Question 1

Assume all else remains the same.Which of the following statements is true?

Accepted Answer

A) The lower the dividend payout,the less a firm will have to reinvest. 
B) The higher the dividend payout,the more discretionary financing a firm will require. 
C) The lower the dividend payout,the more discretionary financing a firm will require. 
D) The higher the dividend payout,the higher the retention percentage. 
A) The lower the dividend payout,the less a firm will have to reinvest. 
B) The higher the dividend payout,the more discretionary financing a firm will require. 
C) The lower the dividend payout,the more discretionary financing a firm will require. 
D) The higher the dividend payout,the higher the retention percentage.

Question 2

Because accounts payable and accrued expenses increase with sales,they represent sources of spontaneous financing.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Use the following information and the percent-of-sales method to answer the following question(s).
Below is the 2004 year-end balance sheet for Banner,Inc.Sales for 2004 were $1,600,000 and are expected to be $2,000,000 during 2005.In addition,we know that Banner plans to pay $90,000 in 2005 dividends and expects projected net income of 4% of sales.(For consistency with the Answer selections provided,round your forecast percentages to two decimals. )
  
-Banner's projected accrued expenses for 2005 are:

Accepted Answer

A) $120,000. 
B) $160,000. 
C) $100,000. 
D) $200,000. 
A) $120,000. 
B) $160,000. 
C) $100,000. 
D) $200,000.

Question 5

Because financial planning usually takes place in a highly uncertain environment,

Accepted Answer

A) it is rarely worth the time and expense. 
B) time horizons should be limited to a few months. 
C) it is important to develop contingency plans to respond to unexpected events. 
D) it should avoid such specific issues as what sources of financing to use. 
A) it is rarely worth the time and expense. 
B) time horizons should be limited to a few months. 
C) it is important to develop contingency plans to respond to unexpected events. 
D) it should avoid such specific issues as what sources of financing to use.

Question 6

Broad Cloth,Inc.'s average collection period is 15 days.The vice-president of marketing has projected credit sales of $2.million for October,$2.5 million for November and $3 million for December.Compute cash collections for November and December.Assume that all months have 30 days.

Accepted Answer

November collections = last 50% of Octob

Question 7

Assume that Calamar Corp.has sales of $7.5 million and accounts payable of $450,000.The corporation utilizes the percent-of-sales method of financial forecasting.If Calamar is expected to generate sales of $9 million next year,what will the firm's accounts payable be?

Accepted Answer

A) $540,000 
B) $450,000 
C) $405,000 
D) None of the above 
A) $540,000 
B) $450,000 
C) $405,000 
D) None of the above

Question 8

A discretionary form of financing would be:

Accepted Answer

A) notes payable. 
B) accounts payable. 
C) accrued expenses. 
D) none of the above. 
A) notes payable. 
B) accounts payable. 
C) accrued expenses. 
D) none of the above.

Question 9

The percent-of-sales method is a commonly used method for estimating a firm's financing needs.

Accepted Answer

A) True 
 B)False

Question 10

Frog Hollow Bakery is a new firm specializing in all-natural-ingredient pastry products.In attempting to determine what the financial position of the firm should be,the financial manager obtained the following average ratios for the baking industry for 2004:
Common equity to total assets = 60%
Total asset turnover = 3 times
Long-term debt to total capitalization = 25%
Current ratio = 1.2
Quick ratio = .75
Average collection period (360-day year)= 10 days
Complete the accompanying pro forma balance sheet for Frog Hollow Bakery assuming 2005 sales (all credit)are $450,000.

Accepted Answer

The answer of Frog Hollow Bakery is a new firm...

Question 11

40% of sales is collected in the month of the sale,50% is collected in the month following the sale,and 10% is written off as uncollectible.Cost of goods sold is 70% of sales.Purchases are made the month prior to the sale and are paid during the month the purchases are made (i.e.goods sold in March are bought and paid for in February).Total other cash expenses are $50,000/month.The company's cash balance as of February 1,2004 will be $40,000.Excess cash will be used to retire short-term borrowing (if any).Thompson has no short-term borrowing as of February 28,2004.Assume that the interest rate on short-term borrowing is 1% per month.The company must have a minimum cash balance of $25,000 at the beginning of each month.Round all answers to the nearest $100.
-Based on the information in Table 3,what is Thompson's projected cumulative borrowing as of March 1,2004?

Accepted Answer

A) $85,000 
B) $45,000 
C) $70,000 
D) - 0 - 
A) $85,000 
B) $45,000 
C) $70,000 
D) - 0 -

Question 12

25% of sales is collected in cash at the time of the sale,50% is collected in the month following the sale,and the remaining 25% is collected in the second month following the sale.Cost of goods sold is 75% of sales.Purchases are made in the month prior to the sale,and payments for purchases are made in the month of the sale.Total other cash expenses are $60,000/month.The company's cash balance as of February 28,2004 will be $40,000.Excess cash will be used to retire short-term borrowing (if any).Dorian has no short-term borrowing as of February 28,2004.Assume that the interest rate on short-term borrowing is 1% per month.The company must have a minimum cash balance of $25,000 at the beginning of each month.Round all answers to the nearest $100.
-Based on the information in Table 1,what is Dorian Industries' ending cash balance (before borrowing)in March?

Accepted Answer

A) $10,000 
B) $25,000 
C) $20,000 
D) ($30,000) 
A) $10,000 
B) $25,000 
C) $20,000 
D) ($30,000)

Question 13

Assume that Hercules Manufacturing has sales of $25 million and current assets of $5 million.The corporation utilizes the percent-of-sales method of financial forecasting.If Hercules is expected to generate sales of $31 million next year,what will the firm's investment in current assets be?

Accepted Answer

A) $8.3 million 
B) $4.0 million 
C) $6.2 million 
D) $5.0 million 
E) None of the above 
A) $8.3 million 
B) $4.0 million 
C) $6.2 million 
D) $5.0 million 
E) None of the above

Question 14

The preparation of a cash budget serves which of the following purposes?

Accepted Answer

A) To estimate the amount and timing of cash flows that are needed in order to optimize the price of the firm's common stock 
B) To calculate the amount of future cash flows that would be needed in order to achieve the optimal level of financing during the forecast period 
C) To determine the amount and timing of short-term financing that would be required for the operation of a business during the forecast period 
D) To estimate the amount of sales volume that would be required in order to achieve the break-even point 
A) To estimate the amount and timing of cash flows that are needed in order to optimize the price of the firm's common stock 
B) To calculate the amount of future cash flows that would be needed in order to achieve the optimal level of financing during the forecast period 
C) To determine the amount and timing of short-term financing that would be required for the operation of a business during the forecast period 
D) To estimate the amount of sales volume that would be required in order to achieve the break-even point

Question 15

Which of the following will reduce the firm's financing requirements?

Accepted Answer

A) The firm operates at full capacity 
B) The firm has excess capacity 
C) The firm expects rapid growth in sales 
D) The firm increases its dividend payout ratio 
A) The firm operates at full capacity 
B) The firm has excess capacity 
C) The firm expects rapid growth in sales 
D) The firm increases its dividend payout ratio

Question 16

The balance sheet of the Jackson Company is presented below:   
For the year ending March 31,2004,Jackson had sales of $35 million.The common stockholders received all net earnings of the firm in the form of cash dividends,leaving no funds from earnings available to the firm for expansion (assume that depreciation expense is just equal to the cost of replacing worn-out assets).
Construct a pro forma balance sheet for March 31,2005 for an expected level of sales of $45 million.Assume current assets and accounts payable vary as a percent of sales,and fixed assets remain at the present level.Use notes payable as a source of discretionary financing.

Accepted Answer

The answer of The balance sheet of the Jackson Company...

Question 17

Which of the following expenses should be included as a cash outlay in the preparation of a cash budget?

Accepted Answer

A) The payment of accounts payable 
B) The payment of depreciation expense 
C) The payment of accrued income taxes 
D) All of the above 
A) The payment of accounts payable 
B) The payment of depreciation expense 
C) The payment of accrued income taxes 
D) All of the above

Question 18

Depreciation expense is a deduction from cash flow in the cash budget.

Accepted Answer

A) True 
 B)False

Question 19

25% of sales is collected in cash at the time of the sale,50% is collected in the month following the sale,and the remaining 25% is collected in the second month following the sale.Cost of goods sold is 75% of sales.Purchases are made in the month prior to the sale,and payments for purchases are made in the month of the sale.Total other cash expenses are $60,000/month.The company's cash balance as of February 28,2004 will be $40,000.Excess cash will be used to retire short-term borrowing (if any).Dorian has no short-term borrowing as of February 28,2004.Assume that the interest rate on short-term borrowing is 1% per month.The company must have a minimum cash balance of $25,000 at the beginning of each month.Round all answers to the nearest $100.
-Based on the information in Table 1,what are Dorian Industries' total cash receipts (collections)for April 2004?

Accepted Answer

A) $400,000 
B) $300,000 
C) $100,000 
D) ($60,000) 
A) $400,000 
B) $300,000 
C) $100,000 
D) ($60,000)

Question 20

Use the following information and the percent-of-sales method to answer the following question(s).
Below is the 2004 year-end balance sheet for Banner,Inc.Sales for 2004 were $1,600,000 and are expected to be $2,000,000 during 2005.In addition,we know that Banner plans to pay $90,000 in 2005 dividends and expects projected net income of 4% of sales.(For consistency with the Answer selections provided,round your forecast percentages to two decimals. )
  
-Banner's projected discretionary financing needed for 2005 is:

Accepted Answer

A) $420,000. 
B) $440,000. 
C) $360,000. 
D) $370,000. 
A) $420,000. 
B) $440,000. 
C) $360,000. 
D) $370,000.

Assume all else remains the same.Which of the following statements is true?

Because accounts payable and accrued expenses increase with sales,they represent sources of spontaneous financing.

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

Because financial planning usually takes place in a highly uncertain environment,

Broad Cloth,Inc.'s average collection period is 15 days.The vice-president of marketing has projected credit sales of $2.million for October,$2.5 million for November and $3 million for December.Compute cash collections for November and December.Assume that all months have 30 days.

Assume that Calamar Corp.has sales of $7.5 million and accounts payable of $450,000.The corporation utilizes the percent-of-sales method of financial forecasting.If Calamar is expected to generate sales of $9 million next year,what will the firm's accounts payable be?

A discretionary form of financing would be:

The percent-of-sales method is a commonly used method for estimating a firm's financing needs.

Assume that Hercules Manufacturing has sales of $25 million and current assets of $5 million.The corporation utilizes the percent-of-sales method of financial forecasting.If Hercules is expected to generate sales of $31 million next year,what will the firm's investment in current assets be?

The preparation of a cash budget serves which of the following purposes?

Which of the following will reduce the firm's financing requirements?

Which of the following expenses should be included as a cash outlay in the preparation of a cash budget?

Depreciation expense is a deduction from cash flow in the cash budget.

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Working Capital Management

International Business Finance

Corporate Risk Management

Filters

Exam 17: Financial Forecasting and Planning

Assume all else remains the same.Which of the following statements is true?

Because accounts payable and accrued expenses increase with sales,they represent sources of spontaneous financing.

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

Because financial planning usually takes place in a highly uncertain environment,

Broad Cloth,Inc.'s average collection period is 15 days.The vice-president of marketing has projected credit sales of $2.million for October,$2.5 million for November and $3 million for December.Compute cash collections for November and December.Assume that all months have 30 days.

Assume that Calamar Corp.has sales of $7.5 million and accounts payable of $450,000.The corporation utilizes the percent-of-sales method of financial forecasting.If Calamar is expected to generate sales of $9 million next year,what will the firm's accounts payable be?

A discretionary form of financing would be:

The percent-of-sales method is a commonly used method for estimating a firm's financing needs.

Assume that Hercules Manufacturing has sales of $25 million and current assets of $5 million.The corporation utilizes the percent-of-sales method of financial forecasting.If Hercules is expected to generate sales of $31 million next year,what will the firm's investment in current assets be?

The preparation of a cash budget serves which of the following purposes?

Which of the following will reduce the firm's financing requirements?

Which of the following expenses should be included as a cash outlay in the preparation of a cash budget?

Depreciation expense is a deduction from cash flow in the cash budget.

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Working Capital Management

International Business Finance

Corporate Risk Management

Filters