Question 1

Is it possible for the cash budget and the pro forma income statement to have different results?

Accepted Answer

A) yes,because revenues and expenses included in each statement are different 
B) yes,because revenues and expenses are accounted for over different time periods 
C) no,because they contain the same variables,while just using different formats 
D) no,because the cash budget and the pro forma income statement provide forecasts for the same time period 
A) yes,because revenues and expenses included in each statement are different 
B) yes,because revenues and expenses are accounted for over different time periods 
C) no,because they contain the same variables,while just using different formats 
D) no,because the cash budget and the pro forma income statement provide forecasts for the same time period

Question 2

The cash budget is composed of four elements: cash receipts,cash disbursements,depreciation,and the net change in cash for the period.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements would NOT be a valid use of pro forma financial statements?

Accepted Answer

A) to determine a firm's needs for financing 
B) to enhance a firm's ability to offer shareholders guaranteed operating results 
C) to analyze the effects of a firm's forecasts on its financial performance 
D) to serve as a benchmark when comparing actual results to planned activities 
A) to determine a firm's needs for financing 
B) to enhance a firm's ability to offer shareholders guaranteed operating results 
C) to analyze the effects of a firm's forecasts on its financial performance 
D) to serve as a benchmark when comparing actual results to planned activities

Question 4

Using the 2012 financial statements for DRE Corporation and this additional information,prepare a pro forma income statement and balance sheet for the year 2013.Determine the discretionary financing needed (DFN)and assume that if the DFN is positive,the company will increase long-term debt,and if DFN is negative,the company will pay back some long-term debt. Sales for next year (2013)are expected to increase by $300,000 to $1,800,000.The firm is running efficiently and at full capacity so that all assets and spontaneous liabilities are expected to increase proportionally with sales.The dividend payout ratio for 2013 will be 40%. DRE Corporation 2012 Financial Statements

Accepted Answer

The answer of Using the 2012 financial statements for DRE...

Question 5

For a typical firm expecting higher sales,external financing needed will be greater than discretionary financing needed.

Accepted Answer

A) True 
 B)False

Question 6

Discretionary financing needed will be zero when the company's sales growth rate is zero.

Accepted Answer

A) True 
 B)False

Question 7

If external financing needed cannot be obtained due to poor market conditions,a firm could reduce the amount needed by increasing its retention ratio.

Accepted Answer

A) True 
 B)False

Question 8

Amalgamated Enterprises is planning to purchase some new equipment.With this new equipment,the company expects sales to increase from $8,000,000 to $10,000,000.A portion of the financing for the purchase of the equipment will come from a $1,000,000 new common stock issue.The company knows that its current assets,fixed assets,accounts payable,and accrued expenses increase directly with sales.The company's net profit margin on sales is 8 percent,and the company plans to pay 40 percent of its after-tax earnings in dividends.A copy of the company's current balance sheet is given below. Amalgamated Enterprises Balance Sheet   Prepare a pro forma balance sheet for Amalgamated for next year.

Accepted Answer

Amalgamated Enterprises Pro Forma Balanc

Question 9

Forecasts of revenues and their related expenses are the basis on which firms forecast their future financing needs.

Accepted Answer

A) True 
 B)False

Question 10

Accrued expenses represent a spontaneous form of financing.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is the initial and most important step in the preparation of pro forma financial statements?

Accepted Answer

A) Estimate the levels of investment in current and fixed assets. 
B) Determine the rate of interest that will be required for borrowed funds. 
C) Project the firm's sales revenues for the planning period. 
D) Approximate the cost of raw materials. 
A) Estimate the levels of investment in current and fixed assets. 
B) Determine the rate of interest that will be required for borrowed funds. 
C) Project the firm's sales revenues for the planning period. 
D) Approximate the cost of raw materials.

Question 12

It is often the case that the planning process has its greatest value when the resulting forecasts have the most error,because the planning process offers its greatest value when the future is the most uncertain.

Accepted Answer

A) True 
 B)False

Question 13

Fixed assets are often estimated incorrectly by the percent of sales method because

Accepted Answer

A) fixed assets remain constant and the percent of sales method assumes all assets increase proportionally with sales. 
B) fixed asset are very expensive. 
C) fixed assets are typically purchased in "lumps" and therefore do not increase proportionally with sales. 
D) fixed assets are part of the capital budgeting process. 
A) fixed assets remain constant and the percent of sales method assumes all assets increase proportionally with sales. 
B) fixed asset are very expensive. 
C) fixed assets are typically purchased in "lumps" and therefore do not increase proportionally with sales. 
D) fixed assets are part of the capital budgeting process.

Question 14

Using the percent of sales method,projected common stock on the 2010 pro forma balance sheet is equal to (Common Stock 2009/Sales 2009)times Projected Sales 2010.

Accepted Answer

A) True 
 B)False

Question 15

The first step involved in predicting financing needs is

Accepted Answer

A) project the firm's sales revenues and expenses over the planning period. 
B) estimating the levels of investment in current and fixed assets that are necessary to support the projected sales. 
C) determining the firm's financing needs throughout the planning period. 
D) estimating the cost of debt. 
A) project the firm's sales revenues and expenses over the planning period. 
B) estimating the levels of investment in current and fixed assets that are necessary to support the projected sales. 
C) determining the firm's financing needs throughout the planning period. 
D) estimating the cost of debt.

Question 16

The first step in a corporation's financial forecasting process is the determination of the firm's financing needs.

Accepted Answer

A) True 
 B)False

Question 17

Budgets should not be used for performance evaluation because there is too much uncertainty involved and this makes it unfair to the person being evaluated.

Accepted Answer

A) True 
 B)False

Question 18

Rawhide Outfitters had projected its sales for the first six months of 2012 to be as follows:   Cost of goods sold is 60% of sales.Purchases are made and paid for two months prior to the sale.40% of sales are collected in the month of the sale,40% are collected in the month following the sale,and the remaining 20% in the second month following the sale.Total other cash expenses are $40,000/month.The company's cash balance as of March 1st,2012 is projected to be $40,000,and the company wants to maintain a minimum cash balance of $15,000.Excess cash will be used to retire short-term borrowing (if any exists).The firm has no short-term borrowing as of March 1st,2012.Assume that the interest rate on short-term borrowing is 1% per month.What was Rawhides' projected loss for March?

Accepted Answer

A) $184,000 
B) $110,000 
C) $84,000 
D) none of the above 
A) $184,000 
B) $110,000 
C) $84,000 
D) none of the above

Question 19

Cash budgets do not provide reasonable predictions for asset requirements when the asset purchases are lumpy.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements is MOST correct concerning the relationship between a company's cash budget and its income statement?

Accepted Answer

A) If net income is positive for 3 or more months in a row,then cash flow must be positive. 
B) If net income is positive,then cash flow must be positive. 
C) If net income is positive,then cash flow could be positive or negative,but if net income is negative,cash flow must also be negative. 
D) Cash flow could be positive whether net income is positive or negative. 
A) If net income is positive for 3 or more months in a row,then cash flow must be positive. 
B) If net income is positive,then cash flow must be positive. 
C) If net income is positive,then cash flow could be positive or negative,but if net income is negative,cash flow must also be negative. 
D) Cash flow could be positive whether net income is positive or negative.

Is it possible for the cash budget and the pro forma income statement to have different results?

The cash budget is composed of four elements: cash receipts,cash disbursements,depreciation,and the net change in cash for the period.

Which of the following statements would NOT be a valid use of pro forma financial statements?

For a typical firm expecting higher sales,external financing needed will be greater than discretionary financing needed.

Discretionary financing needed will be zero when the company's sales growth rate is zero.

If external financing needed cannot be obtained due to poor market conditions,a firm could reduce the amount needed by increasing its retention ratio.

Forecasts of revenues and their related expenses are the basis on which firms forecast their future financing needs.

Accrued expenses represent a spontaneous form of financing.

Which of the following is the initial and most important step in the preparation of pro forma financial statements?

It is often the case that the planning process has its greatest value when the resulting forecasts have the most error,because the planning process offers its greatest value when the future is the most uncertain.

Fixed assets are often estimated incorrectly by the percent of sales method because

Using the percent of sales method,projected common stock on the 2010 pro forma balance sheet is equal to (Common Stock 2009/Sales 2009)times Projected Sales 2010.

The first step involved in predicting financing needs is

The first step in a corporation's financial forecasting process is the determination of the firm's financing needs.

Budgets should not be used for performance evaluation because there is too much uncertainty involved and this makes it unfair to the person being evaluated.

Cash budgets do not provide reasonable predictions for asset requirements when the asset purchases are lumpy.

Which of the following statements is MOST correct concerning the relationship between a company's cash budget and its income statement?

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Working-Capital Management

International Business Finance

Cash,receivables,and Inventory Management

Filters

Exam 14: Short-Term Financial Planning

Is it possible for the cash budget and the pro forma income statement to have different results?

The cash budget is composed of four elements: cash receipts,cash disbursements,depreciation,and the net change in cash for the period.

Which of the following statements would NOT be a valid use of pro forma financial statements?

For a typical firm expecting higher sales,external financing needed will be greater than discretionary financing needed.

Discretionary financing needed will be zero when the company's sales growth rate is zero.

If external financing needed cannot be obtained due to poor market conditions,a firm could reduce the amount needed by increasing its retention ratio.

Forecasts of revenues and their related expenses are the basis on which firms forecast their future financing needs.

Accrued expenses represent a spontaneous form of financing.

Which of the following is the initial and most important step in the preparation of pro forma financial statements?

It is often the case that the planning process has its greatest value when the resulting forecasts have the most error,because the planning process offers its greatest value when the future is the most uncertain.

Fixed assets are often estimated incorrectly by the percent of sales method because

Using the percent of sales method,projected common stock on the 2010 pro forma balance sheet is equal to (Common Stock 2009/Sales 2009)times Projected Sales 2010.

The first step involved in predicting financing needs is

The first step in a corporation's financial forecasting process is the determination of the firm's financing needs.

Budgets should not be used for performance evaluation because there is too much uncertainty involved and this makes it unfair to the person being evaluated.

Cash budgets do not provide reasonable predictions for asset requirements when the asset purchases are lumpy.

Which of the following statements is MOST correct concerning the relationship between a company's cash budget and its income statement?

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Working-Capital Management

International Business Finance

Cash,receivables,and Inventory Management

Filters