Question 1

A firm has actual sales in November of $1,000 and projected sales in December and January of $3,000 and $4,000, respectively. The firm makes 10 percent of its sales for cash, collects 40 percent of its sales one month following the sale, and collects the balance two months following the sale. The firm's total expected cash receipts in January is ________.

Accepted Answer

A)  $700 
B)  $2,100 
C)  $1,900 
D)  $300

Question 2

A firm's free cash flow (FCF) equals the sum of operating cash flows, financing cash flows, and investing cash flows.

Accepted Answer

A) True 
 B)False

Question 3

Terrel Manufacturing expects stable sales through the summer months of June, July, and August of $500,000 per month. The firm will make purchases of $350,000 per month during these months. Wages and salaries are estimated at $60,000 per month plus 7 percent of sales. The firm must make a principal and interest payment on an outstanding loan in June of $100,000. The firm plans a purchase of a fixed asset costing $75,000 in July. The second quarter tax payment of $20,000 is also due in June. All sales are for cash.
(a) Construct a cash budget for June, July, and August, assuming the firm has a
beginning cash balance of $100,000 in June.
(b) The sales projections may not be accurate due to the lack of experience by a
newly-hired sales manager. If the sales manager believes the most optimistic
and pessimistic estimates of sales are $600,000 and $400,000, respectively, what
are the monthly net cash flows and required financing or excess cash balances?

Accepted Answer

The answer of Terrel Manufacturing expects stable sales through the...

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Under the judgmental approach for developing a pro forma balance sheet, the "plug" figure required to bring the statement into balance may be called the ________.

Accepted Answer

A)  cash balance 
B)  retained earnings 
C)  external financing required 
D)  accounts receivable

Question 6

In the month of August, a firm had total cash receipts of $10,000, total cash disbursements of $8,000, depreciation expense of $1,000, a minimum cash balance of $3,000, and a beginning cash balance of $500. At the end of August, the firm ________.

Accepted Answer

A)  required total financing of $500 
B)  had an excess cash balance of $5,500 
C)  had an excess cash balance of $500 
D)  required total financing of $2,500

Question 7

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 ________.

Accepted Answer

A)  understate retained earnings and understate the additional financing needed 
B)  overstate retained earnings and overstate the additional financing needed 
C)  understate retained earnings and overstate the financing needed 
D)  overstate retained earnings and understate the financing needed

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

Question 9

For the year ended December 31, 2014, a corporation had cash flow from operating activities of $12,000, cash flow from investment activities of - $10,000, and cash flow from financing activities of $4,000. The statement of cash flows would show a ________.

Accepted Answer

A)  net decrease of $18,000 in cash and marketable securities 
B)  net decrease of $6,000 in cash and marketable securities 
C)  net increase of $6,000 in cash and marketable securities 
D)  net increase of $2,000 in cash and marketable securities

Question 10

If the net cash flow is less than the minimum cash balance, financing is required.

Accepted Answer

A) True 
 B)False

Question 11

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 12

The cash flows from financing activities section of the statement of cash flows includes ________.

Accepted Answer

A)  labour expense 
B)  cost of raw materials 
C)  purchase of long-term assets 
D)  dividends paid

Question 13

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. 
-At the end of May, the firm has an ending cash balance of ________. (See Table 4.3)

Accepted Answer

A)  $9,000 
B)  $16,750 
C)  $14,250 
D)  $12,000

Question 14

A firm's operating cash flow (OCF) is the cash flow it generates from its normal operations: producing and selling its output of goods or services.

Accepted Answer

A) True 
 B)False

Question 15

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, 2015. 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 2015.
(j) The firm predicts a 4 percent net profit margin.
Balance Sheet
General Talc Mines
December 31, 2014 
-The pro forma current liabilities amount is ________. (See Table 4.5)

Accepted Answer

A)  $400,000 
B)  $450,000 
C)  $475,000 
D)  $500,000

Question 16

In the month of August, a firm had total cash receipts of $10,000, total cash disbursements of $8,000, depreciation expense of $1,000, a minimum cash balance of $3,000, and a beginning cash balance of $500. The ending cash balance for August totals ________.

Accepted Answer

A)  $1,500 
B)  $5,500 
C)  $2,500 
D)  $3,500

Question 17

Which of the following line items of the statement of cash flows must be obtained from the income statement ?

Accepted Answer

A)  accruals in current liabilities 
B)  interest expenses 
C)  accounts receivable 
D)  cash dividends paid on both preferred and common stocks

Question 18

In October, a firm had an ending cash balance of $35,000. In November, the firm had a net cash flow of $40,000. The minimum cash balance required by the firm is $25,000. At the end of November, the firm had ________.

Accepted Answer

A)  an excess cash balance of $50,000 
B)  an excess cash balance of $75,000 
C)  required total financing of $15,000 
D)  required total financing of $5,000

Question 19

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, 2015. 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 2015.
(j) The firm predicts a 4 percent net profit margin.
Balance Sheet
General Talc Mines
December 31, 2014 
-The pro forma total liabilities amount is ________. (See Table 4.5)

Accepted Answer

A)  $500,000 
B)  $550,000 
C)  $700,000 
D)  $650,000

Question 20

Since the percentage-of-sales method assumes that all the form's costs and expenses are variable, it tends to understate profits when sales are increasing and overstate profits when sales are decreasing.

Accepted Answer

A) True 
 B)False

Exam 4: Cash Flow and Financial Planning

A firm's free cash flow (FCF) equals the sum of operating cash flows, financing cash flows, and investing cash flows.

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

Under the judgmental approach for developing a pro forma balance sheet, the "plug" figure required to bring the statement into balance may be called the ________.

In the month of August, a firm had total cash receipts of $10,000, total cash disbursements of $8,000, depreciation expense of $1,000, a minimum cash balance of $3,000, and a beginning cash balance of $500. At the end of August, the firm ________.

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 ________.

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

For the year ended December 31, 2014, a corporation had cash flow from operating activities of $12,000, cash flow from investment activities of - $10,000, and cash flow from financing activities of $4,000. The statement of cash flows would show a ________.

If the net cash flow is less than the minimum cash balance, financing is required.

The more seasonal and uncertain a firm's cash flows, the greater the number of intervals and the shorter time intervals.

The cash flows from financing activities section of the statement of cash flows includes ________.

A firm's operating cash flow (OCF) is the cash flow it generates from its normal operations: producing and selling its output of goods or services.

In the month of August, a firm had total cash receipts of $10,000, total cash disbursements of $8,000, depreciation expense of $1,000, a minimum cash balance of $3,000, and a beginning cash balance of $500. The ending cash balance for August totals ________.

Which of the following line items of the statement of cash flows must be obtained from the income statement ?

In October, a firm had an ending cash balance of $35,000. In November, the firm had a net cash flow of $40,000. The minimum cash balance required by the firm is $25,000. At the end of November, the firm had ________.

Since the percentage-of-sales method assumes that all the form's costs and expenses are variable, it tends to understate profits when sales are increasing and overstate profits when sales are decreasing.