F
(A. Financial
MODULE 11 D. is ignoring the principle of matched maturities
FINANCIAL MANAGEMENT Short-term financing
14. The type of company most likely to need short-term financing is one
A. FINANCIAL PLANNING AND STRATEGIES A. has no seasonality and no growth in sales from year to year
B. sells only for cash
THEORIES: C. has a high degree of seasonality
Business plan D. has lower total fixed costs than total variable costs
3. The typical outline of the component parts of a business plan would be the
A. mission and strategy statements. C. financial projections. 25. Common sources of short-term financing include:
B. operations of the business. D. All of the above. A. Stretching payables C. Reducing inven
B. Issuing bonds D. All of the above
Financial planning process
2. Planning for future growth is called: 24. How does long-term financing policy affect short-term financing req
A. capital budgeting C. financial forecasting A. The nature of the firm's short-term financial planning problem i
B. working capital management D. none of the above of long-term capital it raises.
B. A firm that issues large amounts of long-term debt or comm
1. The ideal financial planning process would be large part of its earnings, may find that it has permanent exc
A. top-down planning. relatively little long-term capital and end up as permanent shor
B. bottom-up planning. C. Most firms attempt to find a golden mean by financing all fixed
C. a combination of top-down and bottom-up planning. assets with equity and long-term debt. Such firms may invest
D. none of the above. of the year and borrow during the rest of the year.
D. All of the above affect short-term financing.
18. Which of the following is incorrect regarding the construction of financial planning models?
A. There is no theory or model that leads straight to the optimal financial strategy. Judgmental approach
B. Financial planning should not proceed by trial and error. 21. Under the judgmental approach for developing a pro forma balan
C. Many different strategies may be projected under a range of assumptions about the future required to bring the statement into balance may be called the
before one strategy is finally chosen. A. retained earnings C. suspense accou
D. The dozens of separate projections that may be made during this trial-and-error process B. accounts receivable D. required new fin
generate a heavy load of arithmetic and paperwork.
Percent of sales method
Financing policy 6. The percent of sales method is based on which of the following assum
Maturities matching A. All balance sheet accounts are tied directly to sales.
23. When a firm finances long-term assets with short-term sources of funding, it: B. Most balance sheet accounts are tied directly to sales.
A. reduces the risk of cash shortage C. There is considerably excessive asset level.
B. will have higher interest expenses D. Statements a and c above are correct.
C. improves the leverage ratio
617
, F
(A. Financial
4. Which of the following is the major independent variable in constructing pro forma income C. The plan assumes that sales determine assets that deter
statements and balance sheets? needed.
A. total assets C. dividend payout D. The plan assumes that there is a varying relationship betwee
B. net income D. sales needed.
7. The first step in developing a pro forma income statement is to: 11. Which of the following best describes a firm's external funding requ
A. build a sales forecast C. determine the cost of goods sold A. Growth in assets minus growth in liabilities minus net income
B. determine the production schedule D. none of the above B. Growth in assets minus the current year's retained earnings
C. Growth in assets minus growth in current liabilities minus net in
20. The percent-of-sales method of preparing the projected income statement assumes that all D. Growth in assets minus growth in current liabilities minus the y
costs are:
A. Constant C. Variable 15. A company that has rapidly growing sales will probably
B. Fixed D. Independent A. need additional long-term financing C. have increasing
B. have a financing gap D. find that all of th
22. Utilizing past cost and expense ratios (percent-of-sales method) when preparing pro forma
financial statements will tend to 17. Which of the following statements is most correct?
A. Understate profits when sales are decreasing and overstate profits when sales are A. Since accounts payable and accrued liabilities must eventually
increasing. increase, required new financing also increases.
B. Understate profits, no matter what the change in sales, as long as fixed costs are present. B. Suppose a firm is operating its fixed assets below 100 percent c
C. Understate profits when sales are increasing and overstate profits when sales are with respect to current assets. If sales grow, the firm can offset th
decreasing. assets with its idle fixed assets capacity.
D. Overstate profits, no matter what the change in sales, as long as fixed costs are present. C. If a firm retains all of its earnings, then it will not need any addi
growth.
Additional funds needed D. Additional funds needed are typically raised from some combina
5. Additional funds needed are best defined as: term bonds, and common stock. These accounts are nonsponta
A. Funds that are obtained automatically from routine business transactions. explicit financing decision to increase them.
B. Funds that a firm must raise externally through borrowing or by selling new common or
preferred stock. Growth
C. The amount of assets required per peso of sales. 19. Which of the following is incorrect regarding the effect of growt
D. A forecasting approach in which the forecasted percentage of sales for each item is held financing?
constant. A. Higher growth rates will lead to a greater need for investments
capital.
8. Which of the following statements about forecasting external funding requirements via the B. The internal growth rate is the maximum rate that the firm can
percentage of sales method is true? reinvested profits to finance its growth, that is, the maxim
A. The plan assumes that sales are determined by assets that determine the external funds requiring external financing.
needed. C. The sustainable growth rate is the rate at which the firm ca
B. The plan assumes that the external funds needed impact assets which in turn drive sales. flexibly changing its leverage ratio.
618
(A. Financial
MODULE 11 D. is ignoring the principle of matched maturities
FINANCIAL MANAGEMENT Short-term financing
14. The type of company most likely to need short-term financing is one
A. FINANCIAL PLANNING AND STRATEGIES A. has no seasonality and no growth in sales from year to year
B. sells only for cash
THEORIES: C. has a high degree of seasonality
Business plan D. has lower total fixed costs than total variable costs
3. The typical outline of the component parts of a business plan would be the
A. mission and strategy statements. C. financial projections. 25. Common sources of short-term financing include:
B. operations of the business. D. All of the above. A. Stretching payables C. Reducing inven
B. Issuing bonds D. All of the above
Financial planning process
2. Planning for future growth is called: 24. How does long-term financing policy affect short-term financing req
A. capital budgeting C. financial forecasting A. The nature of the firm's short-term financial planning problem i
B. working capital management D. none of the above of long-term capital it raises.
B. A firm that issues large amounts of long-term debt or comm
1. The ideal financial planning process would be large part of its earnings, may find that it has permanent exc
A. top-down planning. relatively little long-term capital and end up as permanent shor
B. bottom-up planning. C. Most firms attempt to find a golden mean by financing all fixed
C. a combination of top-down and bottom-up planning. assets with equity and long-term debt. Such firms may invest
D. none of the above. of the year and borrow during the rest of the year.
D. All of the above affect short-term financing.
18. Which of the following is incorrect regarding the construction of financial planning models?
A. There is no theory or model that leads straight to the optimal financial strategy. Judgmental approach
B. Financial planning should not proceed by trial and error. 21. Under the judgmental approach for developing a pro forma balan
C. Many different strategies may be projected under a range of assumptions about the future required to bring the statement into balance may be called the
before one strategy is finally chosen. A. retained earnings C. suspense accou
D. The dozens of separate projections that may be made during this trial-and-error process B. accounts receivable D. required new fin
generate a heavy load of arithmetic and paperwork.
Percent of sales method
Financing policy 6. The percent of sales method is based on which of the following assum
Maturities matching A. All balance sheet accounts are tied directly to sales.
23. When a firm finances long-term assets with short-term sources of funding, it: B. Most balance sheet accounts are tied directly to sales.
A. reduces the risk of cash shortage C. There is considerably excessive asset level.
B. will have higher interest expenses D. Statements a and c above are correct.
C. improves the leverage ratio
617
, F
(A. Financial
4. Which of the following is the major independent variable in constructing pro forma income C. The plan assumes that sales determine assets that deter
statements and balance sheets? needed.
A. total assets C. dividend payout D. The plan assumes that there is a varying relationship betwee
B. net income D. sales needed.
7. The first step in developing a pro forma income statement is to: 11. Which of the following best describes a firm's external funding requ
A. build a sales forecast C. determine the cost of goods sold A. Growth in assets minus growth in liabilities minus net income
B. determine the production schedule D. none of the above B. Growth in assets minus the current year's retained earnings
C. Growth in assets minus growth in current liabilities minus net in
20. The percent-of-sales method of preparing the projected income statement assumes that all D. Growth in assets minus growth in current liabilities minus the y
costs are:
A. Constant C. Variable 15. A company that has rapidly growing sales will probably
B. Fixed D. Independent A. need additional long-term financing C. have increasing
B. have a financing gap D. find that all of th
22. Utilizing past cost and expense ratios (percent-of-sales method) when preparing pro forma
financial statements will tend to 17. Which of the following statements is most correct?
A. Understate profits when sales are decreasing and overstate profits when sales are A. Since accounts payable and accrued liabilities must eventually
increasing. increase, required new financing also increases.
B. Understate profits, no matter what the change in sales, as long as fixed costs are present. B. Suppose a firm is operating its fixed assets below 100 percent c
C. Understate profits when sales are increasing and overstate profits when sales are with respect to current assets. If sales grow, the firm can offset th
decreasing. assets with its idle fixed assets capacity.
D. Overstate profits, no matter what the change in sales, as long as fixed costs are present. C. If a firm retains all of its earnings, then it will not need any addi
growth.
Additional funds needed D. Additional funds needed are typically raised from some combina
5. Additional funds needed are best defined as: term bonds, and common stock. These accounts are nonsponta
A. Funds that are obtained automatically from routine business transactions. explicit financing decision to increase them.
B. Funds that a firm must raise externally through borrowing or by selling new common or
preferred stock. Growth
C. The amount of assets required per peso of sales. 19. Which of the following is incorrect regarding the effect of growt
D. A forecasting approach in which the forecasted percentage of sales for each item is held financing?
constant. A. Higher growth rates will lead to a greater need for investments
capital.
8. Which of the following statements about forecasting external funding requirements via the B. The internal growth rate is the maximum rate that the firm can
percentage of sales method is true? reinvested profits to finance its growth, that is, the maxim
A. The plan assumes that sales are determined by assets that determine the external funds requiring external financing.
needed. C. The sustainable growth rate is the rate at which the firm ca
B. The plan assumes that the external funds needed impact assets which in turn drive sales. flexibly changing its leverage ratio.
618
