Exam 4: Financial Planning and Forecasting

One basic weakness of the simplified pro-forma approaches lies in the assumption that the firm's past financial condition is an accurate indicator of its future.

If a firm expects short-term cash surpluses it can plan

Short-run financial plans and long-run financial plans generally cover periods ranging from__________years and__________ years, respectively.

A firm plans to depreciate a five year asset in the next planning period.directly affected immediately are the

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, 2004. 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 2004. Total depreciation for 2004 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 2004. J. The firm predicts a 4 percent net profit margin. Balance Sheet General Talc Mines December 31, 2003 Assets Cash \ 25,000 Accounts receivable 120,000 Inventories 300,000 -\ldots... Total current assets \ 445,000 Net fixed assets \ 500,000 -\ldots... Total assets \9 45,000 Liabilities and stockholders' equity Accounts payable \ 80,000 Notes payable 350,000 Accruals 50,000 -\ldots... Total current liabilities \ 480,000 Long-term debts 150,000 Total liabilities \ 630,000 Stockholders' equity Common stock \ 180,000 Retained earnings 135,000 Total stockholders' equity \ 315,000 Total liabilities and stockholders' equity \ 945,000 -The pro forma total current assets amount is_________

A cash budget is a statement of the firm's planned inflows and outflows of cash that is used to estimate its long-term cash requirement.

The financial planning process begins with___________ financial plans that in turn guide theformation of ___________ plans and budgets.

If the net cash flow is less than the minimum cash balance, financing is required.

Assuming a zero cash balance at the start of January, the cash balance at the end of March is. _____________ Sportif, Inc. Month Sales Disbursements January \ 5,000 \ 6,000 February 6,000 \ 7,000 March 10,000 \ 4,000 April 10,000 \ 5,000 May 10,000 \ 5,000

The inclusion of a monthly depreciation charge for fixed asset usage will increase the net cash flows in that period.

Economists can forecast with accuracy in the short-term; forecasting with accuracy in the long-term is very problematic.

The key aspects of the financial planning process are

A weakness of the percent-of-sales method to preparing a pro forma income statement is

$\text { FIGURE } 4.1$ $\text { Sportif, Inc. }$ Month Sales Disbursements January \ 5,000 \ 6,000 February 6,000 \ 7,000 March 10,000 \ 4,000 April 10,000 \ 5,000 May 10,000 \ 5,000 -The total cash receipts for April are____________

_________consider proposed fixed-asset outlays, research and development activities, marketingand product development actions, and both the mix and major sources of financing.

In a period of rising sales, utilizing past cost and expense ratios (percent-of-sales method) when preparing pro forma financial statements will tend to

The key inputs for preparing pro forma income statements using the simplified approaches are the

If all customers take one month to pay their credit accounts, cash flows from sales in June would be$150,000; May and June sales budgets are $100,000 and $200,000, respectively.

Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31, 2004, for Saw Lumber, Inc. Saw 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 2004. The income statement for the year ended December 31, 2003 is shown below. Income Statement Saw Lumber, Inc. For the Year Ended December 31, 2003 Sales Revenue \ 4,200,000 Less: Cost of goods sold 3,570,000 -\@cdots\@cdots\cdot-\cdot Gross profits \ 630,000 Less: Operating expenses 210,000 -\@cdots\@cdots\cdot-\cdot Operating profits \ 420,000 Less: Interest expense 105,000 -\@cdots-. Net income before taxes \ 315,000 Less: Taxes (40\%) 126,000 -\@cdots-. Net income after taxes \ 189,000 Less: Cash dividends 120,000 -\@cdots-. To: Retained earnings \6 9,000 -The pro forma net income after taxes for 2004 are__________

Once sales are forecasted,__________must be generated to estimate a variety of operating costs.