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Exam 18: Financial Forecasting and Planning

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Question 1

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An increase in projected [blank] will increase discretionary funds needed.

A) cash dividends
B) sales
C) retained earnings
D) both A and B

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Question 2

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An exceptionally high growth rate in sales will typically

A) initially increase the firm's need for discretionary financing.
B) generate enough cash flow to cover asset expansion.
C) allow the firm to increase its dividend in anticipation of higher cash flows.
D) allow the firm to finance expansion with spontaneous sources of financing.

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Question 3

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Assume that Mittinger Tool & Die has sales of $25 million and current assets of $5 million.The corporation utilizes the percentage-of-sales method of financial forecasting.If Mittinger is expected to generate sales of $31 million next year, what will the firm's investment in current assets be?

Assume that Gerber and Sons has sales of $83 million and fixed assets of $22.4 million in 2018.The corporation utilizes the percentage-of-sales method of financial forecasting.If Gerber is expected to generate sales of $94 million in 2019, what will the firm's investment in fixed assets be? The minimum fixed asset expansion costs $4,000,000.

Spontaneous sources of financing include

Which of the following is considered a discretionary source of financing?

Sprinkles Cupcakes is a new firm specializing in gluten-free cupcakes.In attempting to determine what the financial position of the firm should be, the financial manager obtained the following average data for the baking industry for 2017.All data are expressed as a percentage of sales. Fill in the dollar amounts on Sprinkle's pro forma balance sheet assuming 2015 sales are $450,000. Sprinkle's Cupcakes Pro Forma Balance Sheet December 31, 2017

A discretionary form of financing would be

Which of the following will increase cumulative borrowing in the cash budget?

A typical corporate planning process will encompass

Table 2 Fielding Wilderness Outfitters had projected its sales for the first six months of 2017 to be as follows Cost of goods sold is 60% of sales.Purchases are made and paid for two months prior to the sale.40% of sales are collected in the month of the sale, 40% are collected in the month following the sale and the remaining 20% in the second month following the sale.Total other cash expenses are $40,000/month.The company's cash balance as of March 1, 2017, is projected to be $40,000, and the company wants to maintain a minimum cash balance of $15 000.Excess cash will be used to retire short-term borrowing (if any exists) .Fielding has no short-term borrowing as of March 1, 2017.Assume that the interest rate on short-term borrowing is 1% per month. -Based on the information contained in Table 2, what are Fielding's projected total receipts (collections) for April?

[blank] = Dividends/Net profit

Use the following information and the percentage-of-sales method to answer the following question(s) . Below is the 2017 year-end balance sheet for Richmond Enterprises.Sales for 2017 were $1 600,000 and are expected to be $2 000,000 during 2018.In addition, we know that Banner plans to pay $90,000 in 2018 dividends and expects projected net income of 4% of sales.(For consistency with the answer selections provided, round your forecast percentages to two decimals.) Richmond Enterprises Balance Sheet December 31, 2017 -Richmond's projected fixed assets for 2018 are

In 2018, Mango Corporation had net income of $5 million on sales of $50 million.The 2018 balance sheet showed current liabilities of $12 million, long-term debt of $18 million and equity of $45 million.The sales forecast for 2017 is $54 million.If Mango pays no dividends, what is the forecasted increase or decrease in equity at the end of 2019?

O'Connor Inc.is planning to purchase some new equipment.With this new equipment, the company expects sales to increase from $8 000,000 to $10,000,000.A portion of the financing for the purchase of the equipment will come from a $1 000,000 new common stock issue.The company knows that current assets, fixed assets, accounts payable and accrued expenses increase in direct proportion with sales.The company's net profit margin on sales is 8%, and the company plans to pay 40% of its after-tax earnings in dividends.A copy of the company's current balance sheet is given below: O'Connor Inc.Balance Sheet Prepare a pro forma balance sheet for O'Connor for next year using the percentage-of-sales method and the information provided above.

Discretionary financing needed is equal to total financing needed or pro forma total assets, less projected sources of financing.

Holding other things constant, a firm's 'discretionary financing needed' (the additional funds required in order to finance the firm) would be reduced if the firm experienced an increase in which of the following?

Which of the following is always a non-cash expense?

Table 3 Thompson Manufacturing Supplies' projected sales for the first six months of 2017 are given below. 40% of sales is collected in the month of the sale, 50% is collected in the month following the sale, and 10% is written off as uncollectible.Cost of goods sold is 70% of sales.Purchases are made the month prior to the sale and are paid during the month the purchases are made (i.e.goods sold in March are bought and paid for in February) .Total other cash expenses are $50,000/month.The company's cash balance as of February 1, 2017 will be $40,000.Excess cash will be used to retire short-term borrowing (if any) .Thompson has no short-term borrowing as of February 28, 2017.Assume that the interest rate on short-term borrowing is 1% per month.The company must have a minimum cash balance of $25,000 at the beginning of each month.Round all answers to the nearest $100. -As of December 31, Budget, Inc.had a cash balance of $50,000.December sales were $150,000 and are expected to be $100,000 in January.20% of sales in any month are cash sales, and 80% of sales are collected during the following month.In January, Budget is expected to have total cash disbursements of $120,000, and Budget requires a minimum cash balance of $50,000.Budget's expected cash receipts for January are

Table 2 Fielding Wilderness Outfitters had projected its sales for the first six months of 2017 to be as follows Cost of goods sold is 60% of sales.Purchases are made and paid for two months prior to the sale.40% of sales are collected in the month of the sale, 40% are collected in the month following the sale and the remaining 20% in the second month following the sale.Total other cash expenses are $40,000/month.The company's cash balance as of March 1, 2017, is projected to be $40,000, and the company wants to maintain a minimum cash balance of $15 000.Excess cash will be used to retire short-term borrowing (if any exists) .Fielding has no short-term borrowing as of March 1, 2017.Assume that the interest rate on short-term borrowing is 1% per month. -Miller Metalworks had sales in November of $60,000, in December of $40,000 and in January of $80,000.Miller collects 40% of sales in the month of the sale and 60% one month after the sale.Calculate Miller's cash receipts for January.