Exam 4: Cash Flow and Financial Planning

NICO Corporation had net fixed assets of $2,000,000 at the end of 2015 and $1,800,000 at the end of 2014. In addition, the firm had a depreciation expense of $200,000 during 2015 and $180,000 during 2014. Using this information, NICO's net fixed asset investment for 2015 was ________.

In the statement of cash flows, retained earnings are handled through the adjustment of ________.

________ consider proposed fixed-asset outlays, research and development activities, marketing and product development actions, capital structure, and major sources of financing.

Harry's House of Hamburgers (HHH) wants to prepare a cash budget for months of September through December. Using the following information, prepare the cash budget schedule and interpret the results. ∙ Sales were $50,000 in June and $60,000 in July. Sales have been forecasted to be $65,000, $72,000, $63,000, $59,000, and $56,000 for months of August, September, October, November, and December, respectively. In the past, 10 percent of sales were on cash basis, and the collection were 50 percent in the first month, 30 percent in the second month, and 10 percent in the third month following the sales. ∙ Every four months (three times a year) $500 of dividends from investments are expected. The first dividend payment was received in January. ∙ Purchases are 60 percent of sales, 15 percent of which are paid in cash, 65 percent are paid one month later, and the rest is paid two months after purchase. ∙ $8,000 dividends are paid twice a year (in March and September). ∙ The monthly rent is $2,000. ∙ Taxes are $6,500 payable in December. ∙ A new hamburger press will be purchased in October for $2,300. ∙ $1,500 interest will be paid in November. ∙ $1,000 loan payments are paid every month. ∙ Wages and salaries are $1,000 plus 5 percent of sales in each month. ∙ August's ending cash balance is $3,000. ∙ HHH would like to maintain a minimum cash balance of $10,000.

In the development of pro forma statements, a firm that requires external funds means that its projected level of cash is in excess of its needs and that funds would therefore be available for repaying debt, repurchasing stock, or increasing the dividend to stockholders.

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 net cash flow for February is ________. (See Table 4.3)

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 March is ________. (See Table 4.3)

In preparing a cash budget, the ________ seasonal and uncertain a firm's cash flows, the ________ the number of budgeting intervals it should use.

In general, ________.

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 financing required in 2015 will be ________. (See Table 4.5)

In cash budgeting, the impact of depreciation is reflected in a reduction in tax payments.

A corporation ________.

In the preparation of a quarterly cash budget, the following revenue and cost information have been compiled. Prepare and evaluate a cash budget for the months of October, November, and December based on the information shown below. ∙ The firm collects 60 percent of sales for cash and 40 percent of its sales one month later. ∙ Interest income of $50,000 on marketable securities will be received in December. ∙ The firm pays cash for 40 percent of its purchases. ∙ The firm pays for 60 percent of its purchases the following month. ∙ Salaries and wages amount to 15 percent of the preceding month's sales. ∙ Sales commissions amount to 2 percent of the preceding month's sales. ∙ Lease payments of $100,000 must be made each month. ∙ A principal and interest payment on an outstanding loan is due in December of $150,000. ∙ The firm pays dividends of $50,000 at the end of the quarter. ∙ Fixed assets costing $600,000 will be purchased in December. ∙ Depreciation expense each month of $45,000. ∙ The firm has a beginning cash balance in October of $100,000 and maintains a minimum cash balance of $200,000.

In April, a firm had an ending cash balance of $35,000. In May, the firm had total cash receipts of $40,000 and total cash disbursements of $50,000. The minimum cash balance required by the firm is $25,000. At the end of May, the firm had ________.

NICO Corporation had net current assets of $2,000,000 at the end of 2015 and $1,800,000 at the end of 2014. In addition, NICO had net spontaneous current liabilities of $1,000,000 in 2015 and $1,500,000 in 2014. Using this information, NICO's net current asset investment for 2014 was ________.

One way a firm can reduce the amount of cash it needs in any month is to ________.

A firm's net cash flow is the mathematical difference between the firm's beginning cash and its cash disbursements in each period.

The best way to adjust for the presence of fixed costs when using the simplified approach for pro forma income statement preparation is ________.

Table 4.1 True Sandpaper Co. Balance Sheets For the Years Ended 2014 and 2015 -Common stock dividends paid in 2015 amounted to ________. (See Table 4.1)

Given a financial manager's preference for faster receipt of cash flows, ________.