Chapter 4 Long- and Short-Term Financial Planning

Principles of Managerial Finance, Brief Ed., 8e (Zutter/Smart)
Chapter 4 Long- and Short-Term Financial Planning

4.1 The financial planning process

1) Strategic financial plans are planned long-term financial actions and the anticipated financial
impact of those actions.
Answer: TRUE
Diff: 1
Topic: Financial Planning Process
Learning Obj.: LG 1
Learning Outcome: F-25
AACSB: Analytical Thinking

2) A financial planning process begins with short-term, or operating, plans and budgets that in
turn guide the formulation of long-term, or strategic, financial plans.
Answer: FALSE
Diff: 1
Topic: Financial Planning Process
Learning Obj.: LG 1
Learning Outcome: F-25
AACSB: Analytical Thinking

3) The key input to the short-term financial planning process is ________.
A) the audit report
B) the pro forma balance sheet
C) the sales forecast
D) the pro forma income statement
Answer: C
Diff: 1
Topic: The Sales Forecast
Learning Obj.: LG 1
Learning Outcome: F-25
AACSB: Analytical Thinking

4) Operating financial plans are planned short-term financial actions and the anticipated financial
impact of those actions.
Answer: TRUE
Diff: 1
Topic: Financial Planning Process
Learning Obj.: LG 1
Learning Outcome: F-25
AACSB: Analytical Thinking




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,5) The sales forecast and various forms of operating and financial data are the key outputs of the
short-run (operating) financial planning.
Answer: FALSE
Diff: 1
Topic: Short-Term (Operating) Financial Plans
Learning Obj.: LG 1
Learning Outcome: F-25
AACSB: Analytical Thinking

6) The financial planning process begins with ________ financial plans that in turn guide the
formation of ________ plans and budgets.
A) short-term; long-term
B) short-term; short-term
C) long-term; long-term
D) long-term; short-term
Answer: D
Diff: 1
Topic: Financial Planning Process
Learning Obj.: LG 1
Learning Outcome: F-25
AACSB: Analytical Thinking

7) Short-term financial plans and long-term financial plans generally cover periods ranging from
________ years and ________ years, respectively.
A) one to two; two to ten
B) five to ten; ten to twenty
C) zero to one; five to ten
D) one to ten; ten to fifteen
Answer: A
Diff: 1
Topic: Financial Planning Process
Learning Obj.: LG 1
Learning Outcome: F-25
AACSB: Analytical Thinking

8) The key aspects of a financial planning process are ________.
A) cash planning and investment planning
B) operations planning and investment planning
C) investment planning and profit planning
D) cash planning and profit planning
Answer: D
Diff: 1
Topic: Financial Planning Process
Learning Obj.: LG 1
Learning Outcome: F-25
AACSB: Analytical Thinking


2
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,9) Pro forma financial statements are used for ________.
A) cash budgeting
B) preparing financial statements
C) profit planning
D) auditing
Answer: C
Diff: 1
Topic: Financial Planning Process
Learning Obj.: LG 1
Learning Outcome: F-02
AACSB: Analytical Thinking

10) The primary purpose in preparing pro forma financial statements is ________.
A) for cash planning
B) to ensure the ability to pay dividends
C) to reduce risk
D) for profit planning
Answer: D
Diff: 1
Topic: Financial Planning Process
Learning Obj.: LG 1
Learning Outcome: F-02
AACSB: Analytical Thinking

11) ________ consider proposed fixed-asset outlays, research and development activities,
marketing and product development actions, capital structure, and major sources of financing.
A) Short-term financial plans
B) Long-term financial plans
C) Pro forma statements
D) Cash budgeting
Answer: B
Diff: 1
Topic: Financial Planning Process
Learning Obj.: LG 1
Learning Outcome: F-02
AACSB: Analytical Thinking




3
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, 12) ________ generally reflect(s) the anticipated financial impact of planned long-term actions.
A) A cash budget
B) Strategic financial plans
C) Operating financial plans
D) A pro forma income statement
Answer: B
Diff: 1
Topic: Long-Term (Strategic) Financial Plans
Learning Obj.: LG 1
Learning Outcome: F-02
AACSB: Analytical Thinking

13) The key outputs of the short-term financial planning process are the ________.
A) cash budget, pro forma income statement, and pro forma balance sheet
B) sales forecast and capital assets journal
C) sales forecast and schedule of changes in working capital
D) income statement, balance sheet, and source and use statement
Answer: A
Diff: 1
Topic: Short-Term (Operating) Financial Plans
Learning Obj.: LG 1
Learning Outcome: F-25
AACSB: Analytical Thinking

14) Key inputs to short-term financial planning are ________.
A) cash flow statements and income statement
B) pro forma financial statements
C) sales forecasts, and operating and financial data
D) leverage analysis and pro forma income statement
Answer: C
Diff: 1
Topic: Short-Term (Operating) Financial Plans
Learning Obj.: LG 1
Learning Outcome: F-25
AACSB: Analytical Thinking

15) Once sales are forecasted, ________ must be generated to estimate required raw materials.
A) a production plan
B) a cash budget
C) an operating budget
D) a pro forma statement
Answer: A
Diff: 1
Topic: Short-Term (Operating) Financial Plans
Learning Obj.: LG 1
Learning Outcome: F-25
AACSB: Analytical Thinking
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