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Generally, firms that are subject to high degrees of operating uncertainty, relatively short production cycles, or both tend to use a shorter planning horizon.

A) True
B) False

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The primary purpose in preparing pro forma financial statements is


A) for risk analysis.
B) to ensure the ability to pay dividends.
C) for profit planning.
D) for cash planning.

E) C) and D)
F) B) and C)

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__________forecast is based on the relationships between the firm's sales and certain economic indicators.


A) An internal
B) An external
C) A pro forma
D) A sales

E) A) and B)
F) A) and C)

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Generally, firms that are subject to high degree of____________ , relatively short production cycles, orboth tend to use shorter planning horizons.


A) profitability
B) operating uncertainty
C) financial certainty
D) financial planning

E) A) and B)
F) A) and C)

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Pro forma statements are used for


A) profit planning.
B) cash budgeting.
C) credit analysis.
D) leverage analysis.

E) B) and C)
F) All of the above

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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 negative $250,000. The firm may prepare to


A) arrange for a loan of $250,000.
B) sell common stock totaling $250,000.
C) invest in marketable securities totaling $250,000.
D) do nothing; the balance sheet balances.

E) None of the above
F) All of the above

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Sales forecasts, cash budgets, and pro forma financial statements are the key outputs of financial planning.

A) True
B) False

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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 in cash, collects 40 percent ofits sales one month following the sale, and collects the balance two months following the sale. The firm's total expected cash receipts in January


A) are $2,100.
B) are $1,900.
C) are $700.
D) cannot be determined with the information provided.

E) B) and D)
F) C) and D)

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If all customers take 15 days (one-half month) to pay their credit accounts, cash flows from sales inJune would be $150,000; May and June sales budgets are $100,000 and $200,000, respectively.

A) True
B) False

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The___________ method of developing a pro forma balance sheet estimates values of certain balancesheet accounts while others are calculated. In this method, the firm's external financing is used as abalancing, or plug, figure.


A) accrual
B) judgmental
C) percent-of-sales
D) cash

E) B) and D)
F) A) and B)

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Strategic financial plans are planned long-term financial actions and the anticipated financial impact of those actions.

A) True
B) False

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If all purchases of goods for sale are on 45 day (one and one-half months) credit terms with the supplier, cash flows to purchases in June would be $425,000; March, April, May, and June purchases budgets are $350,000, $400,000, $450,000, and $450,000, respectively.

A) True
B) False

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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


A) arrange for a loan of $230,000.
B) do nothing; the balance sheet balances.
C) invest in marketable securities totaling $230,000.
D) repurchase common stock totaling $230,000.

E) A) and C)
F) C) and D)

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The best way to adjust for the presence of fixed costs when using a simplified approach for pro forma income statement preparation is to break the firm's historical costs into fixed, semi-variable, and variable components and make the forecast using this relationship.

A) True
B) False

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Pro forma statements provide the financial manager with the amount, if any, of external financingrequired to support a given level of sales as well as a basis for analyzing in advance the level ofprofitability and overall financial performance of the firm in the coming year.

A) True
B) False

Correct Answer

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For firms with high fixed costs, the percent-of-sales approach for preparing a pro forma incomestatement tends to


A) be a difficult model to apply.
B) overestimate profits when sales are increasing.
C) be an accurate predictor of profits.
D) underestimate profits when sales are increasing.

E) All of the above
F) C) and D)

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Of the following, generally the easiest to estimate are


A) month-to-month short-term borrowing.
B) cash disbursements.
C) cash sales.
D) cash receipts.

E) C) and D)
F) A) and B)

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The use of past cost and expense ratios generally tends to overstate profits when sales are increasing and understate profits when sales are decreasing.

A) True
B) False

Correct Answer

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The key output(s) of the short-run financial planning process are a(n)


A) sales forecast and cash budget.
B) cash budget, pro forma income statement, and pro forma balance sheet.
C) cash budget, sales forecast, and income statement.
D) income statement, balance sheet, and source and use statement.

E) B) and C)
F) None of the above

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The net cash flow for February is____________  Sportif, Inc.  Month  Sales  Disbursements  January $5,000$6,000 February 6,000$7,000 March 10,000$4,000 April 10,000$5,000 May 10,000$5,000\begin{array}{l}\begin{array} { l r l } &\text { Sportif, Inc. }\\\text { Month } &{ \text { Sales } } & \text { Disbursements } \\\text { January } & \$ 5,000 & \$ 6,000 \\\text { February } & 6,000 & \$ 7,000 \\\text { March } & 10,000 & \$ 4,000 \\\text { April } & 10,000 & \$ 5,000 \\\text { May } & 10,000 & \$ 5,000\end{array}\end{array}


A) $5,750
B) -$1,250
C) $750
D) -$1,000

E) None of the above
F) B) and C)

Correct Answer

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