Principles of Finance ch. 4 questions

Allocation of the historic costs of fixed assets against the annual revenue they generate is called ________. depreciation
A corporation ________. can use different depreciation methods for tax and financial reporting purposes
Given a financial manager’s preference for faster receipt of cash flows, ________. a shorter depreciable life is preferred to a longer one
In general, ________. a shorter depreciable life is preferred, because it will result in a faster receipt of cash flows
A firm’s operating cash flow (OCF) is defined as ________. EBIT times one minus the tax rate plus depreciation
Which of the following is an example of noncash charges? depreciation
Which of the following is a source of cash flows? increase in accounts payable
) ________ is a noncash charge Depreciation
In the statement of cash flows, retained earnings are handled through the adjustment of ________. Net Profits After Taxes” and “Dividends Paid” accounts
The cash flows from operating activities section of the statement of cash flows includes ________. cost of raw materials
The cash flows from operating activities section of the statement of cash flows includes ________. labor expense
The cash flows from financing activities section of the statement of cash flows includes ________. dividends paid
The three categories of a firm’s statement of cash flows are ________. cash flow from operating activities, cash flow from investment activities, and cash flow fromfinancing activities
Which of the following is a cash inflow? a decrease in accounts receivable
Which of the following is a cash outflow? an increase in accounts receivable
Which of the following line items of the statement of cash flows must be obtained from the income statement? interest expenses
Cash flows directly related to production and sale of a firm’s products and services are called ________. cash flow from operating activities
Cash flows associated with the purchase and sale of fixed assets and business interests are called cash flow from ________. investment activities
Cash flows that result from debt and equity financing transactions, including incurrence and repayment of debt, cash inflows from the sale of stock, and cash outflows to pay cash dividends or repurchase stock are called cash flow from ________. financing activities
A corporation sold a fixed asset for $100,000. This is ________. an investment cash flow and a source of funds
A corporation raises $500,000 in long-term debt to acquire additional plant capacity. This is considered as ________. a financing cash flow and investment cash flow, respectively
Which of the following is a cash flow from financing activities? repurchasing stock
Which of the following represents a cash flow from operating activities? increase or decrease in current liabilities
For the year ended December 31, 2014, a corporation had cash flow from operating activities of -$10,000, cash flow from investment activities of $4,000, and cash flow from financing activities of $9,000. The statement of cash flows would show a ________. ) net increase of $3,000 in cash and marketable securities
For the year ended December 31, 2014, a corporation had cash flow from operating activities of $20,000, cash flow from investment activities of -$15,000, and cash flow from financing activities of -$10,000. The statement of cash flows would show a ________. net decrease of $5,000 in cash and marketable securities
For the year ended December 31, 2014, a corporation had cash flow from operating activities of $12,000, cash flow from investment activities of – $10,000, and cash flow from financing activities of $4,000. The statement of cash flows would show a ________. net increase of $6,000 in cash and marketable securities
A firm has just ended the calendar year making a sale in the amount of $200,000 of merchandise purchased during the year at a total cost of $150,500. Although the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. One possible problem this firm may face is ________. insolvency
Calculate net operating profit after taxes (NOPAT) if a firm has sales of $1,000,000, operating profit (EBIT) of $100,000, interest expense of $50,000, and a tax rate of 30%. $70,000
Calculate a firm’s free cash flow if it has net operating profit after taxes of $60,000, depreciation expense of $10,000, net fixed asset investment requirement of $40,000, a net current asset requirement of $30,000 and a tax rate of 30%. $0
NICO Corporation had net fixed assets of $2,000,000 at the end of 2015 and $1,800,000 at the end of 2014. In addition, the firm had a depreciation expense of $200,000 during 2015 and $180,000 during 2014. Using this information, NICO’s net fixed asset investment for 2015 was ________. $400,000
NICO Corporation had net current assets of $2,000,000 at the end of 2015 and $1,800,000 at the end of 2014. In addition, NICO had net spontaneous current liabilities of $1,000,000 in 2015 and $1,500,000 in 2014. Using this information, NICO’s net current asset investment for 2014 was ________. -$300,000
During 2015, NICO Corporation had EBIT of $100,000, a change in net fixed assets of $400,000, an increase in net current assets of $100,000, an increase in spontaneous current liabilities of $400,000, a depreciation expense of $50,000, and a tax rate of 30%. Based on this information, NICO’s free cash flow is ________. -$30,000
The financial planning process begins with ________ financial plans that in turn guide the formation of ________ plans and budgets. long-term; short-term
Short-term financial plans and long-term financial plans generally cover periods ranging from ________ years and ________ years, respectively. one to two; two to ten
The key aspects of a financial planning process are ________. cash planning and profit planning
Pro forma financial statements are used for ________. profit planning
Which of the following would be the least likely to utilize a cash budget? public investors
________ consider proposed fixed-asset outlays, research and development activities, marketing and product development actions, capital structure, and major sources of financing. Long-term financial plans
________ generally reflect(s) the anticipated financial impact of planned long-term actions. Strategic financial plans
In general, firms that are subject to a high degree of ________, relatively short production cycles, or both, tend to use shorter planning horizons operating uncertainty
The key outputs of the short-term financial planning process are the ________. cash budget, pro forma income statement, and pro forma balance sheet
Key inputs to short-term financial planning are ________. sales forecasts, and operating and financial data
Once sales are forecasted, ________ must be generated to estimate required raw materials. a production plan
The ________ is a financial projection of a firm’s short-term cash surpluses or shortages. cash budget
The primary purpose in preparing a cash budget is ________. to estimate a firm’s short-term cash requirements
An external sales forecast is based on ________. the relationships between a firm’s sales and certain key economic indicators such as GDP and consumer confidence
An internal forecast is based on ________. a buildup, or consensus, of sales forecasts through a firm’s own sales channels, adjusted for additional factors such as production capabilities
A firm’s final sales forecast is usually a function of ________. internal and external factors in combination
The key input to the short-term financial planning process is ________. the sales forecast
A firm has projected sales in May, June, and July of $100, $200, and $300, respectively. The firm makes 20 percent of sales for cash and collects the balance one month following the sale. The firm’s total cash receipts in July is ________. $220
In preparing a cash budget, the ________ seasonal and uncertain a firm’s cash flows, the ________ the number of budgeting intervals it should use. more; greater
The key input to any cash budget is ________. the sales forecast
Of the following components of a cash budget, generally the easiest to estimate would be the ________. cash disbursements
Cash disbursements include ________. rent payments
A projected excess cash balance for a month may be ________. invested in marketable securities
If a firm expects short-term cash surpluses, it can plan ________. short-term investments
A firm has actual sales in November of $1,000 and projected sales in December and January of $3,000 and $4,000, respectively. The firm makes 10 percent of its sales for cash, collects 40 percent of its sales one month following the sale, and collects the balance two months following the sale. The firm’s total cash receipts in November is ________. $100
Which of the following represents a way of coping with uncertainty in a cash budget? using scenario analysis, or “what if” approach, to analyze cash flows under a variety of circumstances
One way a firm can reduce the amount of cash it needs in any month is to ________. delay the payment of wages
________ are projected financial statements Pro forma statements
The key inputs for preparing pro forma income statements using the simplified approaches are the ________. sales forecast for the coming year and financial statements for the preceding year
In the next planning period, a firm plans to change its policy of all cash sales and initiate a credit policy requiring payment within 30 days. The statements that will be directly affected immediately are the ________. pro forma balance sheet and cash budget
A firm plans to retire outstanding bonds in the next planning period. Which of the following gets affected? pro forma income statement and pro forma balance sheet
A firm plans to depreciate a five year asset in the next planning period. The statements that will be directly affected are the ________. pro forma income statement and pro forma balance sheet
In a period of rising sales, utilizing past cost and expense ratios (percent-of-sales method) when preparing pro forma financial statements will tend to ________. overstate costs and understate profits
The percentage-of-sales method of preparing pro forma income statements assumes that ________. all costs are variable
The percent-of-sales method of developing a pro forma income statement forecasts sales and other line items as a ________. percentage of projected sales
The best way to adjust for the presence of fixed costs when using the simplified approach for pro forma income statement preparation is ________. to break the firm’s historical costs into fixed and variable components
The percent-of-sales method to prepare a pro forma income statement assumes a firm has no fixed costs. Therefore, the use of the past cost and expense ratios generally tends to ________ understate
For firms with high fixed costs, the percent-of-sales approach for preparing a pro forma income statement tends to ________. underestimate profits when sales are increasing
In a period of rising sales utilizing past cost and expense ratios (percent-of-sales method), when preparing pro forma financial statements and planning financing, will tend to ________. understate retained earnings and overstate the financing needed
Under the judgmental approach for developing a pro forma balance sheet, the “plug” figure required to bring the statement into balance may be called the ________. external financing required
The ________ method of developing a pro forma balance sheet estimates values of certain balance sheet accounts while external financing is used as a balancing, or plug, figure. judgmental
A firm has prepared the coming year’s pro forma balance sheet resulting in a plug figure in a preliminary statement—called the external financing required—of $230,000. The firm should prepare to ________. ) arrange for a loan of $230,000
A weakness of the percent-of-sales method of preparing a pro forma income statement is ________. the assumption that the firm’s past financial condition is an accurate predictor of its future
Utilizing past cost and expense ratios (percent-of-sales method) when preparing pro forma financial statements will tend to ________. understate profits when sales are increasing
Utilizing past cost and expense ratios (percent-of-sales method) when preparing pro forma financial statements will tend to ________. understate profits when sales are increasing and overstate profits when sales are decreasing
The weakness of the judgmental approach to preparing a pro forma balance sheet is ________. the assumption that the values of certain accounts can be forced to take on desired levels
If transportation costs were a huge portion of a firm’s expenses and the firm expected gas prices to increase greatly in the next year, then in preparing its pro forma income statement the firm should ________. increase the percentage of transportation costs from the percentage of last year’s sales

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