Deck 10: The Financial Plan

Question 1

Capital budgets project expenditures on new equipment,vehicles,computers,or new facilities. 

Answer 1

True

Question 2

An entrepreneur focuses on the operating costs before completion of the sales budget. 

Answer 2

False

Question 3

Labor hours,utility costs,or training costs are considered direct costs. 

Answer 3

False

Question 4

Depreciation is considered a cash outlay,not an expense. 

Question 5

In an Internet start-up,advertising costs will be extensive to create awareness of the website. 

Question 6

The first step in preparing a pro forma income statement is to separate fixed and variable costs. 

Question 7

Cash flow is the same thing as profit. 

Question 8

Fixed expenses are incurred regardless of sales volume. 

Question 9

The financial plan provides the short-term basis for budgeting control and helps prevent the most common problem for new ventures-lack of cash.

Question 10

Many profitable firms fail because of lack of cash. 

Question 11

Cash flow is the result of subtracting expenses from sales. 

Question 12

In projecting the operating expenses for the second and third year,it is helpful to first look at those expenses that will likely change over time. 

Question 13

The cost of goods sold expense can be determined either by directly computing the variable cost of producing a unit times the number of units sold or by using an industry standard percentage of sales. 

Question 14

Any significant capital expenditure or project requires a lengthy,and expensive,cost benefit analysis. 

Question 15

For the Internet start-up,capital budgeting and operating expenses will tend to be consumed by equipment purchasing or leasing,inventory,and advertising expenses. 

Question 16

When estimating expenses for the pro forma income statement,it is best to be conservative. 

Question 17

Cost benefit analysis is a complex approach that considers the cash flows or the value of money over a period of time. 

Question 18

The indirect method of projecting cash flow is the most popular. 

Question 19

Selling expense is an expense that can be expected to remain stable over time. 

Question 20

To satisfy outside investors,the financial plan will need three years of projected financial data. 

Question 21

Pro forma sources and applications of funds summarizes all the projected sources of funds available to the venture and how these funds will be disbursed. 

Question 22

Assets represent the net worth of the firm. 

Question 23

By definition,break-even is where Total Revenue (TR)= Total Fixed Costs (TFC). 

Question 24

Break-even analysis is a technique to determine the total liabilities of the firm. 

Question 25

The pro forma balance sheet depicts the condition of the business at the end of the first year. 

Question 26

The purpose of the pro forma sources and applications of funds statement is to show the amount owners have invested and/or retained from the venture operations. 

Question 27

Any amount due within a year is considered a current liability. 

Question 28

Using a spreadsheet software package is helpful when developing budgets as it helps to gauge the impact of different financial scenarios. 

Question 29

As long as the selling price is less than the variable cost per unit,some contribution will be made to cover fixed costs. 

Question 30

Profit from the business will be included on the balance sheet in the assets section. 

Question 31

Owner equity is the excess of all assets over all liabilities. 

Question 32

In projecting cash flows the most difficult problem is in determining the exact amount of monthly receipts and disbursements. 

Question 33

When projecting cash flows for the pro forma cash flow statement,it is important to be conservative in the estimates. 

Question 34

Inventory is considered a source of funds because of the revenue it brings in. 

Question 35

Rent and insurance are examples of variable costs. 

Question 36

Large positive cash flows usually occur in the first months of a new venture. 

Question 37

Sales in excess of the break-even point will result in a profit,as long as the selling price remains above the cost to produce each unit. 

Question 38

Break-even is that volume of sales at which there are neither profits nor losses. 

Question 39

Cash is a current asset. 

Question 40

Depreciation is considered a source of funds because it does not represent an out-of-pocket expense. 

Question 41

Which of the following statements is not true of a cost benefit analysis

A) Any capital expenditure or project can be subject to a simple cost benefit analysis.
B) The cost benefit analysis considers the cash flows and the value of money over a period of time.
C) When determining the costs of new project, some may be direct costs and some may be indirect costs.
D) A simple cost benefit analysis can be helpful in making decisions where the costs and benefits are fairly straight forward.

Question 42

Pro forma cash flow is: 

A) cash flow based on the actual cash on hand.
B) calculated from subtracting assets from liabilities.
C) cash flow calculated on past receipts and expenses.
D) projected cash inflow and outflow.

Question 43

Fixed expenses: 

A) are incurred regardless of sales volume.
B) can be estimated by taking into consideration the production.
C) includes labor, raw materials, and commissions.
D) must be linked to strategy in the business plan.

Question 44

Cash flow: 

A) results from the differences between cash receipts and cash payments.
B) is the result of subtracting expenses from sales.
C) is the same as profit.
D) is the sum total of all sales at a point in time.

Question 45

________ is a cash disbursement and ________ is/are an operating expense. 

A) Debt; interest
B) Amortization; salaries
C) Depreciation; rent
D) Depreciation; cost of goods sold

Question 46

Which of the following statements concerning cash flow is true  

A) Cash flow is the result of subtracting expenses from sales.
B) Cash flow is the same as profit.
C) Cash flows only when actual payments are received or made.
D) Profit results from the difference between actual cash receipts and cash payments.

Question 47

Fixed operating expenses include all of the following except: 

A) rent
B) utilities
C) raw materials
D) depreciation

Question 48

One of the simplest and probably the most widely used small business accounting software package is Intuit's Quickbooks. 

Question 49

The ________ budget is used to evaluate expenditures that will impact the business for more than one year. 

A) production
B) operating
C) depreciation
D) capital

Question 50

Negative cash flow: 

A) results when cash receipts exceed cash payments.
B) can cause a firm to fail.
C) is included in the pro forma income statement.
D) is uncommon in new ventures.

Question 51

________ is(are)the major source of revenue. 

A) Borrowing from banks
B) Outside investors' contributions
C) Sales
D) Dividends

Question 52

Capital budgets project expenditures on: 

A) new equipment.
B) future production costs.
C) advertising.
D) costs of goods sold.

Question 53

As the business grows: 

A) selling expenses should go down.
B) salaries and wages will go up as output increases.
C) the pro forma income statement becomes unimportant.
D) advertising expenses should go down.

Question 54

Using the ________ method of projecting cash flow,adjustments are made to net income based on the fact that cash may not actually be received or disbursed. 

A) indirect
B) break-even
C) direct
D) pro forma

Question 55

________ is projected net profit calculated from projected revenue minus projected costs and expenses. 

A) Pro forma Income
B) Pro forma cash flow
C) A pro forma balance sheet
D) Cost of goods sold

Question 56

The sales budget: 

A) should be prepared before developing the pro forma income statement.
B) must be prepared by the venture's accounting firm.
C) must be based on actual sales figures for the last month.
D) needs to be prepared only in case of a manufacturing firm.

Question 57

In projecting operating expenses for the second and third year costs like ________ are likely to remain stable unless new equipment or additional space is purchased. 

A) cost of goods sold
B) gross profit
C) advertising
D) insurance

Question 58

The ________ method is the most popular method used to project cash flow. 

A) direct
B) indirect
C) depreciation-adjusted
D) present value method

Question 59

In a cost benefit analysis of a capital expenditure the total costs associated with the expenditure is ________ the total benefits of the expenditure. 

A) multiplied by
B) subtracted from
C) divided by
D) added to

Question 60

Which of the following would be considered a variable expense  

A) Rent
B) Raw materials
C) Interest
D) Insurance

Question 61

As long as the selling price is greater than the ________ cost per unit,some contribution can be made to cover ________. 

A) fixed; variable costs
B) variable; fixed costs
C) total; expenses
D) fixed; negative cash flow

Question 62

Fixed assets are those that: 

A) are intangible.
B) include cash.
C) will be used over a long period of time.
D) are similar to loans and advances.

Question 63

Profit from the business would be included on the balance sheet in which section  

A) Assets
B) Liabilities
C) Owners equity
D) Assets or liabilities

Question 64

If the total fixed costs are $850,000,the sale price is $110 and the variable cost per unit is 25,what is the break-even volume  

A) 17,000
B) 10,000
C) 7,000
D) 1,000

Question 65

Notes payable is considered a ________ on the balance sheet. 

A) cash out-flow
B) current asset
C) current liability
D) long-term liability

Question 66

The marginal contribution is defined as: 

A) selling price per unit minus variable cost per unit
B) total fixed costs minus selling price per unit
C) variable cost per unit minus the selling price per unit
D) total fixed costs plus total variable costs

Question 67

If disbursements are greater than receipts in anytime period,the entrepreneur must either borrow funds or have cash in a bank account to cover the higher disbursement.This is known as:

A) negative cash flow.
B) cost of goods sold.
C) selling expense.
D) variable cost.

Question 68

________ is the volume of sales needed to cover total variable and fixed costs. 

A) Cash flow
B) Depreciation
C) Revenue
D) Break-even

Question 69

Which of the following would be an application of funds  

A) Decrease in assets
B) Increase in turnover
C) Paying dividends
D) Increase in liabilities

Question 70

Which of the following would not be a current asset  

A) Certificates of deposit that mature in six months
B) Customer receivables
C) Cash
D) Supplier bills payable in 30 days

Question 71

Current liabilities are: 

A) those liabilities due for payment within a year.
B) everything owed to creditors.
C) everything of value owned by the company.
D) those liabilities that represent the excess over all assets.

Question 72

________ is(are)added back to the pro forma sources and applications of funds statement because it does not represent and out-of-pocket expense. 

A) Inventory
B) Depreciation
C) Dividends
D) Equipment purchases

Question 73

The basic balance sheet relationship is: 

A) assets plus owner's equity equal liabilities.
B) assets equal liabilities plus owner's equity.
C) assets plus liabilities equal owner's equity.
D) assets equal owner's equity minus liabilities.

Question 74

Equipment would be included on the balance sheet in which section  

A) Current assets
B) Fixed assets
C) Retained earnings
D) Owner's equity

Question 75

The formula for break-even analysis is: 

A) total fixed costs divided by selling price minus variable cost per unit.
B) total variable costs divided by marginal contribution.
C) total sales divided by selling price plus variable cost per unit.
D) total fixed costs divided by selling price plus marginal contribution.

Question 76

A ________ summarizes all the projected sources and applications of funds available to the venture and how these funds will be disbursed. 

A) pro forma income statement
B) pro forma sources and applications of funds statement
C) break-even analysis
D) cash flow statement

Question 77

________ represent(s)money that is owed to creditors. 

A) Assets
B) Cash flow
C) Owner equity
D) Liabilities

Question 78

Which of the following is likely to be a fixed cost  

A) Materials
B) Commissions
C) Depreciation
D) Direct labor

Question 79

Owner's equity represents: 

A) the net worth of the business.
B) only capital invested by the entrepreneur.
C) everything of value owned by the firm.
D) all assets owned by the entrepreneur.

Question 80

________ is the amount owners have invested and/or retained from the venture operations. 

A) Cash flow
B) Retained earnings
C) Profit
D) Owner's equity