D076 Lesson Tests

When can the discretionary financing needed (DFN) be determined? - After pro-forma financial statements are forecasted using the percent of sales method When evaluating a company's performance, what can variances on a company's cash budget indicate? - Variances show that certain managers or divisions are not meeting targets. How far into the future do cash budgets usually forecast? - Between one month and one year What are three principles of budgeting that are important to know before beginning the budgeting process? - Keep records; develop savings, income, and expense strategies; and use a method that meets your needs and objectives What are the three main uses of cash budgets? - Cash budgets are used to forecast future financial need, aid in performance evaluation, and show when corrective action is needed. Determine cash receipts, estimate cash disbursements, create the cash budget - What is the correct order of the three steps necessary to create a cash budget? Because it is specific and measurable - Why is "put $50 in a savings account each month for Christmas gifts" a better budgeting goal than "save money for Christmas gifts"? Because the payment is the same amount each month - Why would a monthly mortgage payment be considered a fixed expense? Compare your budgeted cash flows to your actual cash flows, and then revise the budget if necessary - Which action would help you make your budget more efficient? A graduation gift of $100 from your grandmother (Since this is money, or income, coming into your cash budget, it represents a cash receipt) - Which item is an example of a cash receipt in a personal budget? A rent check paid and cashed for the warehouse the company uses - Which item represents an example of a cash disbursement a business might have this month? Cash receipts, cash disbursements, and borrowing - What three things should be included in a cash budget for a business? Raw materials, rent, administrative expenses, interest, and selling expenses - Which items are considered cash disbursements for a business? Sales include both cash sales and credit sales. - Why are sales not strictly considered to be the same thing as cash receipts? Firm specific risk is the risk associated with problems that companies may face because of lawsuits, labor problems, or management decisions - What makes market risk different from firm-specific risk? A firm-specific risk that comes from the probability of a loss resulting from a borrowers failure to repay a contractual obligation - Default Risk Holding period - What is the term for the return over the entire period that an investor owns a financial security? It's liquidity ratio is increasing - A firm has paid off its short-term loans more quickly in the past few years. What might this trend indicate about the firms financial ratios?