D076 Study Guide

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? Standardization Assessment of future needs Performance evaluation Corrective action - Performance evaluation 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? Financing Accounts receivable turnover Profit turnover Gross margin - Financing A financial manager at a company is trying to determine whether to issue new stocks or new bonds to cover the costs of a project the company is doing the next year. Which main task in business finance is this situation an example of? Managing working capital Making investment decisions Managing interdepartmental loans Making financing decisions - Making financing decisions 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 not exceed the firm's sales capacity. Yes, because the increase in sales will exceed the firm's sales capacity. Yes, because the increase in sales will not exceed the firm's sales capacity. 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. A pharmaceutical company recently spent $2 million developing a new drug. The company then conducts capital budgeting analysis to determine if it should produce the newly developed drug. The net present value (NPV) of the project is $1.5 million. Why should this company produce the drug? Because the NPV is greater than zero Because the losses due to cannibalization are less than the value of the project Because the development costs are greater than the value of the project Because the project will provide a total value of $3.5 million to the company - Because the NPV is greater than zero A sign company is planning to have an initial public offering (IPO). In which type of market will its stock first be sold to the public? Primary market Money market Efficient market Secondary market - Primary market 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? Purchase of inventory for sales that the employee will make this year Payment toward the line of credit that is due next month Payments to suppliers that will be made over the next six months Purchase of equipment that will be bought in three years - Purchase of equipment that will be bought in three years An energy company discovers that a new bill has been proposed to change the amount of fuel that can be exported outside the country. If passed, this could have a serious negative effect on the company's revenues. Some of the company's competitors are obtaining insurance policies to compensate for this risk, but since the energy company believes the likelihood of this bill passing is low, it chooses to do nothing—ultimately taking responsibility for this particular risk instead of trying to transfer the risk through an insurance policy. Which risk management technique is this choice an example of?