Chapter 15—Financial Planning

MULTIPLE CHOICE

1. A sales forecast that relies heavily on macroeconomic and industry forecasts

is called a
a. top-down forecast
b. bottom-up forecast
c. plug figure
d. none of the above
ANS: A PTS: 1 DIF: E REF: 15.2 Planning for
Growth
NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

2. The short-term financing strategy where a company relies heavily on short

term borrowing to finance a portion of their long term growth is called a(n)
a. conservative strategy
b. aggressive strategy
c. matching strategy
d. growth strategy
ANS: B PTS: 1 DIF: E REF: 15.3 Planning and
Control
NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

3. The statement of the firm’s planned inflows and outflows of cash is called
a(n)
a. income statement
b. balance sheet
c. cash budget
d. none of the above
ANS: C PTS: 1 DIF: E REF: 15.3 Planning and
Control
NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

4. The growth rate at which a company can grow without issuing new shares of
common stock while maintaining a constant total asset turnover and equity multiplier is
called a(n)
a. internal growth rate
b. sustainable growth rate
c. optimal growth rate
d. maximal growth rate
ANS: B PTS: 1 DIF: E REF: 15.2 Planning for
Growth
NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

5. The method in which pro forma statements are constructed by assuring that
all items grow in proportion to sales is called the
a. percentage of sales method
b. common size method
c. sales dilution method
d. sales receipt method
ANS: A PTS: 1 DIF: E REF: 15.2 Planning for
Growth
NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

NARRBEGIN: EFN 1
Smith Enterprises
Balance Sheet
Current Assets $400 Accounts Payable $145
Fixed Assets 500 Long-term Debt 455
Equity 300
Total $900 Total 900

Income Statement for End of Year

Sales $450
Costs 180
Taxable Inc. 270
Tax (at 34%) 92
Net Income 178
 Income Statement for End of Year
Sales $450
Costs 180
Taxable Inc. 270
Tax (at 34%) 92
Net Income 178

NARREND

6. Using the percentage of sales method what will be Smith’s net income if sales
are expected to increase by 25%?
a. $222.75
b. $562.50
c. $225.00
d. $337.50
ANS: A
new sales = 562.50
new costs = 562.50(180/450) = 225
taxable income = 337.50
taxes = 114.75
new net income = 222.75

PTS: 1 DIF: E REF: 15.2 Planning for Growth

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

7. If Smith pays out 25% of their projected net income as dividends, what will
be the company’s addition to retained earnings, if sales grow by 25% and all items on the
income statement grow proportionally with sales?
a. $222.75
b. $55.68
c. $167.07
d. $107.25
ANS: C
new net income: 222.75
add. to R/E = 222.75(1-.25) = 167.07

PTS: 1 DIF: E REF: 15.2 Planning for Growth

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

8. What is Smith’s sustainable growth rate if the company has a dividend payout
ratio of 75%?
a. 21.70%
b. 25.00%
c. 17.44%
d. 13.58%
ANS: C
m = 178/450 = .396
g = [.396(1-.75)900/300]/[(900/450)-.396(1-.75)900/300]
g = .1744

PTS: 1 DIF: M REF: 15.2 Planning for Growth

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

9. If Smith pays out 75% of net income as dividends and sales are expected to
grow by 25%, what are the external funds required?
a. $133.06
b. $66.88
c. $121.88
d. $225.58
ANS: A
DS = 450(.25) = 112.50
EFR = (900/450)112.50 - (145/450)112.50 - (.396)450(1+.25)(1-.75)
EFR = 133.06

PTS: 1 DIF: M REF: 15.2 Planning for Growth

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

10. If sales are expected to grow at 15% what are Smith’s retained earnings next
year? Assume a constant profit margin and a dividend payout ratio of 50%.
a. $123.05
b. $246.10
c. $213.99
d. $102.47
ANS: D
m =178/450 = .396
R/E = 450(.396)(1+.15)(1-.5) = 102.47

PTS: 1 DIF: M REF: 15.2 Planning for Growth

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

NARRBEGIN: Cash Budget

Bavarian Brew’s schedule of projected cash disbursement
Jan Feb Mar Apr
Sales $510 $870 $450 $600

All of Bavarian Brew’s sales are credit sales. The company collects 60% of its sales in the
next month and the remainder in the month after that.
NARREND

11. What are Bavarian Brew’s cash collections in March?

a. $726
b. $654
c. $324
d. $522
ANS: A
(.4)510 + .6(870) = 726

PTS: 1 DIF: E REF: 15.3 Planning and Control

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

12. What is the value of Bavarian Brew's receivables account at the end of
February?
a. $1074
b. $306
c. $204
d. $348
ANS: A
.4(510) + 870 = 1074

PTS: 1 DIF: E REF: 15.3 Planning and Control

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

13. What are the Bavarian Brew’s cash collections in April?

a. $528
b. $618
c. $702
d. $835
ANS: B
450(.6) + 870(.4) = 618

PTS: 1 DIF: E REF: 15.3 Planning and Control

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

14. What is the value of Bavarian Brew's receivables at the end of April?
a. $780
b. $180
c. $600
d. $270
ANS: A
600 + 180 = 780

PTS: 1 DIF: E REF: 15.3 Planning and Control

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows
 15. Due to a change in economic conditions Bavarian Brew will only be able to
collect 40% of its March sales in April. What is the effect on the company’s cash receipts in
April as a result of this change?
a. cash receipts decline by $180
b. cash receipts decline by $90
c. cash receipts increase by $270
d. cash receipts increase by $90
ANS: B
before: 450(.6) + 870(.4) = 618
now: 450(.4) + 870(.4) = 528
change 528-618 = -90

PTS: 1 DIF: E REF: 15.3 Planning and Control

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

NARRBEGIN: Cash disbursements

Bavarian Brew’s schedule of projected cash disbursement
Jan Feb Mar Apr
Sales $510 $870 $450 $600

The company’s purchases are 75% of its sales. Of those purchases 15% are paid in cash, 50%
are paid in the following month and the remainder in the month after that. The company’s
wages and salaries equal 15% of sales each month plus $50. Taxes of $125 are due in April.
The company is going to purchase new machinery worth $1000 in March and pay 50% right
away and the rest in April. In addition, the company will pay a $175 dividend in February.
NARREND

16. What are the cash disbursements for February? Assume Bavarian Brew had
sales of $490 in December.
a. $598.25
b. $773.25
c. $548.25
d. $419.65
ANS: B
.75(870)(.15) + 510(.75)(.5) + 490(.75)(.35) + 50 + 870(.15) + 175 = 773.25

PTS: 1 DIF: M REF: 15.3 Planning and Control

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

17. What is the value of the Bavarian Brew’s accounts payable at the end of
February? Assume the company had sales of $490 in December.
a. $688.50
b. $738.50
c. $638.50
d. $869.00
ANS: A
510(.75)(.35) + 870(.75)(.85) = 688.50

PTS: 1 DIF: M REF: 15.3 Planning and Control

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

18. What are Bavarian Brew’s cash disbursements in April?

a. $1,1046.63
b. $729.63
c. $679.63
d. $1,229.63
ANS: D
600(.75)(.15) + 450(.75)(.5) + 870(.75)(.35) + 50 + 600(.15) + 125 + 1000(.5) = 1229.63

PTS: 1 DIF: M REF: 15.3 Planning and Control

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

19. What is the value of Bavarian Brew's accounts payable at the end of April?
a. $346.63
b. $500.63
c. $1,000.63
d. $754.63
 a. $346.63
b. $500.63
c. $1,000.63
d. $754.63
ANS: B
600(.75)(.85) + 450(.75)(.35) = 500.63

PTS: 1 DIF: M REF: 15.3 Planning and Control

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

20. What is the value of Bavarian Brew's accounts payable at the end of March?
a. $515.25
b. $755.25
c. $1,515.25
d. $1,015.25
ANS: D
450(.75)(.85) + 870(.75)(.35) + 1000(.5) = 1,015.25

PTS: 1 DIF: M REF: 15.3 Planning and Control

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

21. What are Bavarian Brew’s cash disbursements in March?

a. $1,128.25
b. $510.75
c. $750.75
d. $1,260.75
ANS: A
450(.75)(.15) + 870(.75)(.50) + 510(.75)(.35) + 1000(.5) + 450(.15) + 50 = 1128.25

PTS: 1 DIF: M REF: 15.3 Planning and Control

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

NARRBEGIN: Total cash budget

Bavarian Brew’s schedule of projected cash disbursement
Jan Feb Mar Apr
Sales $510 $870 $450 $600

All of Bavarian Brew’s sales are credit sales. The company collects 60% of its sales in the
next month and the remainder in the month after that.

The company’s purchases are 75% of its sales. Of those purchases 15% are paid in cash, 50%
are paid in the following month and the remainder in the month after that. The company’s
wages and salaries equal 15% of sales each month plus $50. Taxes of $125 are due in April.
The company is going to purchase new machinery worth $1000 in March and pay 50% right
away and the rest in April. In addition, the company will pay a $175 dividend in February.
NARREND

22. If Bavarian Brew starts the year with a cash balance of $500, what is the cash
balance at the end of January? Assume that December sales were $450 and November sales
were $550.
a. $483
b. $493
c. $497
d. $500
ANS: B
in: (.4)550 + (.6)450 = 490
out: (.35)(.75)(550) + (.5)(.75)(450) + (.15)(.75)(510) + 50 + (.15)(510) = 497
cash balance: 500+490-497 =493

PTS: 1 DIF: M REF: 15.3 Planning and Control

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

23. What is Bavarian Brew’s expected net cash flow in March?

a. -$402.25
b. $402.25
c. $726
d. -$1,128.25
ANS: A
in: (.6)870 + .4(510) = 726
out: (.35)(.75)(510) + (.5)(.75)870 + (.15)(.75)450 + 50 + 450(.15) + 1000(.5) = 1128.25
net = 726-1128.25 = -402.25

PTS: 1 DIF: M REF: 15.3 Planning and Control

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

24. If the cash balance at the beginning of March is $250, what is Bavarian
Brew's cash balance at the end of the month?
a. $250
b. -$152.25
c. $652.25
d. -$652.25
ANS: A
in: 726
out: 1128.25
cash balance: 250 + 726 - 1128.25 = -152.25

PTS: 1 DIF: M REF: 15.3 Planning and Control

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

25. Due to a change in economic conditions Bavarian Brew will only be able to
collect 40% of its March sales in April. What is company’s cash net cash flow in April as a
result of this change?
a. $528
b. $1229.63
c. -$701.63
d. $701.63
ANS: C
in .4(870) + .4(450) = 528
out: (.35)(.75)(870) + (.5)(.75)(450) + (.15)(.75)(600) + 50 + (.15)(600) + 125 + (.5)(1000)
= 1229.63
net 528-1229.63 = -701.63

PTS: 1 DIF: M REF: 15.3 Planning and Control

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

26. Which of the following most likely is not a question asked in long-term
financial planning?
a. What threats to our current business exist?
b. What is (are) our core competency(ies)?
c. Can we do better by leaving markets (selling assets) and
investing elsewhere?
d. Should we acquire new vending machines for the employees’
breakrooms?
ANS: D PTS: 1 DIF: E
REF: 15.1 Overview of the Planning Process NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

27. A firm can grow more rapidly if (consider each in isolation):

a. it pays larger dividends.
b. it uses less debt.
c. its asset to sales ratio is larger.
d. its profit margin is larger.
ANS: D PTS: 1 DIF: E REF: 15.2 Planning for
Growth
NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

28. The rate at which a firm can grow without issuing any new shares of stock
while keeping its dividend policy, financial policy, and profitability constant is the
a. optimal growth rate
b. marginal growth rate
c. sustainable growth rate
d. theoretical growth rate
ANS: C PTS: 1 DIF: E REF: 15.2 Planning for
Growth
NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows
 29. Suppose a firm forecasts sales growth larger than its sustainable growth rate,
but plans to add fewer assets than the current asset to sales ratio implies. If other aspects of
the firm’s performance remain constant, the pro forma external funds required (EFR)
a. will likely be larger than the sustainable growth rate implies.
b. will likely be smaller than the sustainable growth rate implies.
c. will likely be the same as the sustainable growth rate implies.
d. cannot be determined from this information.
ANS: B PTS: 1 DIF: M REF: 15.2 Planning for
Growth
NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

30. Suppose a firm experiences a seasonal pattern in its sales, in addition to a

long-term upward trend. Which of the following financing plans has the potential to be less
costly to the firm?
a. a conservative strategy
b. an aggressive strategy
c. a matching strategy
d. they are equally likely to be low-cost
ANS: B PTS: 1 DIF: E REF: 15.3 Planning and
Control
NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

31. Suppose a firm experiences a seasonal pattern in its sales, in addition to a

long-term upward trend. Which of the following financing plans has the potential to be less
risky to the firm?
a. a conservative strategy
b. an aggressive strategy
c. a matching strategy
d. They are equally likely to be low-risk.
ANS: A PTS: 1 DIF: E REF: 15.3 Planning and
Control
NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

32. DigIt! Corporation has the following financial information: its profit margin
is 10%, its total asset turnover is 1.75, its assets to equity ratio is 1.5, and it pays out 35% of
its earnings in dividends. What is its sustainable growth rate?
a. 22.10%
b. 20.57%
c. 9.75%
d. 47.39%
ANS: B PTS: 1 DIF: E REF: 15.2 Planning for
Growth
NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

33. DigIt! Corporation has the following financial characteristics: its profit
margin is 10%, its total asset turnover is 1.75, its asset to equity ratio is 1.5 and its sustainable
growth rate is 20.6%. What dividend payout ratio is consistent with these values?
a. 45%
b. 55%
c. 65%
d. 35%
ANS: D PTS: 1 DIF: M REF: 15.2 Planning for
Growth
NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

34. Big Deal, Inc. wants to grow 30% next year. If it maintains its 40% dividend
payout ratio, liabilities to equity ratio of 1, and total asset turnover of 2, what must its profit
margin be to achieve this growth?
a. 9.6%
b. 25.8%
c. 38.5%
d. 51.2%
ANS: A PTS: 1 DIF: M REF: 15.2 Planning for
Growth
NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

35. If a company has a liabilities to equity ratio of 0.5, then its assets to equity
ratio is
a. 0.5
b. 1.0
c. 1.5
d. 2.0
ANS: C PTS: 1 DIF: M REF: 15.2 Planning for
Growth
NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

36. MoMoney Co. wants to increase its sustainable growth rate to 10%. If it
maintains its 15% profit margin, 25% retention ratio, and 0.25 liabilities to equity ratio, what
must its total asset turnover value be?
a. 0.42
b. 0.65
c. 1.94
d. 2.37
ANS: C PTS: 1 DIF: H REF: 15.2 Planning for
Growth
NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

NARRBEGIN: Kooshy
Kooshy Company
Income Statement
December 31, 2005
($ 000,000)
Sales 800.0
Cost of Goods Sold 576.0
Depreciation 55.0
Operating Expenses 88.0
Other Expenses 4.8
EBIT 76.2
Interest Expense 6.9
EBT 69.3
Taxes (40%) 27.7
Net Income 41.6

Dividends 4.16

Balance Sheet
December 31, 2005
($ 000,000)
Cash 10.0 Accounts Payable 63.0
Accounts Receivable 81.0 Notes Payable 42.0
Inventory 69.0 Total Current Liabilities 105.0
Total Current Assets 160.0 Long-term Debt 80.0
Net Fixed Assets 275.0 Owners’ Equity 250.0
Total Assets 435.0 Total Liabilities and Equity 435.0

NARREND

37. If Kooshy Company forecasts a 20% sales increase, what will its pro forma
cost of goods sold be, assuming it remains at the same percent of sales?
a. $576
b. $635
c. $691
d. $720
ANS: C PTS: 1 DIF: E REF: 15.2 Planning for
Growth
NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

38. Suppose Kooshy wishes to maintain a minimum $10 million cash balance,
accounts receivable are forecast to be 15% of sales, and inventory is expected to be 12% of
forecast sales. Also, the firm plans to add $35 million to fixed assets (depreciate the
additional assets over seven years). What is the pro forma level of total assets if sales are
forecasted to increase 20%?
a. $487
b. $435
c. $519
d. $615
ANS: C PTS: 1 DIF: H REF: 15.2 Planning for
Growth
NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

39. Refer to Kooshy. Suppose pro forma net income is $50 and pro forma total
assets are $525. If accounts payable maintain the same percent of sales, no new long term
debt is issued, and the only addition to owners’ equity is to retained earnings, what will be
the pro forma balance in notes payable for a forecasted 20% increase in sales? (That is, use
notes payable as the balancing account.)
a. $39
b. $74
c. $83
d. $4
ANS: B PTS: 1 DIF: H REF: 15.2 Planning for
Growth
NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

40. Kooshy Company wishes to maintain its dividend policy in the upcoming
year. What will be the pro forma addition to retained earnings if sales are forecasted to
increase 20% and all costs are proportional to sales?
a. $5
b. $37
c. $50
d. $45
ANS: D PTS: 1 DIF: M REF: 15.2 Planning for
Growth
NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

41. Using ratios derived from the income statement and balance sheet above,
what is Kooshy Company’s sustainable growth rate?
a. 10.6%
b. 17.7%
c. 20.00%
d. 8.1%
ANS: B PTS: 1 DIF: M REF: 15.2 Planning for
Growth
NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

42. Using ratios derived from the income statement and balance sheet above,
what is Kooshy Company’s “shorthand” estimate of external funds required (EFR) for a 20%
increase in sales?
a. -$4
b. $0
c. $29
d. $160
ANS: C PTS: 1 DIF: M REF: 15.2 Planning for
Growth
NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

NARRBEGIN: Silly Sally

Silly Sally, Inc.
Silly Sally, Inc. forecasts the following sales levels: January, $420; February, $435; March,
$450; and April, $470. Historically, 40% of its sales are for cash. Of the remaining sales,
80% are collected in one month, 15% are collected in the second month, while the rest
remain uncollected. November sales were $380 and December sales were $500. (all values
$000)

Purchases are made at 60% of the next month’s sales forecast, and are paid for in the month
of purchase. Other cash outlays are: rent, $10 monthly; wages and salaries, $50 monthly; a
tax payment of $30 in March; an interest payment of $15 in March; and a planned purchase
of $20 of new fixed assets in January.
NARREND

43. Refer to Silly Sally, Inc. What is the forecasted amount to be collected from
cash sales in March?
a. $450
b. $360
c. $261
d. $180
ANS: D PTS: 1 DIF: M REF: 15.3 Planning and
Control
NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

44. Refer to Silly Sally, Inc. What are forecasted total cash collection for January?
a. $420
b. $442
c. $168
d. $240
ANS: B PTS: 1 DIF: M REF: 15.3 Planning and
Control
NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

45. Suppose Silly Sally, Inc. forecasts an ending cash balance of $20, its
minimum desired balance, in January. If February’s forecasted cash expenditures are $400,
which of the following describes the changes to Silly Sally’s cash balance and level of
borrowing, if any, related to its minimum cash balance, at the end of February?
a. net cash flows of $21; borrowing will increase $21
b. net cash flows of $21; borrowing will decrease $21
c. net cash flows of $11; borrowing will increase $9
d. net cash flows of $11; borrowing will decrease $9
ANS: B PTS: 1 DIF: M REF: 15.3 Planning and
Control
NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

46. What are Silly Sally’s forecasted cash outflows for February?
a. $270
b. $330
c. $395
d. $450
ANS: B PTS: 1 DIF: M REF: 15.3 Planning and
Control
NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

47. What is Silly Sally’s change in cash for March?

a. $40 increase in cash
b. $40 decrease in cash
c. $85 increase in cash
d. $20 increase in cash
ANS: A PTS: 1 DIF: H REF: 15.3 Planning and
Control
NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

48. Suppose Silly Sally experiences a change in customer payment patterns in

accounts receivable, so that payments are now 30% in cash, and of the credit sales, 60% are
collected in one month, 35% are collected in the second month, with the rest uncollected.
What is the new forecasted collection for January, and how much is this different from the
original forecast?
a. $408; $72 higher
b. $336; $93 lower
c. $442; $13 higher
d. $429; $13 lower
ANS: D PTS: 1 DIF: H REF: 15.3 Planning and
Control
NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows
 49. Consider the following information for Smart Products: total assets=$1000;
sales=$1540; net profit margin=12%; dividend payout ratio=40%; accounts payable=$308. If
sales are forecast to increase 30%, what is the “short cut” estimate of external funds required
(EFR)?
a. $64
b. $208
c. $300
d. $462
ANS: A PTS: 1 DIF: M REF: 15.2 Planning for
Growth
NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

50. Consider the following information for Smart Products: total assets=$1000;
sales=$1540; net profit margin=12%; dividend payout ratio=40%; equity=$555. What is
Smart Products’ sustainable growth rate?
a. 7%
b. 13%
c. 25%
d. 52%
ANS: C PTS: 1 DIF: M REF: 15.2 Planning for
Growth
NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

51. Financial planning encompasses all but the following:

a. setting long-run strategic goals
b. investing the firms long-term cash
c. preparing quarterly and annual budgets
d. all of the above
ANS: B PTS: 1 DIF: E REF: Introduction
NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

52. Which of the following make(s) the planning process more complex than
simply accepting all projects that look promising?
a. limits on capital
b. limits on production capacity
c. limits on human resources
d. all of the above
ANS: D PTS: 1 DIF: E REF: Introduction
NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

53. With regard to planning, the first priority for a firm that competes by
achieving lowest cost production might be
a. to determine whether it should make additional investments in
order to achieve even greater production efficiencies.
b. to assess whether new or expanded marketing programs might
increase the value of the brand relative to those of
competitors.
c. to intensify its efforts to further discriminate its brand from
that of its competitors.
d. all of the above.
ANS: A PTS: 1 DIF: E
REF: 15.1 Overview of the Planning Process NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

54. The multiyear action plan for the major investments and competitive initiative
that the firm’s managers believe will drive the future success of the enterprise is called
a. the firm’s rollout plan.
b. the tactical plan.
c. the strategic plan.
d. none of the above.
ANS: C PTS: 1 DIF: E
REF: 15.1 Overview of the Planning Process NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

55. The responsibility to assess the feasibility of a strategic plan given a firm’s
existing and prospective sources of funding falls primarily to the
 a. senior management of the firm.
b. finance function within the firm.
c. accounting function within the firm.
d. marketing function within the firm.
ANS: B PTS: 1 DIF: E
REF: 15.1 Overview of the Planning Process NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

56. Increases in assets must be accompanied by

a. an increase in liabilities.
b. an increase in owners equity.
c. equal amounts of a) and b).
d. some combination of a) and b).
ANS: D PTS: 1 DIF: E REF: 15.2 Planning for
Growth
NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

57. For the prior year, Billy Bob’s Dress Shop had a net profit margin of 5%
based upon a sales level of $100,000. It’s total assets are $1,000,000 while its total equity is
$300,000. If Billy Bob pays out 50% of its net income in dividends, then what is the firm’s
sustainable growth rate going forward?
a. .84%
b. 8.00%
c. 8.40%
d. none of the above
ANS: A
g* = {m(1-d)(A/E)} / [(A/S) - {m(1-d)(A/E)}]

A/S = 10, A/E = 3.3333, m = .05, (1-d) = .5

g* = .0084 or .84%

PTS: 1 DIF: M REF: 15.2 Planning for Growth

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

58. In the year just ended, Ellie May’s Power Tools had net income of $200,000
based upon a sales level of $1,500,000. It’s total assets are $800,000 while its total equity is
$700,000. If Ellie May pays out 0% of its net income in dividends, then what is the firm’s
sustainable growth rate going forward?
a. .40%
b. 38%
c. 40%
d. none of the above
ANS: C
g* = {m(1-d)(A/E)} / [(A/S) - {m(1-d)(A/E)}]

A/S = 8/15, A/E = 8/7, m = 200,000/1,500,000, (1-d) = 1

g* = .4

PTS: 1 DIF: M REF: 15.2 Planning for Growth

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

59. You are a financial consultant to a company that asks you what effect a
change in leverage has on the firm’s sustainable growth. Assuming all other things remain
constant and if the percentage of assets that are financed with debt increases, then how will
that affect the firm’s sustainable growth rate?
a. the sustainable growth rate will decrease
b. the sustainable growth rate will increase
c. the effect is indeterminable
d. the sustainable growth rate will neither decrease or increase
ANS: B PTS: 1 DIF: H REF: 15.2 Planning for
Growth
NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

60. A top-down approach to sales forecasting begins with

a. a firmwide sales objective.
b. a departmental head forecast.
c. a talk with the customer.
d. none of the above.
 a. a firmwide sales objective.
b. a departmental head forecast.
c. a talk with the customer.
d. none of the above.
ANS: A PTS: 1 DIF: E REF: 15.2 Planning for
Growth
NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

61. A bottom-up approach to sales forecasting begins with

a. a firmwide sales objective.
b. a departmental head forecast.
c. a talk with the customer.
d. none of the above.
ANS: C PTS: 1 DIF: E REF: 15.2 Planning for
Growth
NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

62. The percentage-of-sales method for forecasting pro forma financial

statements assumes
a. that all income statement and balance sheet items grow in
proportion to sales.
b. that all income statement and balance sheet items grow at a
growing proportion to sales.
c. that all income statement and balance sheet items grow at a
decreasing proportion to sales
d. none of the above.
ANS: A PTS: 1 DIF: M REF: 15.2 Planning for
Growth
NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

63. The Retail Company currently has assets of $3,000,000 and accounts payable
of $200,000. The firm’s sales last year were $10,000,000 with a net profit margin of 1%. If
the firm anticipates next year’s sales to grow by 8% over that of last year and the firm pays
out 25% of its net income in dividends, then what is the estimated external funds requirement
for Retail?
a. $16,000
b. $81,000
c. $143,000
d. $240,000
ANS: C
EFR = DS (A/S) - DS (AP/S) - mS(1+g)(1-d)

DS = .08 ´ 10,000,000 = 800,000

EFR = 800,000 (3/10) - 800,000 (.2/10) - .01 (10,000,000)(1.08)(1-.25) = 143,000

PTS: 1 DIF: H REF: 15.2 Planning for Growth

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

64. A firm currently has $2,000,000 in assets and $1,000,000 in accounts

payable. If the firm expects sales to increase by 10% from last year to next year, then what is
the estimated external funds required if the firm pays all of its net income to shareholders?
a. $100,000
b. $1,000,000
c. $2,000,000
d. none of the above
ANS: A
EFR = DS (A/S) - DS (AP/S) - mS(1+g)(1-d), since d = 1,

EFR = DS (A/S) - DS (AP/S) = A (DS/S) - AP (DS/S) = Ag - APg = g(A - AP)

EFR = .1 (2,000,000 -1,000,000) = 100,000

PTS: 1 DIF: H REF: 15.2 Planning for Growth

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

65. Milton Gaming Company currently has assets of $3,000,000 and accounts
payable of $200,000. The firm’s sales last year were $10,000,000. If the firm anticipates
next year’s sales to grow by 8% over that of last year and the firm pays out 25% of its net
income in dividends, then what net profit margin is required in order to have the estimated
external funds required be equal to zero?
a. 27.00%
b. 25.00%
c. 2.77%
d. 2.50%
ANS: C
EFR = DS (A/S) - DS (AP/S) - mS(1+g)(1-d)

DS = .08 ´ 10,000,000 = 800,000

800,000 (3/10) - 800,000 (.2/10) - m (10,000,000)(1.08)(1-.25) = 0

224,000 = m (10,000,000)(1.08)(.75); m = .02765

PTS: 1 DIF: H REF: 15.2 Planning for Growth

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

66. Which of the following is a source of discretionary or external financing?

a. a new debt issue
b. accounts payable
c. a new equity issue
d. both a and c
ANS: D PTS: 1 DIF: E REF: 15.2 Planning for
Growth
NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

67. If a company prefers to finance its required assets with a larger portion of
short-term debt, then that firm is utilizing a(n)
a. conservative financing strategy.
b. aggressive financing strategy.
c. matching strategy.
d. none of the above.
ANS: B PTS: 1 DIF: E REF: 15.3 Planning and
Control
NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

68. If a company prefers to finance its required assets with a small portion of
short-term borrowings, then that firm is utilizing a(n)
a. conservative financing strategy.
b. aggressive financing strategy.
c. matching strategy.
d. none of the above.
ANS: A PTS: 1 DIF: E REF: 15.3 Planning and
Control
NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

69. A firm that tends to finance permanent assets with long-term debt and
seasonal assets with short-term borrowing is following
a. an aggressive financing strategy.
b. a conservative financing strategy.
c. a matching financing strategy.
d. none of the above.
ANS: C PTS: 1 DIF: E REF: 15.3 Planning and
Control
NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

70. Cash receipts include

a. cash sales.
b. accounts receivable collections.
c. both a and b
d. none of the above.
ANS: C PTS: 1 DIF: E REF: 15.3 Planning and
Control
NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

71. The Little Toy Company will start doing business in February and needs to
forecast its total cash receipts for April. Its projected total sales are $15,000, $20,000, and
$25,000 for February, March and April, respectively. Little Toy anticipates that 50% of sales
will be for cash and 1/2 of credit sales will be collected the month after sale with the
remained being collected 2 months after the sale. What the forecasted cash receipts to Little
Toy in April?
a. $21,250
b. $17,500
c. $8,750
d. none of the above
ANS: A
April cash sales: 25,000 ´ .5 = 12,500
April collections for March sales: 20,000 ´ .5 ´ .5 = 5,000
April collections for Feb sales: 15,000 ´ .5 ´ .5 = 3,750

April total collections: 12,500 + 5,000 + 3,750 = 21,250

PTS: 1 DIF: H REF: 15.3 Planning and Control

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

72. Marsha Start is looking to restart a home economics related business after an
unfortunate incarceration. She forecasts that sales for June, July, and August will be
$100,000, $150,000, and $100,000, respectively. Start expects for cash sales to make up
25% of the sales in each month with 90% of the credit sales collected in the month after the
sale and the remainder 2 months after the sale. What is Start’s estimated total cash collections
for August?
a. $20,000
b. $101,750
c. $133,750
d. none of the above
ANS: C
August cash sales: 100,000 ´ .25 = 25,000

August collections for July: 150,000 ´ .75 ´ .9 = 101,250

August collections for June: 100,000 ´ .75 ´ .1 = 7,500

Total cash collections for August: 25,000 + 101,250 + 7,500 = 133,750

PTS: 1 DIF: H REF: 15.3 Planning and Control

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

73. Marsha Start is looking to restart a home economics related business after an
unfortunate incarceration. She forecasts that sales for June, July, and August will be
$100,000, $150,000, and $80,000, respectively. Start expects for cash sales to make up 25%
of the sales in each month with 90% of the credit sales collected in the month after the sale
and the remainder 2 months after the sale. What is Start’s estimated total cash collections in
August for June sales?
a. $7,500
b. $101,750
c. $133,750
d. none of the above
ANS: A
June credit sales: .75 ´ 100,000 = 75,000
August collections in June: 75,000 ´ .1 = 7,500

PTS: 1 DIF: M REF: 15.3 Planning and Control

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

NARRBEGIN: Exhibit 15-1

Exhibit 15-1
You are working to forecast the cash disbursements for a manufacturing company. Sales are
forecasted to be $175,000, $200,000, $225,000, and $250,000 for January, February,
March, and April, respectively. The firm purchases 25% of each amount in cash and will
then pay 70% of the credit purchase in the month following the purchase with the remainder
paid in full two months after the purchase.
NARREND

74. Refer to Exhibit 15-1. What is the amount of February sales to be collected in
March for the company?
a. $206,625
b. $105,000
c. $56,250
d. none of the above
ANS: B
Feb Sales: 200,000
Credit sales in Feb: 200,000 ´ .75 = 150,000
Feb sales collections in March: 150,000 ´ .7 = 105,000

PTS: 1 DIF: H REF: 15.3 Planning and Control

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

75. Refer to Exhibit 15-1. What is the amount of February sales to be collected in
April for the company?
a. $206,625
b. $105,000
c. $45,000
d. none of the above
ANS: C
Feb Sales: 200,000
Credit sales in Feb: 200,000 ´ .75 = 150,000
Feb sales collections in March: 150,000 ´ .3 = 45,000

PTS: 1 DIF: H REF: 15.3 Planning and Control

NAT: Analytic skills
LOC: acquire knowledge of financial analysis and cash flows

76. Which of the following roles does finance play in long-term planning?
a. Assessing the likelihood that a given strategic objective can be
achieved.
b. Evaluating the firm's existing and prospective sources of
funding.
c. Preparing and updating cash budgets to ensure the firm does
not face a liquidity crisis.
d. all of the above
e. (b) and (c) only
ANS: D PTS: 1 DIF: M
REF: 15.1 Overview of the Planning Process NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

77. Which of the following roles does finance play in long-term planning?
a. Identifying problems that could develop if the firm's strategic
plans do not develop as expected.
b. Evaluating the firm's existing and prospective sources of
funding.
c. Risk management
d. All of the above
e. (a) and (b) only
ANS: D PTS: 1 DIF: M
REF: 15.1 Overview of the Planning Process NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

78. Which of the following is not a popular growth target?

a. Return on Investment
b. Economic Value Added
c. Market Value Added
d. Growth in Sales or Assets
ANS: C PTS: 1 DIF: E REF: 15.2 Planning for
Growth
NAT: Reflective thinking
LOC: acquire knowledge of financial analysis and cash flows

79. Economic Value Added (EVA) is:

a. the difference between net income and the cost of goods sold.
b. the difference between operating profit and the cost of funds.
c. the difference between net income and the cost of funds.
d. the difference between net operating profits after taxes and the
cost of funds.
e. none of the above
 a. the difference between net income and the cost of goods sold.
b. the difference between operating profit and the cost of funds.
c. the difference between net income and the cost of funds.
d. the difference between net operating profits after taxes and the
cost of funds.
e. none of the above
ANS: D PTS: 1 DIF: M REF: 15.2 Planning for
Growth
NAT: Reflective thinking LOC: understand stocks and bonds

80. Which of the following statements is false?

a. The EVA method is conceptually valid but due to the
disconnect it has between accrual-based accounting and
economic value coupled with increased computational
complexity, it is not the most popular method for growth
planning.
b. Firms generally assumed that if ROI is greater than the firm's
cost of capital then shareholder value will be created.
c. One of the typical growth targets is depreciation.
d. The popular growth targets tend to rely on accounting data
and are typically measured on an annual basis.
ANS: C PTS: 1 DIF: M REF: 15.2 Planning for
Growth
NAT: Reflective thinking LOC: understand stocks and bonds

81. Which of the following statements is false?

a. A firm should set its growth target equal to its sustainable
growth rate.
b. Generating a higher profit margin provides fuel for a higher
sustainable growth rate, holding everything else equal.
c. The sustainable growth concept can highlight tensions
associated with "competing" objectives within the firm.
d. The primary advantage of the sustainable growth model is its
simplicity.
ANS: A PTS: 1 DIF: M REF: 15.2 Planning for
Growth
NAT: Reflective thinking LOC: understand stocks and bonds

82. The cash budget:

a. is the same as a bank statement.
b. typically spans a one-year time period.
c. relies upon the sales forecast as a key input.
d. is a statement of the firm's planned inflows and outflows of
cash.
e. All of the above except (a)
ANS: E PTS: 1 DIF: M REF: 15.3 Planning and
Control
NAT: Reflective thinking LOC: understand stocks and bonds

83. If a firm's ending cash balance exceeds the desired minimum cash balance:
a. the firm has an excess cash balance that it can invest in short-
term marketable securities.
b. the firm has a short-term financing need that it can meet using
notes payable.
c. the firm has an excess cash balance that it can meet using
notes payable.
d. the firm has a short-tern financing need that it can meet using
marketable securities.
ANS: A PTS: 1 DIF: E REF: 15.3 Planning and
Control
NAT: Reflective thinking LOC: understand stocks and bonds

84. Which of the following statements is/are true?

a. Almost any functional area in the firm can affect, or be
affected by, the cash budget.
b. The cash budget typically only impacts the financing area of
the firm.
c. Even if a firm's cash budget shows that it will have a month-
end cash surplus, it may be faced with intramonth cash
shortages.
d. All of the above statements are true.
e. Only (a) and (d) are true.
ANS: E PTS: 1 DIF: M REF: 15.3 Planning and
Control
NAT: Reflective thinking LOC: understand stocks and bonds

85. Consider the cash receipts projections of Emma Inc. that is developing a cash
budget for October , November and December; sales in August and September were
$200,000 and $500,000 respectively. The forecast sales are $800,000, $900,000 and
$200,000 for October, November and December respectively. 15 % of sales are cash sales
and 85% are credit sales; collects about 60% of each month’s sales in the next month but
waiting until the following month for the remaining 25% of sales. Bad debts are negligible.
The Firm is expectsing cash dividend of $25,000 in December from a subsidiary.What are
the accounts receivable collected in October? (In thousands)
a. $350
b. $470
c. $300
d. $0
ANS: A
Aug Sep Oct Nov Dec
Forecast Sales $200 $500 $800 $900 $200
% cash Sales 0.15 $30 $75 $120 $135 $30
Collection of
A/R
Previous 0.6 $120 $300 $480 $540
2 Prior 0.25 $50 $125 $200
Total rec. $350 $605 $740
Collected
Other cash $25
Rec
Total Cash $470 $740 $795

PTS: 1 DIF: M REF: 15.3 Planning and Control

NAT: Analysis LOC: acquire knowledge of financial analysis and cash flows

86. Consider the cash receipts projections of Emma Inc. that is developing a cash
budget for October , November and December; sales in August and September were
$200,000 and $500,000 respectively. The forecast sales are $800,000, $900,000 and
$200,000 for October, November and December respectively. 15 % of sales are cash sales
and 85% are credit sales; collects about 60% of each month’s sales in the next month but
waiting until the following month for the remaining 25% of sales. Bad debts are negligible.
The Firm is expectsing cash dividend of $25,000 in December from a subsidiary.What are
the accounts receivable collected in November? (In thousands)
a. $470
b. $605
c. $765
d. $135
ANS: B
Aug Sep Oct Nov Dec
Forecast Sales $200 $500 $800 $900 $200
% cash Sales 0.15 $30 $75 $120 $135 $30
Collection of
A/R
Previous 0.6 $120 $300 $480 $540
2 Prior 0.25 $50 $125 $200
Total rec. $350 $605 $740
Collected
Other cash $25
Rec
Total Cash $470 $740 $795

PTS: 1 DIF: M REF: 15.3 Planning and Control

NAT: Analysis LOC: acquire knowledge of financial analysis and cash flows

87. Consider the cash receipts projections of Emma Inc. that is developing a cash
budget for October , November and December; sales in August and September were
$200,000 and $500,000 respectively. The forecast sales are $800,000, $900,000 and
$200,000 for October, November and December respectively. 15 % of sales are cash sales
and 85% are credit sales; collects about 60% of each month’s sales in the next month but
waiting until the following month for the remaining 25% of sales. Bad debts are negligible.
The Firm is expectsing cash dividend of $25,000 in December from a subsidiary.What are
the total cash receipts in October? (In thousands)
a. $630
b. $765
c. $470
d. $765
 a. $630
b. $765
c. $470
d. $765
ANS: C
Aug Sep Oct Nov Dec
Forecast Sales $200 $500 $800 $900 $200
% cash Sales 0.15 $30 $75 $120 $135 $30
Collection of
A/R
Previous 0.6 $120 $300 $480 $540
2 Prior 0.25 $50 $125 $200
Total rec. $350 $605 $740
Collected
Other cash $25
Rec
Total Cash $470 $740 $795

PTS: 1 DIF: M REF: 15.3 Planning and Control

NAT: Analysis LOC: acquire knowledge of financial analysis and cash flows

88. Consider the cash receipts projections of Emma Inc. that is developing a cash
budget for October , November and December; sales in August and September were
$200,000 and $500,000 respectively. The forecast sales are $800,000, $900,000 and
$200,000 for October, November and December respectively. 15 % of sales are cash sales
and 85% are credit sales; collects about 60% of each month’s sales in the next month but
waiting until the following month for the remaining 25% of sales. Bad debts are negligible.
The Firm is expectsing cash dividend of $25,000 in December from a subsidiary.What are
the total cash receipts in November? (In thousands)
a. $605
b. $470
c. $765
d. $740
ANS: D
Aug Sep Oct Nov Dec
Forecast Sales $200 $500 $800 $900 $200
% cash Sales 0.15 $30 $75 $120 $135 $30
Collection of
A/R
Previous 0.6 $120 $300 $480 $540
2 Prior 0.25 $50 $125 $200
Total rec. $350 $605 $740
Collected
Other cash $25
Rec
Total Cash $470 $740 $795

PTS: 1 DIF: M REF: 15.3 Planning and Control

NAT: Analysis LOC: acquire knowledge of financial analysis and cash flows

89. Consider the cash receipts projections of Emma Inc. that is developing a cash
budget for October , November and December; sales in August and September were
$200,000 and $500,000 respectively. The forecast sales are $800,000, $900,000 and
$200,000 for October, November and December respectively. 15 % of sales are cash sales
and 85% are credit sales; collects about 60% of each month’s sales in the next month but
waiting until the following month for the remaining 25% of sales. Bad debts are negligible.
The Firm is expectsing cash dividend of $25,000 in December from a subsidiary.What are
the total cash receipts in November? (In thousands)
a. $795
b. $770
c. $740
d. $825
ANS: A
Aug Sep Oct Nov Dec
Forecast Sales $200 $500 $800 $900 $200
% cash Sales 0.15 $30 $75 $120 $135 $30
Collection of
A/R
Previous 0.6 $120 $300 $480 $540
2 Prior 0.25 $50 $125 $200
Total rec. $350 $605 $740
Collected
Other cash $25
Rec
Total Cash $470 $740 $795
 Forecast Sales $200 $500 $800 $900 $200
% cash Sales 0.15 $30 $75 $120 $135 $30
Collection of
A/R
Previous 0.6 $120 $300 $480 $540
2 Prior 0.25 $50 $125 $200
Total rec. $350 $605 $740
Collected
Other cash $25
Rec
Total Cash $470 $740 $795

PTS: 1 DIF: M REF: 15.3 Planning and Control

NAT: Analysis LOC: acquire knowledge of financial analysis and cash flows

90. Consider the cash receipts projections of Roxy Inc. that is developing a cash
budget for October , November and December; sales in August and September were
$600,000 and $500,000 respectively. The forecast sales are $400,000, $300,000 and
$200,000 for October, November and December respectively. 20 % of sales are cash sales
and 80% are credit sales; collects about 70% of each month’s sales in the next month but
waiting until the following month for the remaining 10% of sales. Bad debts are negligible.
The Firm is expectsing cash dividend of $10,000 in December from a subsidiary. (In
thousands)
a. $410
b. $490
c. $350
d. $390
ANS: A
Aug Sep Oct Nov Dec
Forecast Sales $600 $500 $400 $300 $200
% cash Sales 0.2 $120 $100 $80 $60 $40
Collection of
A/R
Previous 0.7 $420 $350 $280 $210
2 Prior 0.1 $60 $50 $40
Total rec. $410 $330 $250
Collected
Other cash $10
Rec
Total Cash $490 $390 $300

PTS: 1 DIF: M REF: 15.3 Planning and Control

NAT: Analysis LOC: acquire knowledge of financial analysis and cash flows

91. Consider the cash receipts projections of Roxy Inc. that is developing a cash
budget for October , November and December; sales in August and September were
$600,000 and $500,000 respectively. The forecast sales are $400,000, $300,000 and
$200,000 for October, November and December respectively. 20 % of sales are cash sales
and 80% are credit sales; collects about 70% of each month’s sales in the next month but
waiting until the following month for the remaining 10% of sales. Bad debts are negligible.
The Firm is expectsing cash dividend of $10,000 in December from a subsidiary.What are
the accounts receivable collected in October? (In thousands)
a. $410
b. $490
c. $350
d. $390
ANS: A
Aug Sep Oct Nov Dec
Forecast Sales $600 $500 $400 $300 $200
% cash Sales 0.2 $120 $100 $80 $60 $40
Collection of
A/R
Previous 0.7 $420 $350 $280 $210
2 Prior 0.1 $60 $50 $40
Total rec. $410 $330 $250
Collected
Other cash $10
Rec
Total Cash $490 $390 $300

PTS: 1 DIF: M REF: 15.3 Planning and Control

NAT: Analysis LOC: acquire knowledge of financial analysis and cash flows

92. Consider the cash receipts projections of Roxy Inc. that is developing a cash
budget for October , November and December; sales in August and September were
$600,000 and $500,000 respectively. The forecast sales are $400,000, $300,000 and
$200,000 for October, November and December respectively. 20 % of sales are cash sales
and 80% are credit sales; collects about 70% of each month’s sales in the next month but
waiting until the following month for the remaining 10% of sales. Bad debts are negligible.
The Firm is expectsing cash dividend of $10,000 in December from a subsidiary.What are
the accounts receivable collected in November? (In thousands)
a. $330
b. $490
c. $255
d. $ 60
ANS: A
Aug Sep Oct Nov Dec
Forecast Sales $600 $500 $400 $300 $200
% cash Sales 0.2 $120 $100 $80 $60 $40
Collection of
A/R
Previous 0.7 $420 $350 $280 $210
2 Prior 0.1 $60 $50 $40
Total rec. $410 $330 $250
Collected
Other cash $10
Rec
Total Cash $490 $390 $300

PTS: 1 DIF: M REF: 15.3 Planning and Control

NAT: Analysis LOC: acquire knowledge of financial analysis and cash flows

93. Consider the cash receipts projections of Roxy Inc. that is developing a cash
budget for October , November and December; sales in August and September were
$600,000 and $500,000 respectively. The forecast sales are $400,000, $300,000 and
$200,000 for October, November and December respectively. 20 % of sales are cash sales
and 80% are credit sales; collects about 70% of each month’s sales in the next month but
waiting until the following month for the remaining 10% of sales. Bad debts are negligible.
The Firm is expectsing cash dividend of $10,000 in December from a subsidiary. What are
the total cash receipts in October? (In thousands)
a. $330
b. $490
c. $255
d. $ 60
ANS: B
Aug Sep Oct Nov Dec
Forecast Sales $600 $500 $400 $300 $200
% cash Sales 0.2 $120 $100 $80 $60 $40
Collection of
A/R
Previous 0.7 $420 $350 $280 $210
2 Prior 0.1 $60 $50 $40
Total rec. $410 $330 $250
Collected
Other cash $10
Rec
Total Cash $490 $390 $300

PTS: 1 DIF: M REF: 15.3 Planning and Control

NAT: Analysis LOC: acquire knowledge of financial analysis and cash flows

94. Consider the cash receipts projections of Roxy Inc. that is developing a cash
budget for October , November and December; sales in August and September were
$600,000 and $500,000 respectively. The forecast sales are $400,000, $300,000 and
$200,000 for October, November and December respectively. 20 % of sales are cash sales
and 80% are credit sales; collects about 70% of each month’s sales in the next month but
waiting until the following month for the remaining 10% of sales. Bad debts are negligible.
The Firm is expectsing cash dividend of $10,000 in December from a subsidiary. What are
the total cash receipts in November? (In thousands)
a. $330
b. $490
c. $255
d. $ 60
ANS: C
Aug Sep Oct Nov Dec
Forecast Sales $600 $500 $400 $300 $200
% cash Sales 0.2 $120 $100 $80 $60 $40
Collection of
A/R
Previous 0.7 $420 $350 $280 $210
2 Prior 0.1 $60 $50 $40
Total rec. $410 $330 $250
Collected
Other cash $10
Rec
Total Cash $490 $390 $300
 Aug Sep Oct Nov Dec
Forecast Sales $600 $500 $400 $300 $200
% cash Sales 0.2 $120 $100 $80 $60 $40
Collection of
A/R
Previous 0.7 $420 $350 $280 $210
2 Prior 0.1 $60 $50 $40
Total rec. $410 $330 $250
Collected
Other cash $10
Rec
Total Cash $490 $390 $300

PTS: 1 DIF: M REF: 15.3 Planning and Control

NAT: Analysis LOC: acquire knowledge of financial analysis and cash flows

95. Consider the cash receipts projections of Roxy Inc. that is developing a cash
budget for October , November and December; sales in August and September were
$600,000 and $500,000 respectively. The forecast sales are $400,000, $300,000 and
$200,000 for October, November and December respectively. 20 % of sales are cash sales
and 80% are credit sales; collects about 70% of each month’s sales in the next month but
waiting until the following month for the remaining 10% of sales. Bad debts are negligible.
The Firm is expectsing cash dividend of $10,000 in December from a subsidiary.What are
the total cash receipts in December? (In thousands)
a. $300
b. $290
c. $250
d. $340
ANS: A
Aug Sep Oct Nov Dec
Forecast Sales $600 $500 $400 $300 $200
% cash Sales 0.2 $120 $100 $80 $60 $40
Collection of
A/R
Previous 0.7 $420 $350 $280 $210
2 Prior 0.1 $60 $50 $40
Total rec. $410 $330 $250
Collected
Other cash $10
Rec
Total Cash $490 $390 $300

PTS: 1 DIF: M REF: 15.3 Planning and Control

NAT: Analysis LOC: acquire knowledge of financial analysis and cash flows