D076 Unit 5 Practice Questions
A company calculated variances of a budget and actual cash flows that indicate the firm's strengths and
weaknesses in cash flows and its budgeting process.
Which major use of cash budgeting is this an example of?
-Corrective action
-Standardization
-Assessment of future needs
-Performance evaluation - ✔✔✔D
A company is developing a financial forecast for the next year. The company plans to implement a new
factory that will increase production and resulting sales by 20%.
Since the company's assets are increasing significantly, what else must increase?
-Gross margin
-Financing
-Profit turnover
-Accounts receivable turnover - ✔✔✔B
A firm had sales of $100,000 this month. However, the firm received only $90,000 in cash from sales.
Why would the firm receive $10,000 less cash than its monthly sales?
-Because the firm paid down $10,000 on a loan
-Because the firm paid cash for inventory purchased
-Because the firm purchased inventory on credit this month
-Because the firm did not make all sales on cash - ✔✔✔D
A firm is currently operating at 75% capacity with current sales of $34 million.
Will the firm need to acquire additional fixed assets if its sales are predicted to increase by $6 million
next year?
,-No, because the increase in sales will exceed the firm's sales capacity.
-No, because the increase in sales will not exceed the firm's sales capacity.
-Yes, because the increase in sales will not exceed the firm's sales capacity.
-Yes, because the increase in sales will exceed the firm's sales capacity. - ✔✔✔B
An employee was recently hired as a financial analyst and asked to create a cash budget for the
employee's division for the next year.
Which component should the employee exclude from the budget
-Payments to suppliers that will be made over the next six months
-Purchase of inventory for sales that the employee will make this year
-Purchase of equipment that will be bought in three years
-Payment toward the line of credit that is due next month - ✔✔✔C
Company ABC would like to continue to grow, but in order to maintain control of all decisions and
ownership, it wants to avoid issuing new stock. Which calculation will show the company's leadership
the fastest that ABC can grow?
-Sustainable growth rate
-Key growth indicator
-Discretionary financing needed
-Return on equity - ✔✔✔A
Freedom Rock Bicycles has a sales capacity of $10 million. When sales exceed this capacity, the company
must invest $200,000 in new equipment. Freedom Rock Bicycles had sales of $9 million in one year, and
it projects a sales growth of 10%. The net fixed assets in the year were $500,000.
By how much will the company's discretionary financing need increase?
-$0
-$50,000
, -$200,000
-$900,000 - ✔✔✔A
How can a company reduce its discretionary financing needed (DFN)?
-Reduce prices.
-Increase the dividend payout.
-Increase the net margin.
-Reduce retention of earnings. - ✔✔✔C
How can a firm grow its fixed assets if it is expecting growth but has reached capacity with its fixed
assets?
-Invest a substantial amount of money at one time to increase capacity.
-Use the percent of sales method to forecast fixed assets.
-Increase the net margin.
-Continue to invest in capital through small increments over time. - ✔✔✔A
How do the benefits of knowing the cash position for each period differ between businesses and
individuals?
-Knowing the cash position allows individuals to recognize when short-term loans are needed, while it
allows business to know when to repay their vendors.
-Knowing the cash position allows businesses to know how much to invest each month, while it allows
individuals to know how much to save each month.
-Knowing the cash position allows businesses to evaluate long-term cash accumulation, while it allows
individuals to analyze loan balances.
-Knowing the cash position allows businesses to recognize when short-term loans are needed, while it
allows individuals to analyze progress toward their personal financial goals. - ✔✔✔D
How does financial forecasting help with financial decision-making?
A company calculated variances of a budget and actual cash flows that indicate the firm's strengths and
weaknesses in cash flows and its budgeting process.
Which major use of cash budgeting is this an example of?
-Corrective action
-Standardization
-Assessment of future needs
-Performance evaluation - ✔✔✔D
A company is developing a financial forecast for the next year. The company plans to implement a new
factory that will increase production and resulting sales by 20%.
Since the company's assets are increasing significantly, what else must increase?
-Gross margin
-Financing
-Profit turnover
-Accounts receivable turnover - ✔✔✔B
A firm had sales of $100,000 this month. However, the firm received only $90,000 in cash from sales.
Why would the firm receive $10,000 less cash than its monthly sales?
-Because the firm paid down $10,000 on a loan
-Because the firm paid cash for inventory purchased
-Because the firm purchased inventory on credit this month
-Because the firm did not make all sales on cash - ✔✔✔D
A firm is currently operating at 75% capacity with current sales of $34 million.
Will the firm need to acquire additional fixed assets if its sales are predicted to increase by $6 million
next year?
,-No, because the increase in sales will exceed the firm's sales capacity.
-No, because the increase in sales will not exceed the firm's sales capacity.
-Yes, because the increase in sales will not exceed the firm's sales capacity.
-Yes, because the increase in sales will exceed the firm's sales capacity. - ✔✔✔B
An employee was recently hired as a financial analyst and asked to create a cash budget for the
employee's division for the next year.
Which component should the employee exclude from the budget
-Payments to suppliers that will be made over the next six months
-Purchase of inventory for sales that the employee will make this year
-Purchase of equipment that will be bought in three years
-Payment toward the line of credit that is due next month - ✔✔✔C
Company ABC would like to continue to grow, but in order to maintain control of all decisions and
ownership, it wants to avoid issuing new stock. Which calculation will show the company's leadership
the fastest that ABC can grow?
-Sustainable growth rate
-Key growth indicator
-Discretionary financing needed
-Return on equity - ✔✔✔A
Freedom Rock Bicycles has a sales capacity of $10 million. When sales exceed this capacity, the company
must invest $200,000 in new equipment. Freedom Rock Bicycles had sales of $9 million in one year, and
it projects a sales growth of 10%. The net fixed assets in the year were $500,000.
By how much will the company's discretionary financing need increase?
-$0
-$50,000
, -$200,000
-$900,000 - ✔✔✔A
How can a company reduce its discretionary financing needed (DFN)?
-Reduce prices.
-Increase the dividend payout.
-Increase the net margin.
-Reduce retention of earnings. - ✔✔✔C
How can a firm grow its fixed assets if it is expecting growth but has reached capacity with its fixed
assets?
-Invest a substantial amount of money at one time to increase capacity.
-Use the percent of sales method to forecast fixed assets.
-Increase the net margin.
-Continue to invest in capital through small increments over time. - ✔✔✔A
How do the benefits of knowing the cash position for each period differ between businesses and
individuals?
-Knowing the cash position allows individuals to recognize when short-term loans are needed, while it
allows business to know when to repay their vendors.
-Knowing the cash position allows businesses to know how much to invest each month, while it allows
individuals to know how much to save each month.
-Knowing the cash position allows businesses to evaluate long-term cash accumulation, while it allows
individuals to analyze loan balances.
-Knowing the cash position allows businesses to recognize when short-term loans are needed, while it
allows individuals to analyze progress toward their personal financial goals. - ✔✔✔D
How does financial forecasting help with financial decision-making?
