Question 1

A set of estimates which corresponds to the worst and best case outcomes is often desired in preparing a financial forecast.

Accepted Answer

A) True 
 B)False

Question 2

Use the "percent of sales method" of preparing pro forma financial statements to determine the projection for next year's accounts receivable.Make the following assumptions: current year's sales are $45,450,000; current year's cost of goods sold is $26,950,000; sales are expected to rise by 20%.The firm's investment in accounts receivable in the current year is $8,600,000.The firm's marginal tax rate is 35%.What is the projection for next year's accounts receivable?

Accepted Answer

A) $11,345,000 
B) $10,320,000 
C) $9,575,000 
D) $8,772,000 
A) $11,345,000 
B) $10,320,000 
C) $9,575,000 
D) $8,772,000

Question 3

A company collects 25% of its sales during the month of sale,65% one month after the sale,and 10% two months after the sale.The company expects sales of $50,000 in August,$80,000 in September,$90,000 in October,and $60,000 in November.How much money is expected to be collected in October?

Accepted Answer

A) $90,000 
B) $79,500 
C) $55,000 
D) $22,500 
A) $90,000 
B) $79,500 
C) $55,000 
D) $22,500

Question 4

The percent of sales forecasting method works well because it accounts for economies of scale in assets such as inventory.

Accepted Answer

A) True 
 B)False

Question 5

Accounts payable and accrued expenses are known as discretionary sources of financing.

Accepted Answer

A) True 
 B)False

Question 6

Spontaneous sources of financing include

Accepted Answer

A) accounts payable and accrued expenses. 
B) notes payable and mortgages payable. 
C) long-term debt and capital leases. 
D) common stock and paid-in capital. 
A) accounts payable and accrued expenses. 
B) notes payable and mortgages payable. 
C) long-term debt and capital leases. 
D) common stock and paid-in capital.

Question 7

Spontaneous financing is financing obtained at the last minute due to poor financial planning.

Accepted Answer

A) True 
 B)False

Question 8

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 cumulative borrowing as of March 1,2010?

Accepted Answer

A) $110,000 
B) $90,000 
C) $70,000 
D) -0- 
A) $110,000 
B) $90,000 
C) $70,000 
D) -0-

Question 9

Traditional financial forecasting takes the sales forecast as given and forecasts the corresponding expenses,assets,and liabilities of the firm.

Accepted Answer

A) True 
 B)False

Question 10

A sales forecast for the coming year would reflect

Accepted Answer

A) any past trend which is expected to continue. 
B) the influence of any events that might materially affect that trend. 
C) both A and B. 
D) neither A nor B. 
A) any past trend which is expected to continue. 
B) the influence of any events that might materially affect that trend. 
C) both A and B. 
D) neither A nor B.

Question 11

The ZYX Corporation is planning to request a line of credit from its bank and wants to estimate its cash needs for the month of September.The following sales forecasts have been made for 2010:   Collection estimates were obtained from the credit collection department as follows: 20% collected within the month of sale; 70% collected the first month following this sale; and 10% collected the second month following the sale.Payments for labor and raw materials are typically made in the month in which these costs are incurred.Total labor and raw material costs each month are 50% of sales.General administrative expenses are $30,000 per month,lease payments are $10,000 per month,and depreciation charges are $20,000 per month.The corporation tax rate is 40%; however,no corporate taxes are paid in September.Prepare a pro forma income statement and cash budget for September.

Accepted Answer

ZYX Corporation Pro Forma Inco

Question 12

When economies of scale exist,the percent of sales method will overestimate the assets required and therefore overestimate the amount of discretionary financing needed.

Accepted Answer

A) True 
 B)False

Question 13

A corporation that increases it net profit margin will need less discretionary financing,other things being equal.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following would NOT be found in a cash budget?

Accepted Answer

A) interest expense 
B) taxes 
C) depreciation 
D) cash sales 
A) interest expense 
B) taxes 
C) depreciation 
D) cash sales

Question 15

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 cash balance as of April 1,2010?

Accepted Answer

A) ($48,600) 
B) ($58,036) 
C) $14,238 
D) $21,400 
A) ($48,600) 
B) ($58,036) 
C) $14,238 
D) $21,400

Question 16

CraftCo,Inc.' projected sales for the first six months of 2012 are given below:   40% of sales are collected in cash at time of sale,50% are collected in the month following the sale,and the remaining 10% are collected in the second month following the sale.Cost of goods sold is 60% 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 $40,000/month.The company's cash balance as of February 28,2012 will be $25,000.Excess cash will be used to retire short-term borrowing (if any).CraftCo,Inc.has no short term borrowing as of February 28,2012.Assume that the interest rate on short-term borrowing is 1% per month.The company must have a minimum cash balance of $15,000 at the beginning of each month.What is CraftCo,Inc.' projected cash balance at the end of March 2012?

Accepted Answer

A) $301,000 
B) $329,000 
C) $352,000 
D) $361,000 
A) $301,000 
B) $329,000 
C) $352,000 
D) $361,000

Question 17

When preparing pro forma financial statement,the income statement must be prepared first because the projected retained earnings balance on the balance sheet is based on the expected net income.

Accepted Answer

A) True 
 B)False

Question 18

Fielding Wilderness Outfitters had projected its sales for the first six months of 2010 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,2010 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).Fielding has no short-term borrowing as of March 1st,2010.Assume that the interest rate on short-term borrowing is 1% per month.What is Fielding's projected total receipts (collections)for April?

Accepted Answer

A) $124,000 
B) $180,000 
C) -$4,000 
D) $36,000 
A) $124,000 
B) $180,000 
C) -$4,000 
D) $36,000

Question 19

Using the percentage of sales method of forecasting

Accepted Answer

A) all asset and liability accounts increase or decrease proportionally with sales. 
B) only asset accounts increase or decrease proportionally with sales. 
C) accounts payable and accrued expenses are the only liabilities that increase or decrease proportionally with sales. 
D) all balance sheet accounts increase or decrease proportionally with sales. 
A) all asset and liability accounts increase or decrease proportionally with sales. 
B) only asset accounts increase or decrease proportionally with sales. 
C) accounts payable and accrued expenses are the only liabilities that increase or decrease proportionally with sales. 
D) all balance sheet accounts increase or decrease proportionally with sales.

Question 20

Southeast Wood Products,Inc.reports sales of $20,000,000 and inventory of $4,000,000.Southeast's inventory possesses significant economies of scale.Therefore,if the firm's sales increase by 10%,Southeast's inventory will ________ and if Southeast's sales decrease by 10%,Southeast's inventory will ________.

Accepted Answer

A) increase by more than 10%,increase by more than 10% 
B) decrease by more than 10%,decrease by more than 10% 
C) increase by more than 10%,decrease by less than 10% 
D) increase by less than 10%,decrease by less than 10% 
A) increase by more than 10%,increase by more than 10% 
B) decrease by more than 10%,decrease by more than 10% 
C) increase by more than 10%,decrease by less than 10% 
D) increase by less than 10%,decrease by less than 10%

A set of estimates which corresponds to the worst and best case outcomes is often desired in preparing a financial forecast.

A company collects 25% of its sales during the month of sale,65% one month after the sale,and 10% two months after the sale.The company expects sales of $50,000 in August,$80,000 in September,$90,000 in October,and $60,000 in November.How much money is expected to be collected in October?

The percent of sales forecasting method works well because it accounts for economies of scale in assets such as inventory.

Accounts payable and accrued expenses are known as discretionary sources of financing.

Spontaneous sources of financing include

Spontaneous financing is financing obtained at the last minute due to poor financial planning.

Traditional financial forecasting takes the sales forecast as given and forecasts the corresponding expenses,assets,and liabilities of the firm.

A sales forecast for the coming year would reflect

When economies of scale exist,the percent of sales method will overestimate the assets required and therefore overestimate the amount of discretionary financing needed.

A corporation that increases it net profit margin will need less discretionary financing,other things being equal.

Which of the following would NOT be found in a cash budget?

When preparing pro forma financial statement,the income statement must be prepared first because the projected retained earnings balance on the balance sheet is based on the expected net income.

Using the percentage of sales method of forecasting

Southeast Wood Products,Inc.reports sales of $20,000,000 and inventory of $4,000,000.Southeast's inventory possesses significant economies of scale.Therefore,if the firm's sales increase by 10%,Southeast's inventory will and if Southeast's sales decrease by 10%,Southeast's inventory will .

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

A set of estimates which corresponds to the worst and best case outcomes is often desired in preparing a financial forecast.

A company collects 25% of its sales during the month of sale,65% one month after the sale,and 10% two months after the sale.The company expects sales of $50,000 in August,$80,000 in September,$90,000 in October,and $60,000 in November.How much money is expected to be collected in October?

The percent of sales forecasting method works well because it accounts for economies of scale in assets such as inventory.

Accounts payable and accrued expenses are known as discretionary sources of financing.

Spontaneous sources of financing include

Spontaneous financing is financing obtained at the last minute due to poor financial planning.

Traditional financial forecasting takes the sales forecast as given and forecasts the corresponding expenses,assets,and liabilities of the firm.

A sales forecast for the coming year would reflect

When economies of scale exist,the percent of sales method will overestimate the assets required and therefore overestimate the amount of discretionary financing needed.

A corporation that increases it net profit margin will need less discretionary financing,other things being equal.

Which of the following would NOT be found in a cash budget?

When preparing pro forma financial statement,the income statement must be prepared first because the projected retained earnings balance on the balance sheet is based on the expected net income.

Using the percentage of sales method of forecasting

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