Question 1

In order to reduce discretionary financing needed,a profitable company could decrease its dividend payout ratio.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following items does not belong in a cash budget?

Accepted Answer

A)  Rent 
B)  Taxes 
C)  Depreciation 
D)  Wages and salaries 
A)  Rent 
B)  Taxes 
C)  Depreciation 
D)  Wages and salaries

Question 3

The annual cash budget not only shows the amount of financing needed for the year,but also when the funds will be needed.

Accepted Answer

A) True 
 B)False

Question 4

The cash budget consists of all the following factors except:

Accepted Answer

A)  cash receipts. 
B)  cash disbursements. 
C)  new financing needed. 
D)  net income. 
A)  cash receipts. 
B)  cash disbursements. 
C)  new financing needed. 
D)  net income.

Question 5

The forecasted retained earnings balance is equal to (current retained earnings/current sales)times projected sales for next year.

Accepted Answer

A) True 
 B)False

Question 6

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 7

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 8

At a minimum,the sales forecast for the coming year would reflect

Accepted Answer

A)  any future trend in sales that is expected to begin in the new year. 
B)  the influence of any anticipated events that might materially affect the sales trend. 
C)  both of the above are correct. 
D)  neither of the above are correct. 
A)  any future trend in sales that is expected to begin in the new year. 
B)  the influence of any anticipated events that might materially affect the sales trend. 
C)  both of the above are correct. 
D)  neither of the above are correct.

Question 9

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 10

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

Accepted Answer

A) True 
 B)False

Question 11

Twine Enterprises reported sales of $3 million and net income of $400,000 for 2010.The retained earnings balance at the end of 2010 is $7 million.Twine Enterprises has a dividend payout ratio of 30%.If sales are expected to increase by 25% next year,what will be the projected balance in retained earnings using the percent of sales method?

Accepted Answer

A)  $7,280,000 
B)  $6,720,000 
C)  $7,350,000 
D)  $8,750,000 
A)  $7,280,000 
B)  $6,720,000 
C)  $7,350,000 
D)  $8,750,000

Question 12

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 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 13

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 gross profit for April?

Accepted Answer

A)  ($50,000) 
B)  $70,000 
C)  $100,000 
D)  $110,550 
A)  ($50,000) 
B)  $70,000 
C)  $100,000 
D)  $110,550

Question 14

Corporation A 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

Accepted Answer

A)  economies of scale. 
B)  lumpy assets. 
C)  spontaneous financing. 
D)  discretionary financing. 
A)  economies of scale. 
B)  lumpy assets. 
C)  spontaneous financing. 
D)  discretionary financing.

Question 15

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

Accepted Answer

A)  income taxes 
B)  salaries 
C)  depreciation 
D)  none of the above 
A)  income taxes 
B)  salaries 
C)  depreciation 
D)  none of the above

Question 16

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 17

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.Dorian's projected cumulative short-term borrowing as of April 30,2010?

Accepted Answer

A)  $25,000 
B)  $33,000 
C)  $50,000 
D)  $60,000 
A)  $25,000 
B)  $33,000 
C)  $50,000 
D)  $60,000

Question 18

All of the following will increase the discretionary financing needed except:

Accepted Answer

A)  decrease the net profit margin. 
B)  decrease the dividend payout ratio. 
C)  decrease the sales growth rate. 
D)  decrease the spontaneous financing. 
A)  decrease the net profit margin. 
B)  decrease the dividend payout ratio. 
C)  decrease the sales growth rate. 
D)  decrease the spontaneous financing.

Question 19

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.

Accepted Answer

Parker Processed Mea

Question 20

Which of the following is a spontaneous source of financing?

Accepted Answer

A)  accrued expenses 
B)  notes payable 
C)  common stock 
D)  paid-in-capital 
A)  accrued expenses 
B)  notes payable 
C)  common stock 
D)  paid-in-capital

In order to reduce discretionary financing needed,a profitable company could decrease its dividend payout ratio.

Which of the following items does not belong in a cash budget?

The annual cash budget not only shows the amount of financing needed for the year,but also when the funds will be needed.

The cash budget consists of all the following factors except:

The forecasted retained earnings balance is equal to (current retained earnings/current sales)times projected sales for next year.

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

At a minimum,the sales forecast for the coming year would reflect

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

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

Corporation A 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

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

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

All of the following will increase the discretionary financing needed except:

Which of the following is a spontaneous source of financing?

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

In order to reduce discretionary financing needed,a profitable company could decrease its dividend payout ratio.

Which of the following items does not belong in a cash budget?

The annual cash budget not only shows the amount of financing needed for the year,but also when the funds will be needed.

The cash budget consists of all the following factors except:

The forecasted retained earnings balance is equal to (current retained earnings/current sales)times projected sales for next year.

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

At a minimum,the sales forecast for the coming year would reflect

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

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

Corporation A 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

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

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

All of the following will increase the discretionary financing needed except:

Which of the following is a spontaneous source of financing?

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