Exam 8: Financial Planning and Control

To determine the amount of additional funds needed,you may subtract the expected increase in liabilities (a source of funds)from the sum of the expected increases in retained earnings and assets (both uses of funds).

Musgrave Corporation has fixed operating costs of $46,000 and variable costs that are 30% of the current sales price of $2.15.At a price of $2.15,Musgrave sells 40,000 units.Musgrave can increase sales by 10,000 units by cutting its unit price from $2.15 to $1.95,but variable cost per unit won't change.Should it cut its price?

Breakeven analysis can be used to determine how large sales of a new product must be for the firm to achieve profitability,but it is not useful in studying the effects of a general expansion in the firm's operations.

If a firm's degree of total leverage (DTL)is 8.0,which of the following must be correct?

The degree of financial leverage has which of the following characteristics?

An increase in the firm's inventory balance normally will require additional financing unless the increase is matched by an equally large decrease in some other asset account.

As a firm's sales grow,its current asset accounts tend to increase.For instance,as sales increase,the firm's purchases increase and its level of accounts payable will increase.Thus,spontaneously generated funds will arise from transaction accounts that increase as sales increase.

With lumpy assets,a small projected increase in sales could potentially mandate a significant increase in plant and equipment,which would lead to a very large financial requirement.

The higher a firm's operating leverage,the higher is its business risk.

The degree of financial leverage for Aries Inc.is 3.0,and the degree of financial leverage for Common Capital Corporation is 6.2.According to this information,which firm is considered to have greater overall (total)risk?

Warsaw Incorporated is currently operating at 80% of capacity.The sales of Warsaw were $25 million this year and their net plant and equipment were valued at $100 million.Sales are expected to increase to $35 million next year.How much additional plant and equipment will Warsaw need to acquire to keep production up with the new level of sales?

-Refer to Trident Food Corporation.What is the financial breakeven point for Trident Foods?

Texas Products Inc.has a division which makes burlap bags for the citrus industry.The unit has operating fixed costs of $10,000 per month,and it expects to sell 42,000 bags per month.If the variable cost per bag is $2.00,what price must the division charge in order to break even?

Lumpy assets primarily affect the turnover of fixed assets and,consequently,the financial requirements associated with the expansion of operations.

Which of the following statements is correct?

Which of the following statements is correct?

NJM Incorporated is a football manufacturer.NJM has fixed operating costs of $400,000 and variable costs of $12 per football.The footballs sell for $35 each and NJM plans to sell 300,000 footballs this year.What are NJM's total operating costs for the year?

Which method estimates additional funds needed for a firm by projecting the assets needed for the coming and subtracting the projected liabilities spontaneously generated.

If a firm has no preferred stock,its financial breakeven point is the sales level that results in net income equal to zero.

When a firm increases its degree of operating leverage by substituting fixed costs for variable costs,it normally does so to decrease its breakeven point and to increase its profit.