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Exam 4: Financial Forecasting

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Question 1

Multiple Choice

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A rapid rate of growth in sales and profits may require:

A) higher dividend payments to shareholders.
B) increased borrowing by the firm to support the sales increase.
C) the firm to be less lenient with credit customers.
D) sales forecasts to be made less frequently.

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Question 2

Multiple Choice

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Required production during a planning period will depend on the:

A) cost of beginning inventory of products.
B) credit sales during the period.
C) desired level of beginning inventory.
D) desired level of ending inventory.

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D

Question 3

Multiple Choice

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Net cash flow is equal to:

If inventory turnover is equal to 3, that means that the company keeps a three-month supply of inventory on hand.

In using a systems approach to financial planning, it is necessary to develop everything except:

The primary purpose of the cash budget is to plan accounts payable payments.

When a financial manager calculates production requirements they add Projected Sales to desired ending inventory then subtract beginning inventory.

An increase in sales and/or profits means there is also an increase in cash on the balance sheet.

Pro forma income statements and balance sheets refer to projected financial statements.

An increase in sales and profits generates the necessary cash required for economic growth.

XYZ Co. has forecasted June sales of 600 units and July sales of 1000 units. The company maintains ending inventory equal to 125% of next month's sales. June beginning inventory reflects this policy. What is June's required production?

A firm has beginning inventory of 300 units at a cost of $11 each. Production during the period was 650 units at $12 each. If sales were 700 units, what is the value of the ending inventory using FIFO?

What are the 4 steps in developing a pro forma income statement?

A higher growth rate in sales will require more external funds.

When sales volume varies from month to month it is not advisable to use level production.

In forecasting a firm's cash needs for some future period:

The Amber Magic Shoppe has forecast its sales revenues and purchases for the last 5 months of 20X9 to be as follows: 65% of sales are on credit. On the basis of past experience, 50% of the accounts receivable are collected the month after the sale and the remainder are collected 2 months after the sale. Purchases are paid 30 days after they are incurred. The firm had a cash balance of $5,000 as of September 30th, and its minimum required cash balance is $4,000. It had no beginning loan balance. Prepare a cash budget for October, November and December.

A firm has forecasted sales of $3,000 in April, $4,500 in May, and $12,000 in June. All sales are on credit. 30% is collected the month of sale and the remainder the following month. What will be the balance in accounts receivable at the end of June?

BHS Inc. determines that sales will rise from $300,000 to $700,000 next year. Spontaneous assets are 70% of sales and spontaneous liabilities are 30% of sales. BHS has a 10% profit margin and a 40% dividend payout ratio. What is the level of required new funds?

A cash budget is unnecessary under level production since we know how much will be produced every month.