Exam 14: Short-Term Financial Planning

LPD Logistics,Inc.'s projected sales for the first six months of 2010 are given below. 20% of sales are collected in the month of the sale,75% are collected in the month following the sale,and 5% are written off as uncollectible.Cost of goods sold is 80% of sales.Purchases are made the month prior to the sales and are paid during the month the purchases are made (i.e.goods sold in March are bought and paid for in February).Total other cash expenses are $35,000/month.The company's cash balance as of February 1,2010 will be $30,000.Excess cash will be used to retire short-term borrowing (if any).LPD has no short term borrowing as of February 28,2010.Assume that the interest rate on short-term borrowing is 1% per month.The company must have a minimum cash balance of $20,000 at the beginning of each month.What is LPD's projected total disbursements for April?

The CFO of Twine Enterprises expects sales to increase from $8,000,000 in 2010 to $12,000,000 in 2011.Current assets in 2010 are equal to $5,000,000.Using the percent of sales method,projected current assets for 2011 are equal to

The accuracy of the percent of sales forecast method is impaired if

Pro forma statements are important since they formally report the performance of the firm during the previous reporting period.

The "percent of sales method" is a method of preparing pro forma financial statements.All of the following would be examples of how the "percent of sales method" is developed EXCEPT?

AFB,Inc.is expecting sales to increase by 20% next year,but its net fixed assets are expected to remain at their current level.This is an example of

If a firm currently has excess capacity,then using the percent of sales method to forecast its fixed asset balance will likely result in an overestimate of the fixed asset balance and an inflated amount of discretionary financing needed.

If the sales growth rate is greater than zero,then the discretionary financing needed will also be greater than zero.

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?

All of the following are useful purposes of pro forma financial statements EXCEPT

Discretionary financing needed (DFN)is equal to projected total assets minus projected total liabilities minus projected owners' equity.

MDX Sales Corp.is expecting a 10% increase in sales next year.MDX has an inventory balance of $1,000,000 and uses the percent of sales forecasting method.Which of the following could explain why the inventory forecast of $1,100,000 might be too high?

The percent of sales method can be used to forecast

Using the percentage of sales method,forecasted retained earnings balance is equal to

In the percent of sales method,a company's asset requirements are based on the company's projected sales level.

Other things equal,higher net profit margins mean higher discretionary financing needed.

ABC Corporation began operations on January 1^st of this year with a cash balance of $250,000.ABC had sales of $200,000 for the month of January,all on credit.ABC allows its customers 30 days to pay.ABC's expenses for January equal $150,000,and ABC's ending balance in accounts payable at January 31^st is $50,000.In its cash budget for January,ABC's ending cash balance should be equal to

A discretionary form of financing would be

Which of the following is always a non-cash expense?

For a growing firm,external financing needed will most likely be greater than discretionary financing needed due to increases in accounts payable and accruals.