Business Finance
A company wants to make a $10,000 profit by selling 500 units, without changing the selling price. By how much should the fixed costs be reduced? Selling price per unit$300 Variable cost per unit$100 Total fixed costs$100,000
$ 10,000 300x500 = $150,000 100x500 = $50,000 150,000-50,000-100,000 = 0 150,000-50,000-90,000 = $10,000
The statement of cash flows shows the following information. What is the cash from operating activities? Profit for the year$ 97,500 Depreciation 40,000 Adjustments in non-cash working capital accounts (11,000)
$ 126,500
Given the following information, what is the revenue break-even point? Selling price per unit$200 Variable cost per unit$100 Total fixed costs$100,000
$ 200,000 Contribution Margin 200-100=100 CM Ratio 100/200= .5 100,000/.50= 200,000
Review the following sales information. How much cash will the company collect in February? January sales are $ 60,000 February sales are $ 70,000 80% of sales are made on a cash basis 20% of sales are collected after 30 days
$ 68,000
Given the following information, what is the company's net working capital? Total current assets$136,000 Total non-current assets 132,000 Total current liabilities60,000 Long-term borrowings50,000 Equity158,000
$ 76,000
If a firm sells 40,000 units and the contribution margin on the firm's single product is $4.00 per unit and fixed costs are $60,000, what will the firm's operating profit be at this level of sales volume?
$100,000
What amount will be paid if a company pays a $200 invoice with terms of 2% | 10, N | 30 after 20 days?
$200
Given the following information, what are the maximum fixed costs the company should incur if it wants to break even selling the three products? Revenue Cost of sales Product X $40,000 45% Product Y $24,000 50% Product Z $35,000 60%
$48,000 Total revenue= 40,000+24,000+35,000 =99,000 Total VC= 40,000 x .45= 18,000 24,000 x .50= 12,000 35,000 x .60= 21,000 $51,000 99,000-51,000= $48,000
Given the following information, what is the revenue break-even point? Revenue$1,000(1,000 units sold) Variable costs$750 Fixed costs$200
$800 Contribution Margin 1000-750=250 CM Ratio 250/1000= .25 200/.25= 800
What is the present value of a $1,000 investment made in year 0 if the interest is at 10%?
+ $ 1,000
What is the approximate future value of $1,000 compounded at 10% interest (end of period) over a three-year period?
+ $ 1,330
What is the present value of $ 1,000 received one year from now bearing interest at 10%?
+ $ 909
Given the following information, what is the PV ratio? Contribution margin$250 Fixed costs$200 Operating profit$50 Revenue$1,000 Variable cost$750
0.25 250/1000
Given the following information, what is the PV ratio? Variable cost per unit$100 Unit selling price per unit$200
0.50 200-100= 100 100/200= .50
Given the following information, what is the company's quick ratio? Current assets (includes cash and receivables)$600,000 Current liabilities400,000 Cash300,000 Inventories200,000
1
Owners of a business are contemplating investing $550,000 in non-current assets in early January 2014. They are exploring ways to finance it. In 2012, the company had $250,000 in trade receivables, an amount that it expects will increase to $275,000 in 2013. The inventory level for 2012 was $430,000 and, having introduced a new inventory management system, the owners expect to be more efficient in managing it. They forecast a level of $370,000 in inventories by the end of 2013. They expect a substantial increase in revenue, which will increase their profit from $150,000 in 2012 to $230,000 in 2013. Questions 1. How much cash will be generated from internal operations by the end of 2013? 2. Will the owners have to borrow money from investors to finance the expansion? [yes/no] 3. If yes, how much? [amount]
1. 265000 2. Yes 3. 285000 Inflows $ 2012 2013 Cash flow Trade receivables 250,000 275,000 (25,000) Inventories 430,000 370,000 60,000 Profit for the year 230,000 230,000 Total cash inflow $265,000 Yes, the owners will have to borrow $285,000 from investors. Investing activities in January 2014 $550,000 Cash flow from operating activities in 2013 265,000 Financing required $285,000
Trade and other payables $200,000 Short-term borrowings 250,000 Mortgage 500,000 Long-term borrowings 250,000 Share capital 300,000 Retained earnings 800,000 The before-tax bank charges are 11.0% for the short-term borrowings, 10.0% for the long-term borrowings, and 10.5% on the mortgage. The shareholders expect to earn 16%. Assume that the company's income tax rate is 50%. Questions 1. Calculate the company's after-tax cost of borrowing rounded to the nearest tenth of a percent. 2. Calculate the company's weighted average cost of capital rounded to the nearest tenth of a percent.
1. 9.9 2. 11.6 After tax cost of debt: Total sources of borrowing (internal and external): Trade and other payables $200,000 Short-term borrowings $250,000 Mortgage $500,000 Long-term borrowings $250,000 Share capital $300,000 Retained earnings $800,000 Total cost of financing $2,300,000 1. Multiply each source of financing by the proportion and the after tax cost of debt. Trade and other payables $200,000 x 0.087 x 0% = 0% weighted Short-term borrowings $250,000 x 0.109 x 5.50% = 0.600% weighted Mortgage $500,000 x 0.217 x 5.25% = 1.139% weighted Long-term borrowings $250,000 x 0.109 x 5.00% = 0.545% weighted Share capital $300,000 x 0.130 x 16.00% = 2.08% weighted Retained earnings $800,000 x 0.348 x 16.00% = 5.568% weighted 2. Add the sum of those weighted categories = 9.9% WACC: Mortgage $500,000 Long-term borrowings $250,000 Share capital $300,000 Retained earnings $800,000 Total sources of capital = $1,850,000 1. Multiply each source of capital by the proportion and the after tax cost of capital. Mortgage of $500,000 = 0.270 of total sources of capital x after tax cost of 5.25% = 1.419% weighted Long-term borrowings of $250,000 = 13.5% of total sources of capital x 5% = 0.676% weighted Share capital of $300,000 = 16.2% of total sources of capital x 16% = 2.595% weighted Retained earnings of $800,000 = 43.2% of total sources of capital x 16% = 6.919% weighted 2. Add the sum of those weighted categories from the various sources = 11.6%
Match the words with the term. 1. tax deductible expense 2. long-term borrowings 3. intangible assets 4. loss in value of assets 5. current assets
1. CCA 2. mortgage 3. goodwill 4. depreciation 5. working capital
1. delay 2. current liability 3. days of working capital 4. management of working capital 5. current asset
1. Float 2. accrued expense 3. measurement tool 4. cash cycle 5. cash
Match each term with the correct definition. 1. external activities 2. internal activities 3. revenue 4. return on sales 5. meeting short-term commitments
1. Treasurer 2. Controller 3. Prosperity 4. Efficiency 5. Liquidity
1. statement of financial position 2. growth 3.statement of cash flows 4.Z-score 5. statement of income
1. assets 2. sustainable 3. operating activities 4. bankruptcy 5. revenue
Match the words with the term. 1. must be incurred 2. depreciation non-cash 3. overhead costs 4. variable costs 5. managers are accountable for these costs
1. committed 2. non-cash cost 3. indirect 4. change 5. controllable
1. inventory turnover 2. average collection period 3. profit margin on revenue 4. current ratio 5. return on total assets
1. cost of sales 2. trade receivables 3. operating income 4. current liabilities 5. profit for the year
1. equity 2. venture capitalist 3. municipal government 4. loan 5. strategic investor
1. dividends 2. return 3. tax credit 4. interest 5. sources of supply
1. contribution 2. retained earnings 3. line of credit 4. venture capitalist 5. consignment
1. government 2. shareholders 3. banks 4. subordinated debt 5. manufacturer
1. statement of income 2.statement of cash flows 3.auditor's report 4.statement of changes in equity 5.statement of financial position
1. gross profit 2. investing activities 3. accounting firm 4. dividends 5. non-current assets
1.reducing trade receivables 2. profit for the year 3. cash budget 4 buying land 5. non-current assets
1. increase in cash 2. operating activities 3. micro analysis 4. decrease in cash 5. investing activities
1. financing activities 2. adjustments in non-cash working capital accounts 3. profit for the year 4. purchase of equipment 5. investigating activities
1. long-term borrowings 2. inventories 3. cash inflow 4. cash outflow 5. land
1. strategic plan 2. tactical plan 3. formulation of goals and plans 4. benchmark 5. operational
1. mission and goals 2. division manager 3. planning 4. standard 5. short term
1. market-value ratio 2. liquidity ratio 3. profitability ratio 4. debt/coverage ratio 5. asset-management ratio
1. price/earnings ratio 2. quick ratio 3. return on revenue 4. debt-to-equity ratio 5. inventory turnover
1. combined ratio 2. statement of financial position ratio return on assets 3. excellent norm 4. times-interest-earned 5. satement of income ratio
1. return on assets 2. current ratio 3. benchmark 4. service 5. return on revenue
Match the words with the term 1. semi-variable costs 2. difference between revenue and total costs 3. variable costs 4. fixed costs property 5. non-cash expense
1. telephone 2. profit 3. freight 4. property taxes 5. depreciation
1. adjustments in non-cash working capital accounts 2. statement of financial position assets 3. statement of income expenses 4. statement of retained earnings dividends 5. statement of cash flows
1. trade payable 2. assets 3. expenses 4. dividends 5. operating activities
1. projected statement of financial position 2. projected statement of retained earnings 3. complementary budget 4. projected statement of income 5. projected statement of cash flows
1. trade receivables 2. dividends 3. program 4. revenue 5. financing activities
Match the words with the term. 1. sensitivity analysis 2. revenue and contribution margin 3. costs that apply to level of production 4. cash break-even point 5. profit break-even point
1. variables 2. PV ration 3. relevant range 4. depreciation 5. objective
In what order are the following items listed on the statement of financial position?(1) current assets(2) property, plant, and equipment(3) intangible assets
2, 3, 1
What is the combined leverage of a company with an operating leverage of 1.7 and a financial leverage of 1.6?
2.72
Profit for the year is $33,000 and equity is $158,000. What is the return on equity?
20.9%
Which number is a typical interest factor used to calculate the future value of an annuity?
6.105
Given the following information, what is the unit break-even point? Revenue$2,000(1,000 units sold) Variable costs$1,500 Fixed costs$400
800 units Contribution Margin 2000-1500 = 500 per unit = 500/1000 = .5 400/.5 = 800
Suppose in 2015 total equity and liabilities for a business amounted to $600,000 and total liabilities amounted to $400,000. The following year, total equity and liabilities increased to $700,000 while liabilities increased to $450,000. According to the vertical analysis method, has the financial situation become better or worse?
Better because the total liabilities reduced as a percentage of total equity and liabilities.
Who is responsible for deciding how much of the net income to retain in the business and how much to pay in dividends?
Board of directors
__________________________ is the process by which management allocates corporate resources, evaluates financial outcomes, and establishes a system to control operational and financial performance.
Budgeting
___________________________ risk has to do with the uncertainty inherent in projecting the level of revenue and profit.
Business
What are debits and credits?
A debit is an increase in an asset or a decrease in a liability, and a credit is an increase in a liability and a decrease in an asset
Assume that a company earns $280,000 in profit for the year on $3 million in revenue. The board of directors decides to keep half to pay for dividends and to reinvest the rest in the company. Sixty percent of the retained earnings are invested in non-current assets and the rest is invested in working capital for growth. Calculate, as a percentage of revenue, how much would be kept in the company for growth (i.e., working capital and non-current assets) and how much would be used to pay dividends. Round to the nearest hundredth percent (two decimal places) but do not include the % symbol. First split: (rounded) 50% for retained earnings 4.7% 50% for dividends 4.7% Second split:(rounded) 60% of retained earnings for non-current assets 2.8% 40% of retained earnings for current assets 1.9%
Answer 1: 4.7% Answer 2: 4.7% Answer 3: 2.8% Answer 4: 1.9% Revenue $3,000,000 100% Profit for the year 280,000 9.3% First split: (rounded) 50% for retained earnings: $140,000 Percent of earnings retained for growth = $140,000 / $3,000,000 = 4.7% 50% for dividends: $140,000 Percent of earnings paid out as a dividend as a percentage of revenue = $140,000 / $3,000,000 = 4.7% Second split:(rounded) 60% of retained earnings for non-current assets: $84,000 ($140,000 x 60%) or 2.8% ($84,000 / $3,000,000) 40% of retained earnings for current assets: $56,000 ($140,000 x 40%) or 1.9% ($56,000 / $3,000,000)
Other things held constant, which of the following would tend to reduce the cash conversion cycle?
Adopt a new manufacturing process that speeds up the conversion of raw materials to finished goods from 20 days to 10 days.
Company A has a times-interest-earned ratio of 5.9, and company B has a times-interest-earned ratio of 6.4. A is a competitor of B. What conclusions would the chief financial officer of A arrive at looking at these numbers and his competitor's?
Company B is in a better position to pay interest than company A.
_______________________________ analysis is a tool used for analyzing how volume, price, product mix, and product costs relate to one another.
Cost-Volume-Profit
An entrepreneur repays a $10,000 bank loan. What is the effect on the financial statements?
Current assets decrease and current liabilities decrease.
_________________________ is defined as the estimated decrease in the value of non-current assets due to wear and tear and/or obsolescence.
Depreciation
What adjustments are made to calculate cash flow from operating activities?
Depreciation is added back to net profit for the year.
_______________________ fixed costs are those that can be controlled by managers from one period to another if necessary.
Discretionary
Who will be a user of financial statements, and what will they be used for? A. Managers will use financial statements to make decisions about their company. B. Investors will use financial statements to decide whether to invest money into a company. C. Lenders will use financial statements to decide whether to lend to a company. D. None of these E. All of these
E. All of these
What does financial leverage address?
EBIT and interest
A decrease in share capital and long-term borrowing accounts are considered cash inflows.
F
Cash flow has to do with the determining whether a business is efficient.
F
Du Pont financial system presents financial ratios in a logical way to measure return on revenue.
F
Packing materials is considered is a semi-variable cost because this type of cost varies almost automatically with volume of production.
F
Return on revenue measures a company's overall ability to generate profit from each dollar of assets.
F
The cash balance account is presented on the statement of cash flows under the heading "operating activities".
F
The current ratio is calculated by dividing current liabilities by current assets.
F
The factors that affect profit levels are: market share, price | earnings ratio, fixed costs and variable costs.
F
Vertical analysis shows the similar type of information as the technique used for horizontal analysis.
F
A commercial bank is a "form" of financing.
False
A key role of the International Accounting Standards Committee is to review and reinforce the convergence of global management standards for all publicly owned corporations.
False
Based on the statement of cash flows format, paying salaries is considered a cash outflow.
False
Double-entry bookkeeping is a system for posting financial transactions in order to reduce the level of financial fraud as much as possible.
False
The first level of profitability of the statement of income is the profit for the year.
False
Usually, transactions are posted from the ledgers onto the journals.
False
Bookkeeping is considered the language of business.
False Accounting is considered the language of business since it is the process used to logically and methodically record and summarize business transactions on a company's financial statements.
Planned downsizing is a recession-driven technique to add management layers in organizational charts to cut costs.
False Management layers are reduced to cut costs with a planned downsizing.
The statement of cash flows presents three key sections: "operating activities", "financing activities" and "adjustments in working capital accounts activities".
False not adjustments-- "investigating activities"
__________________________ controls is a system that helps to focus on variations of past performance.
Feedback
____________________________ is usually referred to as the percentage of debt a firm uses to finance the purchase of assets.
Financial leverage
Which of the following statements best describes the limitation of financial ratios.
Financial ratios tell where a particular operation is or is not doing well but doesn't report why or how to improve the situation.
Return on assets and cost of financing: Based on the following information, if managers want to earn a 12% ROA, how much profit must the company generate? Non-current assets $ 1,260,000 Current assets 250,000 Profit for the year 170,000 Cost of debt (after tax) 12% Cost of equity 12%
Generate $181,200 in profit (Total Assets x 12%) $1,260,000 + 250,000 × 12%
Which of the following questions does break-even analysis attempt to address?
How much do changes in volume affect costs and profits?
All of the following symbols are generally accepted to represent the interest rate per period except for ____________________.
IR
When analyzing a capital project, the interest rate that makes the discounted future receipts equal the original investment is referred to as the _________________________________.
IRR or internal rate of return
_____________________________ represents a price-rise characteristic in periods of prosperity.
Inflation
___________________________ risk has to do with the quality of security available to satisfy investors.
Instrument
_________________________ assets represent value of trademarks, goodwill, franchises, and patents.
Intangible
Why is it important for managers to ask, "How are we doing?"
Investors want to know about a company's financial performance.
What is a disadvantage of the payback method?
It ignores cash inflows earned after the payback period.
Which of the following is a feature of an expense investment?
It is impermanent.
What is the capital assets turnover ratio?
It measures how intensively plant and equipment is used to generate revenue.
_________________________________ is a technique used to determine the most suitable operating and financial structure that will help amplify the most financial performance.
Leverage analysis
____________________ is a financial objective that shows if a firm has the ability to meet its short-term obligations.
Liquidity
___________________________ performance is a measure of a firm's position within its industry.
Market
Other things held constant, which of the following will cause an increase in net working capital?
Merchandise is sold. Payment is made in cash.
____________________________ leverage is a financial technique used to determine to what extent fixed costs are used relative to variable costs.
Operating
__________________________ is the process of formulating goals and outlining action plans to realize the goals.
Planning
_______________________________ are boundaries upon which priorities, goals, plans, budgets and financial projections are based.
Planning assumptions
What is the effect when a company decides to increase the unit selling price of its product, while keeping variable cost per unit, units sold, and fixed costs unchanged?
Profit before tax increases.
A company provides the information below. If the company increases its selling price by 5% and increases its fixed costs by $100,000, how much more (or less) profit will the company realize? Revenue$2,500,000 Total variable costs$1,700,000 Total fixed costs$700,000
Profit will increase $ 25,000. Current - $2,500,000- $1,700,000- $700,000 = $100,000 Increase $2,625,000 (revenue x .05) - $1,700,000- $800,000= $125,000
___________________________ ratios deal with bottom-line performance and measure the extent to which a business is successfully in generating profit related to revenue.
Profitability
____________________ represents the level of expectations (probabilities) that something will happen in the future
Risk
___________________________ loans are used by businesses primarily to finance temporary or fluctuating variations in inventories and trade receivables.
Self-liquidating
--------analysis is a technique that shows to what extent a change in one variable (e.g., selling price, fixed costs) impacts on the break-even point.
Sensitivity
____________________ analysis is a capital budgeting technique that involves the identification of profitability variations as a result of one or more changes in a project's base case to certain key elements of a capital project.
Sensitivity
_______________________________ debt is considered a risk capital term debt whereby lenders accept a higher level of risk compared to conventional sources.
Subordinated
A cash outflow takes place when there is an increase in an asset account or a decrease in an equity account.
T
Debt/coverage ratios measure two things: (1) capital structure of a business and (2) its ability to service its debt.
T
Depreciation expense is usually considered a fixed cost.
T
Profit for the year is presented in the statement of cash flows as an "operating activity".
T
Profit margin on revenue is calculated by dividing profit for the year by revenue.
T
The adjustments in non-cash working capital accounts show the cash outflow or inflow for accounts such as trade receivables and inventories.
T
To calculate the cash break-even point, one should divide all fixed costs less depreciation by the PV ratio.
T
To calculate the profit break-even point, one has to add the profit objective to the fixed costs and divide this number by the unit contribution margin.
T
Vertical analysis is a method that reduces all numbers on the statement of income to a percentage of revenue.
T
Helena Furnishings wants to reduce its cash conversion cycle. Which of the following actions should it take?
Take steps to reduce the trade receivables conversion period.
If the quick ratio was 0.80 times in 2013, and in 2012 it was 1.10 times. What is the meaning of a change like this in the quick ratio?
The company's cash, receivable and marketable securities increased while current liabilities remained unchanged.
If the current ratio was 1.95 in 2012 and is 1.86 in 2013, how would managers interpret this change?
The current ratio has worsened during the year, but it appears to be still acceptable.
What can be concluded when the NPV is 0?
The discounted cash inflows equal the cash outflow.
What is one of the benefits of incremental budgeting?
The previous year's expenses will not be missed.
Where is the profit for the year transferred?
The profit for the year shown on the statement of income is transferred to the statement of changes in equity.
What does the term the time value of money mean?
The value of money is traded of as a function of time.
What are owners attempting to do when they use financial leverage?
They are attempting to generate more profit using other people's money.
A company uses annuity tables to calculate the present or future value of a series. What is the nature of the amounts?
They are even amounts for a specified number of years.
__________________________ is included as a denominator in four out of five ratios in the financial health score (Z-score formula).
Total assets
How is "net working capital" calculated?
Total current liabilities are subtracted from total current assets.
Which of the following statements describes a source of funds?
Trade Credit
A debit entry is an accounting transaction that is usually recorded on the left side of an account.
True
Bookkeeping begins with the preparation of a chart of accounts.
True
Capital shares can be considered an "external" source of funds.
True
The gross profit is the difference between revenue and cost of sales.
True
The section dealing with investing activities in the statement of cash flows usually shows a cash outflow.
True
The trial balance is a statement that ensures that the general ledger is in balance (debit transactions = credit transactions).
True
Two accounts that can affect profit for the year are distribution costs and administrative expenses.
True
__________________________ budgeting which is similar to activity-based budgeting requires that every budget dollars requires justification.
Zero-based
What is the economic-value model based on when evaluating a business?
a business as an ongoing entity
What term refers to an agreement made between a buyer and a seller regarding the purchase of a capital asset such as a truck?
a conditional sales contract
What is a sunk cost?
a cost that is NOT included in a capital project budget
Which of the following is a cash inflow?
a decrease in a non-cash asset account
A company's EBIT increases by 10% while its profit for the year increases by 16%. What kind of leverage does this company have?
a favourable financial leverage
What type of decision is made when a company decides whether to arrange a mortgage, sell bonds, or issue shares?
a financing decision using external financing
Which of these features is NOT found in a retirement savings plan (IRA)?
a liability
What does inflation represent?
a price-rise characteristic
Which of the following is a current liability?
accrued expenses
____________________ such as salaries and taxes payable are similar to trade credit in that they are spontaneous sources of financing.
accurals
Discount tables were originally developed by ________________________ .
actuaries
What is one of the adjustments required to calculate a company's cash flow?
adding depreciation expense to profit for the year
Which of the following does the weighted average cost of capital take into consideration?
all investors
What type of investment is an expenditure of $ 5,000 on an advertising program?
an expense investment
Which of the following is an example of a debit transaction?
an increase in the trade receivables account
Profit before taxes$46,000 Net profit for the year 34,000 Depreciation 40,000 Adjustments in non-cash working capital accounts 17,000 outflow Using the information above, what was the change in cash flow under operating activities?
an increase of $ 57,000
A company's revenue increases by 10% while profit for the year increases by 7.5%. What type of leverage does this company have?
an unfavourable combined leverage
Which of the following is used in a credit-scoring system to analyze the creditworthiness of potential customers?
annual income
Which collateral value approach is used for evaluating a business in an assessment by a lender regarding the value of a particular asset as collateral?
as a guarantee for credit
What is the correct date line for a statement of financial position?
as at December 31, 2015
How is depreciation shown on the statement of cash flows?
as cash inflow under operating activities
What are journals used for in the accounting cycle?
as the books of original entry
Municipal governments use the ___________________________ value approach for property taxation.
assessed
What methodology is used to restate the numbers appearing on financial statements?
asset valuation
___________________________ financing is a form of short-term risk capital financing.
asset-based
Financial management is the activity that has to do with raising funds and buying ____________________ in order to obtain the highest possible return.
assets
There is a direct relationship between the return on ________________________ and the weighted average cost of financing.
assets
When does the cash outflow usually take place for a capital project?
at year zero when the payout is made
To calculate the average payable period and to find how it contributes to positive cash flow, trade payables is divided by the ____________________.
average daily purchases
The __________________ is a method that helps determine the most appropriate way of structure operating costs (fixed versus variable).
break-even wedge
What is one of the benefits that results from budgeting?
budgeting improves coordination
Who provides retained earnings as a source of financing?
businesses
What do investing decisions deal with?
buying non-current assets
How is profit for the year calculated?
by deducting income tax expense from profit before taxes
How is the book value of a business determined?
by deducting liabilities and equity from total assets
How is the times-interest-earned ratio calculated?
by dividing earnings before interest charges and taxes by interest charges
How is the future value of an annuity calculated?
by multiplying the annuity factor by the even series of receipts
How are a company's total assets financed in terms of financial structure?
by short-term, long-term, and equity funds
How is the economic value added (EVA) calculated?
by subtracting the cost of capital from the net operating profit after taxes
The C of credit that refers to the financial structure of a business is called ______________________.
capital
The _________________________ structure shows the "permanent" financing sources used to buy capital assets.
capital
The three major areas of finance are __________________________________, capital budgeting and cost of capital.
capital structure
A price-earnings multiple is equal to the inverse of a ___________________________ rate.
capitalization
The main objective of ____________________ management is to maintain a reasonable amount of cash so that profitability is NOT affected and payment of short-term commitments is possible.
cash
The __________________________ is a financial management function that determines the cash flow of a business at the micro level and determines the level of liquidity.
cash budget
When using time value of money yardsticks, ____________________ and NOT profit for the year is used in the calculation.
cash flow
Within the concept of capital budgeting decisions, which of the following statements is true?
cash outflows and cash inflows should be taken into consideration
Which of the following is a section of the cash budget?
cash receipts section
Which of the following are assets?
cash, buildings, intangible assets
The C of credit that deals with providing a pledge or guarantees to secure a loan is referred to as ___________________________.
collateral
If company A increases its revenue from $1,500 to $1,650 and profit for the year from $400 to $470, while company B increases its revenue from $600 to $660 and profit for the year from $35 to $50, what impact will the results have on the companies operating leverage?
company B has a more favourable operating leverage than company A
Several of the characteristics of ___________________________ investments are that they respond to a need, the risks are negligible and are often done to maintain operating efficiencies.
compulsory
___________________________ investments are made for three reasons: contingency, legislative, and cosmetic.
compulsory
A ___________________________ sales contract is a written agreement between a buyer and a seller regarding the purchase of production equipment or other physical assets on a time-payment basis.
conditional
Which of the following include financing requirements?
conditional sales contracts
Which of the following is an external form of financing?
conditional sales contracts
Which of the following forms of financing can finance working capital accounts?
consignment
Which of the following is a qualitative planning assumption?
consumer preferences
To calculate the PV ratio, you need to divide the __________________________ by revenue.
contribution margin
You can find the break-even point in units by dividing fixed costs by the unit's ______________.
contribution margin
What formula is used to calculate the PV ratio?
contribution margin ÷ revenue
One of the major characteristics of long-term capital sources that investors examine when raising funds is ____________________________which refers to the "voting rights" that different stakeholders have over the major decisions of a business.
control
The person responsible for coordinating the budgets and preparing the consolidated budgets and projected financial statements is the __________________________ .
controller
Which of the Cs of credit relates to insurance?
coverage
A business uses the most conservative strategy to finance its current asset accounts. What are the current asset accounts most likely financed by?
current liabilities
What term refers to a debt that a business must pay within one year?
current liabilities
The ___________________________ accounting method is used to restate assets on financial statements in terms of what they would be worth if purchased.
current-value
Which ratio measures solvency?
debt-to-equity ratio
Which of the following situations affects the statement of cash flows?
decreases in long-term borrowings are an outflow of cash
To calculate the cash break-even point, you need to deduct _____________________ from fixed costs so that this sum can be divided by the contribution margin.
depreciation
What is one of the steps in calculating the market value of a business?
determining the after-tax cash flow
In order to evaluate the net present value or internal rate of return of various projects ornet investments, ____________________ cash inflows is/(are) usually used in capital budgeting.
discounted
What calculation determines the approximate number of years for an investment to double at a 10% interest compounded annually?
dividing this figure into 72 (72/10%)
Who prepares tactical plans?
divisional managers
What does efficiency refer to?
doing things right
Under what economic conditions should a company avoid leverage??
during poor economic conditions,
In capital budgeting, the number of years that a capital project or investment opportunity will last is often referred to as the ________________________________ life.
economic
The ____________________ process means the transferring of funds between customer and supplier by using the Internet or any other electronic medium.
electronic funds transfer
Which of the following is NOT a financial indicator?
employee turnover ratios
What are the three sections on the statement of financial position?
equity section, liability section, and asset section
What is the first item in a typical business plan?
executive summary
A $1,000 amount received "today" would be worth less if it was discounted.
f
A bank statement can be used as a screening control tool for controlling purposes.
f
A physical count of inventory provides the basic data necessary to perform an item analysis of the non-current assets.
f
Angel investors are professional bankers interested in investing funds in secured businesses.
f
Break-even point takes place when revenue equals fixed costs.
f
Compounding deals with present value amounts of future receipts.
f
Controllable costs are usually indirect costs that managers are NOT accountable for.
f
Cost of preferred shares includes fixed interest charges paid to shareholders and the flotation costs.
f
Cost of retained earnings includes dividends paid to shareholders and the flotation costs charged by underwriting firms.
f
Discounting is the process of finding the future value of a series of future cash flows.
f
External sources of financing are funds generated by a business and come from retained earnings and depreciation.
f
Factoring is an excellent way for a manufacturing business to finance its inventories.
f
Finance costs on a mortgage are considered fixed costs because they vary directly with sales volume.
f
Financial ratios are used to analyze a company's general and industry environments.
f
Financial structure deals with the permanent financing sources used to buy capital assets.
f
Funds generated by a business can be secured by increasing the level of working capital accounts such as inventories and trade receivables.
f
In dealing with time value of money, "simple interest rate" is normally considered when calculating the future growth of money.
f
Industry multipliers make use of the NPV method to determine the value on an on-going business.
f
Interim financing is primarily used to finance working capital accounts.
f
One of the more important advantages of equity financing is that dividends are tax deductible.
f
Opportunities are elements of the internal environment that offer a company certain avenues for expansion.
f
Suppliers and confirming institutions usually finance businesses through bonds and subordinated debts.
f
The SWOT analysis helps to diagnose a company's internal budgets and external plans.
f
The assessed value approach is essentially the same as the economic value approach since both methods are used to determine the ability or capacity of an asset to generate cash.
f
The best strategy to finance working capital accounts is through long-term borrowings since it is the most aggressive approach and the least costly.
f
The book value of an asset is its original cost less the depreciation for the year.
f
The dividend preference theory suggests that investors prefer receiving dividends in the future because of certain future market conditions.
f
The first step in the planning process is to formulate the mission statement and the value goals.
f
The main objective of cash management is to maintain a high level of cash so that profitability is NOT affected and payment of long-term commitments is possible.
f
The market value of a business is essentially the same as its book value.
f
The matching principle is the process of selecting the most appropriate financing source when selling an asset.
f
The more important elements appearing on a statement of financial position that a potential buyer of a business should look for are prepaid expenses, investment securities, notes payable, and long-term debts.
f
There are basically three types of leverages: operating leverage, financial leverage and the budgeting leverage.
f
There is a direct connection between trade credit and non-current asset management.
f
To calculate the net present value, the cash flows should always be brought into the future before being discounted.
f
Vertical analysis is an excellent financial tool to determine the growth rate of a business for different accounts shown on a company's statement of income.
f
Weighted average cost of financing is usually calculated on a before-tax basis.
f
Working capital should NOT be considered as a cash outflow when evaluating capital projects.
f
___________________________ is a system of financing whereby a business makes an outright sale of its trade receivables to finance a business.
factoring
What financing options are NOT offered by chartered banks?
factoring loans
When shareholders invest money in a business, it is presented in the statement of cash flows under the heading "investing activities".
false Cash level changes from the purchase of a company's own stock is presented under the heading "financing activities".
Which controls help to focus on variations of past performance?
feedback controls
What is included as a holding cost in the EOQ formula?
finance costs
What is the denominator of the times-interest-earned ratio?
finance costs
Working capital and the purchase of non-current assets would be considered ___________________ needs.
financial
The _____________________________ is a linear analysis in which five measures are objectively weighted to give an overall score that become the basis for classifying how well a business is doing.
financial health score
What financial technique is used to determine the most favorable capital structure (debt versus equity)?
financial leverage
What does the DuPont financial system present?
financial ratios in a logical way to measure return on total assets
What do managers examine to assess the impact of their decisions on the financial well-being of their organization?
financial statements
Funds obtained from investors are considered ____________________ decisions.
financing
The ________________________ structure shows the way a company's totals assets are finance by the "entire" right-hand side of the statement of financial position (short-term and long-term borrowings).
financing
The equity and liability side of the balance sheet that helps to finance the purchase of assets are considered ___________________________ requirements.
financing
Rent and interest charges are considered _______________________ costs.
fixed
The cash break-even point can be defined as the number of units or revenue that must be reached in order to cover total __________________ costs.
fixed
The contribution margin is the level of profit that contributes for paying ________________ costs.
fixed
To calculate the profit break-even point, you need to add the profit objective to the __________________ so that the sum can be divided by the unit contribution.
fixed costs
What is the PV ratio divided into to calculate the revenue break-even point?
fixed costs
What does operating leverage address?
fixed costs and variable costs
The maximum cash disbursement period comes from two complementary management practices: liability management and ____________________ management.
float
____________________ is a concept dealing with the amount of funds tied up in checks that have been written but are still in process and have NOT yet been collected.
float
Cost of common shares includes dividends paid to shareholders, flotation costs, and a(n) ________________ rate.
growth
What does the strategic plan help managers to accomplish?
harmonization of a business with its environment
Which of the following is NOT used to gauge the market value of a business?
historical cost values
Which of the following helps measure growth in components of a financial statement?
horizontal analysis
What is most likely to result from rewarding quality work instead of fast work?
improved gross profit and bottom line
Where are non-current liabilities and current liabilities included?
in the liability section of the statement of financial position
operating budget
includes the sales, manufactoring and overhead budgets
The profit for the year is the amount drawn from the statement of ______________________ that is included in the operating section in the statement of cash flows.
income
In order to arrive at the net profit for the year on the income statement, you have to deduct the _________________________ expense from the profit before taxes.
income tax
A(n) ____________________ is insurance a business takes against the catastrophic loss in cash that might occur when a large receivable becomes noncollectable because of debtor bankruptcy.
indemnification policy
What standards are used to determine the value or worth of a business?
industry multipliers
A decrease in adjustments in non-cash working capital accounts shown in the statement of cash flows is considered a cash
inflow
Cash ____________________ represent the receipt of money generated by revenue less expenses.
inflows
Which of the following is a fixed cost?
insurance
Which of the following is a source of financing?
insurance companies
When obtaining a loan to buy an asset, the ___________________________ and NOT ________________ are considered tax-deductible expenses.
interest; principal
___________________________ financing is a loan made to a business to help finance a capital project, such as the construction of a new plan, until regular financing is obtained.
interim
What type of loan helps a business to finance a capital project until regular financing becomes available?
interim financing
What does consignment finance in an excellent way?
inventories
Which of the following is a financial need?
inventories
Which of the following is included in non-cash working capital accounts?
inventories
In determining the value of current assets, the two most important accounts to consider are trade receivables and ___________________________ .
inventory
The only account removed from current assets to calculate the quick ratio is ___________________________.
inventory
The acquisition of a business and the purchase of non-current assets are considered ____________________ decisions.
investing
What is a NOT a source of growth funds?
investing more in capital assets
In capital budgeting, all of the following are considered a typical cash outflow except: ______________________
investment in research and development
What is an important advantage of budgeting?
it improves communication
Which of the following is a factor that makes a business creditworthy?
its character
Which of the following is most likely to be affected if a business operates in an extremely volatile and competitive environment?
its viability and profitability
What is the name for the books of original entry?
journals
What key factor is taken into consideration when considering inventory replenishment
lead time
A sale and ___________________________ arrangement is a financial arrangement whereby someone sells an asset to a lessor, then leases it back.
leaseback
A ___________________________ is a formal or written agreement between a bank and a borrower regarding a loan whereby the maximum loan level changes.
line of credit
The ___________________________ value of an asset shows its worth when sold separately or sold under duress.
liquidation
Which of the following is shown as a financing activity in the statement of cash flows?
long-term borrowings
Which of the following approaches is excluded in managing marketable securities?
lower of cost and market approach
What do financial institutions use floor planning to finance?
machinery
efficiency indicator
measure amount of resources needed to produce goods or services
effefctiveness indicator
measure goal-related accomplishments of organization
performance indicator
measurement used to evaluate performance- numbers
Who uses the assessed value approach?
municipal governments, to determine the level of property taxes
If the net present value of a project gives a ___________________________ amount, it means that the project is economically unattractive.
negative
What is the focus when restating the statement of financial position?
non-current assets
Which of the following is NOT involved in calculating the economic ordering quantity?
number of different products sold
Which of the following is a performance indicator?
occupancy rate for a hotel as is a measure of effectiveness
Both, profit for the year and depreciation are shown in the statement of cash flows as _____________________ activities.
operating
The ______________________ activities section of the statement of cash flows includes the adjustments in non-cash working capital accounts.
operating
What is shown on the statement of cash flows?
operating activities, investing activities, Share capital transactions
What type of decisions relate to accounts on the statement of income?
operating decisions
What is the profit margin on revenue performance measure related to?
operating income
What does the following formula calculate? Contribution margin/Contribution margin - Fixed costs
operating leverage
What financial technique is used to determine the extent to which fixed costs are used relative to variable costs?
operating leverage
Under which situation will a company use operating leverage for decision making?
operating leverage deals with the behaviour of costs at the financing level
Several of the characteristics of ___________________________ investments is that they are made by top-level managers, respond to a challenge and require in-depth analysis and the use of time-value-of-money yardsticks.
opportunity
The ___________________________ cost has to do with the income sacrificed by NOT pursuing the next best alternative.
opportunity
What costs fluctuate directly with changes in volume of production?
out-of-pocket costs
An increase in trade receivables indicates a cash
outflow
Cash ____________________ represent cash disbursements for the purchase of assets.
outflows
What costs change disproportionately with changes in output levels?
output costs
___________________________ performance is a measure of how a company has used its resources in the past.
overall
Which of the following is a variable cost?
overtime
What determines how an organizational unit should be measured?
performance indicators
What costs remain constant at varying levels of production?
period costs
Cost of capital represents how much it costs (%) a business to raise ___________________ "forms" of financing.
permanent
What business activity includes the SWOT analysis?
planning
What is an important prerequisite to the budgeting process?
planning assumptions
What must the NPV be for a capital project to be favorable?
positive
The dividend ____________________ theory suggests that investors prefer instant cash to uncertain future benefits.
preference
In break-even analysis, the contribution margin is defined as
price per unit minus variable cost per unit.
What decisions are supported by break-even point analysis?
pricing decisions
The EPS ratio is calculated by:
profit for the year / number of shares outstanding
You can find the revenue break-even point by dividing fixed costs by the ___________________.
profit-volume ratio
The ___________________________ index is a capital budgeting technique that shows the ratio of the present value of cash inflow to the present value of the cash outflow, discounted at a predetermined rate of interest.
profitability
Which ratios measure the overall operating effectiveness of a business?
profitability ratios
What do planning assumptions help to formulate?
projected financial statements
Which of the following is an example of variable costs?
purchases
There are four categories of performance standards: time, output, costs, and __________________________ .
quality
In capital budgeting, annual cash inflows are considered ____________________ .
receipts
To speed up cash receipts in order to make assets productive, a business can use ____________________ in locations where customers pay their accounts, which are subsequently transferred to the seller's bank account.
regional banks
zero-based budgets
requires every budget dollar to have justification
The ___________________________ value of the assets at the end of the life of a project represents the sale of an asset or a business.
residual
What does a company's overall performance measure?
resource utilization
The statement of _________________________ shows the amount of money kept by a company after paying dividends to its shareholders.
retained earnings
What is an example of an internal source of funds?
retained earnings
What is a key factor for determining whether a credit policy should be changed?
return on investment
Which of the following is a measure of returns?
return on revenue ratio
Planning assumptions related to ________________________________ shown on the statement of income deal with objectives related to volume, price and product mix.
revenue
What is the denominator in the cash conversion efficiency ratio?
revenue
How is gross profit calculated?
revenue less cost of sales
______________________ capital investors provide equity financing to small or untried business, thereby absorbing much of the hazards that commercial lenders are unwilling to shoulder.
risk
What type of financing includes subordinated debts?
risk capital financing
Operating budgets include the __________________________ budget which is done by marketing organizations.
sales
___________________________ the environment is a method used during the planning process for the purpose of pinning down planning assumptions or premises.
scanning
Which controls help to monitor performance while work is being done?
screening controls
What is often used to finance working capital accounts?
self-liquidating loans
What costs change disproportionately with changes in output levels?
semi-variable costs
Which of the following is a current liability?
short-term borrowings
What is included in cash in addition to a company's cash holdings?
short-term deposits
What do money markets deal with?
short-term securities
projected statement of financial position
show's the company's future levels of current and non assets/liabilities and equity
projected statement of income
show's the company's future revenue, costs, and profit performance
capital budget
shows anticipated expenditures for non-current assets such as equipment or machinary
cash budget
shows how much money will be available/required
"Institutions" such as banks and private investors that provide funds to a business are classified as ___________________________.
sources of financing.
The statement of changes in financial position is also known as the _____________________.
statement of cash flow
On the ___________________________, investors look at the book value of a company's assets and how much the business owes to creditors on these assets.
statement of financial position
Projected financial statements include the projected statements of income, the projected statements of cash flows and the projected ____________________________________ .
statements of financial position
Which of the following is an example of risk capital long-term financing?
subordinated debt
. Changes in product mix can have an impact on the level of the break-even point.
t
A business plan is a document that gives a complete picture about an organization's goals, plans, operating activities, financial needs and financing requirements.
t
A capitalization rate is a discount rate used to find the present value of a series of future receipts.
t
A firm's collection policy, i.e., the procedures it follows to collect accounts receivable, plays an important role in keeping its average collection period short, although too strict a collection policy can reduce profits due to lost sales.
t
A going-concern value of a business is a more relevant approach for determining a price tag for an ongoing business because it deals with the ability or capacity of a business to produce a stream of after-tax cash flows.
t
A line of credit and seasonal loan is required to finance the flexible component of the current asset accounts.
t
A periodic count of every item in stock is the first, fundamental principle of sound inventory management.
t
Although risk and capital decisions are closely related, it is important however to make the distinction between interest and risk.
t
An effective way to achieve growth is by improving the ratio between profit for the year and revenue.
t
Both, current assets and non-current assets should be reassessed in order to determine the market value of a business.
t
Break-even analysis can be applied in any type of business as long as there is revenue and fixed costs.
t
Break-even analysis can be applied to any types of businesses such as retail stores, service centres, movie theatres or manufacturing plants.
t
Budgeting involves setting standards that are central to managerial accountability.
t
Calculating the weighted average cost of capital takes into account sources of financing such as share capital and retained earnings.
t
Cash break-even analysis eliminates the depreciation expense and other non-cash charges from fixed costs.
t
Cash management is usually assigned to a high-level manager in a business, usually the chief financial officer (CFO) or the treasurer.
t
Cost of sales assumptions have to do with fixed and variable costs, raw materials and reliability, and production operations.
t
Credit policies are decisions made regarding the extent of credit that should be extended to customers.
t
Current-value accounting is an accounting method used to restate assets on financial statements in terms of what the assets are worth in the company's books, that is, the original cost less its accumulated depreciation.
t
Financial leverage is a technique used to determine the most favorable capital structure (debt versus equity).
t
Float means the amount of funds tied up in cheques that have been written but are still in process and have NOT yet been collected.
t
Gross profit is the difference between revenue and cost of sales.
t
Holding costs rise as the size of inventory increases.
t
In capital budgeting, discount factors rather than compound factors are normally used.
t
In capital budgeting, the "residual value" represents the sale of an asset or a business at the end of its physical life.
t
In some industries, the practice of stretching payables is common.
t
Incremental budgeting has two key flaws: first, it is difficult to relate the budget to specific goals and plans and second, corporate priorities may get lost in the shuffle.
t
Inflation represents a price-rise characteristic of periods of prosperity.
t
Just-in-time inventory management technique ensures that suppliers get their merchandise just when it is needed.
t
Lease payments are tax deductible and represent an important advantage that favors leasing over buying.
t
Leverage can be explained as the percentage of debt a business uses to finance the purchase of assets.
t
One of the C's of credit is "capital", which has to do with financial structure, that is, the mix between equity and debt.
t
One way to increase profitability is to reduce the time lag between the date money is mailed by customers and the date it is deposited in a company's bank account.
t
Operating leverage is a financial technique used to analyze the relationship between fixed costs and variable costs.
t
Operating managers usually prepare operating budgets.
t
Ordering costs is a category of costs associated with the acquisition of goods.
t
Planning assumptions are boundaries upon which priorities, goals, plans, budgets and financial projections are based.
t
Planning assumptions can help individuals prepare the projected financial statements.
t
Planning is the process of formulating goals and outlining actions plans to realize the goals.
t
Price-level accounting is an accounting method used to restate assets on financial statements in terms of current purchasing power (inflation).
t
Pricing and automation decisions can be made more clearly with break-even analysis.
t
Private investors and venture capital firms are individuals or groups of professionals with a vast amount of experience, contacts, and business kills that can help a business become more profitable.
t
Product budgets and program budgets that present data differently and in some detail help to complement the operating budgets.
t
Prompt completion and transmission of an invoice does NOT necessarily improve the cash cycle and profitability.
t
Relevant costs are costs alternatives that managers can choose from to operate their business.
t
Risk capital investors provide equity financing to small and untried enterprises, thereby absorbing much of the risk that commercial lenders are unwilling to shoulder.
t
Sensitivity analysis is a technique that shows to what extent a change in an investment decision impacts on the break-even point.
t
Short-term borrowings can be obtained from suppliers and chartered banks.
t
Some of the characteristics of capital investments include the following: nature of commitment is durable, expenditure can be capitalized, has a significant financial impact.
t
The "book value" of a business can be determined to some extent by its financial statements.
t
The cost of financing calculation reveals how much a business is charged to finance the assets that are shown on a company's statement of financial position.
t
The dividend irrelevance theory states that dividend payment has little effect to share price.
t
The faster the inventory turns over, the lower the investment in inventories.
t
The internal rate of return is a time value of money technique that can determine how much a buyer is willing to pay for a business.
t
The liquidation value of a company's assets is what they are worth if sold separately or under duress.
t
The more important factors that will influence someone to lease or buy an asset are: interest rate, residual value, obsolescence and the risk factors.
t
The objective of all control systems (preventive, screening, and feedback) is the same: to help managers gauge performance and make corrections to reach their goals.
t
The payback method measures time risk and NOT risk conditions.
t
The purpose of comparing ROA to the weighted average cost of capital is to ensure that the return generated from a particular investment justifies the cost and risk.
t
The rule of 72 is a quick way to calculate the approximate number of years it takes for someone's investment to double when compounded annually at a particular rate of interest.
t
The sustainable growth rate can be defined as the rate of increase in revenue a company can attain without depleting financial resources, excessive borrowing and the issue of new capital stock
t
The two more important specific rights of shareholders include: (1) they can vote in a manner prescribed by the corporate charter; and (2) they can sell their share certificates to other interested parties.
t
To calculate the present value of a series of even receipts, one can use the annuity tables.
t
To calculate the value of publicly traded companies, analysts would have to use the number of common shares issued and the share market price.
t
To establish an appropriate credit policy, the credit manager must examine the changes in the level of profit generated as a result of a relaxed credit policy and the extra investment in inventories and trade receivables.
t
To make budgeting an effective management exercise, it is important for the controller to prepare budgeting guidelines and to communicate them to operating managers.
t
Trade discounts can help a company's cash flow at the expense of earnings and may very well be a good tradeoff.
t
Usually, the weighted average cost of capital is compared to the internal rate of return (IRR) in order to accept or reject capital budgeting projects.
t
When total costs meet revenue, it is the point where break-even is achieved.
t
Zero-based budgeting is based on the premise that every budget dollar requires justification.
t
Plans can be grouped under three categories: strategic, __________________________ and operational.
tactical
Which of the following is an effectiveness indicator?
telephone response time
What is a typical form of intermediate financing?
term loans
What does economy determine?
the acquisition of resources
Which report does the credit manager examine to spot changes in customer-paying behaviour?
the aging of trade receivables
What does a company's overall performance measure?
the assets' current purchasing power
If the price per unit decreases because of competition but the cost structure remains the same
the break-even point rises.
What does vertical analysis help investors to determine on a company's statement of financial position?
the company's capital structure
What does vertical analysis help investors to determine on a company's statement of income?
the company's operating efficiencies
Who is responsible for coordinating the operating budgets and preparing the master budget?
the controller
What key element(s) in the statement of income will investors examine before buying a business?
the cost of sales
What is most likely to have a ratio of 1.86 times?
the current ratio
What is the internal rate of return?
the discount factor that makes the NPV equal zero
What is required to calculate the net present value?
the discounted cash inflow and the cash outflow
What theory states that dividends have little effect on share price?
the dividend irrelevance theory
What does the cash conversion efficiency ratio measure?
the efficiency with which a business converts revenue to cash flows within its operations
A company wants to invest more money in its advertising budget. What is added to the additional advertising expense to calculate the new break-even point?
the existing fixed costs
Which ratio measures a business's ability to adequately service its interest and leasing expenses?
the fixed-charges coverage ratio
What is the amount to which a payment or series of payments will grow by a given future date when compounded by a given interest rate?
the future value
In which interest table are the factors 1.100 and 1.685 found?
the future value of a single sum table
What is the cost of capital usually compared to?
the internal rate of return
One of the major characteristics of long-term capital sources that investors examine when raising funds is cost of ____________________________ which has to do with the charges associated with the "underwriting and distribution" of new shares or bonds.
the issue
What does the days of working capital measurement calculate?
the number of days of working capital a business holds to meet the average daily requirements of sales
What is NOT considered when projecting a company's cash flow?
the opening cash balance
What is the cash conversion cycle?
the periodic transformation of cash through working capital accounts and back to cash
If an accountant prepares a plan that shows revenue increasing by 10% and profit for the year increasing by 7.5%, what will be the impact on the company's leverage?
the plan demonstrates an unfavourable combined leverage because profit for the year increases less than revenue
What do interest tables NOT include?
the present value of a future value (simple interest)
In which interest table is the factor 0.9090 found?
the present value of a single sum table
What is market value?
the price at which a business or asset can be sold
What is the matching principle?
the process that relates financial needs to financing requirements
What is included as an ordering cost in the EOQ formula?
the processing of an invoice
Which relationship is highlighted when calculating a company's break-even points?
the relationship between revenue and costs
What is the cost of financing usually compared to?
the return on assets
What rough estimate is provided by the payback reciprocal?
the return on investment of a capital project
What does the following formula calculate? Fixed Costs/PV
the revenue break-even point
Which of the following is considered a cash inflow?
the sale of inventory
Which of the following is an operating budget?
the sales budget
Which projected financial statement should be prepared first?
the statement of income
Which statement contains revenues and expenses?
the statement of income
Which of the following is NOT a business valuation method?
the statement of income value method
Which of the following is a classic example of market value?
the stock market
What does the payback method measure?
the time needed for the cash outflow of a project to be totally recovered by cash inflows
Who usually has responsibility for cash management?
the treasurer
Which of the following is a quantitative planning assumption?
the unemployment rate
What does the internal rate of return calculation NOT take into consideration?
the weighted average cost of capital
What structure does stability refer to?
the working capital structure
Will an entrepreneur starting up a business with very little cash be able to use or benefit from financial leverage?
they will NOT be able to benefit from financial leverage because banks will be unwilling to lend them money
In controlling, a(n) __________________________ standard determines how many minutes or hours it is required to perform a specific task.
time
What does float refer to?
time lag
What two key concepts are involved in investment decisions?
time value and cash
What is the goal of managing working capital?
to accelerate the cash flow cycle
Why do managers analyze financial statements?
to examine the past to gauge past performance and use that information to enhance future performance
What is the purpose of preparing a business plan?
to force managers to be realistic about their projections
What is the ultimate objective of financial management?
to maximize shareholder value (ROA is higher than the cost of financing)
What is the cost of capital compared to for decision making?
to the internal rate of return
A dollar earned ____________________ is worth less today.
tomorrow
What element is most often used to calculate Altman's Z-score?
total assets
What measures the productivity level of a business?
total assets turnover
A company sells 10,000 units at a cost of $10 per unit for a total of $200,000 in costs. The same company sells 20,000 units at the same cost of $10 per unit for a total of $300,000 in costs. What are these costs called?
total costs
Break-even point is the level of production where revenue equals ___________________.
total costs
The only element of the current liabilities that a buyer may be willing to purchase are the ______________________________ .
trade and other payables
Which of the following is shown in the "adjustments in non-cash working capital accounts"?
trade and other payables
What term refers to supplier credit?
trade credit
Which of the following is most similar to accruals such as salaries and taxes payable?
trade credit
What does a factoring company finance?
trade receivables
What is involved with the average collection period?
trade receivables
What are trade and other payables deducted from to calculate net working capital within the framework of business evaluation?
trade receivables and inventories
Which of the following is included in investment securities?
treasury bills
Which of the following ensures that the debits equal the credits?
trial balance
preventive controls
used to guide actions to desired results
feedback controls
used to help focus on variations of past performance
screening controls
used to help monitor performance while work is being performed
Costs that fluctuate directly with changes in volume of production are referred to as _______________________ costs.
variable
Sales are at 2,000 units at a cost of $20,000, then increase to 4,000 units at a cost of $40,000, and finally reach 6,000 units at a cost of $60,000. What are these costs called?
variable costs
The reason for comparing the ROA to the _____________________________ is to ensure that the return on assets generated from a particular investment justifies the costs.
weighted average cost of capital
When does goodwill appear on a statement of financial position?
when a business is purchased for more than the fair value of its net assets
When is a favourable operating leverage achieved?
when a change in revenue generates a larger change in EBIT
When does the liquidation value approach show the worth of specific assets?
when assets are sold under duress
When is the profit break-even point achieved?
when the contribution margin covers all costs and the profit objective.
When should a company take advantage of a supplier's offer of a trade discount?
when the cost of bank borrowing by the company is less than the trade discount
Where does the break-even point occur on a break-even chart?
where the revenue line intersects the total cost line
Which accounts show the cash flow changes in the "adjustments in non-cash working capital accounts"?
working capital accounts other than cash