Question 1

When forecasting fixed asset requirements,the projected fixed asset balance will

Accepted Answer

A)  not increase proportionally with sales if the existing level of fixed assets is sufficient to support current sales. 
B)  not increase proportionally if excess capacity exists. 
C)  remain the same since the balance is fixed. 
D)  always increase proportionally with sales. 
A)  not increase proportionally with sales if the existing level of fixed assets is sufficient to support current sales. 
B)  not increase proportionally if excess capacity exists. 
C)  remain the same since the balance is fixed. 
D)  always increase proportionally with sales.

Question 2

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 3

Wilbur and Company reports sales of $20,000,000 and inventory of $4,000,000.Wilbur's inventory possesses significant economies of scale.Therefore,if Wilbur's sales increase by 10%,Wilbur's inventory will ________ and if Wilbur's sales decrease by 10%,Wilbur'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%

Question 4

XDR Corp.is expecting a 10% increase in sales next year.XDR 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?

Accepted Answer

A)  The current inventory balance of $1,000,000 is lower than usual because of a one-time end of year fire sale. 
B)  The company is going to change its depreciation method in the coming year. 
C)  The growth in sales could be as high as 15%. 
D)  A fixed amount of inventory is required to do business, so inventory doesn't increase proportionally with sales. 
A)  The current inventory balance of $1,000,000 is lower than usual because of a one-time end of year fire sale. 
B)  The company is going to change its depreciation method in the coming year. 
C)  The growth in sales could be as high as 15%. 
D)  A fixed amount of inventory is required to do business, so inventory doesn't increase proportionally with sales.

Question 5

A discretionary form of financing would be

Accepted Answer

A)  notes payable. 
B)  accounts payable. 
C)  accrued expenses. 
D)  A and B. 
A)  notes payable. 
B)  accounts payable. 
C)  accrued expenses. 
D)  A and B.

Question 6

The cash budget represents a detailed plan of future cash flows.

Accepted Answer

A) True 
 B)False

Question 7

The percent of sales method can be used to forecast

Accepted Answer

A)  expenses. 
B)  assets. 
C)  liabilities. 
D)  all of the above. 
A)  expenses. 
B)  assets. 
C)  liabilities. 
D)  all of the above.

Question 8

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 9

A budget is a forecast of future events.

Accepted Answer

A) True 
 B)False

Question 10

Use the "percent of sales method" of preparing pro forma financial statements to determine the projection for next year's inventory.Make the following assumptions: current year's sales are $27,800,000; current year's cost of goods sold is $17,528,000; sales are expected to rise by 30%.The firm's investment in inventory in the current year is $5,890,200.What is the projection for next year's inventory?

Accepted Answer

A)  $7,657,260 
B)  $6,981,250 
C)  $5,845,500 
D)  $4,526,600 
A)  $7,657,260 
B)  $6,981,250 
C)  $5,845,500 
D)  $4,526,600

Question 11

Thompson Manufacturing Supplies' 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).Thompson 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 Thompson'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 12

Which of the following is a limitation of the "percent of sales method" of preparing pro forma financial statements?

Accepted Answer

A)  A firm's investment in accounts receivable is seldom related to sales volume. 
B)  Not all assets and liabilities increase or decrease as a constant percent of sales. 
C)  Inventory levels are seldom affected by changes in sales volume. 
D)  The dividend payout ratio may change from one year to the next. 
A)  A firm's investment in accounts receivable is seldom related to sales volume. 
B)  Not all assets and liabilities increase or decrease as a constant percent of sales. 
C)  Inventory levels are seldom affected by changes in sales volume. 
D)  The dividend payout ratio may change from one year to the next.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Thompson Manufacturing Supplies' 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).Thompson 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 Thompson's projected total disbursements for April?

Accepted Answer

A)  $422,918 
B)  $435,686 
C)  $398,833 
D)  $375,655 
A)  $422,918 
B)  $435,686 
C)  $398,833 
D)  $375,655

Question 15

Discretionary financing needs will be higher if ________.Assume "all else equal."

Accepted Answer

A)  the firm's net profit margin increases 
B)  sales decline 
C)  the dividend payout ratio is raised 
D)  excess capacity exists for fixed assets 
A)  the firm's net profit margin increases 
B)  sales decline 
C)  the dividend payout ratio is raised 
D)  excess capacity exists for fixed assets

Question 16

The term "lumpy asset" means

Accepted Answer

A)  the same thing as assets that exhibit scale economies. 
B)  assets that can be purchased in incremental units. 
C)  assets that have economies of scale but not economies of scope. 
D)  assets that must be purchased in discrete quantities. 
A)  the same thing as assets that exhibit scale economies. 
B)  assets that can be purchased in incremental units. 
C)  assets that have economies of scale but not economies of scope. 
D)  assets that must be purchased in discrete quantities.

Question 17

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.

Accepted Answer

A) True 
 B)False

Question 18

Dorian Industries' projected sales for the first six months of 2010 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 28,2010 will be $10,000.Excess cash will be used to retire short-term borrowing (if any).Dorian has no short term borrowing as of February 28,2010.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 Dorian Industries' total cash receipts for April 2010?

Accepted Answer

A)  $340,000 
B)  $326,000 
C)  $302,000 
D)  $300,000 
A)  $340,000 
B)  $326,000 
C)  $302,000 
D)  $300,000

Question 19

Dorian Industries' projected sales for the first six months of 2010 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 28,2010 will be $10,000.Excess cash will be used to retire short-term borrowing (if any).Dorian has no short term borrowing as of February 28,2010.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 Dorian Industries' total disbursement in May?

Accepted Answer

A)  $367,500 
B)  $348,000 
C)  $425,500 
D)  $324,000 
A)  $367,500 
B)  $348,000 
C)  $425,500 
D)  $324,000

Question 20

JD Enterprises presents income statements for the first three months of this year.Revenues are $1,000,000 in January,$1,200,000 in February,and $1,400,000 in March,while expenses total $800,000 in January,$900,000 February,and $1,000,000 in March.Despite the positive net income,the controller believes JD Enterprises needs to arrange short-term financing of $300,000 to make payroll the next month.Which of the following statements is most correct?

Accepted Answer

A)  The controller must have made a mistake since the company's net income for the three months is $900,000. 
B)  The company's accounts receivable balance has decreased over the past three months. 
C)  The company's accounts payable balance has increased over the past three months. 
D)  The company's accounts receivable balance has increased and the accounts payable balance has decreased over the past three months. 
A)  The controller must have made a mistake since the company's net income for the three months is $900,000. 
B)  The company's accounts receivable balance has decreased over the past three months. 
C)  The company's accounts payable balance has increased over the past three months. 
D)  The company's accounts receivable balance has increased and the accounts payable balance has decreased over the past three months.

When forecasting fixed asset requirements,the projected fixed asset balance will

The first step involved in predicting financing needs is

Wilbur and Company reports sales of $20,000,000 and inventory of $4,000,000.Wilbur's inventory possesses significant economies of scale.Therefore,if Wilbur's sales increase by 10%,Wilbur's inventory will and if Wilbur's sales decrease by 10%,Wilbur's inventory will .

XDR Corp.is expecting a 10% increase in sales next year.XDR 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?

A discretionary form of financing would be

The cash budget represents a detailed plan of future cash flows.

The percent of sales method can be used to forecast

A budget is a forecast of future events.

Which of the following is a limitation of the "percent of sales method" of preparing pro forma financial statements?

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

Discretionary financing needs will be higher if ________.Assume "all else equal."

The term "lumpy asset" means

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.

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

Current Asset Management

International Business Finance

Filters

Exam 14: Short-Term Financial Planning

When forecasting fixed asset requirements,the projected fixed asset balance will

The first step involved in predicting financing needs is

Wilbur and Company reports sales of $20,000,000 and inventory of $4,000,000.Wilbur's inventory possesses significant economies of scale.Therefore,if Wilbur's sales increase by 10%,Wilbur's inventory will ________ and if Wilbur's sales decrease by 10%,Wilbur's inventory will ________.

XDR Corp.is expecting a 10% increase in sales next year.XDR 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?

A discretionary form of financing would be

The cash budget represents a detailed plan of future cash flows.

The percent of sales method can be used to forecast

A budget is a forecast of future events.

Which of the following is a limitation of the "percent of sales method" of preparing pro forma financial statements?

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

Discretionary financing needs will be higher if ________.Assume "all else equal."

The term "lumpy asset" means

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.

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

Current Asset Management

International Business Finance

Filters

Wilbur and Company reports sales of $20,000,000 and inventory of $4,000,000.Wilbur's inventory possesses significant economies of scale.Therefore,if Wilbur's sales increase by 10%,Wilbur's inventory will and if Wilbur's sales decrease by 10%,Wilbur's inventory will .