24) What are the two steps in making a cash flow projection?
A) Projecting cash receipts and subtracting expected cash expenses
B) Projecting expected cash expenses and subtracting inventory cost
C) Projecting receipts and paying bills before they are due
D) Projected bills and adding cash receipts
E) Past cash receipts and subtracting future cash receipts
Learning Obj.: LO 4
AACSB: Analytical thinking
25) Which of the three financial statements an entrepreneur prepares is used to guide the day-to-
day operations of the business?
A) The cash flow statement
B) The balance sheet
C) The income statement
D) All of the above
E) None of the above
Learning Obj.: LO 1
AACSB: Analytical thinking
26) Businesses typically sell for several times their income, because the future stream of income
is being sold. The price of the business is its ________.
A) Present value
B) Future value
C) Five time earnings
D) Past value
E) Value prior to start-up
Learning Obj.: LO 4
AACSB: Analytical thinking
27) If Tara invests $10,000 at 5% interest for 5 years, what will her earnings be at the end?
A) $2,762.81
B) $12,500
C) $607.75
D) $45,000.65
E) $3,098.32
Learning Obj.: LO 4
AACSB: Application of knowledge
7
28) The present value of money is based upon the value of your “next-best” opportunity for
investment at a particular ROI. If this value is 10%, it is better to get $10,000 at the end of the
first year than ________ today.
A) $8,800
B) $9,500
C) $10,000
D) All of the above
E) None of the above
Learning Obj.: LO 4
AACSB: Analytical thinking
29) Which business is most likely to have cash flow that is cyclical?
A) Tax return preparation business
B) Gas station
C) Pet food business
D) Grocery store
E) Pharmacy
Learning Obj.: LO 2
AACSB: Analytical thinking
30) To manage cash flow, you should ________ and then subtract expenses you expect to incur.
A) Project cash receipts
B) Project net income
C) Project gross sales
D) Project gross receipts
E) Project gross liabilities
Learning Obj.: LO 4
AACSB: Analytical thinking
31) Pilferage is theft of inventory.
Learning Obj.: LO 4
AACSB: Analytical thinking
32) Keeping timely and accurate inventory records is vital to controlling inventory costs.
Learning Obj.: LO 4
AACSB: Analytical thinking
8
33) An example of seasonal business is a card shop during Mother’s Day or Christmas.
Learning Obj.: LO 4
AACSB: Application of knowledge
34) The last section of an income statement shows the net change in cash flow. This tells the
entrepreneur whether the business had a positive or negative cash flow that month.
Learning Obj.: LO 1
AACSB: Analytical thinking
35) You can calculate your cash balance by subtracting cash disbursements from accounts
receivable receipts.
Learning Obj.: LO 2
AACSB: Analytical thinking
36) There is often a time lag between making a sale and getting paid. This is evidence that cash
flow is not documented on the income statement.
Learning Obj.: LO 1
AACSB: Analytical thinking
37) All of the receivables owed to you will be collected sooner or later.
Learning Obj.: LO 4
AACSB: Analytical thinking
38) Inflow of cash is money coming into the business, usually from sales.
Learning Obj.: LO 4
AACSB: Analytical thinking
39) Cash is essential for the initial investment, ongoing operations, and growth of a business.
Learning Obj.: LO 1
AACSB: Analytical thinking
9
40) The cash flow statement summarizes the cash coming into and going out of the business over
a specified time frame.
Learning Obj.: LO 1
AACSB: Analytical thinking
41) You will have few opportunities to negotiate vendor payments.
Learning Obj.: LO 4
AACSB: Analytical thinking
42) Inventory does not tie up cash. You should have as much inventory on hand as possible.
Learning Obj.: LO 4
AACSB: Analytical thinking
43) Noncash expenses are expenses recorded as adjustments to asset values such as depreciation.
Learning Obj.: LO 2
AACSB: Analytical thinking
44) Factoring provides cash to companies in exchange for the rights to cash that will be collected
from their customers.
Learning Obj.: LO 4
AACSB: Analytical thinking
45) All profit earned by a sole proprietorship belongs to the owner and affects his/her tax
liability.
Learning Obj.: LO 5
AACSB: Analytical thinking
46) What are the tax issues for the various legal structures your business can have?
Learning Obj.: LO 5
AACSB: Analytical thinking
10
47) What are the rules to keep cash flowing so that you always have enough cash to pay your
bills?
Learning Obj.: LO 2
AACSB: Analytical thinking
48) How could the income statement potentially confuse a business owner?
Learning Obj.: LO 1
AACSB: Reflective thinking
49) Which of the following would be the most or least seasonal businesses and therefore have the
most or least cyclical cash flow: a. snow plowing; b. high school senior photography; c. cleaning
and repairing lawn mowers; d. evening and weekend babysitting? Why?
Learning Obj.: LO 2
AACSB: Analytical thinking
50) Why would collecting all money owed within 30 days and paying bills in 90 days help
protect a business? Is there a potential downside to this behavior? What is it and why?
Learning Obj.: LO 4
AACSB: Analytical thinking
11