Question 1

According to the textbook, successful entrepreneurs manage cash flows&#10;A) proactively&#10;B) passively&#10;C) reactively&#10;D) aggressively&#10;E) diligently

Accepted Answer

Successful entrepreneurs manage cash flows proactively, meaning they plan and take action to ensure they have enough cash to meet their obligations and take advantage of opportunities.

Question 2

What are ways an entrepreneur can use to reduce the probability of running into cash flow problems?&#10;A) Use a cash budget&#10;B) Set a target minimum cash balance&#10;C) Adhere to the target minimum cash balance&#10;D) B and C&#10;E) A, B, and C

Accepted Answer

Using a cash budget helps in planning and monitoring cash flows. Setting and adhering to a target minimum cash balance ensures that the business maintains a safety buffer to meet unexpected expenses, thereby reducing the probability of cash flow problems.

Question 3

List all the assumptions of the operation explicitly&#10;A) will help entrepreneur identify potential flaws in their business model.&#10;B) is unnecessary.&#10;C) results in trapping the entrepreneurs in the weeds and lose sight of the larger goals and visions.&#10;D) give away too much information to outside investors or competitors.&#10;E) is a common mistake made by inexperienced entrepreneurs.

Accepted Answer

Listing all the assumptions of the operation helps entrepreneurs identify potential flaws in their business model, which is crucial for refining and improving their strategies.

Question 4

Some approaches for determining the target minimum cash balance include:&#10;A) one to three months of cash expenses&#10;B) worst case scenario analysis&#10;C) residual cash retention.&#10;D) A and B&#10;E) A, B, and C

Accepted Answer

Determining the target minimum cash balance often involves keeping one to three months of cash expenses to cover operational needs (A) and conducting a worst-case scenario analysis to ensure financial stability in unforeseen circumstances (B). Residual cash retention (C) is not a standard approach for determining minimum cash balances.

Question 5

Methods to maintain the target minimum cash balance include the following except&#10;A) increase startup funds&#10;B) Use short-term loans&#10;C) Use revolving line of credit&#10;D) Use cash advance from credit companies&#10;E) All of the above

Accepted Answer

The answer of Methods to maintain the target minimum cash...

Question 6

Forecasting sales for a new business&#10;A) uses the same approach as for an existing business&#10;B) is the same for most industries&#10;C) may involve different techniques depending on the industry&#10;D) is a well-established science&#10;E) is usually the last step in preparing the cash budget

Accepted Answer

Forecasting sales for a new business may require different techniques depending on the industry, as each industry has its unique factors and market dynamics that influence sales.

Question 7

The most important and difficult task of estimating cash flows for an established business is&#10;A) computing historic ratios&#10;B) computing historic rolling averages&#10;C) identifying values that will change during the forecast period&#10;D) A and B&#10;E) A, B, and C

Accepted Answer

Identifying values that will change during the forecast period is the most important and difficult task because it requires understanding both the internal and external factors that could affect future cash flows, which is more complex than simply analyzing past data.

Question 8

Cash budget is usually prepared for&#10;A) 6 month&#10;B) one to three years&#10;C) three to five years&#10;D) five to ten years&#10;E) ten to twenty years

Accepted Answer

The answer of Cash budget is usually prepared for&#10;A) 6...

Question 9

Projections for cash budget is usually&#10;A) daily or weekly&#10;B) weekly or monthly&#10;C) monthly or quarterly&#10;D) quarterly or annually&#10;E) annually or longer

Accepted Answer

Cash budget projections are typically done on a weekly or monthly basis to ensure that a company can meet its short-term financial obligations and manage its cash flow effectively. This allows for more detailed and immediate planning and adjustments.

Question 10

Cash flow forecasting and cash budget development are&#10;A) iterative processes.&#10;B) non-routine processes for new businesses only.&#10;C) easy because entrepreneurs want to keep the estimates simple..&#10;D) A and B&#10;E) A, B, and C

Accepted Answer

Cash flow forecasting and cash budget development are iterative processes because they require regular review and adjustments as actual financial data and business conditions change. They are not exclusive to new businesses nor are they inherently easy due to their complexity and the need for accuracy.

Deck 6: Forecasting Cash Flows