Question 1

Yvonne is planning a coffee shop. The cost of producing the coffee should be included in the _____ section of the pro forma financial statements.
A) variable expense
B) amount of sales
C) cost of goods sold
D) operating expense

Accepted Answer

The cost of producing the coffee should be included in the cost of goods sold (COGS) section of the pro forma financial statements. COGS includes all the direct costs associated with producing and selling the products or services, such as raw materials, labor, and manufacturing or overhead expenses. The other choices are not as accurate because variable expense refers to costs that may change based on business activity, amount of sales does not include production costs, and operating expenses are indirect costs associated with running the business (e.g. rent, utilities, marketing).

Question 2

Where should Rhonda put the administrative expenses for her business when she prepares her financial forecasts?
A) In the amount of sales section
B) In the operating expenses section
C) In the cost of goods sold section
D) In the interest expense section

Accepted Answer

Administrative expenses are considered operating expenses, which are expenses required to run the business operations. Therefore, they should be included in the operating expenses section of the financial forecasts.

Question 3

Investors would like to know if Arthur's new business will have adequate cash flows. Arthur can provide this information in
A) pro forma financial statements.
B) historical financial statements.
C) pro bono financial statements.
D) quid pro quo financial statements.

Accepted Answer

Pro forma financial statements are projections of a company's expected financial performance. They can include projected cash flows and can be used by investors to evaluate the potential profitability of a new business. Historical financial statements show past performance, which may not accurately reflect future cash flows, while pro bono financial statements and quid pro quo financial statements are not relevant in this context.

Question 4

Liquid assets include
A) accounts payable.
B) equipment.
C) working capital.
D) office supplies.

Accepted Answer

Liquid assets are assets that can be easily converted into cash or used to pay off current liabilities. Working capital refers to the current assets that a company has available to cover current liabilities, and includes cash, accounts receivable, and inventory. Accounts payable, equipment, and office supplies are not considered liquid assets.

Question 5

The greater a firm's sales, the greater the need for financing because of greater _____ requirements.
A) asset
B) employee
C) marketing
D) operational

Accepted Answer

The greater a firm's sales, the greater the need for financing because of greater asset requirements. As sales increase, a firm may need to invest in more inventory, production equipment, or other assets to keep up with demand. This requires financing to purchase these assets, which is why the need for financing increases with sales.

Question 6

Roland has already projected his company's sales. The next step in forecasting his company's income is to project
A) operating expenses.
B) interest expense.
C) taxes.
D) cost of goods sold.

Accepted Answer

The answer of Roland has already projected his company's sales....

Question 7

Mario has high hopes for his new business and anticipates a very large profit margin. In preparing his forecasts, he should use industry averages regardless of his hopes.

Accepted Answer

Using industry averages for forecasts helps ensure that projections are realistic and grounded in the current market conditions, rather than being overly optimistic based on personal hopes.

Question 8

The assets-to-sales relationship tends to be relatively constant within an industry, allowing for a(n) _____ technique to be utilized in projecting asset requirements.
A) percentage-of-sales
B) bootstrap forecasting
C) asset turnover ratio
D) discounted sales

Accepted Answer

The assets-to-sales relationship is commonly used in the percentage-of-sales technique for projecting asset requirements, as it is known to remain relatively constant within an industry.

Question 9

Which of the following sources of information would be the most inclusive for an entrepreneur engaging in financial forecasting?
A) Attend trade shows
B) Contact the industry association
C) Access industry information from Dun & Bradstreet
D) Talk to others in the industry

Accepted Answer

Accessing industry information from Dun & Bradstreet would provide comprehensive and detailed financial data, industry trends, and analytics, which are crucial for accurate financial forecasting.

Question 10

Financial projections should be limited to the income statement to prevent information overload on lenders and investors.

Accepted Answer

Financial projections should not be limited to just the income statement. Lenders and investors need a complete picture of a company's financial health, including projections for balance sheets and cash flow statements. Such projections are vital for potential investors or lenders to make an informed decision about the financial feasibility of investing or lending.

Question 11

Verlin wants to avoid a common mistake often made by new entrepreneurs. Which of the following would you advise him to do?
A) Spend as little as possible.
B) Carry no inventory.
C) Be sure to have adequate financing.
D) Do without anything that is not absolutely essential.

Accepted Answer

Adequate financing is critical for a new entrepreneur to have a solid foundation to build their business from. Without sufficient funds, they may struggle to cover expenses and reach their larger business goals. While the other options are important to consider, they are not as critical as having adequate financing.

Question 12

An entrepreneur should always project at least two scenarios for financial forecasting and budgeting: best case and worst case.

Accepted Answer

The answer of An entrepreneur should always project at least...

Question 13

To be realistic, an entrepreneur should project profits only one year into the future.

Accepted Answer

It is not realistic for an entrepreneur to project profits for only one year into the future. It is advisable to project profits for at least 3-5 years to have a better understanding of the business's long-term sustainability and growth prospects.

Question 14

Marcia uses other people's money whenever possible to finance her business. She prefers to minimize and control rather than to maximize and own resources. This practice is known as
A) high-stepping.
B) bootstrapping.
C) unethical business practice.
D) taking advantage of others.

Accepted Answer

The practice of using other people's money to finance a business and minimizing and controlling resources is known as bootstrapping. It involves being resourceful and finding creative ways to start and grow a business without relying on excessive financing or investments. It is a common strategy for many successful entrepreneurs. The other answer choices are not applicable or ethical business practices.

Question 15

Which of the following is the best source of information when forecasting?
A) Industry experts
B) Trade associations
C) Prospective customers
D) Bankers

Accepted Answer

The answer of Which of the following is the best...

Question 16

The method of forecasting asset requirements is called the _____ technique.
A) percentage-of-inventory
B) percentage-of-equity
C) percentage-of-debt
D) percentage-of-sales

Accepted Answer

The method of forecasting asset requirements based on the percentage of sales is known as the percentage-of-sales technique. This method estimates future asset requirements by forecasting sales and then calculating asset requirements based on a predetermined percentage of those sales. It is a commonly used method for short-term forecasting of asset requirements.

Question 17

Serena is preparing her budget for the upcoming year. This would be good time for her to
A) communicate with her suppliers and scrutinize her relationships with them.
B) enforce a cost-containment strategy.
C) up her expectations for the upcoming year.
D) run best-case and worst-case scenarios.

Accepted Answer

Communicating with suppliers and scrutinizing relationships can help Serena identify potential cost savings and improve her budget planning.

Question 18

Projecting financials may present a challenge because in a startup business,
A) things seldom go as planned.
B) things always go as planned.
C) expenses are too complex.
D) expenses are simple.

Accepted Answer

Startups are inherently unpredictable and volatile, making it difficult to accurately predict financial outcomes. Unexpected expenses or market fluctuations can greatly impact revenue and expenses, making financial projections a challenge.

Question 19

D&R Products forecasts that it will require $10,000 for equipment and depreciation will be over five years. The $10,000 will be reflected in the balance sheet as
A) inventory.
B) gross fixed assets.
C) net fixed assets.
D) accounts payable.

Accepted Answer

The $10,000 spent on equipment will be reflected in the balance sheet as gross fixed assets because it represents a long-term investment in physical assets before accounting for depreciation.

Question 20

A firm should finance its growth in such a way as to maintain adequate
A) liquidity.
B) inventory.
C) sales.
D) volume.

Accepted Answer

Maintaining adequate liquidity is crucial for a firm's growth because it allows the firm to meet its short-term obligations and expenses. Adequate liquidity also ensures that the firm has access to funds when unexpected expenses or opportunities arise. Therefore, financing growth while keeping adequate liquidity is important.

Quiz 11: Forecasting Financial Requirements

Yvonne is planning a coffee shop. The cost of producing the coffee should be included in the _____ section of the pro forma financial statements.

Where should Rhonda put the administrative expenses for her business when she prepares her financial forecasts?

Investors would like to know if Arthur's new business will have adequate cash flows. Arthur can provide this information in

Liquid assets include

The greater a firm's sales, the greater the need for financing because of greater _____ requirements.

Roland has already projected his company's sales. The next step in forecasting his company's income is to project

Mario has high hopes for his new business and anticipates a very large profit margin. In preparing his forecasts, he should use industry averages regardless of his hopes.

The assets-to-sales relationship tends to be relatively constant within an industry, allowing for a(n) _____ technique to be utilized in projecting asset requirements.

Which of the following sources of information would be the most inclusive for an entrepreneur engaging in financial forecasting?

Financial projections should be limited to the income statement to prevent information overload on lenders and investors.

Verlin wants to avoid a common mistake often made by new entrepreneurs. Which of the following would you advise him to do?

An entrepreneur should always project at least two scenarios for financial forecasting and budgeting: best case and worst case.

To be realistic, an entrepreneur should project profits only one year into the future.

Marcia uses other people's money whenever possible to finance her business. She prefers to minimize and control rather than to maximize and own resources. This practice is known as

Which of the following is the best source of information when forecasting?

The method of forecasting asset requirements is called the _____ technique.

Serena is preparing her budget for the upcoming year. This would be good time for her to

Projecting financials may present a challenge because in a startup business,

D&R Products forecasts that it will require $10,000 for equipment and depreciation will be over five years. The $10,000 will be reflected in the balance sheet as

A firm should finance its growth in such a way as to maintain adequate