Question 1

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

Accepted Answer

A)  understate profits when sales are decreasing and overstate profits when sales are increasing. 
B)  understate profits, no matter what the change in sales, as long as fixed costs are present. 
C)  understate profits when sales are increasing and overstate profits when sales are decreasing. 
D)  overstate profits, no matter what the change in sales, as long as fixed costs are present. 
A)  understate profits when sales are decreasing and overstate profits when sales are increasing. 
B)  understate profits, no matter what the change in sales, as long as fixed costs are present. 
C)  understate profits when sales are increasing and overstate profits when sales are decreasing. 
D)  overstate profits, no matter what the change in sales, as long as fixed costs are present.

Question 2

Non-cash charges are expenses that involve an actual outlay of cash during the period but are not deducted on the income statement.

Accepted Answer

A) True 
 B)False

Question 3

The best way to adjust for the presence of fixed costs when using the simplified approach for pro forma income statement preparation is

Accepted Answer

A)  to proportionately vary the fixed costs with the change in sales. 
B)  to adjust for projected fixed-asset outlays. 
C)  to disproportionately vary the costs with the change in sales. 
D)  to break the firm's historical costs into fixed and variable components. 
A)  to proportionately vary the fixed costs with the change in sales. 
B)  to adjust for projected fixed-asset outlays. 
C)  to disproportionately vary the costs with the change in sales. 
D)  to break the firm's historical costs into fixed and variable components.

Question 4

Business firms are permitted to systematically charge a portion of the market value of fixed assets, as depreciation, against annual revenues.

Accepted Answer

A) True 
 B)False

Question 5

The net fixed asset investment (NFAI) is defined as the change in net fixed assets plus depreciation.

Accepted Answer

A) True 
 B)False

Question 6

Table 4.3
The financial analyst for Sportif, Inc. has compiled sales and disbursement estimates for the coming months of January through May. Historically, 75 percent of sales are for cash with the remaining 25 percent collected in the following month. The ending cash balance in January is $3,000. Prepare a cash budget for the months of February through May to answer the following multiple choice questions.  
-The firm has a total financing requirement of ________ for the period from February through May. (See Table 4.3)

Accepted Answer

A)  $ 0 
B)  $1,750 
C)  $1,250 
D)  $ 750 
A)  $ 0 
B)  $1,750 
C)  $1,250 
D)  $ 750

Question 7

The cash flows from operating activities section of the statement of cash flows considers

Accepted Answer

A)  labor expense. 
B)  interest expense. 
C)  taxes paid. 
D)  dividends paid. 
A)  labor expense. 
B)  interest expense. 
C)  taxes paid. 
D)  dividends paid.

Question 8

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

Accepted Answer

A)  sales forecast for the preceding year and financial statements for the coming year. 
B)  sales forecast for the coming year and the cash budget for the preceding year. 
C)  sales forecast for the coming year and financial statements for the preceding year. 
D)  cash budget for the coming year and sales forecast for the preceding year. 
A)  sales forecast for the preceding year and financial statements for the coming year. 
B)  sales forecast for the coming year and the cash budget for the preceding year. 
C)  sales forecast for the coming year and financial statements for the preceding year. 
D)  cash budget for the coming year and sales forecast for the preceding year.

Question 9

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 time intervals.

Accepted Answer

A) True 
 B)False

Question 10

NICO Corporation had net fixed assets of $2,000,000 at the end of 2010 and $1,800,000 at the end of 2009. In addition, the firm had a depreciation expense of $200,000 during 2010 and $180,000 during 2009. Using this information, NICO's net fixed asset investment for 2010 was

Accepted Answer

A)  $20,000. 
B)  $0. 
C)  $380,000. 
D)  $400,000. 
A)  $20,000. 
B)  $0. 
C)  $380,000. 
D)  $400,000.

Question 11

Table 4.1
Ruff Sandpaper Co.
Balance Sheets
For the Years Ended 2009 and 2010  
-A corporation sold a fixed asset for $100,000. This is

Accepted Answer

A)  an investment cash flow and a source of funds. 
B)  an operating cash flow and a source of funds. 
C)  an operating cash flow and a use of funds. 
D)  an investment cash flow and a use of funds. 
A)  an investment cash flow and a source of funds. 
B)  an operating cash flow and a source of funds. 
C)  an operating cash flow and a use of funds. 
D)  an investment cash flow and a use of funds.

Question 12

In general, firms that are subject to a high degree of ________, relatively short production cycles, or both tend to use shorter planning horizons.

Accepted Answer

A)  profitability 
B)  financial certainty 
C)  operating uncertainty 
D)  financial planning 
A)  profitability 
B)  financial certainty 
C)  operating uncertainty 
D)  financial planning

Question 13

Table 4.1
Ruff Sandpaper Co.
Balance Sheets
For the Years Ended 2009 and 2010  
-The firm may have increased long-term debts to finance ________. (See Table 4.1)

Accepted Answer

A)  an increase in gross fixed assets. 
B)  an increase in current assets. 
C)  a decrease in notes payable. 
D)  all of the above. 
A)  an increase in gross fixed assets. 
B)  an increase in current assets. 
C)  a decrease in notes payable. 
D)  all of the above.

Question 14

The cash flows from operating activities section of the statement of cash flows considers

Accepted Answer

A)  interest expense. 
B)  cost of raw materials. 
C)  dividends paid. 
D)  stock repurchases. 
A)  interest expense. 
B)  cost of raw materials. 
C)  dividends paid. 
D)  stock repurchases.

Question 15

In the development of proforma statements, a firm that requires external funds means that the firm's projected level of cash is in excess of its needs and that funds would therefore be available for repaying debt, repurchasing stock, or increasing the dividend to stockholders.

Accepted Answer

A) True 
 B)False

Question 16

It would be correct to define Operating Cash Flow (OCF) as net operating profit after taxes minus depreciation.

Accepted Answer

A) True 
 B)False

Question 17

Table 4.1
Ruff Sandpaper Co.
Balance Sheets
For the Years Ended 2009 and 2010  
-A corporation raises $500,000 in long-term debt to acquire additional plant capacity. This is considered

Accepted Answer

A)  an investment cash flow. 
B)  a financing cash flow. 
C)  a financing cash flow and investment cash flow, respectively. 
D)  a financing cash flow and operating cash flow, respectively. 
A)  an investment cash flow. 
B)  a financing cash flow. 
C)  a financing cash flow and investment cash flow, respectively. 
D)  a financing cash flow and operating cash flow, respectively.

Question 18

Table 4.3
The financial analyst for Sportif, Inc. has compiled sales and disbursement estimates for the coming months of January through May. Historically, 75 percent of sales are for cash with the remaining 25 percent collected in the following month. The ending cash balance in January is $3,000. Prepare a cash budget for the months of February through May to answer the following multiple choice questions.  
-If a pro forma balance sheet dated at the end of May was prepared from the information presented, the marketable securities would total ________. (See Table 4.3)

Accepted Answer

A)  $9,000 
B)  $9,500 
C)  $12,000 
D)  $16,750 
A)  $9,000 
B)  $9,500 
C)  $12,000 
D)  $16,750

Question 19

The depreciable value of an asset, under MACRS, is

Accepted Answer

A)  the full cost excluding installation costs. 
B)  the full cost minus salvage value. 
C)  the full cost including installation costs. 
D)  the full cost including installation costs adjusted for the salvage value. 
A)  the full cost excluding installation costs. 
B)  the full cost minus salvage value. 
C)  the full cost including installation costs. 
D)  the full cost including installation costs adjusted for the salvage value.

Question 20

A firm's net cash flow is the mathematical difference between the firm's beginning cash and its cash disbursements in each period.

Accepted Answer

A) True 
 B)False

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

Non-cash charges are expenses that involve an actual outlay of cash during the period but are not deducted on the income statement.

The best way to adjust for the presence of fixed costs when using the simplified approach for pro forma income statement preparation is

Business firms are permitted to systematically charge a portion of the market value of fixed assets, as depreciation, against annual revenues.

The net fixed asset investment (NFAI) is defined as the change in net fixed assets plus depreciation.

The cash flows from operating activities section of the statement of cash flows considers

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

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 time intervals.

NICO Corporation had net fixed assets of $2,000,000 at the end of 2010 and $1,800,000 at the end of 2009. In addition, the firm had a depreciation expense of $200,000 during 2010 and $180,000 during 2009. Using this information, NICO's net fixed asset investment for 2010 was

Table 4.1 Ruff Sandpaper Co. Balance Sheets For the Years Ended 2009 and 2010 -A corporation sold a fixed asset for $100,000. This is

In general, firms that are subject to a high degree of ________, relatively short production cycles, or both tend to use shorter planning horizons.

Table 4.1 Ruff Sandpaper Co. Balance Sheets For the Years Ended 2009 and 2010 -The firm may have increased long-term debts to finance ________. (See Table 4.1)

The cash flows from operating activities section of the statement of cash flows considers

In the development of proforma statements, a firm that requires external funds means that the firm's projected level of cash is in excess of its needs and that funds would therefore be available for repaying debt, repurchasing stock, or increasing the dividend to stockholders.

It would be correct to define Operating Cash Flow (OCF) as net operating profit after taxes minus depreciation.

Table 4.1 Ruff Sandpaper Co. Balance Sheets For the Years Ended 2009 and 2010 -A corporation raises $500,000 in long-term debt to acquire additional plant capacity. This is considered

The depreciable value of an asset, under MACRS, is

A firm's net cash flow is the mathematical difference between the firm's beginning cash and its cash disbursements in each period.

The Role of Managerial Finance

The Financial Market Environment

Financial Statements and Ratio Analysis

Time Value of Money

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return

The Cost of Capital

Capital Budgeting Techniques

Capital Budgeting Cash Flows

Risk and Refinements in Capital Budgeting

Leverage and Capital Structure

Payout Policy

Working Capital and Current Assets Management

Current Liabilities Management

Hybrid and Derivative Securities

Mergers, Lbos, Divestitures, and Business Failure

International Managerial Finance

Filters

Exam 4: Cash Flow and Financial Planning

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

Non-cash charges are expenses that involve an actual outlay of cash during the period but are not deducted on the income statement.

The best way to adjust for the presence of fixed costs when using the simplified approach for pro forma income statement preparation is

Business firms are permitted to systematically charge a portion of the market value of fixed assets, as depreciation, against annual revenues.

The net fixed asset investment (NFAI) is defined as the change in net fixed assets plus depreciation.

The cash flows from operating activities section of the statement of cash flows considers

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

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 time intervals.

NICO Corporation had net fixed assets of $2,000,000 at the end of 2010 and $1,800,000 at the end of 2009. In addition, the firm had a depreciation expense of $200,000 during 2010 and $180,000 during 2009. Using this information, NICO's net fixed asset investment for 2010 was

Table 4.1 Ruff Sandpaper Co. Balance Sheets For the Years Ended 2009 and 2010 -A corporation sold a fixed asset for $100,000. This is

In general, firms that are subject to a high degree of ________, relatively short production cycles, or both tend to use shorter planning horizons.

Table 4.1 Ruff Sandpaper Co. Balance Sheets For the Years Ended 2009 and 2010 -The firm may have increased long-term debts to finance ________. (See Table 4.1)

The cash flows from operating activities section of the statement of cash flows considers

In the development of proforma statements, a firm that requires external funds means that the firm's projected level of cash is in excess of its needs and that funds would therefore be available for repaying debt, repurchasing stock, or increasing the dividend to stockholders.

It would be correct to define Operating Cash Flow (OCF) as net operating profit after taxes minus depreciation.

Table 4.1 Ruff Sandpaper Co. Balance Sheets For the Years Ended 2009 and 2010 -A corporation raises $500,000 in long-term debt to acquire additional plant capacity. This is considered

The depreciable value of an asset, under MACRS, is

A firm's net cash flow is the mathematical difference between the firm's beginning cash and its cash disbursements in each period.

The Role of Managerial Finance

The Financial Market Environment

Financial Statements and Ratio Analysis

Time Value of Money

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return

The Cost of Capital

Capital Budgeting Techniques

Capital Budgeting Cash Flows

Risk and Refinements in Capital Budgeting

Leverage and Capital Structure

Payout Policy

Working Capital and Current Assets Management

Current Liabilities Management

Hybrid and Derivative Securities

Mergers, Lbos, Divestitures, and Business Failure

International Managerial Finance

Filters