Question 1

It is most important for the entrepreneur to remember that the pro forma cash flow, like the income statement, is based on __________.

Accepted Answer

A)  is a picture of the business at a certain moment in time 
B)  covers a period of time 
C)  relies on the income and cash flow statements to justify some of the figures 
D)  best estimates. 
E)  All of the answers are correct. 
A)  is a picture of the business at a certain moment in time 
B)  covers a period of time 
C)  relies on the income and cash flow statements to justify some of the figures 
D)  best estimates. 
E)  All of the answers are correct.

Question 2

When developing pro forma income statements for the business plan, it is important to __________.

Accepted Answer

A)  be as optimistic as possible so that investors will be impressed at the opportunity that exists 
B)  be pessimistic, so that actual operating results will exceed expectations 
C)  be conservative, as a reasonable profit earned with conservative estimates lends credibility to the venture 
D)  be reasonable optimistic, as investors will sense a lack of confidence otherwise 
E)  None of the answers apply. 
A)  be as optimistic as possible so that investors will be impressed at the opportunity that exists 
B)  be pessimistic, so that actual operating results will exceed expectations 
C)  be conservative, as a reasonable profit earned with conservative estimates lends credibility to the venture 
D)  be reasonable optimistic, as investors will sense a lack of confidence otherwise 
E)  None of the answers apply.

Question 3

When using the indirect method to project cash flow, uses (decreases) of cash include which of the following?

Accepted Answer

A)  payments to suppliers 
B)  purchases of materials on credit 
C)  building up finished goods inventory 
D)  payments to suppliers and building up finished goods inventory 
E)  All of the answers are correct. 
A)  payments to suppliers 
B)  purchases of materials on credit 
C)  building up finished goods inventory 
D)  payments to suppliers and building up finished goods inventory 
E)  All of the answers are correct.

Question 4

Information on operating expenses for years 2 and 3 of the pro forma income statement may__________.

Accepted Answer

A)  be calculated as a percentage of sales from year 1 
B)  be computed based on industry standards 
C)  be obtained from supplier cost estimates 
D)  All of the answers are correct. 
E)  None of the answers apply. 
A)  be calculated as a percentage of sales from year 1 
B)  be computed based on industry standards 
C)  be obtained from supplier cost estimates 
D)  All of the answers are correct. 
E)  None of the answers apply.

Question 5

Discuss the reasons why the cash flow might be very different from the profitability of a business venture.

Accepted Answer

Profitability was defined as the differe

Question 6

As described in the Opening Profile to Chapter 9, Ted Rogers of Rogers Communications operates in an industry that can best be described as __________.

Accepted Answer

A)  capital intensive with soft competition and relatively low debt 
B)  having high cash flow, highly competitive and relatively low debt 
C)  having cutthroat competition, capital intensive, and high debt 
D)  highly conservative with low risk and debt 
E)  None of the answers apply. 
A)  capital intensive with soft competition and relatively low debt 
B)  having high cash flow, highly competitive and relatively low debt 
C)  having cutthroat competition, capital intensive, and high debt 
D)  highly conservative with low risk and debt 
E)  None of the answers apply.

Question 7

The breakeven point tells the entrepreneur __________.

Accepted Answer

A)  when the business begins to make a profit 
B)  the volume of sales at which the business will neither make a profit nor incur a loss 
C)  the value of sales needed to cover total variable and fixed expenses 
D)  the volume of sales at which the business will neither make a profit nor incur a loss and the value of sales needed to cover total variable and fixed expenses 
E)  None of the answers apply. 
A)  when the business begins to make a profit 
B)  the volume of sales at which the business will neither make a profit nor incur a loss 
C)  the value of sales needed to cover total variable and fixed expenses 
D)  the volume of sales at which the business will neither make a profit nor incur a loss and the value of sales needed to cover total variable and fixed expenses 
E)  None of the answers apply.

Question 8

The production or manufacturing budget becomes a very important planning tool under which of the following conditions?

Accepted Answer

A)  When the product experiences seasonal demand fluctuations. 
B)  When it is necessary to carry higher levels of finished goods inventory. 
C)  When the company uses marketing programs to stimulate demand during the year. 
D)  All of the answers are correct. 
E)  None of the answers apply. 
A)  When the product experiences seasonal demand fluctuations. 
B)  When it is necessary to carry higher levels of finished goods inventory. 
C)  When the company uses marketing programs to stimulate demand during the year. 
D)  All of the answers are correct. 
E)  None of the answers apply.

Question 9

As discussed in the text, when developing the pro forma income statement, the first type of budget prepared is usually the __________.

Accepted Answer

A)  breakeven analysis 
B)  cash flow budget 
C)  operating budget 
D)  sales budget 
E)  None of the answers apply. 
A)  breakeven analysis 
B)  cash flow budget 
C)  operating budget 
D)  sales budget 
E)  None of the answers apply.

Question 10

The purpose of developing the production or manufacturing budget is to forecast cash flows for the costs of goods produced.

Accepted Answer

A) True 
 B)False

Question 11

The major weakness in calculating the break-even lies in determining whether a cost is fixed or__________________________.

Accepted Answer

A)  depreciation 
B)  commissions 
C)  variable 
D)  Commissions and raw materials 
E)  All of the answers are correct. 
A)  depreciation 
B)  commissions 
C)  variable 
D)  Commissions and raw materials 
E)  All of the answers are correct.

Question 12

One unique aspect of break-even is that it is helpful information, but cannot be graphically displayed.

Accepted Answer

A) True 
 B)False

Question 13

Selling expenses as a percentage of sales may also be expected to be __________.

Accepted Answer

A)  Lower when less calls made 
B)  A small part of monthly income statements for the first year 
C)  higher initially since more sales calls will have to be made to generate each sale 
D)  Easier online 
E)  None of the answers apply. 
A)  Lower when less calls made 
B)  A small part of monthly income statements for the first year 
C)  higher initially since more sales calls will have to be made to generate each sale 
D)  Easier online 
E)  None of the answers apply.

Question 14

When developing operating and capital budgets, the entrepreneur may seek advice from experts and managers, but ultimately, the budgets are the entrepreneur's responsibility.

Accepted Answer

A) True 
 B)False

Question 15

Sales forecasting is relatively unimportant to the development of the pro forma income statement, as it is more important to be accurate on the operating expenses than the revenues.

Accepted Answer

A) True 
 B)False

Question 16

Fixed costs are those expenses in a business that change from month to month.

Accepted Answer

A) True 
 B)False

Question 17

The sales budget tends to be produced early in the development of the pro forma income statement process for which of the following reasons?

Accepted Answer

A)  It helps to know how much will be sold when making other planning decisions. 
B)  Inventory planning decisions depend on how much will be sold and when. 
C)  Sales revenue is the first item in an income statement. 
D)  Sales revenue is a large factor to be considered when determining the viability of a new venture. 
E)  All of the answers are correct. 
A)  It helps to know how much will be sold when making other planning decisions. 
B)  Inventory planning decisions depend on how much will be sold and when. 
C)  Sales revenue is the first item in an income statement. 
D)  Sales revenue is a large factor to be considered when determining the viability of a new venture. 
E)  All of the answers are correct.

Question 18

Cash flow is an important concept to consider for a new venture for which of the following reasons?

Accepted Answer

A)  Despite being profitable, a growing business can run out of cash and fail as a result. 
B)  Sales revenue is an important indicator of market success but profitability is what keeps the cash flowing. 
C)  In the early stages, investors are more concerned about the venture's profitability than its liquidity. 
D)  Profitability is a much easier concept to monitor than cash flow. 
E)  None of the answers apply. 
A)  Despite being profitable, a growing business can run out of cash and fail as a result. 
B)  Sales revenue is an important indicator of market success but profitability is what keeps the cash flowing. 
C)  In the early stages, investors are more concerned about the venture's profitability than its liquidity. 
D)  Profitability is a much easier concept to monitor than cash flow. 
E)  None of the answers apply.

Question 19

The first step to creating a pro forma income statement is to ___________________________.

Accepted Answer

A)  estimate the amount of profits 
B)  estimate the amount of sales for the coming 12 months. 
C)  Estimate sales costs and expenses. 
D)  Count the number of potential employees. 
E)  None of the answers apply. 
A)  estimate the amount of profits 
B)  estimate the amount of sales for the coming 12 months. 
C)  Estimate sales costs and expenses. 
D)  Count the number of potential employees. 
E)  None of the answers apply.

Question 20

The pro forma balance sheet __________.

Accepted Answer

A)  is a picture of the business at a certain moment in time 
B)  covers a period of time 
C)  relies on the income and cash flow statements to justify some of the figures 
D)  is a picture of the business at a certain moment in time and relies on the income and cash flow statements to justify some of the figures 
E)  All of the answers are correct. 
A)  is a picture of the business at a certain moment in time 
B)  covers a period of time 
C)  relies on the income and cash flow statements to justify some of the figures 
D)  is a picture of the business at a certain moment in time and relies on the income and cash flow statements to justify some of the figures 
E)  All of the answers are correct.

It is most important for the entrepreneur to remember that the pro forma cash flow, like the income statement, is based on __________.

When developing pro forma income statements for the business plan, it is important to __________.

When using the indirect method to project cash flow, uses (decreases) of cash include which of the following?

Information on operating expenses for years 2 and 3 of the pro forma income statement may__________.

Discuss the reasons why the cash flow might be very different from the profitability of a business venture.

As described in the Opening Profile to Chapter 9, Ted Rogers of Rogers Communications operates in an industry that can best be described as __________.

The breakeven point tells the entrepreneur __________.

The production or manufacturing budget becomes a very important planning tool under which of the following conditions?

As discussed in the text, when developing the pro forma income statement, the first type of budget prepared is usually the __________.

The purpose of developing the production or manufacturing budget is to forecast cash flows for the costs of goods produced.

The major weakness in calculating the break-even lies in determining whether a cost is fixed or__________________________.

One unique aspect of break-even is that it is helpful information, but cannot be graphically displayed.

Selling expenses as a percentage of sales may also be expected to be __________.

When developing operating and capital budgets, the entrepreneur may seek advice from experts and managers, but ultimately, the budgets are the entrepreneur's responsibility.

Sales forecasting is relatively unimportant to the development of the pro forma income statement, as it is more important to be accurate on the operating expenses than the revenues.

Fixed costs are those expenses in a business that change from month to month.

The sales budget tends to be produced early in the development of the pro forma income statement process for which of the following reasons?

Cash flow is an important concept to consider for a new venture for which of the following reasons?

The first step to creating a pro forma income statement is to ___________________________.

The pro forma balance sheet __________.

The Entrepreneurial Mind-Set

Corporate Entrepreneurship

Generating and Exploring New Entries

Creativity and the Business Idea

Identifying and Analyzing Domestic and International Opportunities

Protecting the Idea and Other Legal Issues for the Entrepreneur

The Marketing Plan

The Organizational Plan

The Financial Plan

Sources of Capital

Informal Risk Capital, Venture Capital, and Going Public

Filters

Exam 7: The Business Plan: Creating and Starting the Venture

It is most important for the entrepreneur to remember that the pro forma cash flow, like the income statement, is based on __________.

When developing pro forma income statements for the business plan, it is important to __________.

When using the indirect method to project cash flow, uses (decreases) of cash include which of the following?

Information on operating expenses for years 2 and 3 of the pro forma income statement may__________.

Discuss the reasons why the cash flow might be very different from the profitability of a business venture.

As described in the Opening Profile to Chapter 9, Ted Rogers of Rogers Communications operates in an industry that can best be described as __________.

The breakeven point tells the entrepreneur __________.

The production or manufacturing budget becomes a very important planning tool under which of the following conditions?

As discussed in the text, when developing the pro forma income statement, the first type of budget prepared is usually the __________.

The purpose of developing the production or manufacturing budget is to forecast cash flows for the costs of goods produced.

The major weakness in calculating the break-even lies in determining whether a cost is fixed or__________________________.

One unique aspect of break-even is that it is helpful information, but cannot be graphically displayed.

Selling expenses as a percentage of sales may also be expected to be __________.

When developing operating and capital budgets, the entrepreneur may seek advice from experts and managers, but ultimately, the budgets are the entrepreneur's responsibility.

Sales forecasting is relatively unimportant to the development of the pro forma income statement, as it is more important to be accurate on the operating expenses than the revenues.

Fixed costs are those expenses in a business that change from month to month.

The sales budget tends to be produced early in the development of the pro forma income statement process for which of the following reasons?

Cash flow is an important concept to consider for a new venture for which of the following reasons?

The first step to creating a pro forma income statement is to ___________________________.

The pro forma balance sheet __________.

The Entrepreneurial Mind-Set

Corporate Entrepreneurship

Generating and Exploring New Entries

Creativity and the Business Idea

Identifying and Analyzing Domestic and International Opportunities

Protecting the Idea and Other Legal Issues for the Entrepreneur

The Marketing Plan

The Organizational Plan

The Financial Plan

Sources of Capital

Informal Risk Capital, Venture Capital, and Going Public

Filters