Exam 4: Financial Planning and Forecasting

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

Cash disbursements may include all of the following EXCEPT

The financial planning process begins with short-run, or operating plans and budgets that in turn guide the formulation of long-run, or strategic, financial plans.

In the next planning period, a firm plans to change its policy of all cash sales and initiate a credit policy requiring payment within 30 days. The statements that will be 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 net fixed assets amount is__________

All of the following are eventual cash outflows to the firm EXCEPT

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 accumulated retained earnings amount is _

A positive external funds requirement would indicate that the firm's financing is in excess of its needs and that funds would therefore be available for repaying debt, repurchasing stock, or increasing the dividend to stockholders.

The excess cash balance is the amount available for investment by the firm if the desired minimum cash balance is less than the period's ending cash.

Nortel Networks is concerned about their forecasting accuracy; as such, Nortel should

Cash budgets and pro forma statements are useful not only for internal financial planning but also are routinely required by the Canada Customs and Revenue Agency.

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 external funds requirement results primarily from (See Figure 4.3)

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

The percent-of-sales method of preparing the pro forma income statement assumes all costs are

Historically, electricity has a $300,000 fixed component and 5% of sales variable component. Next year's sales are forecasted to be $10,000,000, and an electricity budget of $800,000.

A projected excess cash balance for the month may be

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 cost of goods sold for 2004 is__________

The financial manager may cope with uncertainty and make more intelligent short-term financial decisions by preparing several cash budgets, each based on differing assumptions.

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

Historically, electricity has a $500,000 fixed component and 4% of sales variable component. Next year's sales are forecasted to be $10,000,000. The electricity budget would be