Question 1

An external sales forecast is based on ________.

Accepted Answer

An external sales forecast is based on key economic indicators such as GDP and consumer confidence. This type of forecast looks outside the firm to make predictions about sales.

Question 2

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 is ________.

Accepted Answer

In July, the firm receives 20% of July sales in cash, which is 20% of $300 = $60. Additionally, it collects the balance of June sales (80% of $200 = $160). Therefore, total cash receipts in July are $60 (from July sales) + $160 (from June sales) = $220.

Question 3

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

Accepted Answer

When cash flows are more seasonal and uncertain, a firm should use a greater number of budgeting intervals to more accurately predict and manage its cash flow needs.

Question 4

As the typical cash budget shows cash flows on a monthly basis,the information provided by the cash budget is adequate for ensuring solvency.

Accepted Answer

While a cash budget helps in planning and managing cash flows on a monthly basis, it alone may not be adequate for ensuring solvency, as solvency involves long-term financial stability and the ability to meet long-term obligations, which requires a broader analysis beyond short-term cash flows.

Question 5

In cash budgeting,the impact of depreciation is reflected in a reduction in tax payments.

Accepted Answer

Depreciation is a non-cash expense that reduces taxable income, which in turn reduces the amount of tax payments required. This impact should be taken into account when preparing a cash budget.

Question 6

Since depreciation and other noncash charges represent a scheduled write-off of an earlier cash outflow,they should not be included in the cash budget,though depreciation charges will affect the taxes that a firm pays.

Accepted Answer

Depreciation and other noncash charges do not involve actual cash outflows, therefore they should not be included in the cash budget. However, they will affect the taxes that a company pays since these charges are deducted from taxable income.

Question 7

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 8

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

Accepted Answer

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

Question 9

Cash disbursements include ________.

Accepted Answer

Cash disbursements refer to the outflow of cash from a company. Rent payments involve the payment of cash for the use or lease of a property, making it a cash disbursement. Amortization expense, depreciation expense, and depletion are non-cash expenses, meaning they do not result in an immediate outflow of cash.

Question 10

If the ending cash is greater than the minimum cash balance,excess cash exists.

Accepted Answer

If the ending cash is greater than the minimum cash balance, it means that there is extra cash available, also known as excess cash.

Question 11

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 12

The key input to any cash budget is ________.

Accepted Answer

The sales forecast is the best key input to any cash budget as it estimates the amount of revenue that the business will generate during the budget period. This information is critical for estimating the cash inflows that will be received from customers, which is necessary to determine the amount of cash that will be available to cover the business's cash outflows. The other options, such as the production plan, pro forma balance sheet, and current tax laws, may also be important inputs to the cash budget, but they are not as fundamental as the sales forecast.

Question 13

A cash budget gives the financial manager a clear view of the timing of a firm's expected profitability over a given period.

Accepted Answer

A cash budget is primarily focused on the timing and amounts of cash inflows and outflows, not directly on the firm's profitability over a given period.

Question 14

A projected excess cash balance for the month may be ________.

Accepted Answer

Investing excess cash in marketable securities allows the company to earn a return on its money while still maintaining liquidity. Financing with short-term or long-term securities may not be necessary or cost-effective, as the excess cash can be used to pay down debt or invested in securities that have a higher rate of return. Investing in long-term securities may also not be appropriate if the excess cash may be needed in the near future.

Question 15

In cash budgeting,other cash receipts are cash receipts expected to result from sources other than sales.

Accepted Answer

Other cash receipts can include sources such as interest income, investments, loans, or any other external source of cash inflow besides sales.

Question 16

An internal forecast is based on ________.

Accepted Answer

An internal forecast is based on a buildup, or consensus, of sales forecasts through a firm's own sales channels, adjusted for additional factors such as production capabilities. This means that the forecast is developed internally within the organization, taking into account its own sales performance and production capacity, and is not dependent on external factors such as economic indicators or financial analyst surveys.

Question 17

A firm's net cash flow is the mathematical difference between the firm's beginning cash and its cash disbursements in each period.

Accepted Answer

A firm's net cash flow is the mathematical difference between the firm's beginning cash and its cash receipts in each period, not cash disbursements.

Question 18

As the typical cash budget shows cash flows only on a monthly basis,the information provided by the cash budget is not necessarily adequate for ensuring solvency.

Accepted Answer

The cash budget only shows cash flows on a monthly basis, which may not be sufficient for predicting and ensuring solvency. Other factors such as accounts payable and accounts receivable should also be considered for a more comprehensive solvency analysis.

Question 19

A firm's final sales forecast is usually a function of ________.

Accepted Answer

A firm's final sales forecast is usually a function of both internal and external factors in combination, such as market trends, customer behavior, competitive landscape, economic conditions, and internal sales data. It is not typically based on net income or accounts receivable, and while salesperson estimates may be considered, they are not the only factor in determining the forecast.

Question 20

Using simulations,a firm can determine the amount of financing needed to protect it adequately against a cash shortage.

Accepted Answer

Simulations allow a firm to estimate the likelihood and potential impact of various scenarios, including cash shortages. By running multiple simulations, the firm can identify the amount of financing needed to protect against these scenarios and reduce the risk of a cash shortage.

Quiz 4: Long- and Short-Term Financial Planning