Finance Chapter 4

A rapid rate of growth in sales may require increased borrowing by the firm to support sales increase
In order to estimate production requirements, we add projected sales in units to desired ending inventory and subtract beginning inventory
A firm has beginning inventory of 450 units at a cost of $10 each. Production during the period was 500 at $12 each. If sales were 700 units, what is the cost of goods sold (Assume FIFO)? $7,500
When the cost of raw materials is increasing, FIFO accounting yields higher ending inventory values than LIFO
In developing data for accounts receivable for the pro forma balance sheet, the analyst is most likely to the pro forma income statement
In the percent-of-sales method, if (A/S) and (L/S) both increase more information is needed
In the percent-of-sales method as the dividend payout ratio goes up, the required new funds also rise
Lower profit margins resulting from increased competition would mean a lower need for external False
A firm’s cash borrowing needs can be reduced if its inventory turnover rate can be increased. True
In the development of the pro forma financial statements, the last step in the process is the pro forma balance sheet
What are the 3 components of the discount rate? 1. Real rate of return2. Inflation3. Risk Premium
The return investors require for allowing others to use their money for a given time period Real rate of return

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