Name: Steven P Sanderson IIDate: 7/14/06Class: Intro to Business BA11 5040Professor: McNamaraChapter 19Questions from page 588 Name three finance functions important to the firms overall operations and performance.The three functions important to the firms overall operations health would be forecastingfinancial needs, working with the budget process and establishing controls. Forecastingfinancial needs deals with short term and long term forecasting as well as cash flowforecasting. Short term forecasting predicts revenues, costs and expenses for a period of one year or less. This forecast is the foundation for most other financial plans, so itsaccuracy is critical, cash flow forecasts does exactly what it sounds like it does, forecastsfuture inflows and out flows of cash. Long term forecast predicts revenues, costs andexpenses for a period longer than 1 year and sometimes as far as 5 or 10 years into thefuture. This plays a crucial role as you would imagine in the companies long term goals.What are the three primary financial problems that cause firms to fail?The three problems that cause firms to fail are undercapitalization, poor control over cashflow and inadequate expense control. Undercapitalization is when a firm does not haveenough funds to adequately start the business.In what ways do short term and long term financial forecasts differ?Short term forecasts deal with issues a company may have no more than 1 year out. Along term forecast would deal with thing that could go out as far as 5 to 10 years andwould deal with issues such as what technology should they invest in, where should they be in 5 years, should they buy a new plant and so forth.What is the organizations purpose in preparing budgets? Can you identify three differenttypes of budgets?The organizations purpose in preparing budgets is to establish a viable financial plan thatsets forth managements expectations and on the basis of those expectations allocates theuse of specific resources throughout the firm. Without a budget in place a firm would go belly up in no time. A capital budget estimates a firms projected cash inflows andoutflows that the firm can use to plan for any cash shortages or surpluses during a given period (e.g. monthly, quarterly). Cash budgets are important guidelines that assistmanagers in anticipating borrowing, debt repayment, operating expenses, and short terminvestments. The operating budget or master budget as it is sometimes called tiestogether all the firms other budgets and summarizes the business’s proposed financialactivities. It can be defined more formally as the projection of dollar allocations tovarious costs and expenses needed to run or operate a business, given projected revenues.Finally a capital budget highlights a firms spending plans for major asset purchases thatoften require large sums of money. The capital budget primarily concerns itself with the purchase of such assets as property, buildings, and equipment.