Exam 14: Short-Term Financial Planning

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.

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

The key ingredient in a firm's financial planning is an accurate sales forecast.

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 was Fielding's projected loss for March?

A firm's cash position would most likely be helped by

Pro forma financial statements depict the end result of the planning period's operations.

Which of the following will most likely result in an increase in discretionary funding needed?

Monthly cash receipts in the cash budget are typically made up of cash sales during the month and collections from credit sales from prior months.

A firm's cash position would most likely be hurt by

Discretionary financing needed can be positive or zero,but not negative.

Mercer,Inc.had the following sales for the past six months.Mercer collects its credit sales 30% in the month of sale,60% one month after the sale,and 10% two months after the sale. What are Mercer's total cash receipts for the month of April?

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

All of the following are found in the cash budget except:

The treasurer for Chic Man Clothing must decide how much money the company needs to borrow in July.The balance sheet for June 30,2010 is presented below: Chic Man Clothing Balance Sheet June 30,2010 The company expects sales of $400,000 for July.The company has observed that 25% of its sales is for cash and that the remaining 75% is collected in the following month.The company plans to purchase $345,000 of new clothing.Usually 70% of purchases is for cash and the remaining 30% of purchases is paid in the following month.Salaries are $135,000 per month,lease payments are $35,000 per month,and depreciation charges are $20,000 per month.The company plans to purchase a new van for $60,000 in July and sell its marketable securities for $123,000.If the company must maintain a minimum cash balance of $25,000,how much money must the company borrow in July?

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

What differentiates "discretionary financing needs" from "external financing needs? "

Buster Enterprises' projected sales for the first six months of 2010 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 28,2010 will be $25,000.Excess cash will be used to retire short-term borrowing (if any).Buster Enterprises 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 $15,000 at the beginning of each month.What is Buster Enterprises' projected cash balance at the end of March 2010?

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

Notes payable and bonds payable are spontaneous liabilities.

Buster Enterprises' projected sales for the first six months of 2010 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 28,2010 will be $25,000.Excess cash will be used to retire short-term borrowing (if any).Buster Enterprises 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 $15,000 at the beginning of each month..What is Buster Enterprises' earnings before interest and taxes for April 2010?