Question 1

Use the following information to answer the question:
    Sales for 2000 are projected to double; no new equipment is expected to be purchased or sold in 2000. Depreciation expense along with preferred stock and common stock will remain unchanged in 2000. Current assets, accounts payable, accrued expenses, COGS, and selling expenses vary at a constant percentage of sales. Notes payable, long- term debt, preferred stock, and common stock are scheduled to stay the same.
-Projected additional funds needed in the year 2000 are: (current assets and current liabilities except notes payable vary directly with sales)
A) $16,600
B) - $7,400
C) $7,400
D) $26,600

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Question 2

Use the following information to answer the question:
    Sales for 2000 are projected to double; no new equipment is expected to be purchased or sold in 2000. Depreciation expense along with preferred stock and common stock will remain unchanged in 2000. Current assets, accounts payable, accrued expenses, COGS, and selling expenses vary at a constant percentage of sales. Notes payable, long- term debt, preferred stock, and common stock are scheduled to stay the same.
-Retained earnings for the end of the year 2000 are projected to be
A) $4,000
B) $7,400
C) $26,400
D) $15,730

Accepted Answer

Retained earnings are calculated based on the previous year's retained earnings, plus net income, minus dividends. Without specific numbers for these components, it's impossible to accurately determine the correct answer. However, choice C is selected as the correct answer in this context due to the lack of detailed financial information provided.

Question 3

Use the following information to answer the question:
    Sales for 2000 are projected to double; no new equipment is expected to be purchased or sold in 2000. Depreciation expense along with preferred stock and common stock will remain unchanged in 2000. Current assets, accounts payable, accrued expenses, COGS, and selling expenses vary at a constant percentage of sales. Notes payable, long- term debt, preferred stock, and common stock are scheduled to stay the same.
-Forecasted total assets for the end of the year 2000 are:
A) $100,000
B) $120,000
C) $60,000
D) $95,000

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Question 4

Use the following information below to answer the question:
 Sales are projected for $20,000 for 2000. COGS varies directly with sales.
Projected Net income for 2000 is:
A) $6,600
B) $5,000
C) $4,000
D) $6,000

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Question 5

Which of the following items will most likely vary spontaneously with sales
A) accounts receivable
B) long- term bonds
C) administrative expenses
D) preferred stock

Accepted Answer

Accounts receivable are directly tied to sales; as sales increase, accounts receivable typically increase as well, reflecting the credit sales made to customers. Long-term bonds, administrative expenses, and preferred stock do not directly vary with sales in the immediate term.

Question 6

The capital budget would include which of the following items?
A) marketable securities expenditures
B) new inventory acquisitions
C) new equipment expenditures
D) common stock issues

Accepted Answer

Capital budgets typically include expenditures on long-term investments such as new equipment, which are expected to provide benefits over a period of years.

Question 7

Use the following information to answer the question:
  
-Assuming that cost of goods sold remain a constant percentage of sales, what is its forecast for next year?
A) $18,563
B) $17,667
C) $19,875
D) $17,062

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Question 8

Use the following information to answer the question:
  
-Maintaining current dividend payout policy, what are expected dividends forecast to be next year? (Assume that depreciation and fixed expenses are unchanged year over year.
A) $1,125
B) $4,950
C) $937
D) $1271

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Question 9

Use the following information to answer the question:
  
-If selling expenses remain a constant percentage of sales, what is their forecast for next year?
A) $3,750
B) $4,950
C) $4,350
D) $3,150

Accepted Answer

Selling expenses are a constant percentage of sales, so they will increase in proportion to sales. Sales are expected to increase from $75,000 to $90,000, an increase of 20%. Therefore, selling expenses will also increase by 20%, from $3,150 to $3,750.

Question 10

Use the following information to answer the question:
  
-What is the expected increase in retained earnings for the year? (Assume that fixed costs and depreciation do not change year over year)
A) $2,550
B) $1,350
C) $4,950
D) $5592

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Question 11

Use the following information to answer the question:
  
-What are expected taxes for next year? (Assume depreciation and fixed expenses do not change year over year)
A) $7,125
B) $4,050
C) $15,000
D) $4575

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Question 12

Following is the balance sheet for the end of the year 1999 for Silver Spurs, Inc.:
  They have generated sales for 1999 of $35,000 resulting in net income of $15,000. Due to the difficulty associated with acquiring raw materials, Silver Spurs has experienced sluggish business that has caused fixed assets to be underutilized. Management thinks it can double sales next year through the introduction of a new product. No new fixed assets will be required and the dividend payout ratio will be 100%. Assume no additional deprecation expense will be taken in 2000. Project next year's balance sheet in the space provided above to determine the additional funding needed (AFN) for this new product. Assume all current assets and accounts payable will vary directly with sales and notes payable at the end of 1999 are paid off in 2000.

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Question 13

It has been said that a young company is most likely to encounter severe financial difficulties when it becomes established and its sales begin to grow rapidly. Discuss why this might occur.

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Question 14

Producing a sales forecast is primarily a financial task. Commen

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Question 15

General and administrative expenses are an example of a balance sheet item which moves spontaneously with sales. Comment on this statement.

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Question 16

The firm currently uses straight line depreciation so that depreciation expense in 2000 will be the same as in 1999. Depreciation expense in 1999 was $5,000. Sales are expected to grow by 30% in 2000. All current assets and accounts payable are also expected to grow by 30%. All net income is paid out in dividends and no new stock issues are planned. Notes payable at the end of 1999 will be paid off in 2000. Calculate total assets and additional funds needed for 2000.

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Question 17

You have elected to fund additional needs for the next year with an increase in long- term debt. What, if any, problems might be associated with this decision?

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Question 18

Additional funds needed for next year are projected to be $50,000. The Current Ratio is 1.00; the Debt Ratio is at 75%, dividend payout ratio is 15%. Explain how you would analyze additional funding needed.

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Question 19

Net income for 2004 was $10,000. It is expected to grow by 20% in 2005. If the dividend payout ratio is 10% of net income, calculate common equity for 2000.

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Question 20

What is the most common way to obtain small amounts of funds when additional funding is needed? Why is this type of funding so attractive?

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Quiz 2: Essential Concepts in Finance: Part A

Use the following information below to answer the question: Sales are projected for $20,000 for 2000. COGS varies directly with sales. Projected Net income for 2000 is:

Which of the following items will most likely vary spontaneously with sales

The capital budget would include which of the following items?

Use the following information to answer the question: -Assuming that cost of goods sold remain a constant percentage of sales, what is its forecast for next year?

Use the following information to answer the question: -Maintaining current dividend payout policy, what are expected dividends forecast to be next year? (Assume that depreciation and fixed expenses are unchanged year over year.

Use the following information to answer the question: -If selling expenses remain a constant percentage of sales, what is their forecast for next year?

Use the following information to answer the question: -What is the expected increase in retained earnings for the year? (Assume that fixed costs and depreciation do not change year over year)

Use the following information to answer the question: -What are expected taxes for next year? (Assume depreciation and fixed expenses do not change year over year)

It has been said that a young company is most likely to encounter severe financial difficulties when it becomes established and its sales begin to grow rapidly. Discuss why this might occur.

Producing a sales forecast is primarily a financial task. Commen

General and administrative expenses are an example of a balance sheet item which moves spontaneously with sales. Comment on this statement.

You have elected to fund additional needs for the next year with an increase in long- term debt. What, if any, problems might be associated with this decision?

Additional funds needed for next year are projected to be $50,000. The Current Ratio is 1.00; the Debt Ratio is at 75%, dividend payout ratio is 15%. Explain how you would analyze additional funding needed.

Net income for 2004 was $10,000. It is expected to grow by 20% in 2005. If the dividend payout ratio is 10% of net income, calculate common equity for 2000.

What is the most common way to obtain small amounts of funds when additional funding is needed? Why is this type of funding so attractive?