Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the
question.
1)
1)
For the company in the book, which month has the highest positive cash flow?
A)
October
B)
May
C)
January
D)
June
Answer:
D
Explanation:
2)
2)
For the company in the book, which of the projects is projected to be underbilled at the end of next
year?
A)
Project 1
B)
Project 2
C)
Project 3
D)
Project 4
Answer:
D
Explanation:
3)
3)
For the company in the book, which month had the highest revenues for next year?
A)
April
B)
January
C)
March
D)
February
Answer:
C
Explanation:
4)
4)
Which of the following is considered a cash flow from operations?
A)
Other income
B)
Project overhead
C)
Income taxes
D)
Other expenses
Answer:
B
Explanation:
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5)
5)
For the company in the book, which month had the highest labor costs for next year?
A)
March
B)
February
C)
April
D)
January
Answer:
C
Explanation:
6)
6)
Which of the following is not a part of the first step in developing an annual cash flow projection?
A)
Project revenues
B)
Project income taxes
C)
Project construction costs
D)
Project cash disbursements for individual projects
Answer:
B
Explanation:
7)
7)
For the company in the book, which month has the largest bank account balance?
A)
July
B)
August
C)
September
D)
April
Answer:
A
Explanation:
8)
8)
Which of the following would be completed during the second step in developing an annual cash
flow projection?
A)
Project income taxes
B)
Project cash disbursements associated with general overhead
C)
Project cash disbursements for individual projects
D)
Project revenues
Answer:
B
Explanation:
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9)
9)
Why should companies try to anticipate the need for cash well in advance?
A)
Funding is only given out quarterly.
B)
It is easier to get funding when a company does not need it.
C)
It takes time to arrange for funding.
D)
B and C
Answer:
D
Explanation:
10)
10)
Which of the following would be included in the final step in developing an annual cash flow
projection?
A)
Check the monthly minimum bank balance
B)
Run what–if simulations
C)
Run sensitive analysis
D)
B and C
Answer:
D
Explanation:
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
11)
What is the purpose of sensitive analysis?
Answer:
A sensitive analysis is used to determine which input variables the cash flow analysis is most sensitive
to.
12)
How must the general overhead budget be prepared for use in preparing the annual cash flow?
Answer:
To prepare an annual cash flow, the general overhead budget must be prepared on a monthly basis
and must be the general overhead budget prepared for cash flow purposes.
13)
What may need to happen if a company cannot raise the cash needed to meet the company’s target levels for
revenues, gross profit margin, general overhead costs, and profit from operations?
Answer:
Sometimes management may find that the target levels need to be revised because it cannot obtain the
required cash.
14)
When would the balances at the end of the month be representative of the company’s needs for cash during the
month?
Answer:
For construction companies whose cash receipts are distributed evenly throughout the month, the
balances at the end of the month are often fairly representative of the entire month.
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15)
What two things must be kept in mind when developing the company’s cash flow projection from project cash
flow projections?
Answer:
First, some of the projects will start before or finish after the period for which the company’s cash flow
is being projected. Second, the revenues, construction costs, cash receipts, and cash disbursements must
be calculated for each project and then combined because the projects often have different payment
schedules or retention rates.
16)
How may a representative monthly bank balance be calculated?
Answer:
For many companies, a representative balance may be calculated by averaging the beginning bank
balance with the bank balance just before the revenues begin to occur.
17)
Why is it important for companies with cash surpluses to prepare a cash flow projection?
Answer:
For companies with a surplus of cash, the preparation of a cash flow projection allows the company to
wisely plan the investment of its surplus cash.
18)
How do negative cash flows affect the company’s cash balance?
Answer:
A negative cash flow for the month will reduce the company’s cash balance.
19)
Why should companies update their cash flow projection a few months before the end of the tax year?
Answer:
It is a good idea to update this projection a few months before the end of the tax year, thus allowing
management time to implement year–end cash management and tax strategies.
20)
Why must a work–on–hand worksheet (as shown in Figure 14–2 in the text) be prepared when preparing a
company’s cash flow projects?
Answer:
To project the underbillings and overbillings so that the revenues can be adjusted for the change in
underbillings and overbillings.
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Answer Key
Testname: C14
1)
D
2)
D
3)
C
4)
B
5)
C
6)
B
7)
A
8)
B
9)
D
10)
D
11)
A sensitive analysis is used to determine which input variables the cash flow analysis is most sensitive to.
12)
To prepare an annual cash flow, the general overhead budget must be prepared on a monthly basis and must be the
general overhead budget prepared for cash flow purposes.
13)
Sometimes management may find that the target levels need to be revised because it cannot obtain the required cash.
14)
For construction companies whose cash receipts are distributed evenly throughout the month, the balances at the end
of the month are often fairly representative of the entire month.
15)
First, some of the projects will start before or finish after the period for which the company’s cash flow is being
projected. Second, the revenues, construction costs, cash receipts, and cash disbursements must be calculated for each
project and then combined because the projects often have different payment schedules or retention rates.
16)
For many companies, a representative balance may be calculated by averaging the beginning bank balance with the
bank balance just before the revenues begin to occur.
17)
For companies with a surplus of cash, the preparation of a cash flow projection allows the company to wisely plan the
investment of its surplus cash.
18)
A negative cash flow for the month will reduce the company’s cash balance.
19)
It is a good idea to update this projection a few months before the end of the tax year, thus allowing management
time to implement year–end cash management and tax strategies.
20)
To project the underbillings and overbillings so that the revenues can be adjusted for the change in underbillings and
overbillings.
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