Question 1

Cash budgeting involves creating a detailed schedule of cash receipts and disbursements.

Accepted Answer

Cash budgeting is the process of creating a detailed plan of a company's cash inflows and outflows over a specific period of time. This involves estimating the timing and amounts of cash receipts from sales, collections of accounts receivable, and other sources, as well as the timing and amounts of cash payments for expenses such as rent, payroll, and inventory purchases. By forecasting these cash flows, a company can better manage its finances and make informed business decisions.

Question 2

The financial plan is the section of the business plan that sets forth projected financial statements over the planning period.

Accepted Answer

The financial plan section of a business plan includes projected financial statements such as income statements, balance sheets, and cash flow statements.

Question 3

Not including the supporting detail in the financial plan will deem the financial plan useless.

Accepted Answer

The answer of Not including the supporting detail in the...

Question 4

The simplest approach for forecasting financial statements for an established business is the modified percentage of sales method, which involves estimating the company's sales growth rate, and then assuming that all income statement and balance sheet line items grow at the same rate.

Accepted Answer

The modified percentage of sales method involves estimating the company's sales growth rate and then assuming that certain income statement and balance sheet line items, such as cost of goods sold or accounts receivable, will grow at the same rate as sales. However, not all items are assumed to grow at this rate; some, like interest expense or fixed assets, may require different growth assumptions or calculations based on other factors.

Question 5

Small businesses tend to do a single business plan when they need funding that contains both strategic and operating elements.

Accepted Answer

Small businesses often prepare a comprehensive business plan that includes both strategic and operational elements to present to potential investors or lenders when seeking funding.

Question 6

The dividend payout ratio is defined as the ratio of net income minus retained earnings to net income.

Accepted Answer

The answer of The dividend payout ratio is defined as...

Question 7

A planning assumption is a physical or economic condition or management decision that is expected to exist during the planning period.

Accepted Answer

A planning assumption is a condition or decision that is expected to exist during the planning period. It may be a physical or economic condition or a management decision.

Question 8

The financial planning process for an existing business can be thought of as adjusting recent financial statements for changes reflected in planning assumptions.

Accepted Answer

The financial planning process for an existing business involves creating projections for future financial statements based on assumptions or estimates. These projections are then compared and adjusted to recent financial statements to determine the effects of anticipated changes on the business's financial position.

Question 9

Indirect planning assumptions are made about specific physical or economic items such as revenues, the market for product, or capital expenditures. Direct planning assumptions, on the other hand are usually based on financial ratios.

Accepted Answer

The statement is incorrect. Direct planning assumptions are based on specific physical or economic items such as revenues, the market for product, or capital expenditures, while indirect planning assumptions are usually based on financial ratios.

Question 10

The cash budget measures both the timing and amount of a firm's cash flows.

Accepted Answer

The cash budget helps a firm to plan its cash inflows and outflows over a specific period of time. By estimating the timing and amount of these cash flows, a firm can ensure that it has enough cash to meet its obligations and invest in new opportunities. Therefore, the cash budget measures both the timing and amount of a firm's cash flows.

Question 11

The business planning spectrum is a graphic depiction of how the types of plans vary in time horizon and detail.

Accepted Answer

The statement accurately describes the business planning spectrum.

Question 12

A bottom-up plan is one that puts together the requests and forecasts of lower and middle management without judgment by top-level executives. Bottom-up plans have a tendency to overstate achievable performance.

Accepted Answer

A bottom-up plan indeed involves the aggregation of requests and forecasts from lower and middle management, but it typically involves judgment and adjustments by top-level executives to ensure alignment with overall strategic goals. The statement that bottom-up plans have a tendency to overstate achievable performance is a generalization and can vary depending on the organization's planning process and how effectively it is managed.

Question 13

Top-down planning tends to reflect more excessive and aggressive optimism than bottom-up planning.

Accepted Answer

Top-down planning involves setting goals and targets at a higher level and cascading them down to lower levels, which can result in a more optimistic outlook due to a lack of input and feedback from those in the lower levels. In contrast, bottom-up planning involves gathering input and feedback from those in lower levels, resulting in a more realistic and conservative approach.

Question 14

A combination of top-down and bottom-up planning ensures a realistic compromise between the conservatism of the top-down plan and the aggressive optimism of the bottom- up plan.

Accepted Answer

The answer of A combination of top-down and bottom-up planning...

Question 15

Constructing a projected balance sheet requires a projected income statement.

Accepted Answer

A projected income statement provides information on the expected revenue and expenses over a period of time, which is necessary for projecting the assets, liabilities, and equity of the company in the future. Therefore, a projected balance sheet depends on a projected income statement.

Question 16

Small firm planning processes cover the same spectrum with respect to time horizon and detail as large firm processes.

Accepted Answer

Small firms typically have more limited resources and capacity for long-term planning than large firms. Therefore, their planning processes may focus more on shorter time horizons and less detailed analysis.

Question 17

A cash forecast is a financial projection made with the explicit purpose of predicting short-term cash needs. Most large firms do monthly cash forecasts.

Accepted Answer

The statement is true. A cash forecast is typically used by businesses to predict their short-term cash needs and most large firms do monthly cash forecasts.

Question 18

Although percentage of sales methods (modified and unmodified) give results that are "in the ballpark," they are rarely used in more formal planning, because they gloss over too much detail.

Accepted Answer

Percentage of sales methods are simple and quick methods of forecasting, but they do not take into account other factors that may affect sales. As a result, they are rarely used in formal planning where more detailed information is needed.

Question 19

Every financial planning problem ends with forecasting future income statement, balance sheet, and statement of cash flows.

Accepted Answer

Financial planning involves a wide range of activities beyond forecasting future financial statements. It includes setting goals, assessing current financial health, budgeting, risk management, tax planning, retirement planning, and investment strategies, among others. Forecasting future financial statements is an important part, but not the end of financial planning.

Question 20

The sustainable growth rate is a theoretical statement of a firm's ability to grow without changing its financial ratios.

Accepted Answer

The sustainable growth rate is based on the assumption that a company can grow its sales, earnings, and dividends without changing its debt-to-equity ratio, payout ratio, or other financial ratios that affect its return on equity. This rate is calculated as the product of a firm's current profitability, retention rate, and financial leverage.

Quiz 4: Financial Planning