Question 1

Discretionary financing accounts include all of the following except:

Accepted Answer

A)  Long-term Debt. 
B)  Notes Payable. 
C)  Accrued Liabilities. 
D)  Common Stock. 
A)  Long-term Debt. 
B)  Notes Payable. 
C)  Accrued Liabilities. 
D)  Common Stock.

Question 2

Issuing new short-term bonds to finance an expansion is an example of spontaneous financing.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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 5

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 6

One of the virtues of the percent-of-sales method is the precision of the estimate of future financing needs.

Accepted Answer

A) True 
 B)False

Question 7

Discretionary financing needed (DFN)is equal to projected total assets minus projected total liabilities minus projected owners' equity.

Accepted Answer

A) True 
 B)False

Question 8

The "percent of sales method" is a method of preparing pro forma financial statements.All of the following would be examples of how the "percent of sales method" is developed except?

Accepted Answer

A)  Forecast expenses by applying a percent of projected sales, using last year's expenses as a percent of last year's sales. 
B)  Forecast assets by applying a percent of projected sales, using current year's assets as a percent of current year's sales. 
C)  Approximate liabilities by applying a percent of projected sales, using the last five-year average of liabilities as a percent of sales. 
D)  Forecast retained earnings by applying a percent of projected sales, using current year's retained earnings as a percent of current year's sales. 
A)  Forecast expenses by applying a percent of projected sales, using last year's expenses as a percent of last year's sales. 
B)  Forecast assets by applying a percent of projected sales, using current year's assets as a percent of current year's sales. 
C)  Approximate liabilities by applying a percent of projected sales, using the last five-year average of liabilities as a percent of sales. 
D)  Forecast retained earnings by applying a percent of projected sales, using current year's retained earnings as a percent of current year's sales.

Question 9

Use the "percent of sales method" of preparing pro forma financial statements to determine the projection for next year's cost of goods sold.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%.What is the projection for next year's cost of goods sold?

Accepted Answer

A)  $20,481,000 
B)  $21,138,900 
C)  $21,459,200 
D)  $22,786,400 
A)  $20,481,000 
B)  $21,138,900 
C)  $21,459,200 
D)  $22,786,400

Question 10

Cash budgets are completed only on an annual basis because shorter periods of time are too variable and uncertain for meaningful results.

Accepted Answer

A) True 
 B)False

Question 11

The balance sheet for the Long Drive Golf Company on September 30,2010 is presented below:
Long Drive Golf Company Balance Sheet
September 30,2010
   The treasurer of the firm wants to issue $1,200,000 in long-term bonds to be used as follows:
1.$240,000 to reduce accounts payable
2.$192,000 to retire notes payable
3.$128,000 to increase cash on hand
4.$640,000 to increase inventories
a.Assuming that the loan is obtained,construct a pro forma balance sheet for December 31,2010,for Long Drive Golf Company that reflects the use of the funds provided.
b.Was the liquidity of Long Drive Golf Company improved by the loan?

Accepted Answer

Long Drive Golf Co.

Question 12

Other things equal,higher net profit margins mean higher discretionary financing needed.

Accepted Answer

A) True 
 B)False

Question 13

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 14

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 15

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' ending cash balance (before borrowing)in March?

Accepted Answer

A)  $12,000 
B)  $8,000 
C)  $3,000 
D)  ($28,000) 
A)  $12,000 
B)  $8,000 
C)  $3,000 
D)  ($28,000)

Question 16

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 17

Discretionary financing needed must be obtained through additional borrowing because additional equity measured by the increase in retained earnings has already been deducted.

Accepted Answer

A) True 
 B)False

Question 18

The percent of sales method assumes that all assets and all liabilities increase proportionally with sales,but retained earnings does not.

Accepted Answer

A) True 
 B)False

Question 19

Billings Corporation is preparing its financial forecast for next year and its discretionary financing needed is negative.This means that

Accepted Answer

A)  sales growth must be negative. 
B)  the predicted change in total assets must be negative. 
C)  the predicted change in spontaneous liabilities and retained earnings must be greater than the predicted change in total assets. 
D)  the dividend payout ratio must be greater than the predicted growth rate in sales. 
A)  sales growth must be negative. 
B)  the predicted change in total assets must be negative. 
C)  the predicted change in spontaneous liabilities and retained earnings must be greater than the predicted change in total assets. 
D)  the dividend payout ratio must be greater than the predicted growth rate in sales.

Question 20

Accrued expenses represent a spontaneous form of financing.

Accepted Answer

A) True 
 B)False

Discretionary financing accounts include all of the following except:

Issuing new short-term bonds to finance an expansion is an example of spontaneous financing.

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

Spontaneous sources of financing include

A sales forecast for the coming year would reflect

One of the virtues of the percent-of-sales method is the precision of the estimate of future financing needs.

Discretionary financing needed (DFN)is equal to projected total assets minus projected total liabilities minus projected owners' equity.

The "percent of sales method" is a method of preparing pro forma financial statements.All of the following would be examples of how the "percent of sales method" is developed except?

Cash budgets are completed only on an annual basis because shorter periods of time are too variable and uncertain for meaningful results.

Other things equal,higher net profit margins mean higher discretionary financing needed.

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

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

Using the percentage of sales method of forecasting,

Discretionary financing needed must be obtained through additional borrowing because additional equity measured by the increase in retained earnings has already been deducted.

The percent of sales method assumes that all assets and all liabilities increase proportionally with sales,but retained earnings does not.

Billings Corporation is preparing its financial forecast for next year and its discretionary financing needed is negative.This means that

Accrued expenses represent a spontaneous form 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

Discretionary financing accounts include all of the following except:

Issuing new short-term bonds to finance an expansion is an example of spontaneous financing.

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

Spontaneous sources of financing include

A sales forecast for the coming year would reflect

One of the virtues of the percent-of-sales method is the precision of the estimate of future financing needs.

Discretionary financing needed (DFN)is equal to projected total assets minus projected total liabilities minus projected owners' equity.

The "percent of sales method" is a method of preparing pro forma financial statements.All of the following would be examples of how the "percent of sales method" is developed except?

Cash budgets are completed only on an annual basis because shorter periods of time are too variable and uncertain for meaningful results.

Other things equal,higher net profit margins mean higher discretionary financing needed.

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

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

Using the percentage of sales method of forecasting,

Discretionary financing needed must be obtained through additional borrowing because additional equity measured by the increase in retained earnings has already been deducted.

The percent of sales method assumes that all assets and all liabilities increase proportionally with sales,but retained earnings does not.

Billings Corporation is preparing its financial forecast for next year and its discretionary financing needed is negative.This means that

Accrued expenses represent a spontaneous form 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