Question 1

List the common methods used in capital budgeting, and define the main objective of the capital budget.

Accepted Answer

The answer of List the common methods used in capital...

Question 2

When using the internal rate of return method, the future cash flows are discounted at a rate that makes the net present value equal to

Accepted Answer

The internal rate of return (IRR) method calculates the discount rate at which the net present value (NPV) of all cash flows from a particular project equals zero. This means the present value of the inflows equals the initial investment.

Question 3

Which of the following is not used in balance sheet ratios?

Accepted Answer

Sales are not used in balance sheet ratios because they are an income statement item, not a balance sheet item. Balance sheet ratios typically involve assets, liabilities, and equity.

Question 4

In the simple linear regression analysis equation, Y = a + bx, which of the following variables represents expected sales?

Accepted Answer

In the simple linear regression analysis equation, Y = a + bx, Y represents the dependent variable, which in the context of this question is the expected sales.

Question 5

Despite the drawbacks of the payback method, the entrepreneur should continue to use it because

Accepted Answer

The payback method is favored for its simplicity, making it easy to understand and apply compared to more complex financial analysis methods.

Question 6

Name and describe the final step in preparing the operating budget.

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The answer of Name and describe the final step in...

Question 7

Loan proceeds are not directly tied to

Accepted Answer

Loan proceeds are typically not directly tied to sales revenue. They are usually obtained for various purposes such as meeting cash-flow problems, covering expenses, or funding the planned expansion of a firm, rather than being directly linked to the revenue generated from sales.

Question 8

Investments in which returns are expected to extend beyond one year are referred to as

Accepted Answer

Capital investments refer to funds invested in a business or corporation with the intent of furthering its business objectives. The term typically implies investment in long-term assets, such as property, plant, and equipment, or significant stakes in other companies, with the expectation of future benefits or returns extending beyond one year. Stocks, bonds, and mutual funds are all types of investments that can be either short-term or long-term, depending on the investor's strategy, but they are not defined by the expectation of returns extending beyond one year in the same way that capital investments are.

Question 9

The net present value method is a capital budgeting technique that helps to minimize some of the shortcomings of the payback method by

Accepted Answer

The net present value (NPV) method accounts for the value of money over time by discounting future cash flows, which allows it to recognize the benefits of a project beyond just the initial payback period, addressing a key limitation of the payback method that only considers the time it takes to recoup the initial investment.

Question 10

Explain what a cash-flow budget tells a manager/owner.

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The answer of Explain what a cash-flow budget tells a...

Question 11

What is included in an operating budget, and how is this helpful?

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The answer of What is included in an operating budget,...

Question 12

More established ventures will use a sales forecast model where the estimation of current sales will increase a certain percentage over the prior period's sales. This percentage is based upon

Accepted Answer

The answer of More established ventures will use a sales...

Question 13

Which of the following is the traditional accounting equation that verifies the accuracy of the entrepreneur's balance sheet?

Accepted Answer

The traditional accounting equation, which verifies the accuracy of an entrepreneur's balance sheet, is Assets = Liabilities + Owners' Equity. This equation is fundamental in accounting, representing that what the business owns (assets) is purchased by what it owes (liabilities) and the owner's claims against the assets (owners' equity).

Question 14

In handling questionable costs, the cost in question is substituted first as a _____ cost and then as a _____ cost.

Accepted Answer

Fixed costs do not change with the level of production or sales, while variable costs do. By substituting a questionable cost first as a fixed cost and then as a variable cost, one can analyze how the cost behaves under different scenarios to better categorize it.

Question 15

Define break-even analysis, and identify some useful methods for finding the break-even point.

Accepted Answer

The answer of Define break-even analysis, and identify some useful...

Question 16

Which of the following is needed to prepare a pro forma balance sheet?

Accepted Answer

A pro forma balance sheet is prepared based on the last balance sheet prepared before the budget period began, as it serves as the starting point for projecting future financial status.

Question 17

In the simple linear regression analysis equation, Y = a + bx, Y represents

Accepted Answer

In the simple linear regression equation, Y = a + bx, Y represents the dependent variable, which is the variable that the equation predicts or explains.

Question 18

A fixed cost

Accepted Answer

Fixed costs do not change in response to changes in activity for a given period of time, meaning they remain constant regardless of the level of production or sales volume.

Quiz 11: Financial Preparation for Entrepreneurial Ventures