Question 1

Economists can forecast with accuracy in the short-term; forecasting with accuracy in the long-term is very problematic.

Accepted Answer

Economists can make short-term forecasts based on current trends and available data, but long-term forecasts are influenced by a larger number of variables that are difficult to predict, making accuracy more challenging.

Question 2

In cash budgeting, the impact of amortization is reflected in the level of cash outflow represented by the tax payments.

Accepted Answer

Amortization is a non-cash expense, meaning it does not require an immediate cash outflow. However, it does affect the level of cash outflow represented by tax payments. This is because amortization reduces the taxable income, which in turn reduces the amount of taxes owed. As a result, the cash outflow for tax payments is lower than it would be if amortization were not considered.

Question 3

The use of past cost and expense ratios generally tends to overstate profits when sales are increasing and understate profits when sales are decreasing.

Accepted Answer

The answer of The use of past cost and expense...

Question 4

The financial planning process begins with short-run, or operating plans and budgets that in turn guide the formulation of long-run, or strategic, financial plans.

Accepted Answer

The answer of The financial planning process begins with short-run,...

Question 5

The financial manager may cope with uncertainty and make more intelligent short-term financial decisions by preparing several cash budgets, each based on differing assumptions.

Accepted Answer

By preparing multiple cash budgets with varying assumptions, the financial manager can anticipate different scenarios and make informed decisions based on the potential outcomes. This helps to mitigate the risks of uncertainty and make more intelligent short-term financial decisions.

Question 6

If all purchases of goods for sale are on 45 day (one and one-half months) credit terms with the supplier, cash flows to purchases in June would be $425,000; March, April, May, and June purchases budgets are $350,000, $400,000, $450,000, and $450,000, respectively.

Accepted Answer

The cash flow for purchases in June would be the payment for purchases made in April, as the credit terms are 45 days. The April purchases budget is $400,000, which matches the cash flow stated.

Question 7

Cash planning involves the preparation of the firm's cash budget. Without adequate cash-regardless of the level of profits-any firm could fail.

Accepted Answer

Cash flow is critical for a company's sustainability, as even profitable companies can fail due to a shortage of cash. Cash planning and budgeting are necessary for managing a company's financial performance effectively.

Question 8

Operating financial plans are planned short-term financial actions and the anticipated financial impact of those actions.

Accepted Answer

Operating financial plans are indeed short-term financial actions that are planned in advance along with their projected financial impact.

Question 9

If all purchases of goods for sale are on two-month credit terms with the supplier, cash flows topurchases in June would be $400,000; March, April and May purchases budgets are $350,000,$400,000 and $450,000, respectively

Accepted Answer

Purchases in June would be paid in August.

Question 10

Generally, firms that are subject to high degrees of operating uncertainty, relatively short production cycles, or both tend to use a shorter planning horizon.

Accepted Answer

This is because firms with high operating uncertainty and short production cycles are more likely to experience changes in demand, supply chain disruptions, or other unforeseen events that can impact their plans in the near future. Therefore, a shorter planning horizon allows them to be more flexible and responsive to these changes.

Question 11

Cash dividends declared but not paid would be shown on the cash budget as a cash outflow in the month of declaration.

Accepted Answer

Cash dividends declared but not paid are not shown as a cash outflow in the cash budget until they are actually paid.

Question 12

The required total financing figures in the cash budget refer to the monthly changes in borrowing.

Accepted Answer

The required total financing figures in a cash budget refer to the total amount of external financing needed to cover shortfalls in cash for the period, not just the monthly changes in borrowing.

Question 13

If the net cash flow is less than the minimum cash balance, financing is required.

Accepted Answer

The answer of If the net cash flow is less...

Question 14

If all customers take one month to pay their credit accounts, cash flows from sales in June would be$150,000; May and June sales budgets are $100,000 and $200,000, respectively.

Accepted Answer

The answer of If all customers take one month to...

Question 15

Pro forma statements provide the financial manager with the amount, if any, of external financingrequired to support a given level of sales as well as a basis for analyzing in advance the level ofprofitability and overall financial performance of the firm in the coming year.

Accepted Answer

Pro forma statements are prepared to estimate future financial performance of a business. These statements provide information on the amount of external financing required to support a particular level of sales and also help in analyzing the profitability and overall financial performance of the firm in the coming year.

Quiz 4: Financial Planning and Forecasting