Question 1

___________ refers to the process that identifies variances by comparing actual revenues and expenses to projected revenues and expenses

Accepted Answer

Financial control refers to the process of comparing actual revenues and expenses to projected revenues and expenses in order to identify variances. This is done in order to determine if the company is on track to meet its financial goals, and to make any necessary adjustments to future financial plans. Factor analysis and forecasting are both related to financial planning, but do not specifically involve the comparison of actual versus projected revenues and expenses.

Question 2

A _________ forecast predicts the revenues, costs, and expenses a firm will incur for a period longer than one year

Accepted Answer

A long-term forecast is the most appropriate option for predicting the revenues, costs, and expenses a firm will incur for a period longer than one year. Cash flow forecast predicts future cash inflows and outflows for a specific period, while short-term forecasts cover a period of fewer than 12 months. Capital expenditure forecasts focus on the future expenditures a firm will need to incur for long-term investments.

Question 3

The budget that estimates a firm's projected cash inflows and outflows, as well as cash shortages or surpluses during a given time period is called the ________ budget

Accepted Answer

The budget that estimates a firm's projected cash inflows and outflows, as well as cash shortages or surpluses during a given time period is called the cash budget. Option A is incorrect as capital budget is used to estimate a company's long-term investments and expenses. Option B is incorrect as operating budget estimates a company's revenue, expenses, and profits over a given period. Option D is incorrect as monetary budget is not a commonly used term in financial management.

Question 4

Susan started a cake decorating business that failed. She is convinced that she lacked the necessary funds to promote her business and get it off the ground. Susan experienced:

Accepted Answer

Undercapitalization refers to a situation where a business does not have enough funds to operate effectively. Susan's belief that she lacked the necessary funds to promote her business is a clear indication of undercapitalization. This means that she did not have sufficient capital to invest in the necessary resources and assets to make her business successful.

Question 5

Carlos is the manager of Oh! Canada Sporting Goods. During the past six months, his cash expenditures have exceeded his cash receipts. Oh! Canada is suffering from a(n) ________ problem

Accepted Answer

Cash flow problem refers to the situation when a business spends more cash than it receives, which is precisely the scenario faced by Carlos and his company. Option A is incorrect because an accounting problem pertains to issues with recording or reporting financial transactions. Option B, undercapitalization, refers to a scenario where a company has insufficient financial resources to carry out its operations, but no information is given about the capital structure of the company. Option D, exchange rate problem, pertains to problems arising from fluctuations in foreign exchange rates, which is not mentioned in the scenario.

Question 6

Which of the following commonly results in the financial failure of a firm?

Accepted Answer

Undercapitalization, which means having insufficient funds, is one of the most common reasons for financial failure of a firm. It can lead to the inability to pay bills, invest in growth, or meet unexpected expenses, ultimately leading to bankruptcy. While diversification, control of expenses, and management of cash flows are also important factors in financial success, they are not as directly tied to the failure of a firm as undercapitalization.

Question 7

Which of the following companies is undercapitalized?

Accepted Answer

An undercapitalized company is one that does not have enough funds to operate or expand its business properly. Out of the given options, the only company that is undercapitalized is the new company struggling with insufficient startup funds. The large corporation hit with a major lawsuit may have to pay a large settlement, but it may still have adequate capital to continue its operations. The medium-sized company buying out a smaller competitor may require additional funds, but it may also have enough capital to finance the acquisition. The electric utility experiencing cost increases may face financial challenges, but it may still have sufficient financial resources to cover its expenses.

Question 8

A _________ forecast predicts the future cash inflows and outflows in future periods

Accepted Answer

A cash flow forecast predicts the future cash inflows and outflows in future periods. This is different from a money-based forecast which just predicts the future revenue and expenses, without taking into account the actual timing of cash flows. Short-term and long-term forecasts refer to the time horizon being predicted, but do not necessarily specify the type of forecast being used.

Question 9

The overall objective of financial planning is to:

Accepted Answer

The overall objective of financial planning is to optimize the firm's profitability. While budgets for financial control may be a part of the financial planning process, they are not the main objective. Forecasting the impact of technological trends and preparing financial statements for managers may be important, but they are not the primary objective of financial planning.

Question 10

Robert intends to major in business. He has never had much interest in subjects with numbers. He would like to avoid taking any finance courses if possible. Robert should:

Accepted Answer

Despite his lack of interest in numbers, Robert should realize that a basic understanding of financial issues is necessary for success in business. Avoiding finance courses entirely could limit his opportunities and skills in the field.

Question 11

The first step in the financial planning process is:

Accepted Answer

The first step in the financial planning process is to forecast financial needs. This involves analyzing and predicting future financial requirements and assessing the availability of resources to meet those requirements. Once the financial needs have been identified, the other steps such as preparing financial statements, developing budgets, and establishing financial control can be taken.

Question 12

Which of the following activities is most likely to be performed by a financial manager?

Accepted Answer

Tax management often is an important part of a financial manager's job.

Question 13

A(n) _____________ job includes forecasting, budgeting, cash flow analysis, cost control, taxes, and credit management

Accepted Answer

The job description mentioned includes tasks that fall under the role of a financial manager, who is responsible for managing an organization's finances, creating financial reports, and making important financial decisions. CPAs are certified public accountants who primarily focus on accounting and tax preparation, while investment bankers and portfolio managers are involved in financial investments and asset management.

Question 14

An effective budget requires:

Accepted Answer

An effective budget requires accurate forecasts because without accurately predicting income and expenses, it will be impossible to create a realistic and feasible budget plan. While the other choices may be important in different aspects of business, they are not essential to the budgeting process.

Question 15

A _________ forecast predicts the revenues, costs, and expenses a firm will incur for a period of one year or less

Accepted Answer

A short-term forecast is used to predict a firm's financial performance over a period of one year or less, including revenues, costs, and expenses. This type of forecast is important for day-to-day operational planning and decision making. The other options are not relevant to predicting short-term financial performance.

Question 16

If a company wants to predict how much money it can make this coming year, it would benefit from developing a:

Accepted Answer

A short-term forecast is a prediction of revenues, costs, and expenses for a period of one year or less.

Question 17

When Preferred Pet Care Inc., a mobile veterinary care company, first started operations, it extended three months of credit to customers. It soon began to experience a cash flow problem. A finance professional was hired to:

Accepted Answer

Since the company is experiencing a cash flow problem due to extending three months of credit to customers, hiring a finance professional to manage accounts receivable would be the best choice. This would involve creating a strategy for collecting payments from customers in a timely manner and ensuring that the company's cash flow improves. Managing accounts payable or developing tax strategies may be important tasks, but they wouldn't address the immediate cash flow issue that the company is facing. Auditing the company ledgers may be necessary at some point, but it's not the most pressing concern in this particular scenario.

Question 18

Which of the following shows a firm's spending plans on fixed assets such as large equipment?

Accepted Answer

A capital budget shows a firm's spending plans on fixed assets such as large equipment. The operating budget shows a firm's spending plans on day-to-day activities, while a cash budget forecasts cash inflows and outflows. A surplus budget is not a common type of budget.

Question 19

In order to assist in revenue realization, a(n) ________ allocates resources throughout the firm

Accepted Answer

A budget is a financial plan that allocates resources throughout the firm in order to assist in revenue realization. It outlines expected revenue and expenses, and helps to ensure that resources are used efficiently and effectively to achieve financial goals. Option A, forecast, is not necessarily focused on resource allocation but rather predicts future events. Options B and D, balance sheet and income statement, are financial statements that provide information on the financial health and performance of a company but are not specifically focused on resource allocation.

Question 20

Ariel, a recent graduate in finance from a well-known university, was hired by a large corporation to work in tax management. Ariel's goal is:

Accepted Answer

As a tax management professional, Ariel's primary goal is to minimize the firm's tax consequences legally and ethically. This means finding ways to reduce the amount of taxes the company owes while still complying with relevant tax laws and regulations. The other options listed (A, B, and D) do not accurately reflect the responsibilities of a tax management professional.

Quiz 18: Financial Management