Week 2 Quiz - quiz PDF

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1. Miller Metalworks had sales in November of $60,000, in December of $40,000, and in January of $80,000. Miller collects 40% of sales in the month of the sale and 60% one month after the sale. Calculate Miller's cash receipts for January. Answer: $56,000 2. Because financial planning usually takes place in a highly uncertain environment, Answer: it is important to develop contingency plans to respond to unexpected events. 3. Short−term financial plans span a period of Answer: a year or less 4. A typical corporate planning process will encompass Answer: all of the above 5. The financial planning process is the responsibility of Answer: financial analysts, marketing staff, and operations staff interacting as a group 6. The first step involved in predicting financing needs is Answer: projecting the firm’s sales revenues and expenses over the planning period 7. Holding other things constant, a firm's "discretionary financing needed" (the additional funds required in order to finance the firm) would be reduced if the firm experienced an increase in which of the following? Answer: The profit margin 8. Long−term financial plans must include capital expenditures. Answer: True 9. When using the percent of sales method to construct pro forma balance sheets, assets must equal liabilities plus equity before discretionary financial needs can be projected. Answer: False 10. Harrison Electronics, Inc. operates a chain of electrical lighting and fixture distribution centers throughout northern Arizona. The firm is anticipating expansion of its sales in the coming year as a result of recent population growth trends. The firm's financial analyst has prepared pro forma balance sheets that reflect three different rates of growth in firm sales for the coming year and the corresponding non-discretionary sources of financing the firm expects to have available, as follows:

Harrison Electronics, Inc. Pro Forma Balance Sheet for 2014 Calculation Current assets Net fixed assets Total Accounts payable Accrued expenses Notes payable Current liabilities

No change

Alternative Growth Rates 10% 20% 40% $13,200,000 $14,400,000 $16,800,000 $19,800,000 $21,600,000 $25,200,000 $33,000,000 $36,000,000 $42,000,000 $2,200,000 $2,400,000 $2,800,000 2,200,000 2,400,000 2,800,000 1,500,000 1,500,000 1,500,000 $5,900,000 $6,300,000 $7,100,000

Long-term debt No change Total liabilities Common stock (par) No change Paid-in capital No change Retained earnings Common equity Projected sources of financing Discretionary financing needs Total financing needs=Total assets

6,500,000 $12,400,000 $1,000,000 2,000,000 15,550,000 $18,550,000 $30,950,000

6,500,000 $12,800,000 $1,000,000 2,000,000 15,600,000 $18,600,000 $31,400,000

6,500,000 $13,600,000 $1,000,000 2,000,000 15,700,000 $18,700,000 $32,300,000

Answer: The discretionary financing needs for a 10% growth scenario are $ 2050000 (Round to the nearest dollar.) The discretionary financing needs for a 20% growth scenario are $ 4600000 (Round to the nearest dollar.) The discretionary financing needs for a 40% growth scenario are $ 9700000 (Round to the nearest dollar.) b. What potential sources of financing are there for Harrison to fulfill its needs for discretionary financing? (Select all the choices that apply below.) Long-term debt. Common stock. Retained earnings. Notes payables 11. Which of the following will increase cumulative borrowing in the cash budget? Answer: Slower collections from customers 12. Major differences between a cash budget and a pro forma income statement include Answer: B. The emphasis is on cash collections for sales and cash payments for expenses. C. The cash budget includes some items that do not appear on the income statement such as dividend payments. D. Both B and C. 13. Which of the following is always a non−cash expense? Answer: Depreciation 14. Depreciation expense is a deduction from cash flow in the cash budget.

Answer: False...