Exam 4: Cash Flow and Financial Planning

The statement of cash flows allows the financial manager and other interested parties to analyze a firm's past and possibly future profitability.

The cash flows from operating activities section of the statement of cash flows includes ________.

Table 4.3 The financial analyst for Sportif, Inc. has compiled sales and disbursement estimates for the coming months of January through May. Historically, 75 percent of sales are for cash with the remaining 25 percent collected in the following month. The ending cash balance in January is $3,000. -The ending cash balance for February is ________. (See Table 4.3)

A cash budget gives the financial manager a clear view of the timing of a firm's expected profitability over a given period.

Once sales are forecasted, ________ must be generated to estimate required raw materials.

Table 4.6 Income Statement Ace Manufacturing, Inc. For the Year Ended December 31, 2015 -Ace Manufacturing, Inc., is preparing pro forma financial statements for 2016. The firm utilized the percent-of-sales method to estimate costs for the next year. Sales in 2015 were $2 million and are expected to increase to $2.4 million in 2016. The firm has a 40 percent tax rate. (a) Given the 2015 income statement in Table 4.6, estimate net profit and retained earnings for 2016. (b) If $200,000 of the cost of goods sold and $40,000 of selling expense are fixed costs; and the interest expense and dividends are not expected to change, what is he dollar effect on net income and retained earnings? What is the significance of this effect?

A weakness of the percent-of-sales method of preparing a pro forma income statement is ________.

If transportation costs were a huge portion of a firm's expenses and the firm expected gas prices to increase greatly in the next year, then in preparing its pro forma income statement the firm should ________.

Operating cash flow (OCF) is calculated by deducting depreciation from net operating profit after taxes.

Business firms are permitted to systematically charge a portion of the market value of fixed assets as depreciation against annual revenues.

As the typical cash budget shows cash flows on a monthly basis, the information provided by the cash budget is adequate for ensuring solvency.

The depreciable value of an asset, under MACRS, is ________.

Table 4.4 Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31, 2015, for Hennesaw Lumber, Inc. Hennesaw Lumber, Inc. estimates that its sales in 2000 will be $4,500,000. Interest expense is to remain unchanged at $105,000 and the firm plans to pay cash dividends of $150,000 during 2015. Hennesaw Lumber, Inc.'s income statement for the year ended December 31, 2014 is shown below. From your preparation of the pro forma income statement, answer the following multiple choice questions. -The pro forma operating expenses for 2015 are ________. (See Table 4.4)

The three categories of a firm's statement of cash flows are ________.

________ are projected financial statements.

A corporation sold a fixed asset for $100,000. This is ________.

A firm plans to retire outstanding bonds in the next planning period. Which of the following gets affected?

An internal sales forecast is based on the relationships that can be observed between a firm's sales and certain key economic indicators such as the gross domestic product, new housing starts, or disposable personal income.

Table 4.4 Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31, 2015, for Hennesaw Lumber, Inc. Hennesaw Lumber, Inc. estimates that its sales in 2000 will be $4,500,000. Interest expense is to remain unchanged at $105,000 and the firm plans to pay cash dividends of $150,000 during 2015. Hennesaw Lumber, Inc.'s income statement for the year ended December 31, 2014 is shown below. From your preparation of the pro forma income statement, answer the following multiple choice questions. -The pro forma net profits after taxes for 2015 are ________. (See Table 4.4)

Utilizing past cost and expense ratios (percent-of-sales method) when preparing pro forma financial statements will tend to ________.