Question 1

A firm has projected sales in May, June, and July of $100, $200, and $300, respectively. The firm makes 20 percent of sales for cash and collects the balance one month following the sale. The firm's total cash receipts in July

Accepted Answer

In July, the firm will receive 20% of July sales in cash ($300 * 20% = $60) and 80% of June sales collected in July ($200 * 80% = $160). Total cash receipts in July = $60 + $160 = $220.

Question 2

The key input to the short-run financial planning process is

Accepted Answer

The sales forecast is crucial as it drives other components like cash budgets and pro forma statements in short-run financial planning.

Question 3

Once sales are forecasted, ________ must be generated to estimate a variety of operating costs.

Accepted Answer

The answer of Once sales are forecasted, ________ must be...

Question 4

A projected excess cash balance for the month may be

Accepted Answer

A projected excess cash balance for the month can be invested in marketable securities as they are highly liquid and can be easily sold if additional funds are needed. Short-term and long-term securities may not be suitable as they tend to have longer maturity periods and may not be as easily convertible to cash.

Question 5

Key inputs to short-term financial planning are

Accepted Answer

Short-term financial planning requires accurate sales forecasts and current operating and financial data. These inputs help in devising a realistic cash flow forecast and determining the appropriate level of inventory and accounts receivable to maintain. Economic forecasts and leverage analysis are important inputs to long-term financial planning. Operating budgets may be useful, but they are not necessarily a key input to short-term financial planning.

Question 6

In cash budgeting, the ________ seasonal and uncertain a firm's cash flows, the ________ the number of budgeting intervals it should use.

Accepted Answer

The more seasonal and uncertain a firm's cash flows are, the greater the number of budgeting intervals it should use to more accurately manage and predict its cash needs.

Question 7

Required financing and excess cash are typically viewed as short-term. Therefore, required financing may be represented by notes payable and excess cash is assumed invested in a liquid, interest-paying vehicle such as marketable securities.

Accepted Answer

Required financing and excess cash are indeed short-term in nature, and are often represented by notes payable and marketable securities respectively.

Question 8

The financial manager may cope with uncertainty and make more intelligent short-term financial decisions by preparing several cash budgets, each based on differing assumptions.

Accepted Answer

By preparing several cash budgets based on differing assumptions, the financial manager can analyze potential outcomes and make more informed decisions in an uncertain environment. This allows for flexibility and adaptability in response to changing market conditions.

Question 9

Cash disbursements may include all of the following EXCEPT

Accepted Answer

Cash disbursements refer to payments made by a company to third parties to settle liabilities such as rent, tax payments, loan repayments, salaries, etc. Depreciation expense is a non-cash transaction and, therefore, not a cash disbursement. Fixed asset outlays involve the purchase of a long-term asset, which may or may not require cash payment upfront. Hence, it can be considered as a cash disbursement depending on the payment terms. However, as it is not a definitive cash disbursement, it is not the correct answer for this question.

Question 10

________ forecast is based on the relationships between the firm's sales and certain economic indicators.

Accepted Answer

An external forecast is based on external factors such as the economy, industry trends, and market conditions. A sales forecast is focused solely on predicting the company's future sales. An internal forecast uses data from past performance and internal operations to predict future outcomes. A pro forma forecast is a financial statement projection based on assumptions and estimates of future financial results. Therefore, the most appropriate option based on the given description is B (an external forecast).

Question 11

Of the following components of a cash budget, generally the easiest to estimate would be

Accepted Answer

Cash disbursements are generally easier to estimate because they often involve fixed or predictable expenses such as rent, utilities, and salaries.

Question 12

If a firm expects short-term cash surpluses it can plan

Accepted Answer

If a firm expects short-term cash surpluses, it can plan to invest these funds in short-term investments such as money market funds or treasury bills. This allows the firm to earn a return on their surplus cash while still being able to access it quickly if needed. Long-term investments would not be appropriate as the cash surplus is only expected in the short term. Short-term borrowing and leverage decisions are not necessary if the firm already has a cash surplus.

Question 13

If the net cash flow is less than the minimum cash balance, financing is required.

Accepted Answer

The answer of If the net cash flow is less...

Question 14

In the development of proforma statements, a firm that requires external funds means that the firm's projected level of cash is in excess of its needs and that funds would therefore be available for repaying debt, repurchasing stock, or increasing the dividend to stockholders.

Accepted Answer

A firm that requires external funds means that the firm's projected level of cash is insufficient to meet its needs and it needs to raise funds through external sources like borrowing or equity financing.

Question 15

The firm's final sales forecast is usually a function of

Accepted Answer

The final sales forecast is usually a combination of both internal and external factors. This includes economic forecasts, salesperson's estimates of demand, and accounts receivable experience.

Question 16

The required total financing figures in the cash budget refer to the monthly changes in borrowing.

Accepted Answer

The required total financing figures in a cash budget refer to the total amount of external financing needed to cover shortfalls in cash for the period, not just the monthly changes in borrowing.

Question 17

The excess cash balance is the amount available for investment by the firm if the desired minimum cash balance is less than the period's ending cash.

Accepted Answer

The excess cash balance is the difference between the period's ending cash balance and the desired minimum cash balance. If the desired minimum cash balance is less than the period's ending cash, then there is excess cash available for investment by the firm.

Question 18

One way a firm can reduce the amount of cash it needs in any one month is to

Accepted Answer

The answer of One way a firm can reduce the...

Question 19

The key input to any cash budget is

Accepted Answer

The sales forecast is the key input to any cash budget as it provides an estimate of the cash inflows from sales. This information is crucial for planning and managing cash flows, as it allows a company to anticipate when cash will be coming in and when it will be going out, and to plan accordingly. The other options listed (production plan, pro forma balance sheet, current tax laws) are important considerations for a company's financial planning, but they are not the key inputs for a cash budget.

Question 20

________ forecast is based on a buildup, or consensus, of sales forecasts through the firm's own sales channels, adjusted for additional factors such as production capabilities.

Accepted Answer

An internal sales forecast is based on the firm's own sales channels and production capabilities. It takes into account input from within the organization, including sales personnel, marketing, and production teams. It is a more reliable forecast than an external sales forecast, which relies solely on market research and analysis. A sales forecast is a general term and can refer to either an internal or external forecast. A pro forma forecast specifically relates to financial projections and is not necessarily sales-focused.

Quiz 4: Cash Flow and Financial Planning