Exam 4: Cash Flow and Financial Planning

Given the financial data for New Electronic World, Inc. (NEW), compute the following measures of cash flows for the NEW for the year ended December 31, 2015. (a) Operating cash flow (b) Free cash flow For the year ended December 31,

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 firm has a negative net cash flow in the month(s) of ________. (See Table 4.3)

The required total financing figures in the cash budget refer to the monthly changes in borrowing.

Generally, firms that are subject to high degrees of operating uncertainty, relatively short production cycles, or both, tend to use shorter planning horizons.

A firm has actual sales in November of $1,000 and projected sales in December and January of $3,000 and $4,000, respectively. The firm makes 10 percent of its sales for cash, collects 40 percent of its sales one month following the sale, and collects the balance two months following the sale. The firm's total cash receipts in November is ________.

A firm's operating cash flow (OCF) is defined as ________.

The percentage-of-sales method of preparing pro forma income statements assumes that ________.

A firm plans to depreciate a five year asset in the next planning period. The statements that will be directly affected are the ________.

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 cost of goods sold for 2015 is ________. (See Table 4.4)

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 firm has a total financing requirement of ________ for the period from February through May. (See Table 4.3)

Under MACRS, an asset which originally cost $100,000 is being depreciated using a 10-year normal recovery period. The depreciation expense in year 5 is ________.

Development of pro forma financial statements helps a financial manager to project the amount of external financing required to support a given level of sales as well as overall financial performance of the firm in the coming year.

Which of the following represents a way of coping with uncertainty in a cash budget?

Table 4.5 A financial manager at General Talc Mines has gathered the financial data essential to prepare a pro forma balance sheet for cash and profit planning purposes for the coming year ended December 31, 2015. Using the percent-of-sales method and the following financial data, prepare the pro forma balance sheet in order to answer the following multiple choice questions. (a) The firm estimates sales of $1,000,000. (b) The firm maintains a cash balance of $25,000. (c) Accounts receivable represents 15 percent of sales. (d) Inventory represents 35 percent of sales. (e) A new piece of mining equipment costing $150,000 will be purchased in 2010. Total depreciation for 2010 will be $75,000. (f) Accounts payable represents 10 percent of sales. (g) There will be no change in notes payable, accruals, and common stock. (h) The firm plans to retire a long term note of $100,000. (i) Dividends of $45,000 will be paid in 2015. (j) The firm predicts a 4 percent net profit margin. Balance Sheet General Talc Mines December 31, 2014 -The pro forma accumulated retained earnings amount is ________. (See Table 4.5)

The financial planning process begins with ________ financial plans that in turn guide the formation of ________ plans and budgets.

Short-term financial plans and long-term financial plans generally cover periods ranging from ________ years and ________ years, respectively.

For the year ended December 31, 2014, a corporation had cash flow from operating activities of $20,000, cash flow from investment activities of -$15,000, and cash flow from financing activities of -$10,000. The statement of cash flows would show a ________.

Calculate a firm's free cash flow if it has net operating profit after taxes of $60,000, depreciation expense of $10,000, net fixed asset investment requirement of $40,000, a net current asset requirement of $30,000 and a tax rate of 30%.

Cash flows that result from debt and equity financing transactions, including incurrence and repayment of debt, cash inflows from the sale of stock, and cash outflows to pay cash dividends or repurchase stock are called cash flow from ________.

The ________ is a financial projection of a firm's short-term cash surpluses or shortages.