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Balance Sheet Forecasting - Using sales growth and the profit forecast to construct a pro forma balance sheet to understand the future implications of the sources and uses of finances Discretionary accounts - Accounts that do not vary proportionally with sales but are decided upon by management Discretionary Financing Needed (DFN) - The additional financing needed given a firm's expectations for future growth How can a firm grow its fixed assets if it is expecting growth but has reached c...

What is a reasonable alternative to keeping an emergency stash of cash? Investing in a savings account Investing in a readily withdrawable account that still earns some interest is a value-preserving alternative. Which area of finance deals with sources of funding and the capital structure of corporations and seeks to increase the value of a firm to its owners? Business finance is the area of finance that deals with uses and sources of funding to increase the value of the firm. What is t...

7 What is the term for the risk that changes in interest rates will impact the value of a bond? 1.Interest rate risk 2.Firm-specific risk 3.Default risk 4.Systematic risk - Interest rate risk A company called Bobby's Books is considering purchasing a new bookbinding machine. The company calculates the hurdle rate of the project to be 9% and the IRR to be 11%. Should the company purchase the bookbinding machine? 1.No, because the hurdle rate is lower than the IRR. 2.Yes, because the IR...

Business finance - Which area of finance deals with sources of funding and the capital structure of corporations and seeks to increase the value of a firm to its owners? Finance focuses on the future, while accounting is generally backward-looking. - What is the primary difference between finance and accounting? Investments - Which subspecialty of finance primarily involves deciding which assets will create more wealth and earn positive returns? Investments - An area of finance that deals ...

1 What is the primary goal of the financial manager of a firm? - To maximize owner wealth 3 What is the primary aim of personal finance goals? - To maximize satisfaction from products purchased and services obtained 3 Which subspecialty of finance primarily involves deciding which assets will create more wealth and earn positive returns? - Investments A company calculated variances of a budget and actual cash flows that indicate the firm's strengths and weaknesses in cash flows and its...

How is risk defined in finance? - The possibility that the realized or actual return will differ from what we expect. (Risk is defined a s the possibility that the realized or actual return will differ from our expected return.) The nominal interest rate of an investment is 8%, and the inflation rate is 3%. What is the real interest rate? - 5% (Real Rate = Nominal Rate - Inflation, so 8% - 3% = 5%) What is another name for the cost of capital? - Discount rate What is the name for the minim...

Accounts Receivable Turnover (AR Turnover) - An activity ratio found by credit sales divided by accounts receivable. Average Collection Period (ACP) - An activity ratio found by the number of days in a year (365) divided by AR turnover. Current Ratio - A liquidity ratio found by current assets divided by current liabilities. Current ratio - Which ratio helps an analyst evaluate whether a company can cover its short-term obligations? Debt Ratio - A financing ratio found by total liabilitie...

Accounts Receivable Turnover - An activity ratio found by credit sales divided by accounts receivable. Activity Ratios - A category of ratios that measure how well a company uses its assets to generate sales or cash, showing the firm's operational efficiency and profitability. Average Collection Period - An activity ratio found by the number of days in a year (365) divided by AR turnover. Benchmarking - The process of completing a financial analysis to compare a firm's financial perform...

Accounting - The system of recording, reporting, and summarizing past financial information and transactions. Accounts Receivable Turnover (AR Turnover) - An activity ratio found by credit sales divided by accounts receivable. Activity Ratios - A category of ratios that measure how well a company uses its assets to generate sales or cash, showing the firm's operational efficiency and profitability. Additional Funds Needed (AFN) - Another name for the discretionary financing needed or exte...

A company called Bobby's Books is considering purchasing a new bookbinding machine. The company calculates the hurdle rate of the project to be 9% and the IRR to be 11%. Should the company purchase the bookbinding machine? No, because the old bookbinding machine still works. Yes, because the IRR exceeds the cost of capital. No, because the hurdle rate is lower than the IRR. Yes, because newer models of equipment are always profitable investments. - Yes, because the IRR exceeds the cost o...