Question 1

Typical steps in the financial planning process include

Accepted Answer

A) preparing a sales forecast. 
B) analysing cost data. 
C) estimating tax expense. 
D) all of the above. 
A) preparing a sales forecast. 
B) analysing cost data. 
C) estimating tax expense. 
D) all of the above.

Question 2

All of the following are found in the cash budget EXCEPT

Accepted Answer

A) a net change in cash for the period. 
B) inventory. 
C) cash disbursements. 
D) new financing needed. 
A) a net change in cash for the period. 
B) inventory. 
C) cash disbursements. 
D) new financing needed.

Question 3

The timing of collections from sales made in past months is an important consideration for cash budgeting.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following will decrease cumulative borrowing on the cash budget?

Accepted Answer

A) A decrease in interest expense 
B) A decrease in collections 
C) An increase in equipment purchases 
D) Both A and B 
A) A decrease in interest expense 
B) A decrease in collections 
C) An increase in equipment purchases 
D) Both A and B

Question 5

Discretionary financing needs implies

Accepted Answer

A) that management may choose between various forms of debt and equity. 
B) that the purchases being financed are optional rather than necessary. 
C) that management has considerable discretion in how to dispose of retained earnings. 
D) that management may choose between debt,new equity or retained earnings. 
A) that management may choose between various forms of debt and equity. 
B) that the purchases being financed are optional rather than necessary. 
C) that management has considerable discretion in how to dispose of retained earnings. 
D) that management may choose between debt,new equity or retained earnings.

Question 6

Types of plans that businesses typically use to guide their operations include

Accepted Answer

A) strategic plans. 
B) long-range financial plans. 
C) short-range financial plans. 
D) all of the above. 
A) strategic plans. 
B) long-range financial plans. 
C) short-range financial plans. 
D) all of the above.

Question 7

Assume that Hercules Manufacturing has sales of $25 million and current assets of $5 million.The corporation utilises the percent-of-sales method of financial forecasting.If Hercules is expected to generate sales of $31 million next year,what will the firm's investment in current assets be?

Accepted Answer

A) $8.3 million 
B) $4.0 million 
C) $6.2 million 
D) $5.0 million 
A) $8.3 million 
B) $4.0 million 
C) $6.2 million 
D) $5.0 million

Question 8

Pro forma statements provide single point estimates of each budgeted item.

Accepted Answer

A) True 
 B)False

Question 9

Long-term financial plans typically encompass

Accepted Answer

A) 6 to 12 months. 
B) about 5 years. 
C) 5 to 10 years. 
D) the entire life cycle of the corporation. 
A) 6 to 12 months. 
B) about 5 years. 
C) 5 to 10 years. 
D) the entire life cycle of the corporation.

Question 10

Which of the following assumptions is not required by the percent-of-sales method?

Accepted Answer

A) The inventory turnover will remain constant during the forecast period. 
B) The profit margin will remain constant during the forecast period. 
C) Cash,as a percent of sales,will remain constant throughout the forecast period. 
D) The debt to equity ratio will remain constant throughout the forecast period. 
A) The inventory turnover will remain constant during the forecast period. 
B) The profit margin will remain constant during the forecast period. 
C) Cash,as a percent of sales,will remain constant throughout the forecast period. 
D) The debt to equity ratio will remain constant throughout the forecast period.

Question 11

An exceptionally high growth rate in sales will typically

Accepted Answer

A) initially increase the firm's need for discretionary financing. 
B) generate enough cash flow to cover asset expansion. 
C) allow the firm to increase its dividend in anticipation of higher cash flows. 
D) allow the firm to finance expansion with spontaneous sources of financing. 
A) initially increase the firm's need for discretionary financing. 
B) generate enough cash flow to cover asset expansion. 
C) allow the firm to increase its dividend in anticipation of higher cash flows. 
D) allow the firm to finance expansion with spontaneous sources of financing.

Question 12

The balance sheet of the Jackson Company is presented below:
Jackson Company Balance Sheet
March 31,2014
(Millions of Dollars)
Current assets $12 Accounts payable $6
Fixed assets 18 Long-term debt 12
Total $30 Ordinary equity 12
Total $30
For the year ending March 31,2014,Jackson had sales of $35 million.The ordinary shareholders received all net earnings of the firm in the form of cash dividends,leaving no funds from earnings available to the firm for expansion (assume that depreciation expense is just equal to the cost of replacing worn-out assets).
Construct a pro forma balance sheet for March 31,2015 for an expected level of sales of $45 million.Assume current assets and accounts payable vary as a percent of sales,and fixed assets remain at the present level.Use notes payable as a source of discretionary financing.

Accepted Answer

Jackson Company
Pro Forma Balance Sheet

Question 13

Which of the following require adjustments when forecasting asset needs as a percent of sales?

Accepted Answer

A) If assets must be purchased in large,discrete quantities 
B) When the firm has excess capacity 
C) When assets can be leased rather than purchased 
D) Both A and B 
A) If assets must be purchased in large,discrete quantities 
B) When the firm has excess capacity 
C) When assets can be leased rather than purchased 
D) Both A and B

Question 14

Which of the following accounts would normally increase with an increase in sales and approximately in proportion to the sales increase?

Accepted Answer

A) Ordinary shares 
B) Inventory 
C) Notes payable 
D) Dividends 
A) Ordinary shares 
B) Inventory 
C) Notes payable 
D) Dividends

Question 15

Discuss the basic functions that budgets perform for a firm.

Accepted Answer

The budget is a short-term financial pla

Question 16

The percent-of-sales method is a commonly used method for estimating a firm's financing needs.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following are considered to be spontaneous sources of financing (i.e. ,they arise naturally during the course of doing business)?

Accepted Answer

A) Notes payable and ordinary shares 
B) Accounts receivable and bonds 
C) Fixed assets and inventory 
D) Accounts payable and accrued expenses 
A) Notes payable and ordinary shares 
B) Accounts receivable and bonds 
C) Fixed assets and inventory 
D) Accounts payable and accrued expenses

Question 18

The "percentage" used in the percent-of-sales calculation can be obtained from

Accepted Answer

A) the most recent financial statement item as a percent of current sales. 
B) an average computed over several years. 
C) an analyst's judgment. 
D) all of the above. 
A) the most recent financial statement item as a percent of current sales. 
B) an average computed over several years. 
C) an analyst's judgment. 
D) all of the above.

Typical steps in the financial planning process include

All of the following are found in the cash budget EXCEPT

The timing of collections from sales made in past months is an important consideration for cash budgeting.

Which of the following will decrease cumulative borrowing on the cash budget?

Discretionary financing needs implies

Types of plans that businesses typically use to guide their operations include

Assume that Hercules Manufacturing has sales of $25 million and current assets of $5 million.The corporation utilises the percent-of-sales method of financial forecasting.If Hercules is expected to generate sales of $31 million next year,what will the firm's investment in current assets be?

Pro forma statements provide single point estimates of each budgeted item.

Long-term financial plans typically encompass

Which of the following assumptions is not required by the percent-of-sales method?

An exceptionally high growth rate in sales will typically

Which of the following require adjustments when forecasting asset needs as a percent of sales?

Which of the following accounts would normally increase with an increase in sales and approximately in proportion to the sales increase?

Discuss the basic functions that budgets perform for a firm.

The percent-of-sales method is a commonly used method for estimating a firm's financing needs.

Which of the following are considered to be spontaneous sources of financing (i.e. ,they arise naturally during the course of doing business)?

The "percentage" used in the percent-of-sales calculation can be obtained from

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements,taxes and Cash Flows

Financial Analysis - Sizing up Firm Performance

Time Value of Money - the Basics

The Time Value of Money - Annuities and Other Topics

An Introduction to Risk and Return - History of Financial Market Returns

Risk and Return - Capital Market Theory

Debt Valuation and Interest Rates

Share Valuation

Investment Decision Criteria

Analysing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Working Capital Management

International Business Finance

Corporate Risk Management

Filters

Exam 17: Financial Forecasting and Planning

Typical steps in the financial planning process include

All of the following are found in the cash budget EXCEPT

The timing of collections from sales made in past months is an important consideration for cash budgeting.

Which of the following will decrease cumulative borrowing on the cash budget?

Discretionary financing needs implies

Types of plans that businesses typically use to guide their operations include

Assume that Hercules Manufacturing has sales of $25 million and current assets of $5 million.The corporation utilises the percent-of-sales method of financial forecasting.If Hercules is expected to generate sales of $31 million next year,what will the firm's investment in current assets be?

Pro forma statements provide single point estimates of each budgeted item.

Long-term financial plans typically encompass

Which of the following assumptions is not required by the percent-of-sales method?

An exceptionally high growth rate in sales will typically

Which of the following require adjustments when forecasting asset needs as a percent of sales?

Which of the following accounts would normally increase with an increase in sales and approximately in proportion to the sales increase?

Discuss the basic functions that budgets perform for a firm.

The percent-of-sales method is a commonly used method for estimating a firm's financing needs.

Which of the following are considered to be spontaneous sources of financing (i.e. ,they arise naturally during the course of doing business)?

The "percentage" used in the percent-of-sales calculation can be obtained from

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements,taxes and Cash Flows

Financial Analysis - Sizing up Firm Performance

Time Value of Money - the Basics

The Time Value of Money - Annuities and Other Topics

An Introduction to Risk and Return - History of Financial Market Returns

Risk and Return - Capital Market Theory

Debt Valuation and Interest Rates

Share Valuation

Investment Decision Criteria

Analysing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Working Capital Management

International Business Finance

Corporate Risk Management

Filters