Financial Management Lecture 4

What is the most important ingredient in developing a firm's financial plan? - ANS-A forecast of sales revenues The percent-of-sales method can be used to forecast: - ANS-expenses, assets and liabilities. Which of the following statements about the percent-of-sales method of financial forecasting is true? - ANS-It involves estimating the level of an expense, asset, or liability for a future period as a percent of the forecast for sales revenues. Which of the following is NOT a basic function of a budget? - ANS-Budgets compare historical costs of the firm with its current cost performance. Which of the following will increase cumulative borrowing in the cash budget? - ANSDecreasing the average collection period All of the following are found in the cash budget except: - ANS-inventory Purchases of plant and equipment can be determined from the: - ANS-current cash budget. The primary purpose of a cash budget is to: - ANS-provide a detailed plan of future cash flows. Which of the following is always a non-cash expense? - ANS-Depreciation The first step involved in predicting financing needs is: - ANS-projecting the firm's sales revenues and expenses over the planning period. A sales forecast for the coming year would reflect: - ANS-any past trend which is expected to continue and the influence of any events that might materially affect the past trend. The "percentage" used in the percent-of-sales calculation can be obtained from: - ANSthe most recent financial statement item as a percent of current sales, an average computed over several years, an analyst's judgment. Which of the following are considered to be spontaneous sources of financing (i.e., they arise naturally during the course of doing business)? - ANS-Accounts payable and accrued expenses Continues...