Hiruit company's sales in December were $5,500. They expect sales to increase 10% in January and February and 15% in March. All of its sales are made on credit. The typical collection pattern is: \[\begin{array} { | l | c | } \hline \text { Collections } & \text { Percentage of total receivables } \\ \hline \text { In month of sale } & 10 \% \\ \hline \text { In second month } & 70 \% \\ \hline \text { In third month } & 15 \% \\ \hline \text { Not collectible } & 5 \% \\ \hline \end{array}\] Gross margin is 30%. Inventory levels at the end of December are $900 and are expected to grow at the same rate as sales. Purchases are paid for the month after they are made. Net accounts receivable at the end of December are $400. -In March Hiruit should collect how much cash from sales made in March and previous months:

A) $7,653.25 B) $7,342.5 C) $7,030.1 D) $6,331.3 A) $7,653.25 B) $7,342.5 C) $7,030.1 D) $6,331.3

Hiruit company's sales in December were $5,500. They expect sales to increase 10% in January and February and 15% in March. All of its sales are made on credit. The typical collection pattern is: \[\begin{array} { | l | c | } \hline \text { Collections } & \text { Percentage of total receivables } \\ \hline \text { In month of sale } & 10 \% \\ \hline \text { In second month } & 70 \% \\ \hline \text { In third month } & 15 \% \\ \hline \text { Not collectible } & 5 \% \\ \hline \end{array}\] Gross margin is 30%. Inventory levels at the end of December are $900 and are expected to grow at the same rate as sales. Purchases are paid for the month after they are made. Net accounts receivable at the end of December are $400. -What is the anticipated inventory level at the end of March?

A) $1,252.35 B) $1,197.9 C) $1,089 D) $900 A) $1,252.35 B) $1,197.9 C) $1,089 D) $900

The statement of cash flows for Georgey Company for 2004 and 2005 is as follows: \[\begin{array} { | l | c | c | } \hline & \mathbf { 2 0 0 4 } & \mathbf { 2 0 0 5 } \\ \hline \text { Net income } & \$ 189 & \$ 170 \\ \hline \begin{array} { l } \text { Adjustments to reconcile net } \\ \text { income to net cash provided by } \\ \text { operating activities: } \end{array} & & \\ \hline \text { Depreciation and amortization } & 201 & 173 \\ \hline \text { Deferred income taxes } & 14 & ( 20 ) \\ \hline \text { Restructuring charges } & 80 & 90 \\ \hline \text { Accounts receivable } & 30 & 20 \\ \hline \text { Inventory } & ( 30 ) & 50 \\ \hline \text { Current liabilities } & 10 & 30 \\ \hline \text { Cash flow from operations } & 494 & 513 \\ \hline & & \\ \text { Sale of equipment } & 200 & 300 \\ \hline \text { Purchase of equipment } & ( 130 ) & ( 120 ) \\ \hline \text { Cash flow from investing } & 70 & 180 \\ \hline & & \\ \text { Dividends } & ( 120 ) & ( 130 ) \\ \hline \text { Long-term debt } & ( 440 ) & ( 440 ) \\ \hline \text { Cash flow from financing } & ( 560 ) & ( 570 ) \\ \hline \end{array}\] -Which of the following statements is correct?

A) Inventory was a source of cash for Georgey in 2005 B) Current liabilities increased in 2005 C) Georgey has a net outflow of cash in 2005 D) Restructuring charges were a source of cash for Georgey in 2004 A) Inventory was a source of cash for Georgey in 2005 B) Current liabilities increased in 2005 C) Georgey has a net outflow of cash in 2005 D) Restructuring charges were a source of cash for Georgey in 2004

Exam 9: Prospective Analysis

Gupta Corporation has forecasted its need for external funding in the following year. It needs to raise $2M in either debt or equity. It would like to minimize its need for external funding without decreasing its projected growth. Which of the following would reduce its need for additional funding?

(Multiple Choice)

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(86)

Question 41

When preparing a projected income statement, which of the following additional information, other then the financial statements would probably not be relevant?

(Multiple Choice)

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(76)

Question 42

Which of the following statements is most correct?

(Multiple Choice)

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(61)

Question 43

The accuracy of a cash flow forecast is inversely related to the forecast horizon.

(True/False)

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Question 44

The reasonableness and feasibility of short-term cash forecasts can be evaluated by preparing

(Multiple Choice)

4.9/5

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Question 45

Which of the following would be considered the most discretionary of the following cash outflows?

(Multiple Choice)

4.9/5

(76)

Question 46

You have just prepared pro forma income statements and balance sheets for your company for the next three years. Describe three procedures you might perform to check the reasonableness of your projections, explaining how and why they are reasonableness checks.

(Essay)

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(75)

Question 47

What is the correct order of the following steps in preparing a projected income statement (not all steps may be shown)? I. Project future net sales II. Project future net income III. Project future cost of goods sold IV. Project future interest expense

(Multiple Choice)

4.8/5

(93)

Question 48

Hiruit company's sales in December were $5,500. They expect sales to increase 10% in January and February and 15% in March. All of its sales are made on credit. The typical collection pattern is: Collections Percentage of total receivables In month of sale 10\% In second month 70\% In third month 15\% Not collectible 5\% Gross margin is 30%. Inventory levels at the end of December are $900 and are expected to grow at the same rate as sales. Purchases are paid for the month after they are made. Net accounts receivable at the end of December are $400. -In March Hiruit should collect how much cash from sales made in March and previous months:

(Multiple Choice)

4.9/5

(80)

Question 49

If a company has the necessary cash available, it almost always makes economic sense to take a purchase discount offered by suppliers.

(True/False)

4.7/5

(75)

Question 50

You construct a pro forma income statement and balance sheet in order to estimate the amount a company needs to borrow in the forthcoming period. If assets are greater than liabilities plus equity this means the company needs to borrow money.

(True/False)

4.9/5

(64)

Question 51

Which of the following actions, all other things being equal, will increase the need for a company to borrow money in the short-term? I. Extending more credit to customers II. Increasing inventory turnover III. Expensing advertising expenses rather than capitalizing them IV. Contributing more to pension plan

(Multiple Choice)

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(81)

Question 52

In the residual income model, ROE is considered a value driver because it is a component of stock price.

(True/False)

4.8/5

(76)

Question 53

Free cash flow in a given year is a better indicator of profitability than earnings.

(True/False)

4.9/5

(88)

Question 54

Hiruit company's sales in December were $5,500. They expect sales to increase 10% in January and February and 15% in March. All of its sales are made on credit. The typical collection pattern is: Collections Percentage of total receivables In month of sale 10\% In second month 70\% In third month 15\% Not collectible 5\% Gross margin is 30%. Inventory levels at the end of December are $900 and are expected to grow at the same rate as sales. Purchases are paid for the month after they are made. Net accounts receivable at the end of December are $400. -What is the anticipated inventory level at the end of March?

(Multiple Choice)

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(85)

Question 55

The major source of cash for most mature companies is debt.

(True/False)

4.9/5

(75)

Question 56

The reliability of a short-term cash forecast depends most heavily on the quality of:

(Multiple Choice)

4.8/5

(80)

Question 57

It is possible for a profitable company to go out of business because of severe short-term liquidity problems.

(True/False)

4.8/5

(87)

Question 58

The statement of cash flows for Georgey Company for 2004 and 2005 is as follows: Net income \ 189 \ 170 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 201 173 Deferred income taxes 14 (20) Restructuring charges 80 90 Accounts receivable 30 20 Inventory (30) 50 Current liabilities 10 30 Cash flow from operations 494 513 Sale of equipment 200 300 Purchase of equipment (130) (120) Cash flow from investing 70 180 Dividends (120) (130) Long-term debt (440) (440) Cash flow from financing (560) (570) -Which of the following statements is correct?

(Multiple Choice)

5.0/5

(77)

Question 59

Cyclical companies often like to retain extra cash/marketable securities during the "good" times in order to ensure that they have sufficient liquidity when the inevitable downturn in the business cycle arrives.

(True/False)

4.8/5

(78)

Question 60

Gupta Corporation has forecasted its need for external funding in the following year. It needs to raise $2M in either debt or equity. It would like to minimize its need for external funding without decreasing its projected growth. Which of the following would reduce its need for additional funding?

When preparing a projected income statement, which of the following additional information, other then the financial statements would probably not be relevant?

Which of the following statements is most correct?

The accuracy of a cash flow forecast is inversely related to the forecast horizon.

The reasonableness and feasibility of short-term cash forecasts can be evaluated by preparing

Which of the following would be considered the most discretionary of the following cash outflows?

You have just prepared pro forma income statements and balance sheets for your company for the next three years. Describe three procedures you might perform to check the reasonableness of your projections, explaining how and why they are reasonableness checks.

What is the correct order of the following steps in preparing a projected income statement (not all steps may be shown)? I. Project future net sales II. Project future net income III. Project future cost of goods sold IV. Project future interest expense

If a company has the necessary cash available, it almost always makes economic sense to take a purchase discount offered by suppliers.

You construct a pro forma income statement and balance sheet in order to estimate the amount a company needs to borrow in the forthcoming period. If assets are greater than liabilities plus equity this means the company needs to borrow money.

In the residual income model, ROE is considered a value driver because it is a component of stock price.

Free cash flow in a given year is a better indicator of profitability than earnings.

The major source of cash for most mature companies is debt.

The reliability of a short-term cash forecast depends most heavily on the quality of:

It is possible for a profitable company to go out of business because of severe short-term liquidity problems.

Cyclical companies often like to retain extra cash/marketable securities during the "good" times in order to ensure that they have sufficient liquidity when the inevitable downturn in the business cycle arrives.

Overview of Financial Statement Analysis

Financial Reporting and Analysis

Analyzing Financing Activities

Analyzing Investing Activities

Analyzing Investing Activities: Intercorporate Investments

Analyzing Operating Activities

Cash Flow Analysis

Return on Invested Capital and Profitability Analysis

Credit Analysis

Equity Analysis and Valuation

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