c.
the strategic plan.
d.
none of the above.
55. The responsibility to assess the feasibility of a strategic plan given a firm’s existing and prospective
sources of funding falls primarily to the
a.
senior management of the firm.
b.
finance function within the firm.
c.
accounting function within the firm.
d.
marketing function within the firm.
56. Increases in assets must be accompanied by
a.
an increase in liabilities.
b.
an increase in owners equity.
c.
equal amounts of a) and b).
d.
some combination of a) and b).
57. For the prior year, Billy Bob’s Dress Shop had a net profit margin of 5% based upon a sales level of
$100,000. It’s total assets are $1,000,000 while its total equity is $300,000. If Billy Bob pays out 50%
of its net income in dividends, then what is the firm’s sustainable growth rate going forward?
a.
.84%
b.
8.00%
c.
8.40%
d.
none of the above
58. In the year just ended, Ellie May’s Power Tools had net income of $200,000 based upon a sales level
of $1,500,000. It’s total assets are $800,000 while its total equity is $700,000. If Ellie May pays out
0% of its net income in dividends, then what is the firm’s sustainable growth rate going forward?
a.
.40%
b.
38%
c.
40%
d.
none of the above
59. You are a financial consultant to a company that asks you what effect a change in leverage has on the
firm’s sustainable growth. Assuming all other things remain constant and if the percentage of assets
that are financed with debt increases, then how will that affect the firm’s sustainable growth rate?
a.
the sustainable growth rate will decrease
b.
the sustainable growth rate will increase
c.
the effect is indeterminable
d.
the sustainable growth rate will neither decrease or increase
60. A top-down approach to sales forecasting begins with
a.
a firmwide sales objective.
b.
a departmental head forecast.
c.
a talk with the customer.
d.
none of the above.
61. A bottom-up approach to sales forecasting begins with
a.
a firmwide sales objective.
b.
a departmental head forecast.
c.
a talk with the customer.
d.
none of the above.
62. The percentage-of-sales method for forecasting pro forma financial statements assumes
a.
that all income statement and balance sheet items grow in proportion to sales.
b.
that all income statement and balance sheet items grow at a growing proportion to sales.
c.
that all income statement and balance sheet items grow at a decreasing proportion to sales
d.
none of the above.
63. The Retail Company currently has assets of $3,000,000 and accounts payable of $200,000. The firm’s
sales last year were $10,000,000 with a net profit margin of 1%. If the firm anticipates next year’s
sales to grow by 8% over that of last year and the firm pays out 25% of its net income in dividends,
then what is the estimated external funds requirement for Retail?
a.
$16,000
b.
$81,000
c.
$143,000
d.
$240,000
64. A firm currently has $2,000,000 in assets and $1,000,000 in accounts payable. If the firm expects sales
to increase by 10% from last year to next year, then what is the estimated external funds required if the
firm pays all of its net income to shareholders?
a.
$100,000
b.
$1,000,000
c.
$2,000,000
d.
none of the above
65. Milton Gaming Company currently has assets of $3,000,000 and accounts payable of $200,000. The
firm’s sales last year were $10,000,000. If the firm anticipates next year’s sales to grow by 8% over
that of last year and the firm pays out 25% of its net income in dividends, then what net profit margin
is required in order to have the estimated external funds required be equal to zero?
a.
27.00%
b.
25.00%
c.
2.77%
d.
2.50%
66. Which of the following is a source of discretionary or external financing?
a.
a new debt issue
b.
accounts payable
c.
a new equity issue
d.
both a and c
67. If a company prefers to finance its required assets with a larger portion of short-term debt, then that
firm is utilizing a(n)
a.
conservative financing strategy.
b.
aggressive financing strategy.
c.
matching strategy.
d.
none of the above.
68. If a company prefers to finance its required assets with a small portion of short-term borrowings, then
that firm is utilizing a(n)
a.
conservative financing strategy.
b.
aggressive financing strategy.
c.
matching strategy.
d.
none of the above.
69. A firm that tends to finance permanent assets with long-term debt and seasonal assets with short-term
borrowing is following
a.
an aggressive financing strategy.
b.
a conservative financing strategy.
c.
a matching financing strategy.
d.
none of the above.
70. Cash receipts include
a.
cash sales.
b.
accounts receivable collections.
c.
both a and b
d.
none of the above.
71. The Little Toy Company will start doing business in February and needs to forecast its total cash
receipts for April. Its projected total sales are $15,000, $20,000, and $25,000 for February, March and
April, respectively. Little Toy anticipates that 50% of sales will be for cash and 1/2 of credit sales will
be collected the month after sale with the remained being collected 2 months after the sale. What the
forecasted cash receipts to Little Toy in April?
a.
$21,250
b.
$17,500
c.
$8,750
d.
none of the above
72. Marsha Start is looking to restart a home economics related business after an unfortunate incarceration.
She forecasts that sales for June, July, and August will be $100,000, $150,000, and $100,000,
respectively. Start expects for cash sales to make up 25% of the sales in each month with 90% of the
credit sales collected in the month after the sale and the remainder 2 months after the sale. What is
Start’s estimated total cash collections for August?
a.
$20,000
b.
$101,750
c.
$133,750
d.
none of the above
73. Marsha Start is looking to restart a home economics related business after an unfortunate incarceration.
She forecasts that sales for June, July, and August will be $100,000, $150,000, and $80,000,
respectively. Start expects for cash sales to make up 25% of the sales in each month with 90% of the
credit sales collected in the month after the sale and the remainder 2 months after the sale. What is
Start’s estimated total cash collections in August for June sales?
a.
$7,500
b.
$101,750
c.
$133,750
d.
none of the above
NARRBEGIN: Exhibit 15-1
Exhibit 15-1
You are working to forecast the cash disbursements for a manufacturing company. Sales are forecasted
to be $175,000, $200,000, $225,000, and $250,000 for January, February, March, and April,
respectively. The firm purchases 25% of each amount in cash and will then pay 70% of the credit
purchase in the month following the purchase with the remainder paid in full two months after the
purchase.
NARREND
74. Refer to Exhibit 15-1. What is the amount of February sales to be collected in March for the company?
a.
$206,625
b.
$105,000
c.
$56,250
d.
none of the above
75. Refer to Exhibit 15-1. What is the amount of February sales to be collected in April for the company?
a.
$206,625
b.
$105,000
c.
$45,000
d.
none of the above
76. Which of the following roles does finance play in long-term planning?
a.
Assessing the likelihood that a given strategic objective can be achieved.
b.
Evaluating the firm’s existing and prospective sources of funding.
c.
Preparing and updating cash budgets to ensure the firm does not face a liquidity crisis.
d.
all of the above
e.
(b) and (c) only
77. Which of the following roles does finance play in long-term planning?
a.
Identifying problems that could develop if the firm’s strategic plans do not develop as
expected.
b.
Evaluating the firm’s existing and prospective sources of funding.
c.
Risk management
d.
All of the above
e.
(a) and (b) only
78. Which of the following is not a popular growth target?
a.
Return on Investment
b.
Economic Value Added
c.
Market Value Added
d.
Growth in Sales or Assets
79. Economic Value Added (EVA) is:
a.
the difference between net income and the cost of goods sold.
b.
the difference between operating profit and the cost of funds.
c.
the difference between net income and the cost of funds.
d.
the difference between net operating profits after taxes and the cost of funds.
e.
none of the above
80. Which of the following statements is false?
a.
The EVA method is conceptually valid but due to the disconnect it has between
accrual-based accounting and economic value coupled with increased computational
complexity, it is not the most popular method for growth planning.
b.
Firms generally assumed that if ROI is greater than the firm’s cost of capital then
shareholder value will be created.
c.
One of the typical growth targets is depreciation.
d.
The popular growth targets tend to rely on accounting data and are typically measured on
an annual basis.
81. Which of the following statements is false?
a.
A firm should set its growth target equal to its sustainable growth rate.
b.
Generating a higher profit margin provides fuel for a higher sustainable growth rate,
holding everything else equal.
c.
The sustainable growth concept can highlight tensions associated with “competing”
objectives within the firm.
d.
The primary advantage of the sustainable growth model is its simplicity.
82. The cash budget:
a.
is the same as a bank statement.
b.
typically spans a one-year time period.
c.
relies upon the sales forecast as a key input.
d.
is a statement of the firm’s planned inflows and outflows of cash.
e.
All of the above except (a)
83. If a firm’s ending cash balance exceeds the desired minimum cash balance:
a.
the firm has an excess cash balance that it can invest in short-term marketable securities.
b.
the firm has a short-term financing need that it can meet using notes payable.
c.
the firm has an excess cash balance that it can meet using notes payable.
d.
the firm has a short-tern financing need that it can meet using marketable securities.
84. Which of the following statements is/are true?
a.
Almost any functional area in the firm can affect, or be affected by, the cash budget.
b.
The cash budget typically only impacts the financing area of the firm.
c.
Even if a firm’s cash budget shows that it will have a month-end cash surplus, it may be
faced with intramonth cash shortages.
d.
All of the above statements are true.
e.
Only (a) and (d) are true.
85. Consider the cash receipts projections of Emma Inc. that is developing a cash budget for October ,
November and December; sales in August and September were $200,000 and $500,000 respectively.
The forecast sales are $800,000, $900,000 and $200,000 for October, November and December
respectively. 15 % of sales are cash sales and 85% are credit sales; collects about 60% of each
month’s sales in the next month but waiting until the following month for the remaining 25% of sales.
Bad debts are negligible. The Firm is expectsing cash dividend of $25,000 in December from a
subsidiary.What are the accounts receivable collected in October? (In thousands)
a.
$350
b.
$470
c.
$300
d.
$0
86. Consider the cash receipts projections of Emma Inc. that is developing a cash budget for October ,
November and December; sales in August and September were $200,000 and $500,000 respectively.
The forecast sales are $800,000, $900,000 and $200,000 for October, November and December
respectively. 15 % of sales are cash sales and 85% are credit sales; collects about 60% of each
month’s sales in the next month but waiting until the following month for the remaining 25% of sales.
Bad debts are negligible. The Firm is expectsing cash dividend of $25,000 in December from a
subsidiary.What are the accounts receivable collected in November? (In thousands)
a.
$470
b.
$605
c.
$765
d.
$135
Aug
Sep
Oct
Nov
Dec
Previous
87. Consider the cash receipts projections of Emma Inc. that is developing a cash budget for October ,
November and December; sales in August and September were $200,000 and $500,000 respectively.
The forecast sales are $800,000, $900,000 and $200,000 for October, November and December
respectively. 15 % of sales are cash sales and 85% are credit sales; collects about 60% of each
month’s sales in the next month but waiting until the following month for the remaining 25% of sales.
Bad debts are negligible. The Firm is expectsing cash dividend of $25,000 in December from a
subsidiary.What are the total cash receipts in October? (In thousands)
a.
$630
b.
$765
c.
$470
d.
$765
Aug
Sep
Oct
Nov
Dec
Previous
2 Prior
Total rec. Collected
Other cash Rec
88. Consider the cash receipts projections of Emma Inc. that is developing a cash budget for October ,
November and December; sales in August and September were $200,000 and $500,000 respectively.
The forecast sales are $800,000, $900,000 and $200,000 for October, November and December
respectively. 15 % of sales are cash sales and 85% are credit sales; collects about 60% of each
month’s sales in the next month but waiting until the following month for the remaining 25% of sales.
Bad debts are negligible. The Firm is expectsing cash dividend of $25,000 in December from a
subsidiary.What are the total cash receipts in November? (In thousands)
a.
$605
b.
$470
c.
$765
d.
$740
89. Consider the cash receipts projections of Emma Inc. that is developing a cash budget for October ,
November and December; sales in August and September were $200,000 and $500,000 respectively.
The forecast sales are $800,000, $900,000 and $200,000 for October, November and December
respectively. 15 % of sales are cash sales and 85% are credit sales; collects about 60% of each
month’s sales in the next month but waiting until the following month for the remaining 25% of sales.
Bad debts are negligible. The Firm is expectsing cash dividend of $25,000 in December from a
subsidiary.What are the total cash receipts in November? (In thousands)
a.
$795
b.
$770
c.
$740
d.
$825
90. Consider the cash receipts projections of Roxy Inc. that is developing a cash budget for October ,
November and December; sales in August and September were $600,000 and $500,000 respectively.
The forecast sales are $400,000, $300,000 and $200,000 for October, November and December
respectively. 20 % of sales are cash sales and 80% are credit sales; collects about 70% of each
month’s sales in the next month but waiting until the following month for the remaining 10% of sales.
Bad debts are negligible. The Firm is expectsing cash dividend of $10,000 in December from a
subsidiary. (In thousands)
a.
$410
b.
$490
c.
$350
d.
$390
91. Consider the cash receipts projections of Roxy Inc. that is developing a cash budget for October ,
November and December; sales in August and September were $600,000 and $500,000 respectively.
The forecast sales are $400,000, $300,000 and $200,000 for October, November and December
respectively. 20 % of sales are cash sales and 80% are credit sales; collects about 70% of each
month’s sales in the next month but waiting until the following month for the remaining 10% of sales.
Bad debts are negligible. The Firm is expectsing cash dividend of $10,000 in December from a
subsidiary.What are the accounts receivable collected in October? (In thousands)
a.
$410
b.
$490
c.
$350
d.
$390
92. Consider the cash receipts projections of Roxy Inc. that is developing a cash budget for October ,
November and December; sales in August and September were $600,000 and $500,000 respectively.
The forecast sales are $400,000, $300,000 and $200,000 for October, November and December
respectively. 20 % of sales are cash sales and 80% are credit sales; collects about 70% of each
month’s sales in the next month but waiting until the following month for the remaining 10% of sales.
Bad debts are negligible. The Firm is expectsing cash dividend of $10,000 in December from a
subsidiary.What are the accounts receivable collected in November? (In thousands)
a.
$330
b.
$490
c.
$255
d.
$ 60
93. Consider the cash receipts projections of Roxy Inc. that is developing a cash budget for October ,
November and December; sales in August and September were $600,000 and $500,000 respectively.
The forecast sales are $400,000, $300,000 and $200,000 for October, November and December
respectively. 20 % of sales are cash sales and 80% are credit sales; collects about 70% of each
month’s sales in the next month but waiting until the following month for the remaining 10% of sales.
Bad debts are negligible. The Firm is expectsing cash dividend of $10,000 in December from a
subsidiary. What are the total cash receipts in October? (In thousands)
a.
$330
b.
$490
c.
$255
d.
$ 60
94. Consider the cash receipts projections of Roxy Inc. that is developing a cash budget for October ,
November and December; sales in August and September were $600,000 and $500,000 respectively.
The forecast sales are $400,000, $300,000 and $200,000 for October, November and December
respectively. 20 % of sales are cash sales and 80% are credit sales; collects about 70% of each
month’s sales in the next month but waiting until the following month for the remaining 10% of sales.
Bad debts are negligible. The Firm is expectsing cash dividend of $10,000 in December from a
subsidiary. What are the total cash receipts in November? (In thousands)
a.
$330
b.
$490
c.
$255
d.
$ 60
95. Consider the cash receipts projections of Roxy Inc. that is developing a cash budget for October ,
November and December; sales in August and September were $600,000 and $500,000 respectively.
The forecast sales are $400,000, $300,000 and $200,000 for October, November and December
respectively. 20 % of sales are cash sales and 80% are credit sales; collects about 70% of each
month’s sales in the next month but waiting until the following month for the remaining 10% of sales.
Bad debts are negligible. The Firm is expectsing cash dividend of $10,000 in December from a
subsidiary.What are the total cash receipts in December? (In thousands)
a.
$300
b.
$290
c.
$250
d.
$340