Question 1

Under MACRS, an asset which originally cost $100,000 is being depreciated using a 10-year normal recovery period. The depreciation expense in year 11 is

Accepted Answer

A)  $3,000. 
B)  $4,000. 
C)  $0. 
D)  $6,000. 
A)  $3,000. 
B)  $4,000. 
C)  $0. 
D)  $6,000.

Question 2

All of the following are outflows of cash EXCEPT

Accepted Answer

A)  an increase in inventory. 
B)  a decrease in accounts receivable. 
C)  an increase in accounts receivable. 
D)  a decrease in notes payable. 
A)  an increase in inventory. 
B)  a decrease in accounts receivable. 
C)  an increase in accounts receivable. 
D)  a decrease in notes payable.

Question 3

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

Accepted Answer

A)  Short-term financial plans 
B)  Long-term financial plans 
C)  Pro-forma statements 
D)  Cash budgeting 
A)  Short-term financial plans 
B)  Long-term financial plans 
C)  Pro-forma statements 
D)  Cash budgeting

Question 4

The depreciable life of an asset is of concern to the financial manager. In general,

Accepted Answer

A)  a longer depreciable life is preferred, because it will result in a faster receipt of cash flows. 
B)  a shorter depreciable life is preferred, because it will result in a faster receipt of cash flows. 
C)  a shorter depreciable life is preferred, because management can then purchase new assets, as the old assets are written off. 
D)  a longer depreciable life is preferred, because management can postpone purchasing new assets, since the old assets still have a useful life. 
A)  a longer depreciable life is preferred, because it will result in a faster receipt of cash flows. 
B)  a shorter depreciable life is preferred, because it will result in a faster receipt of cash flows. 
C)  a shorter depreciable life is preferred, because management can then purchase new assets, as the old assets are written off. 
D)  a longer depreciable life is preferred, because management can postpone purchasing new assets, since the old assets still have a useful life.

Question 5

One basic weakness of the simplified pro-forma approaches lies in the assumption that certain variables, such as cash, accounts receivable, and inventories, can be forced to take on certain "desired" values.

Accepted Answer

A) True 
 B)False

Question 6

For tax purposes, using MACRS recovery periods, assets in the first four property classes are depreciated by the double-declining balance (200 percent) method using the half-year convention and switching to straight line when advantageous.

Accepted Answer

A) True 
 B)False

Question 7

Table 4.5
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, 2010. 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 2010.
Total depreciation for 2010 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 2010.
(j) The firm predicts a 4 percent net profit margin.
Balance Sheet
General Talc Mines
December 31, 2009  
-The pro forma accumulated retained earnings amount is ________. (See Table 4.5)

Accepted Answer

A)  $90,000 
B)  $175,000 
C)  $140,000 
D)  $130,000 
A)  $90,000 
B)  $175,000 
C)  $140,000 
D)  $130,000

Question 8

NICO Corporation had net current assets of $2,000,000 at the end of 2010 and $1,800,000 at the end of 2009. In addition, NICO had net spontaneous current liabilities of $1,000,000 in 2010 and $1,500,000 in 2009. Using this information, NICO's net current asset investment for 2010 was

Accepted Answer

A)  $700,000. 
B)  -$300,000. 
C)  $300,000. 
D)  -$700,000. 
A)  $700,000. 
B)  -$300,000. 
C)  $300,000. 
D)  -$700,000.

Question 9

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

Accepted Answer

A)  fixed. 
B)  constant. 
C)  independent. 
D)  variable. 
A)  fixed. 
B)  constant. 
C)  independent. 
D)  variable.

Question 10

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

Accepted Answer

A)  are $220. 
B)  are $200. 
C)  are $180. 
D)  cannot be determined with the information provided. 
A)  are $220. 
B)  are $200. 
C)  are $180. 
D)  cannot be determined with the information provided.

Question 11

Table 4.4
Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31, 2010, for Hennesaw Lumber, Inc.
Hennesaw 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 2010. Hennesaw Lumber, Inc.'s income statement for the year ended December 31, 2009 is shown below. From your preparation of the pro forma income statement, answer the following multiple choice questions.  
-The pro forma net profits after taxes for 2010 are ________. (See Table 4.4)

Accepted Answer

A)  $202,500 
B)  $207,000 
C)  $52,500 
D)  $57,000 
A)  $202,500 
B)  $207,000 
C)  $52,500 
D)  $57,000

Question 12

The ________ is a financial projection of the firm's short-term cash surpluses or shortages.

Accepted Answer

A)  operating financial plan 
B)  cash budget 
C)  strategic financial journal 
D)  capital assets journal 
A)  operating financial plan 
B)  cash budget 
C)  strategic financial journal 
D)  capital assets journal

Question 13

The key output(s) of the short-run financial planning process are a(n)

Accepted Answer

A)  cash budget, pro forma income statement, and pro forma balance sheet. 
B)  cash budget, sales forecast, and income statement. 
C)  sales forecast and cash budget. 
D)  income statement, balance sheet, and source and use statement. 
A)  cash budget, pro forma income statement, and pro forma balance sheet. 
B)  cash budget, sales forecast, and income statement. 
C)  sales forecast and cash budget. 
D)  income statement, balance sheet, and source and use statement.

Question 14

A corporation

Accepted Answer

A)  must use the same depreciation method for tax and financial reporting purposes. 
B)  must use different depreciation methods for tax and financial reporting purposes. 
C)  may use different depreciation methods for tax and financial reporting purposes. 
D)  must use different (than for tax purposes), but strictly mandated, depreciation methods for financial reporting purposes. 
A)  must use the same depreciation method for tax and financial reporting purposes. 
B)  must use different depreciation methods for tax and financial reporting purposes. 
C)  may use different depreciation methods for tax and financial reporting purposes. 
D)  must use different (than for tax purposes), but strictly mandated, depreciation methods for financial reporting purposes.

Question 15

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 ending cash balance for February is ________. (See Table 4.3)

Accepted Answer

A)  $ 750 
B)  $1,750 
C)  $2,500 
D)  -$1,000 
A)  $ 750 
B)  $1,750 
C)  $2,500 
D)  -$1,000

Question 16

All of the following are inflows of cash EXCEPT

Accepted Answer

A)  a decrease in accounts receivable. 
B)  net profits after taxes. 
C)  an increase in accounts receivable. 
D)  an increase in accruals. 
A)  a decrease in accounts receivable. 
B)  net profits after taxes. 
C)  an increase in accounts receivable. 
D)  an increase in accruals.

Question 17

An internal sales forecast is based on the relationships that can be observed between the firm's sales and certain key economic indicators such as the gross domestic product, new housing starts, or disposable personal income.

Accepted Answer

A) True 
 B)False

Question 18

________ statements are projected financial statements.

Accepted Answer

A)  Pro forma 
B)  Income 
C)  Cash 
D)  Balance sheet 
A)  Pro forma 
B)  Income 
C)  Cash 
D)  Balance sheet

Question 19

The primary purpose in preparing pro forma financial statements is

Accepted Answer

A)  for cash planning. 
B)  to ensure the ability to pay dividends. 
C)  for risk analysis. 
D)  for profit planning. 
A)  for cash planning. 
B)  to ensure the ability to pay dividends. 
C)  for risk analysis. 
D)  for profit planning.

Question 20

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

Accepted Answer

A)  pro forma income statement, pro forma balance sheet, and cash budget. 
B)  pro forma balance sheet and cash budget. 
C)  cash budget and statement of retained earnings. 
D)  pro forma income statement and pro forma balance sheet. 
A)  pro forma income statement, pro forma balance sheet, and cash budget. 
B)  pro forma balance sheet and cash budget. 
C)  cash budget and statement of retained earnings. 
D)  pro forma income statement and pro forma balance sheet.

Under MACRS, an asset which originally cost $100,000 is being depreciated using a 10-year normal recovery period. The depreciation expense in year 11 is

All of the following are outflows of cash EXCEPT

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

The depreciable life of an asset is of concern to the financial manager. In general,

One basic weakness of the simplified pro-forma approaches lies in the assumption that certain variables, such as cash, accounts receivable, and inventories, can be forced to take on certain "desired" values.

For tax purposes, using MACRS recovery periods, assets in the first four property classes are depreciated by the double-declining balance (200 percent) method using the half-year convention and switching to straight line when advantageous.

NICO Corporation had net current assets of $2,000,000 at the end of 2010 and $1,800,000 at the end of 2009. In addition, NICO had net spontaneous current liabilities of $1,000,000 in 2010 and $1,500,000 in 2009. Using this information, NICO's net current asset investment for 2010 was

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

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

The ________ is a financial projection of the firm's short-term cash surpluses or shortages.

The key output(s) of the short-run financial planning process are a(n)

A corporation

All of the following are inflows of cash EXCEPT

An internal sales forecast is based on the relationships that can be observed between the firm's sales and certain key economic indicators such as the gross domestic product, new housing starts, or disposable personal income.

________ statements are projected financial statements.

The primary purpose in preparing pro forma financial statements is

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

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

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Exam 4: Cash Flow and Financial Planning

Under MACRS, an asset which originally cost $100,000 is being depreciated using a 10-year normal recovery period. The depreciation expense in year 11 is

All of the following are outflows of cash EXCEPT

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

The depreciable life of an asset is of concern to the financial manager. In general,

One basic weakness of the simplified pro-forma approaches lies in the assumption that certain variables, such as cash, accounts receivable, and inventories, can be forced to take on certain "desired" values.

For tax purposes, using MACRS recovery periods, assets in the first four property classes are depreciated by the double-declining balance (200 percent) method using the half-year convention and switching to straight line when advantageous.

NICO Corporation had net current assets of $2,000,000 at the end of 2010 and $1,800,000 at the end of 2009. In addition, NICO had net spontaneous current liabilities of $1,000,000 in 2010 and $1,500,000 in 2009. Using this information, NICO's net current asset investment for 2010 was

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

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

The ________ is a financial projection of the firm's short-term cash surpluses or shortages.

The key output(s) of the short-run financial planning process are a(n)

A corporation

All of the following are inflows of cash EXCEPT

An internal sales forecast is based on the relationships that can be observed between the firm's sales and certain key economic indicators such as the gross domestic product, new housing starts, or disposable personal income.

________ statements are projected financial statements.

The primary purpose in preparing pro forma financial statements is

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

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