Question 1

Which of the following statements is correct?

Accepted Answer

A)  Depreciation is included in the estimate of cash flows (Cash flow = Net income + Depreciation),so depreciation is set forth on a separate line in the cash budget. 
B)  If cash inflows and cash outflows occur on a regular basis,such as the situation where inflows from collections occur in equal amounts each day and most payments are made regularly on the 10th of each month,then it is not necessary to use a daily cash budget.A cash budget prepared at the end of the month will suffice. 
C)  Cash budgets are more important for fast food retailers,such as McDonald's,which deal primarily with cash than for manufacturers,such as General Motors,that generally sell on credit. 
D)  When constructing a cash budget,it probably is easier to forecast cash inflows than cash outflows. 
E)  All of the above statements are false. 
A)  Depreciation is included in the estimate of cash flows (Cash flow = Net income + Depreciation),so depreciation is set forth on a separate line in the cash budget. 
B)  If cash inflows and cash outflows occur on a regular basis,such as the situation where inflows from collections occur in equal amounts each day and most payments are made regularly on the 10th of each month,then it is not necessary to use a daily cash budget.A cash budget prepared at the end of the month will suffice. 
C)  Cash budgets are more important for fast food retailers,such as McDonald's,which deal primarily with cash than for manufacturers,such as General Motors,that generally sell on credit. 
D)  When constructing a cash budget,it probably is easier to forecast cash inflows than cash outflows. 
E)  All of the above statements are false.

Question 2

Which of the following is a key determinant of financial leverage?

Accepted Answer

A)  Level of debt. 
B)  Technology. 
C)  Labor costs. 
D)  Amount of fixed assets used by the firm. 
E)  Variable cost of goods sold. 
A)  Level of debt. 
B)  Technology. 
C)  Labor costs. 
D)  Amount of fixed assets used by the firm. 
E)  Variable cost of goods sold.

Question 3

The financial breakeven point for a firm is defined as the level of ____ that produces ____ equal to zero.

Accepted Answer

A)  sales;EBIT. 
B)  sales;gross profit. 
C)  EPS;sales. 
D)  gross profit;EBIT. 
E)  EBIT;EPS. 
A)  sales;EBIT. 
B)  sales;gross profit. 
C)  EPS;sales. 
D)  gross profit;EBIT. 
E)  EBIT;EPS.

Question 4

-Refer to Trident Food Corporation.What is the degree of operating leverage for Trident Foods?

Accepted Answer

A)  2.78 
B)  10.71 
C)  3.86 
D)  3.00 
E)  4.00 
A)  2.78 
B)  10.71 
C)  3.86 
D)  3.00 
E)  4.00

Question 5

All else equal,excess capacity means that more external financing is required to support increases in sales than would be needed if the firm previously operated full capacity.

Accepted Answer

A) True 
 B)False

Question 6

Breakeven analysis can involve determining the magnitude of the firm's profit or losses at output levels on and around the point where revenues equal costs.

Accepted Answer

A) True 
 B)False

Question 7

One potential benefit of high operating leverage is that it can reduce the average cost per unit at high levels of output,thus generating a competitive cost advantage.

Accepted Answer

A) True 
 B)False

Question 8

The projected balance sheet method of forecasting is based on which of the following assumptions?

Accepted Answer

A)  All balance sheet accounts are tied directly to sales. 
B)  Most balance sheet accounts are tied directly to sales. 
C)  The current level of total assets is optimal for the current sales level. 
D)  Answers a and c above. 
E)  Answers b and c above. 
A)  All balance sheet accounts are tied directly to sales. 
B)  Most balance sheet accounts are tied directly to sales. 
C)  The current level of total assets is optimal for the current sales level. 
D)  Answers a and c above. 
E)  Answers b and c above.

Question 9

Other things held constant,the higher the degree of total leverage exhibited by a firm,the greater the risk associated with that firm.

Accepted Answer

A) True 
 B)False

Question 10

The DOL is an index number that measures the effect of a change in sales price on the operating breakeven point.

Accepted Answer

A) True 
 B)False

Question 11

Other things held constant,if a firm is operating at a profit and then sales increase,the degree of operating leverage will decline.

Accepted Answer

A) True 
 B)False

Question 12

The term "spontaneously generated funds" generally refers to increases in the cash account that result from growth in sales,assuming the firm is operating with a positive profit margin.

Accepted Answer

A) True 
 B)False

Question 13

Kulwicki Corporation wants to determine the effect of an expansion of its sales on its operating income (EBIT).The firm's current DOL is 2.5.It projects new unit sales to be 170,000,an increase of 45,000 over last year's level of 125,000 units.Last year's EBIT was $60,000.Based on a DOL of 2.5,what is this year's projected EBIT with the increase in sales?

Accepted Answer

A)  $60,000 
B)  $175,000 
C)  $100,000 
D)  $90,000 
E)  $114,000 
A)  $60,000 
B)  $175,000 
C)  $100,000 
D)  $90,000 
E)  $114,000

Question 14

An advantage of breakeven analysis is that it can be applied with equal precision whether a firm's cost curve is linear or nonlinear.

Accepted Answer

A) True 
 B)False

Question 15

Jill's Wigs Inc.had the following balance sheet last year:
Cash:$ 800
Accounts payable:$ 350
Accounts receivable:450
Accrued wages:150
Inventory:950
Notes payable:2,000
Net fixed assets:34,000
Mortgage:26,500
Common stock:3,200
Retained earnings:4,000
Total assets:$36,200
Total liabilities and equity:$36,200
Jill has just invented a non-slip wig for men which she expects will cause sales to double,increasing after-tax net income to $1,000.She feels that she can handle the increase without adding any fixed assets.(1)Will Jill need any outside capital if she pays no dividends?
(2)If so,how much?

Accepted Answer

A)  No;zero 
B)  Yes;$7,700 
C)  Yes;$1,700 
D)  Yes;$700 
E)  No;there will be a $700 surplus. 
A)  No;zero 
B)  Yes;$7,700 
C)  Yes;$1,700 
D)  Yes;$700 
E)  No;there will be a $700 surplus.

Question 16

Which of the following is a key determinant of operating leverage?

Accepted Answer

A)  Level of debt. 
B)  Physical location of production facilities. 
C)  Cost of debt. 
D)  Technology. 
E)  Capital structure. 
A)  Level of debt. 
B)  Physical location of production facilities. 
C)  Cost of debt. 
D)  Technology. 
E)  Capital structure.

Question 17

Which of the following statements about cash management is false?

Accepted Answer

A)  Depreciation expense does not appear explicitly on the cash budget,but its tax effects are included. 
B)  If cash flows are not uniform during the month,then weekly or perhaps daily cash budgets should be prepared rather than monthly budgets. 
C)  Compensating balance requirements do not affect a firm's target cash balance. 
D)  Cash management involves costs,and it is important to analyze whether the benefits received outweigh the costs included. 
E)  The cash budget is the foundation of good cash management. 
A)  Depreciation expense does not appear explicitly on the cash budget,but its tax effects are included. 
B)  If cash flows are not uniform during the month,then weekly or perhaps daily cash budgets should be prepared rather than monthly budgets. 
C)  Compensating balance requirements do not affect a firm's target cash balance. 
D)  Cash management involves costs,and it is important to analyze whether the benefits received outweigh the costs included. 
E)  The cash budget is the foundation of good cash management.

Question 18

All else being equal,which of the following will lower the breakeven point of a firm?

Accepted Answer

A)  higher fixed costs 
B)  lower selling price 
C)  lower variable costs 
D)  none of the above 
A)  higher fixed costs 
B)  lower selling price 
C)  lower variable costs 
D)  none of the above

Question 19

Operating costs include variable costs,depreciation and interest charges.

Accepted Answer

A) True 
 B)False

Question 20

The Price Company will produce 55,000 widgets next year.Variable costs will equal 40 percent of sales,while operating fixed costs will total $110,000.At what price must each widget be sold for the company to achieve an EBIT of $95,000?

Accepted Answer

A)  $2.00 
B)  $4.45 
C)  $5.00 
D)  $5.37 
E)  $6.21 
A)  $2.00 
B)  $4.45 
C)  $5.00 
D)  $5.37 
E)  $6.21

Which of the following statements is correct?

Which of the following is a key determinant of financial leverage?

The financial breakeven point for a firm is defined as the level of that produces equal to zero.

-Refer to Trident Food Corporation.What is the degree of operating leverage for Trident Foods?

All else equal,excess capacity means that more external financing is required to support increases in sales than would be needed if the firm previously operated full capacity.

Breakeven analysis can involve determining the magnitude of the firm's profit or losses at output levels on and around the point where revenues equal costs.

One potential benefit of high operating leverage is that it can reduce the average cost per unit at high levels of output,thus generating a competitive cost advantage.

The projected balance sheet method of forecasting is based on which of the following assumptions?

Other things held constant,the higher the degree of total leverage exhibited by a firm,the greater the risk associated with that firm.

The DOL is an index number that measures the effect of a change in sales price on the operating breakeven point.

Other things held constant,if a firm is operating at a profit and then sales increase,the degree of operating leverage will decline.

The term "spontaneously generated funds" generally refers to increases in the cash account that result from growth in sales,assuming the firm is operating with a positive profit margin.

An advantage of breakeven analysis is that it can be applied with equal precision whether a firm's cost curve is linear or nonlinear.

Which of the following is a key determinant of operating leverage?

Which of the following statements about cash management is false?

All else being equal,which of the following will lower the breakeven point of a firm?

Operating costs include variable costs,depreciation and interest charges.

The Price Company will produce 55,000 widgets next year.Variable costs will equal 40 percent of sales,while operating fixed costs will total $110,000.At what price must each widget be sold for the company to achieve an EBIT of $95,000?

An Overview of Finance

Financial Assets Instruments

Financial Markets and the Investment Banking Process

Financial Intermediaries and the Banking System

The Cost of Money Interest Rates

Business Organizations and the Tax Environment

Analysis of Financial Statements

Time Value of Money

Valuation Concepts

Risk and Rates of Return

The Cost of Capital

Capital Budgeting

Capital Structure and Dividend Policy Decisions

Working Capital Management

Investment and Securities

Investment Analysis and Valuation Techniques

Filters

Exam 8: Financial Planning and Control

Which of the following statements is correct?

Which of the following is a key determinant of financial leverage?

The financial breakeven point for a firm is defined as the level of ____ that produces ____ equal to zero.

-Refer to Trident Food Corporation.What is the degree of operating leverage for Trident Foods?

All else equal,excess capacity means that more external financing is required to support increases in sales than would be needed if the firm previously operated full capacity.

Breakeven analysis can involve determining the magnitude of the firm's profit or losses at output levels on and around the point where revenues equal costs.

One potential benefit of high operating leverage is that it can reduce the average cost per unit at high levels of output,thus generating a competitive cost advantage.

The projected balance sheet method of forecasting is based on which of the following assumptions?

Other things held constant,the higher the degree of total leverage exhibited by a firm,the greater the risk associated with that firm.

The DOL is an index number that measures the effect of a change in sales price on the operating breakeven point.

Other things held constant,if a firm is operating at a profit and then sales increase,the degree of operating leverage will decline.

The term "spontaneously generated funds" generally refers to increases in the cash account that result from growth in sales,assuming the firm is operating with a positive profit margin.

An advantage of breakeven analysis is that it can be applied with equal precision whether a firm's cost curve is linear or nonlinear.

Which of the following is a key determinant of operating leverage?

Which of the following statements about cash management is false?

All else being equal,which of the following will lower the breakeven point of a firm?

Operating costs include variable costs,depreciation and interest charges.

The Price Company will produce 55,000 widgets next year.Variable costs will equal 40 percent of sales,while operating fixed costs will total $110,000.At what price must each widget be sold for the company to achieve an EBIT of $95,000?

An Overview of Finance

Financial Assets Instruments

Financial Markets and the Investment Banking Process

Financial Intermediaries and the Banking System

The Cost of Money Interest Rates

Business Organizations and the Tax Environment

Analysis of Financial Statements

Time Value of Money

Valuation Concepts

Risk and Rates of Return

The Cost of Capital

Capital Budgeting

Capital Structure and Dividend Policy Decisions

Working Capital Management

Investment and Securities

Investment Analysis and Valuation Techniques

Filters

The financial breakeven point for a firm is defined as the level of that produces equal to zero.