9/22/22, 4:17 PM W4-W6 C4 CONCEPT & FSA PROBLEM

W4-W6 C4 CONCEPT & FSA PROBLEM

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The weakness of the judgmental approach to preparing a pro forma * 1 point

balance sheet is _

the assumption that the values of certain accounts can be forced to take on desired
levels

ease of calculation and preparation

the assumption that the firm's past financial condition is an accurate predictor of its
future

the assumption that the firm faces linear total revenue and total operating cost
functions

Which one of these best describes the relationship between net working * 1 point
capital (NWC) and sales?  

NWC changes by a greater percentage than the change in sales, but the change is
linear in nature.

NWC will change by the same percentage as sales.

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NWC changes in direct relation to sales, but the change may be less than
proportional with sales.

NWC is unaffected by changes in the sales level.

The key aspects of a financial planning process are ________. * 1 point

cash planning and profit planning

operations planning and investment planning

cash planning and investment planning

investment planning and profit planning

The ________ method of developing a pro forma balance sheet estimates * 1 point
values of certain balance sheet accounts while external financing is used
as a balancing, or plug, figure.

cash flow

percent-of-sales

judgmental

accrual

1. The net fixed asset investment (NFAI) is defined as the change in net * 1 point
fixed assets plus depreciation.                                                                             2.
The net current asset investment (NCAI) is defined as the change in current
assets minus the change in sum of the accounts payable and accruals

first statement is true

both statements are false

b h
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both statements are true

first statement is false

All of the following are part of the financial planning process except:   * 1 point

analyzing investment and financing options.

deciding which risks are worth taking.

projecting the future.

minimizing risk.

1. The statement of cash flows allows the financial manager and other * 1 point
interested parties to analyze a firm's past and possibly future profitability.    
                                                                       2. Net operating profit after taxes
(NOPAT) represents a firm's earnings after deducting both interest and
taxes.

both statements are false

first statement is true

first statement is false

both statements are true

Pro formas refer to: * 1 point

plans developed by a certified financial planner

the inputs in the financial planning process.

projected financial statements

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deviations in results from previous financial plans.

Given a financial manager's preference for faster receipt of cash flows, * 1 point
________.

a shorter depreciable life is preferred to a longer one

the manager is not concerned with depreciable life, because once purchased,
depreciation is considered a sunk cost

a longer depreciable life is preferred to a shorter one

the manager is not concerned with depreciable life, because depreciation is a

noncash expense

One way a firm can reduce the amount of cash it needs in any month is to * 1 point

speed up payment of accounts payable

slow down the payment of receivables

delay the payment of wages

accrue taxes

 In the next planning period, a firm plans to change its policy of all cash * 1 point
sales and initiate a credit policy requiring payment within 30 days. The
statements that will be directly affected immediately are the ________.

pro forma income statement, balance sheet, and cash budget

cash budget and statement of retained earnings

pro forma income statement and pro forma balance sheet

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pro forma balance sheet and cash budget

A financial planning model will generally include all of the following except * 1 point

the:

listing of the firm's goals.

projected sales.

required increase in fixed assets.

forecast increase in retained earnings.

Which of the following would be the least likely to utilize a cash budget * 1 point

lenders

public investors

top management

middle management

The first step in constructing a financial planning model is to:   * 1 point

project future cash flows from operations.

determine what additional fixed assets the company will need.

determine the mix of securities that the company will need to issue.

determine the amount of external financing that is needed.

This is a required question

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A firm plans to retire outstanding bonds in the next planning period. Which * 1 point

of the following gets affected?

previous year income statement and statement of retained earnings

pro forma income statement and pro forma balance sheet

previous year income statement and previous year balance sheet

pro forma income statement and proxy statement

The flexibility of financial plans is evident in the extent that:   * 1 point

actual profits will deviate from projected profits.

use of the plans can be extended.

planning output is the same regardless of economic conditions.

the plans can be adapted when conditions change.

1. A firm's free cash flow (FCF) represents the amount of cash flow * 1 point
available to investors (stockholders and bondholders) after the firm has
met all operating needs and after having paid for net fixed asset
investments and net current asset investments                                                  
                          2. Operating cash flow (OCF) is equal to a firm's net
operating profits after taxes minus all non-cash charges.

first statement is false

first statement is true

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both statements are true

both statements are false

Which one of the following is not a reason for compiling financial plans?   * 1 point

Forcing consistency

Calculating the optimal plan

Considering options

Contingency planning

Outputs from a financial plan would include such items as:   * 1 point

a percentage of sales planning model.

a pro forma statement of sources and uses of cash.

sales growth forecasts.

the firm's current financial statements.

In a period of rising sales utilizing past cost and expense ratios (percent-of- * 1 point
sales method), when preparing pro forma financial statements and
planning financing, will tend to ________.

understate retained earnings and understate the additional financing needed

overstate retained earnings and overstate the additional financing needed

understate retained earnings and overstate the financing needed

overstate retained earnings and understate the financing needed

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overstate retained earnings and understate the financing needed

Utilizing past cost and expense ratios (percent-of-sales method) when * 1 point
preparing pro forma financial statements will tend to ________.

neither understate nor overstate profits

overstate profits when sales are increasing

understate profits when sales are increasing

understate profits when sales are decreasing

In general, firms that are subject to a high degree of ________, relatively * 1 point
short production cycles, or both, tend to use shorter planning horizons.

financial certainty

profitability

financial planning

operating certainty

1. Free cash flow (FCF) is the cash flow a firm generates from its normal * 1 point
operations; calculated as EBIT minus taxes plus depreciation                          
                                                  2. A firm's operating cash flow (OCF) is the
cash flow it generates from its normal operations: producing and selling its
output of goods or services.

both statements are true

first statement is false

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first statement is true

both statements are false

Alternative "what if?" scenarios can be easily accommodated in financial * 1 point

planning by use of

sustainable growth models.

spreadsheet programs.

leverage ratios

planning outputs.

Which one of the following is not typically included among the three major * 1 point
components of a financial planning model?

Outputs: pro formas, financial ratios, sources and uses of cash

Planning model: equations specifying key relationships

Inputs: current financial statements, forecasts of key variables

Shareholders’ risk preferences

A firm's final sales forecast is usually a function of * 1 point

its net income

the salesperson's estimates of demand

internal and external factors in combination

its accounts receivable

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The percent-of-sales method to prepare a pro forma income statement * 1 point

assumes a firm has no fixed costs. Therefore, the use of the past cost and
expense ratios generally tends to ________ profits when sales are
increasing.

have no effect on

accurately predict

overstate

understate

A firm has prepared the coming year's pro forma balance sheet resulting in * 1 point
a plug figure in a preliminary statement—called the external financing
required—of negative P250,000. The firm may prepare to ________.

sell common stock totaling P250,000

do nothing; the balance sheet balances

arrange for a loan of P250,000

invest in marketable securities totaling P250,000

In preparing a cash budget, the ________ seasonal and uncertain a firm's * 1 point
cash flows, the ________ the number of budgeting intervals it should use.

less; greater

more; greater
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more; greater

less; fewer

more; fewer

A projected excess cash balance for the month may be * 1 point

financed with short-term securities

invested in marketable securities

invested in long-term securities

financed with long-term securities

Which of the following is a source of cash flows? * 1 point

decrease in notes payable

increase in marketable securities

increase in accounts payable

repurchase of stock

The firm's current financial statements would be included in:   * 1 point

the planning model for the financial plan.

no part of the financial plan.

the outputs of the financial plan.

the inputs of a financial plan.

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If a firm expects short-term cash surpluses, it can plan ________. * 1 point

leverage decisions

short-term borrowing

long-term investments

short-term investments

An internal forecast is based on ________. 1 point

the prediction of a firm's sales over a given period through surveys sent to financial
analysts

the relationships between a firm's sales and certain economic indicators

developing the pro forma income statement to forecast sales and then express the
various income statement items as percentage of projected sales

a buildup, or consensus, of sales forecasts through a firm's own sales channels,

adjusted for additional factors such as production capabilities

Clear selection

The final variable to have its value determined in a financial plan is often * 1 point
referred to as the:  

net income.

growth forecast.

balancing item
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ba a c g te

retained earnings plowback.

The percentage-of-sales method of preparing pro forma income statements * 1 point

assumes that

all costs inversely vary with sales

sales are fixed

all costs are independent

all costs are variable

Of the following components of a cash budget, generally the easiest to * 1 point

estimate would be the

cash sales

cash receipts

cash disbursements

month-to-month short-term borrowing

When most of the elements of a financial plan are related to sales levels, * 1 point
the plan is:  

less likely to be effective.

using sales as a plug figure.

not adjusted for inflation

a percentage of sales model.

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a pe ce tage o sa es ode .

Once sales are forecasted, ________ must be generated to estimate required * 1 point
raw materials.

a purchases budget

a production plan

an operational plan

a cash budget

Which of the following represents a way of coping with uncertainty in a * 1 point

cash budget?

always using the prior year's data for estimates of the future

developing a pro forma income statement to forecast sales and then express the
various income statement items as percentage of projected sales

using scenario analysis, or "what if" approach, to analyze cash flows under a variety
of circumstances

careful estimation of cash budgets outputs

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