy current assets to be purchased 
A) it to attain economies of scale in its operations 
B) it to issue new long-term debt 
C) large amounts of new spontaneously generated funds to support expected growth 
D) additional fixed assets 
E) lumpy current assets to be purchased

Question 6

Which of the following statements about the financial planning process is correct?

Accepted Answer

A) The additional funds needed (AFN) is estimated by summing the expected changes in assets and liabilities that fluctuate with sales and then subtracting the expected operating income. 
B) The projected balance sheet method requires only the balance sheet to determine a firm's expected financial needs. 
C) The decision as to how a firm should raise additional funds needed (AFN) to meet its financial goals depends on the ability of the firm to handle additional debt, conditions in financial markets, and restrictions imposed by existing debt agreements. 
D) The projected balance sheet method of forecasting financial needs does not consider dividends paid to shareholders because these are after tax payments from retained earnings. 
E) Financial forecasts generally do not consider forecasts of the economic prospects for the nation and the industry because these are factors that are beyond the control of the firm. 
A) The additional funds needed (AFN) is estimated by summing the expected changes in assets and liabilities that fluctuate with sales and then subtracting the expected operating income. 
B) The projected balance sheet method requires only the balance sheet to determine a firm's expected financial needs. 
C) The decision as to how a firm should raise additional funds needed (AFN) to meet its financial goals depends on the ability of the firm to handle additional debt, conditions in financial markets, and restrictions imposed by existing debt agreements. 
D) The projected balance sheet method of forecasting financial needs does not consider dividends paid to shareholders because these are after tax payments from retained earnings. 
E) Financial forecasts generally do not consider forecasts of the economic prospects for the nation and the industry because these are factors that are beyond the control of the firm.

Question 7

Expert Analysts Resources (EAR) has provided you with the following information about three companies you are currently evaluating:
?
C$\begin{array} { l c c } 
\text { Company } & \text { Degree of Operating Leverage (DOL) } & \text { Degree of Financial Leverage (DFL) } \\hline
\text { Acme } & 1.5 \times & 6.0 \times \
\text { Apex } & 3.0 \times & 4.0 \times \
\text { Alps } & 5.0 \times & 2.0 \times
\end{array}$
?
Based on this information, which firm is regarded as having the greatest overall risk?

Accepted Answer

A) Acme, because it has the highest degree of financial leverage (DFL). 
B) Acme, because has the highest degree of total leverage (DTL). 
C) Apex, because it has the highest degree of total leverage (DTL). 
D) Alps, because it has the highest degree of operating leverage (DOL). 
E) Acme, because it has the lowest degree of operating leverage (DOL). 
A) Acme, because it has the highest degree of financial leverage (DFL). 
B) Acme, because has the highest degree of total leverage (DTL). 
C) Apex, because it has the highest degree of total leverage (DTL). 
D) Alps, because it has the highest degree of operating leverage (DOL). 
E) Acme, because it has the lowest degree of operating leverage (DOL).

Question 8

To fully account for financing feedbacks in financial forecasting, all of the steps in the projected balance sheet method must be repeated until _____ equal zero.

Accepted Answer

A) financing feedbacks 
B) spontaneously generated funds 
C) additional funds needed (AFN) 
D) additions to retained earnings 
E) marginal revenues minus marginal expenses 
A) financing feedbacks 
B) spontaneously generated funds 
C) additional funds needed (AFN) 
D) additions to retained earnings 
E) marginal revenues minus marginal expenses

Question 9

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

Question 10

The financial breakeven point is the level of _____ at which earnings per share (EPS) is equal to zero.

Accepted Answer

A) net operating income (NOI) 
B) retained earnings 
C) taxes 
D) net income 
E) interest payments 
A) net operating income (NOI) 
B) retained earnings 
C) taxes 
D) net income 
E) interest payments

Question 11

Which of the following would be considered part of financing feedbacks in the financial forecasting process?

Accepted Answer

A) Funds that a firm must raise externally through new borrowing or by selling new stock to meet its financial goals. 
B) The change in current assets that occur when a firm implements a sales forecast. 
C) The effects forecasts of the economic prospects for the nation, region, and industry have on the taxes the firm must pay on the income it earned in the most recent accounting period. 
D) The effects on the income statement and balance sheet of actions the firm takes to finance forecasted increases in assets. 
E) The effect that forecasted sales has on the owners of the firm. 
A) Funds that a firm must raise externally through new borrowing or by selling new stock to meet its financial goals. 
B) The change in current assets that occur when a firm implements a sales forecast. 
C) The effects forecasts of the economic prospects for the nation, region, and industry have on the taxes the firm must pay on the income it earned in the most recent accounting period. 
D) The effects on the income statement and balance sheet of actions the firm takes to finance forecasted increases in assets. 
E) The effect that forecasted sales has on the owners of the firm.

Question 12

Considering each item independently and holding other things constant, which of the following actions would reduce a firm's need for additional capital (additional funds needed, AFN)?

Accepted Answer

A) Increase the firm's dividend payout ratio. 
B) Decrease the firm's days sales outstanding (DSO). 
C) Decrease the firm's profit margin. 
D) Increase the firm's expected sales growth. 
E) Decrease the firm's accrual accounts (e.g., accrued wages and taxes). 
A) Increase the firm's dividend payout ratio. 
B) Decrease the firm's days sales outstanding (DSO). 
C) Decrease the firm's profit margin. 
D) Increase the firm's expected sales growth. 
E) Decrease the firm's accrual accounts (e.g., accrued wages and taxes).

Question 13

A firm examines the relationship between its sales volume and its operating profitability by conducting a(n) _____ analysis.

Accepted Answer

A) operating breakeven (cost-volume-profit) 
B) financial breakeven 
C) equity breakeven 
D) production capacity 
E) economies of scale 
A) operating breakeven (cost-volume-profit) 
B) financial breakeven 
C) equity breakeven 
D) production capacity 
E) economies of scale

Question 14

EvenFlo Pipes forecasts a small increase in sales next year. To achieve this growth in sales, however, the firm must purchase an amount of plant and equipment that is more than double the increase in sales. What is the most likely reason EvenFlo must purchase such a large amount of fixed assets?

Accepted Answer

A) The increase in sales will provide substantial economies of scale. 
B) The increase in sales will result in a significant increase in fixed operating costs. 
C) The increase in sales will generate a decrease in financing feedbacks. 
D) The firm must purchase lumpy assets to achieve the increase in sales. 
E) The increase in sales will produce a decrease in spontaneously generated funds. 
A) The increase in sales will provide substantial economies of scale. 
B) The increase in sales will result in a significant increase in fixed operating costs. 
C) The increase in sales will generate a decrease in financing feedbacks. 
D) The firm must purchase lumpy assets to achieve the increase in sales. 
E) The increase in sales will produce a decrease in spontaneously generated funds.

Question 15

The primary reason the income statement is forecast prior to the balance sheet in the financial planning process is because ______ must be estimated.

Accepted Answer

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

Question 16

In the control phase of the financial planning process, projected financial statements must be evaluated to determine:

Accepted Answer

A) the firm's operating breakeven at different sales levels. 
B) whether economies of scale have been achieved. 
C) the level of leverage the firm can attain with its forecasts. 
D) whether the forecasts meet the firm's financial targets. 
E) the amount of internal funds the firm must raise to meet its financial goals. 
A) the firm's operating breakeven at different sales levels. 
B) whether economies of scale have been achieved. 
C) the level of leverage the firm can attain with its forecasts. 
D) whether the forecasts meet the firm's financial targets. 
E) the amount of internal funds the firm must raise to meet its financial goals.

Question 17

A firm would conduct operating breakeven analysis primarily to determine the:

Accepted Answer

A) minimum value of assets that it should hold to achieve profitability. 
B) maximum amount of the total assets that should be financed with debt. 
C) minimum earnings that should be retained and the earnings that should be paid out as dividends. 
D) level of capacity utilization required to achieve its forecasted sales level. 
E) level of sales a new product must achieve to be profitable. 
A) minimum value of assets that it should hold to achieve profitability. 
B) maximum amount of the total assets that should be financed with debt. 
C) minimum earnings that should be retained and the earnings that should be paid out as dividends. 
D) level of capacity utilization required to achieve its forecasted sales level. 
E) level of sales a new product must achieve to be profitable.

Question 18

Which of the following actions can be taken to reduce the firm's average collection period?

Accepted Answer

A) Increase the firm's credit sales. 
B) Decrease the firm's credit purchases. 
C) More aggressively collect delinquent credit accounts. 
D) Change the firm's inventory valuation method. 
E) Revise the firm's capital budgeting investment policy. 
A) Increase the firm's credit sales. 
B) Decrease the firm's credit purchases. 
C) More aggressively collect delinquent credit accounts. 
D) Change the firm's inventory valuation method. 
E) Revise the firm's capital budgeting investment policy.

Question 19

Which of the following account balances generally will not change when sales change?

Accepted Answer

A) Accounts payable 
B) Notes payable 
C) Inventory level 
D) Accounts receivable 
E) Accrued wages 
A) Accounts payable 
B) Notes payable 
C) Inventory level 
D) Accounts receivable 
E) Accrued wages

Question 20

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

Accepted Answer

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

Operating breakeven analysis deals with the:

Operating costs that do not change when production levels change are called ______ costs

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

A firm utilizes 75 percent of its plant capacity to produce the current year's sales of $3,000,000. What is the firm's full-capacity sales?

If a firm is operating at its full capacity, future increases in sales will require _____.

Which of the following statements about the financial planning process is correct?

To fully account for financing feedbacks in financial forecasting, all of the steps in the projected balance sheet method must be repeated until _____ equal zero.

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

The financial breakeven point is the level of _____ at which earnings per share (EPS) is equal to zero.

Which of the following would be considered part of financing feedbacks in the financial forecasting process?

Considering each item independently and holding other things constant, which of the following actions would reduce a firm's need for additional capital (additional funds needed, AFN)?

A firm examines the relationship between its sales volume and its operating profitability by conducting a(n) _____ analysis.

EvenFlo Pipes forecasts a small increase in sales next year. To achieve this growth in sales, however, the firm must purchase an amount of plant and equipment that is more than double the increase in sales. What is the most likely reason EvenFlo must purchase such a large amount of fixed assets?

The primary reason the income statement is forecast prior to the balance sheet in the financial planning process is because ______ must be estimated.

In the control phase of the financial planning process, projected financial statements must be evaluated to determine:

A firm would conduct operating breakeven analysis primarily to determine the:

Which of the following actions can be taken to reduce the firm's average collection period?

Which of the following account balances generally will not change when sales change?

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

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 Debt Characteristics 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

Operating breakeven analysis deals with the:

Operating costs that do not change when production levels change are called ______ costs

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

A firm utilizes 75 percent of its plant capacity to produce the current year's sales of $3,000,000. What is the firm's full-capacity sales?

If a firm is operating at its full capacity, future increases in sales will require _____.

Which of the following statements about the financial planning process is correct?

To fully account for financing feedbacks in financial forecasting, all of the steps in the projected balance sheet method must be repeated until _____ equal zero.

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

The financial breakeven point is the level of _____ at which earnings per share (EPS) is equal to zero.

Which of the following would be considered part of financing feedbacks in the financial forecasting process?

Considering each item independently and holding other things constant, which of the following actions would reduce a firm's need for additional capital (additional funds needed, AFN)?

A firm examines the relationship between its sales volume and its operating profitability by conducting a(n) _____ analysis.

EvenFlo Pipes forecasts a small increase in sales next year. To achieve this growth in sales, however, the firm must purchase an amount of plant and equipment that is more than double the increase in sales. What is the most likely reason EvenFlo must purchase such a large amount of fixed assets?

The primary reason the income statement is forecast prior to the balance sheet in the financial planning process is because ______ must be estimated.

In the control phase of the financial planning process, projected financial statements must be evaluated to determine:

A firm would conduct operating breakeven analysis primarily to determine the:

Which of the following actions can be taken to reduce the firm's average collection period?

Which of the following account balances generally will not change when sales change?

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

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 Debt Characteristics 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