55. Since short-term financial forecasts predict expected future events, they should not be
influenced by recent financial statements.
56. A budget’s primary purpose is to provide managers with a financial summary of past
operations.
57. Forecasting means determining how closely the actual revenue and expense results
matched up with the predicted revenues and expenses.
58. Budgets assist managers in performing the functions of planning and control.
59. A company’s capital budget helps management plan for cash shortages or surpluses.
60. Preferred Pet Care, Inc., plans to purchase a second mobile unit next year that will cost
an estimated $55,000. The finance manager will include this projected purchase in the company’s
capital budget.
61. As a financial manager of a small firm, Jerry needs to determine how much his company
will have to borrow in the coming months, and when the borrowed funds will be needed. The
preparation of the cash budget will help.
62. Karen, a financial manager with Bigbux Incorporated, regularly compares actual revenues
and expenses against their projected values. After identifying areas with significant deviations
from planned values, she investigates to find the cause of these variances. Karen’s activities
represent the steps involved in the preparation of Bigbux’s capital budget.
63. Preferred Pet Care, Inc., a mobile pet care company, is planning for the future. The
company owners (two seasoned veterinarians) have brought together the vice president of
marketing and the director of information systems to talk about their expansion campaign, “We
come to you!” The talks are in the preliminary stages, so there is no need to concern the finance
team at this time because cash flow is currently not a problem.
64. Big Bear Ski Lodge owners know that the lifts on the north slope will need replacing in
the next two years. Three months prior to replacement, they will include the expenditure in their
cash budget.
65. Big Bear Ski Lodge’s cash budget for the month of March 2015 shows a negative amount.
Due to the fact that the months of January and February were quite lucrative and showed
positive amounts, the finance manager will not borrow any money in the short term to cover for
March’s deficit.
66. One very important responsibility of the finance department in both large and small
businesses involves acquiring needed funds to operate the business.
67. Finance managers need funds for capital purchases, but seldom for the day-to–day
operations.
68. The concept of the time value of money is based on the interest-earning power of money.
69. When his firm is owed money, the financial manager tries to collect as early as possible.
70. Financial managers generally oppose credit sales because of the impact on cash flows.
71. Effective financial managers evaluate customers’ ability to pay for merchandise purchased
on credit.
72. With added competition, firms prefer not to offer the availability of credit sales to their
customers.
73. Accepting credit cards, such as MasterCard or Visa, enables a firm to decrease the
expense of extending credit to customers.
74. The cost to a retailer of accepting credit cards is generally greater than the benefits
provided.
75. Acquiring and storing inventory represents a sizable expenditure for many businesses.
76. To improve cash flow and profitability, effective managers attempt to minimize the firm’s
investment in inventory.
77. Capital expenditures are major investments in long-term assets such as property and
equipment.
78. Sound financial management involves determining the most appropriate sources of funds
to meet short-term and long-term needs of an organization.
79. While firms finance their long-term needs with debt financing, their short-term needs are
served by equity financing.
80. Short-term financing refers to borrowed funds that must be repaid in a year or less.
81. Equity financing must be repaid.
82.
Equity financing
represents funds acquired from within the firm or through the sale of
stock, representing ownership in the company.
83. Business organizations always use long-term financing for (both) short-term and long-
term needs, but they never use short-term financing for (both) short-term and long-term needs.
84. Debt financing refers to funds acquired from the profitable operations of a firm or through
the sale of ownership in the firm.
85. Expansion into new markets (either domestic or global) is sometimes financed with long–
term funds.
86. Companies raising funds must choose either debt or equity sources, but not both.
87. Financial managers understand the time value of money. They try to maximize cash
expenditures, as opposed to minimizing cash expenditures.
88. Based on the time value of money, $100 received a year from today is worth more than
$100 received today.
89. Money has time value due to the fact that if invested, it has the potential to earn more
money at some point in the future.
90. Efficient cash management requires firms to pay their bills as quickly as possible, and
delay the collection of accounts receivable.
91. Successful businesses establish restrictive credit policies encouraging customers to pay
cash.
92. Offering cash discounts to customers who pay their bills by a certain date represents an
effective technique to manage accounts receivable.
93. An effective strategy to manage cash flows requires retail businesses to eliminate their
inventory.
94. A firm will choose to seek debt financing only for the purpose of paying for short-term
operating needs.
95. Equity financing may involve the sale of stock (representing ownership) to new investors.
96. As a financial manager for a large manufacturing firm, Gail evaluates the purchase of
expensive machinery and construction of new facilities. She is analyzing capital expenditure
proposals.
97. Anna operates a florist shop specializing in weddings. While she knows that her
competitors allow customers to buy on credit, she is concerned about the risk and expense of
unpaid customer accounts. One strategy to reduce risk and collect sales revenue more quickly
would be to accept bank-issued credit cards.
98. White Palace operates a chain of restaurants specializing in hamburgers. The corporation
plans to expand to new communities. The acquisition of land and construction of new restaurants
represent major capital expenditures.
99. After thoroughly studying the feasibility for expansion, Preferred Pet Care Inc., a mobile
pet care company that operates in the greater Chicago area, plans to offer a similar service in the
Indianapolis metropolitan area. This endeavor will require a large capital expenditure. Due to the
nature of this project, the firm will consider only equity financing.
100. Allison Robards, owner of Backstreet Books, an eclectic bookstore near a large university,
is seeking additional financing for books and CDs that she plans to buy and sell in the same
fiscal year. Even though it will be a sizeable investment in inventory, Allison is seeking short-term
financing.