Exam 4: Financial Planning and Forecasting

The number and type of intervals in the cash budget depend on the nature of the business. The more seasonal and uncertain a firm's cash flows, the greater the number of intervals and the shorter the time intervals.

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 operating expenses for 2004 are_____________

The firm's final sales forecast is usually a function of

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 firm has a total financing requirement of_________for the period from January through May. (See Figure 4.1)

Cash dividends declared but not paid would be shown on the cash budget as a cash outflow in the month of declaration.

Utilizing past cost and expense ratios (percent-of-sales method) when preparing pro forma financial statements will tend to

Historically, in the rural retail grocery industry, cost of goods sold averages 75% of sales. If next year's sales are expected to be $1,600,000, the cost of goods sold forecast would be $1,200,000.

Which of the following would be the least likely to utilize pro forma financial statements or a cashbudget?

A firm has projected sales in May, June, and July of $100, $200, and $300, respectively. The firmmakes 20 percent of sales in cash and collects the balance one month following the sale. The firm'stotal cash receipts in July

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 -General Talc Mines may prepare to (See Figure 4.3)

If all purchases of goods for sale are on two-month credit terms with the supplier, cash flows topurchases in June would be $400,000; March, April and May purchases budgets are $350,000,$400,000 and $450,000, respectively

The percent-of-sales method to preparing a pro forma income statement assumes the firm has nofixed costs. Therefore, the use of the past cost and expense ratios generally tends toprofits when sales are increasing.

A firm plans to retire outstanding bonds in the next planning period. The statements that will be affected are the

The most common cash disbursement are

Generally, firms that are growing rapidly

In October, a firm had an ending cash balance of $35,000. In November, the firm had a net cash flow of $40,000. The minimum cash balance required by the firm is $25,000. At the end of November, the firm

The required total financing figures in the cash budget refer to the monthly changes in borrowing.

A firm has actual sales in November of $1,000 and projected sales in December and January of$3,000 and $4,000, respectively. The firm makes 10 percent of its sales in cash, collects 40 percent ofits sales one month following the sale, and collects the balance two months following the sale. The firm's total cash receipts in November

The timing of when revenue is earned and the matching of expenses to these revenues are critical inputs to the cash budget.

Key inputs to short-term financial planning are