Exam 14: Short-Term Financial Planning

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

A firm's cash position would most likely be helped by

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.

DAS,Inc.is preparing its financial forecast for next year and its discretionary financing needed is negative.This means that

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

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?

A budget

Financial forecasting is the process of attempting to estimate a firm's future financing requirements.

A company calculates its discretionary financing needed and determines this amount of capital cannot be raised at a reasonable cost.Which of the following would reduce the amount of discretionary financing needed?

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

The cash budget for Parker Processed Meats,Inc.is given below for the fourth quarter of 2010: Parker Processed Meats,Inc. Cash Budget for the Three Months Ending December 31,2010 The expected sales for the period are as follows: Oct.: $116,000 Nov.: $127,000 Dec.: $95,000 The total depreciation expense for the period will be $12,000. An interest payment on outstanding debt of $13,000 will be made in December.Using the information given above,construct a pro forma income statement for the final quarter of 2010.

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?

Using the percent of sales method and assuming that no excess capacity exists,a 20% increase in sales will result in

Monthly cash receipts in the cash budget are typically made up of cash sales during the month and collections from credit sales from prior months.

One of the virtues of the percent-of-sales method is the precision of the estimate of future financing needs.

In what way does a cash budget provide management with better information about financing requirements than a pro forma balance sheet?

The percent of sales method assumes that all assets and all liabilities increase proportionally with sales,but retained earnings does not.

The treasurer for Chic Man Clothing must decide how much money the company needs to borrow in July.The balance sheet for June 30,2010 is presented below: Chic Man Clothing Balance Sheet June 30,2010 The company expects sales of $400,000 for July.The company has observed that 25% of its sales is for cash and that the remaining 75% is collected in the following month.The company plans to purchase $345,000 of new clothing.Usually 70% of purchases is for cash and the remaining 30% of purchases is paid in the following month.Salaries are $135,000 per month,lease payments are $35,000 per month,and depreciation charges are $20,000 per month.The company plans to purchase a new van for $60,000 in July and sell its marketable securities for $123,000.If the company must maintain a minimum cash balance of $25,000,how much money must the company borrow in July?

Issuing new short-term bonds to finance an expansion is an example of spontaneous financing.

Discretionary financing needed is equal to the predicted change in total assets minus the change in retained earnings.