Exam 4: Cash Flow and Financial Planning

Under the basic MACRS procedures, the depreciable value of an asset is its full cost, including outlays for installation.

Net operating profit after taxes (NOPAT) represents a firm's earnings before interest and after taxes.

Depreciation is considered to be an outflow of cash.

The key input to the short-term financial planning process is ________.

Operating cash flow (OCF) is equal to a firm's net operating profits after taxes minus all non-cash charges.

Table 4.8 Balance Sheet Wirl Wind Company -The Wirl-Wind Company of America is trying to plan for the next year. Using the current income statement and balance sheet given in Table 4.8, and the additional information provided, prepare the company's pro forma statements. ∙ Sales are projected to increase by 15 percent. ∙ Total of $75,000 in dividend will be paid. ∙ A minimum cash balance of $650,000 is desired. ∙ A new asset for $50,000 will be purchased. ∙ Depreciation expense for next year is $50,000. ∙ Marketable securities will remain the same. ∙ Accounts receivable, inventory, accounts payable, notes payable, and accruals will increase by 15 percent. ∙ $30,000 new issue of bond will be sold. ∙ No new stock will be issued.

Using simulations, a firm can determine the amount of financing needed to protect it adequately against a cash shortage.

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 -General Talc Mines may prepare to ________. (See Table 4.5)

Key inputs to short-term financial planning are ________.

During 2015, NICO Corporation had EBIT of $100,000, a change in net fixed assets of $400,000, an increase in net current assets of $100,000, an increase in spontaneous current liabilities of $400,000, a depreciation expense of $50,000, and a tax rate of 30%. Based on this information, NICO's free cash flow is ________.

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 external funds requirement results primarily from ________. (See Table 4.5)

Calculate net operating profit after taxes (NOPAT) if a firm has sales of $1,000,000, operating profit (EBIT) of $100,000, interest expense of $50,000, and a tax rate of 30%.

Non-cash charges are expenses that involve an actual outlay of cash during the period but are not deducted on the income statement.

Under MACRS, an asset which originally cost $100,000 is being depreciated using a 10-year normal recovery period. The depreciation expense in year 11 is ________.

Cash flows directly related to production and sale of a firm's products and services are called ________.

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 total current assets amount is ________. (See Table 4.5)

For firms with high fixed costs, the percent-of-sales approach for preparing a pro forma income statement tends to ________.

Cash flows associated with the purchase and sale of fixed assets and business interests are called cash flow from ________.

Under MACRS, an asset which originally cost $100,000, incurred installation costs of $10,000, and has an estimated salvage value of $25,000, is being depreciated using a 5-year normal recovery period. What is the depreciation expense in year 1?

Of the following components of a cash budget, generally the easiest to estimate would be the ________.