Question 1

In a 2009 survey Inc.com asked its readers "What is the hardest part of owning a business right now?" The leading problem cited was
A) difficulty in obtaining credit
B) losing long-standing customers
C) employees worried about losing their jobs
D) difficulty in forecasting accurately

Accepted Answer

The answer of In a 2009 survey Inc.com asked its...

Question 2

Winston Wolfe believes it is important to produce a profit and loss statement every
A) day
B) week
C) month
D) year

Accepted Answer

Producing a profit and loss statement on a monthly basis allows for a regular review of the financial health of the business and helps identify areas for improvement. Daily or weekly statements may be too frequent and time-consuming to maintain, while only producing them once a year may miss important changes or trends that need to be addressed in a timely manner.

Question 3

The conventional measure of a firm's liquidity is the
A) debt ratio
B) cash flow statement
C) current ratio
D) asset turnover ratio

Accepted Answer

The current ratio, which is the ratio of current assets to current liabilities, is the most common measure of a firm's liquidity. It indicates the firm's ability to pay off its short-term debts with its current assets. A high current ratio indicates a good level of liquidity, while a low current ratio may indicate that the firm could have difficulty meeting its short-term obligations. The other options listed are not direct measures of liquidity.

Question 4

Cecilia Levine purchased badly needed equipment from a customer who deducted an amount from his invoices to cover the cost of the equipment. This strategy on the part of Levine illustrates a growth strategy called
A) boondoggling
B) bootstrapping
C) bartering
D) trade credit

Accepted Answer

The answer of Cecilia Levine purchased badly needed equipment from...

Question 5

A firm should finance its growth in such a way as to maintain adequate
A) liquidity
B) inventory
C) sales
D) volume

Accepted Answer

Maintaining adequate liquidity is crucial for a firm to be able to pay its debts and expenses on time, especially during periods of growth. Financing growth through debt or equity must not compromise the firm's ability to meet its payment obligations. Maintaining adequate inventory, sales, or volume are important considerations but not as critical as liquidity for the survival of the firm.

Question 6

For every dollar of assets there must be a corresponding dollar of
A) liquidity
B) liabilities
C) financing
D) debt

Accepted Answer

The answer of For every dollar of assets there must...

Question 7

D&R Products forecast first year asset requirements of $143,000; therefore, the total debt requirement must be
A) $143,000
B) a set percentage of sales
C) equal to the current ratio
D) unknown; not enough information

Accepted Answer

The answer of D&R Products forecast first year asset requirements...

Question 8

D&R Products forecast that it will require $10,000 for equipment and $40,000 for a building. These items will be reflected in the balance sheet as _____.
A) inventory
B) net fixed assets
C) current assets
D) gross fixed assets

Accepted Answer

The answer of D&R Products forecast that it will require...

Question 9

The assets-to-sales relationship tends to be relatively constant within an industry, allowing for a(n) _____ technique to be utilized in projecting asset requirements.
A) percentage-of-sales
B) bootstrap forecasting
C) asset turnover ratio
D) discounted sales

Accepted Answer

The percentage-of-sales technique is commonly used in projecting asset requirements because the assets-to-sales relationship tends to be relatively constant within an industry. This technique involves estimating the level of assets needed based on a percentage of projected sales.

Question 10

The results of forecasting asset requirements for a startup business will only be as good as its
A) conjectures
B) assumptions
C) historical data
D) primary data

Accepted Answer

The assumptions made about the startup business's future performance will heavily influence its asset requirements. Therefore, the accuracy of the forecasting will depend on the quality and reliability of the assumptions made. Historical data and primary data can be helpful, but they are only useful if the assumptions made are sound. Conjectures are simply guesses and have no place in a forecast.

Question 11

The most common way that entrepreneurs accomplish more with less is called
A) bootstrapping
B) downsizing
C) debt financing
D) credit card financing

Accepted Answer

Bootstrapping is the most common way that entrepreneurs accomplish more with less. It refers to starting and growing a business without external funding or with very minimal financing. This means entrepreneurs rely on their own savings, personal assets, and revenue generated by the business to cover expenses and fuel growth. This approach enables entrepreneurs to maintain control over their business, avoid debt, and focus on creating a sustainable business model. Downsizing, debt financing, and credit card financing all involve external financing and do not necessarily lead to doing more with less.

Question 12

The following tactics represent bootstrapping except
A) leasing instead of buying
B) utilizing "just in time" inventory strategy
C) "floating" checks
D) collecting money owed the firm before having to pay its bills

Accepted Answer

"Floating" checks is an unethical and potentially illegal tactic that involves writing a check with insufficient funds and relying on the time it takes for the check to clear to cover the shortfall. This is not a recommended or legitimate bootstrapping tactic. The other choices (A, B, and D) are legitimate bootstrapping tactics commonly used by entrepreneurs to conserve resources and manage cash flow.

Question 13

Entrepreneurs tend to be conservative and usually underestimate what they can actually achieve when it comes to future sales.

Accepted Answer

Entrepreneurs are usually known for being optimistic and having high expectations for their future sales, rather than being conservative and underestimating their potential success.

Question 14

Most firms of any size need fixed assets which include
A) inventories
B) equipment
C) working capital
D) office supplies

Accepted Answer

Fixed assets typically include long-term, tangible assets that are used in the production or sale of goods and services, such as machinery, equipment, land, and buildings. Inventories (A) are not typically considered fixed assets, as they are usually short-term assets that are constantly changing. Working capital (C) is also not a fixed asset, as it represents current assets and current liabilities used to fund daily operations. Office supplies (D) are considered consumables and are not typically considered fixed assets.

Question 15

Working capital refers to current assets which include the following except
A) cash
B) accounts receivable
C) notes receivable due within 24 months
D) inventories

Accepted Answer

Working capital includes assets that can be converted into cash within 12 months, such as cash, accounts receivable, and inventories. Notes receivable due within 24 months are considered long-term assets and therefore not included in working capital.

Question 16

Financial projections should be limited to the income statement to prevent information overload on lenders and investors.

Accepted Answer

Financial projections should include not only the income statement, but also the balance sheet and cash flow statement to provide a comprehensive view of the company's financial health and future. Including all three statements is important for lenders and investors to make informed decisions.

Question 17

The greater a firm's sales, the greater need for financing because of greater _____ requirements.
A) asset
B) employee
C) marketing
D) operational

Accepted Answer

Higher sales typically require increased investment in assets such as inventory, equipment, and property, which necessitates more financing. Employee, marketing, and operational requirements may increase with sales, but they do not directly result in a need for financing in the same way that asset requirements do.

Question 18

D&R Products forecast its cash requirements for year one at 4% of sales, resulting in a $10,000 cash need. The cash will be reflected in the balance sheet as _____.
A) gross fixed assets
B) net fixed assets
C) current assets
D) accounts receivable

Accepted Answer

The cash requirement is a current asset and will be reflected as such on the balance sheet. Gross fixed assets refer to the total value of a company's fixed assets, net fixed assets refer to the value of fixed assets after deducting accumulated depreciation, and accounts receivable refers to amounts owed to the company by its customers.

Question 19

After projecting sales the next step in forecasting a company's income is to project
A) operating expenses
B) interest expense
C) taxes
D) cost of goods sold

Accepted Answer

The answer of After projecting sales the next step in...

Question 20

Most firms of any size need working capital which includes the following except
A) owner's equity
B) accounts receivable
C) cash
D) inventories

Accepted Answer

Working capital refers to the current assets that a firm needs to operate on a day-to-day basis. These include accounts receivable, cash, and inventories. Owner's equity, on the other hand, refers to the portion of the company that the owner(s) owns outright and is not considered a current asset. Therefore, it is not included in working capital calculations.

Quiz 11: Projecting Financial Requirements

In a 2009 survey Inc.com asked its readers "What is the hardest part of owning a business right now?" The leading problem cited was

Winston Wolfe believes it is important to produce a profit and loss statement every

The conventional measure of a firm's liquidity is the

Cecilia Levine purchased badly needed equipment from a customer who deducted an amount from his invoices to cover the cost of the equipment. This strategy on the part of Levine illustrates a growth strategy called

A firm should finance its growth in such a way as to maintain adequate

For every dollar of assets there must be a corresponding dollar of

D&R Products forecast first year asset requirements of $143,000; therefore, the total debt requirement must be

D&R Products forecast that it will require $10,000 for equipment and $40,000 for a building. These items will be reflected in the balance sheet as _____.

The assets-to-sales relationship tends to be relatively constant within an industry, allowing for a(n) _____ technique to be utilized in projecting asset requirements.

The results of forecasting asset requirements for a startup business will only be as good as its

The most common way that entrepreneurs accomplish more with less is called

The following tactics represent bootstrapping except

Entrepreneurs tend to be conservative and usually underestimate what they can actually achieve when it comes to future sales.

Most firms of any size need fixed assets which include

Working capital refers to current assets which include the following except

Financial projections should be limited to the income statement to prevent information overload on lenders and investors.

The greater a firm's sales, the greater need for financing because of greater _____ requirements.

D&R Products forecast its cash requirements for year one at 4% of sales, resulting in a $10,000 cash need. The cash will be reflected in the balance sheet as _____.

After projecting sales the next step in forecasting a company's income is to project

Most firms of any size need working capital which includes the following except