Study.com Financial Management Chapter 10

add, subtract

To determine the ending cash balance, start with the beginning cash balance, then _____ cash inflows and _____ cash outflows. a. estimate, add b. subtract, add c. add, subtract d. add, estimate

Preparing multiple budget scenarios, adjusted for different volumes

What is flexible budgeting? a. Preparing a budget with a flexible range for each value rather than a specific item b. A budget with a flexible time frame in which to achieve the results c. Preparing multiple budget scenarios, adjusted for different volumes d. A budget with a flexible range for each item rather than a specific value

Financial Assessment

What is the final step in developing a business financial plan? a. All of these are correct b. Completing the financial worksheets c. Completing the financial statements d. Financial Assessment

Senior management prepares a high level-plan, the high-level plan is allocated among the departments, managers prepare detailed plans that match their allocation.

What is the process for preparing a top-down budget? a. Managers prepare detailed plans, the plans are consolidated, the totals are approved by senior management. b. Senior management prepares a high level-plan, the high-level plan is allocated among the departments, managers prepare detailed plans that match their allocation. c. Prior year actuals are used for the current year budget. d. Managers prepare detailed plans, managers present their plans and expected results for approval, approved budgets are consolidated to determine the company-wide budget.

Mortgage Loan

What type of loan is made to a borrower to purchase a house? a. Revolving Loan b. Credit Card Loan c. Mortgage Loan d. Personal Loan

Promissory note

When taking out a loan, you are required to sign a legal document promising to repay it. What is this document called? a. Note of Promise b. Promissory contract c. Promise to Pay d. Promissory note

Use of credit that has a maturity date of greater than one year

Which of the following BEST defines long-term financing? a. Use of credit for a project that lasts at least six months b. Use of credit that has a maturity date of greater than one year c. Use of credit that has a maturity date of at least six months d. Use of credit for a project that lasts over a year

All of these statements are advantages of top-down budgeting.

Which of the following is NOT an advantage of top-down budgeting? a. All of these statements are advantages of top-down budgeting. b. The budget is developed based on top-management targets and expectations. c. Top-down budgets focus management attention on efficiency, since they receive a total and must figure out how to achieve their department's business objectives within that amount. d. Managers have the opportunity to come up with creative ways to meet their budget targets and meet company objectives.

Managers receive an allocation they need to live with, and it may not be reasonable for their function.

Which of the following is a disadvantage of top-down budgeting? a. The budget is based on prior year costs, and may not be reasonable for the current year situation. b. Managers have to develop multiple scenarios, based on different possible sales volume levels. c. Managers receive an allocation they need to live with, and it may not be reasonable for their function. d. Managers have to justify every expenditure, which can be time-consuming.

A sales budget

Which of the following is usually the first budget? a. A draft budget b. A sales budget c. An administrative budget d. A production budget

All of these answers are correct.

Why do we calculate variances between actual activity and the budget? a. To determine which areas had better results than planned and which had worse results. b. To develop action plans to improve areas which aren't performing as well as anticipated. c. All of these answers are correct. d. To understand which accounts have the largest impact on our financial results.

It does not take into account the time value of money.

Why is payback period NOT the best capital budgeting technique? a. It overlooks the internal rate of return of the investment. b. It excludes all the additional expenses from the calculation. c. It ignores the initial investment. d. It does not take into account the time value of money.

Because it is important to consult managers on what can be done to increase productivity

Why is receiving feedback for the budget important? a. It isn't; the budget is an independent process b. It isn't; somebody needs to take responsibility if the budget fails c. Because it's important to ask the CEO if that many products can realistically be sold d. Because it is important to consult managers on what can be done to increase productivity

They gain the capital from selling the stock but do not lose control of the company.

Why might a company choose to sell preferred stock versus common stock? a. They can get their money faster with preferred stock. b. They have a higher limit of shares they can sell with preferred stock. c. They gain the capital from selling the stock but do not lose control of the company. d. Common stock has a higher yield, which can lower the capital gained by the company.

It won't be a problem because it's only a variance to the budget that should be reported so they can be more accurate next year.

A manager has reported that he will have to go a little bit off budget in order to be able to order some more office supplies. How will the accounting of the company respond to that? a. It will cause a problem because nothing more than what is allocated in the budget should be used. b. It will cause them huge problems because they will have to start the entire budget from scratch. c. It won't be a problem because not all of the costs of the company have to be in the budget, he shouldn't even report it to accounting. d. It won't be a problem because it's only a variance to the budget that should be reported so they can be more accurate next year

materials purchased and rent payments

Examples of cash outflows include: a. accrued liabilities and deferred assets b. loan balances and accrued interest c. materials purchased and rent payments d. accounts receivable and revenue

future

Financial goals are targets, usually driven by specific _____ financial needs. a. personal b. current c. past d. future

the resources are allocated to maximize profitability

Financial planning can best be defined as a process for making sure that _____. a. the company is solvent b. the company is liquid and has paid all of its investors' dividends c. the resources are allocated to maximize profitability d. the cash flow of the company is positive

Cash inflows

How are collections from current and past sales reflected on a cash budget? a. Cash inflows b. Cash outflows c. Cash collections d. Accounts receivable

Both must comply to securities laws

How are raising money through equity and through debt similar for a business? a. Both provide an ownership interest in the company b. Both must comply to securities laws c. Investors for each are entitled to a share of the company's profits d. Investors for each are considered creditors of the company

Issue stock

How can a corporation raise equity capital? a. Issue stock b. Issue bonds c. Issue securities d. Obtain a loan by using the equity in business assets as collateral

We use subtraction - it's the difference for a specific account between the budget and the actual amounts.

How do we calculate variances to budget? a. We use division - it's a ratio of budget divided by actual expense. b. We use multiplication - it's the budget amount multiplied by the actual for the month. c. We use addition - it's the sum of the budget and actual amounts for the month. d. We use subtraction - it's the difference for a specific account between the budget and the actual amounts.

Yes, as long as we are using the correct scenario for our actual volume.

In a flexible budget, are costs below budget a good thing? a. Yes, costs below budget are always a good thing. b. Yes, as long as we are using the correct scenario for our actual volume. c. It is difficult to determine without analyzing changes in other variables. d. No, costs below budget are a poor result.

She DOES need to because she must ensure that they are done in accordance regulations and with the plan, and for possible SEC reports.

After allocating the resources, a company CEO is trying to control and monitor the acquisition, allocation and utilization of the financial resources. Should the CEO even perform financial control? a. She DOES need to because she needs to determine if a particular venture is financially viable. She does NOT need to because the performance of the company in the next quarter is a far better indicator than controlling financial resources that are very difficult to track. She DOES need to because she must ensure that they are done in accordance regulations and with the plan, and for possible SEC reports. She does NOT need to because she should be focusing on preparing a new budget.

Secured bank loan

Barry takes out a 12 month loan from a bank to buy some new office equipment. The bank requires that Barry put up the equipment he is purchasing as collateral. What type of credit arrangement is involved? a. Secured bank loan b. Line of credit c. Trade credit d. Unsecured bank loan

Compare actual figures to the three capacity budgets then create a new budget based on the capacity budget

Bob typically manufactures 10,000 units. He creates 3 budgets. One at 80% of manufacturing capacity, one at 100%, and one at 120%. At the end of the year, what will Bob do? a. Use only actual data and create a new budget b. Use the average of the three budgets to create a new annual budget c. Use the highest capacity budget to create a new annual budget d. Compare actual figures to the three capacity budgets then create a new budget based on the capacity budget

critical

Developing a financial plan is _____ to/for the success of any organization. a. optional b. detrimental c. ineffectual d. critical

4 years

Given the following cash flows: Initial investment at Time 0: $400,000 Net cash inflows: Time 1: $20,000; Time 2: $70,000; Time 3: $110,000; Time 4: $200,000; Time 5: $400,000. (Please note that Time 0 is the start of year 1 and Time n is the end of Year n - for example Time 5 is the end of year 5.) What is the Payback period? a. 3 years b. 2 years c. 4 years d. 5 years

They must have very good credit.

How do borrowers qualify for an unsecured loan? a. They must have very good credit. b. They must have paid off a loan before. c. They must be a relative of someone working at the financial institution. d. They must borrow a lot of money.

Cash budgets allow management to evaluate the use of excess funds.

How does a cash budget influence management decisions? a. Cash budgets allow management to estimate their returns on investments. b. Cash budgets allow management to evaluate the use of excess funds. c. Cash budgets allow management to decrease cash outflows. d. Cash budgets allow management to eliminate shortages in funds.

You are charged interest on any debt you are currently paying

How does interest detract from your financial goal? a. Interest is only charged on late payments b. You can earn interest in a savings account c. You are charged interest on any debt you are currently paying d. Interest compounds and is needed for future value of money

Scenarios are developed based on different sales levels, with costs adjusted for the change in volume.

How is a flexible budget developed? a. Budget items are given ranges rather than specific values, and managers are asked to keep actuals within the range. b. Scenarios are developed based on different sales levels, with costs adjusted for the change in volume. c. A static budget is developed, and then all lines are adjusted by a flat percentage. d. Values are adjusted based on the whims of management.

A secured loan involves collateral and an unsecured loan does not.

How is a secured loan different from an unsecured loan? a. A bank is guaranteed to be completely paid with a secured loan but not with an unsecured loan. b. A secured loan involves collateral and an unsecured loan does not. c. A secured loan is personally guaranteed and an unsecured loan is not. d. Secured loans have a higher limit on the amount of debt that can be accrued, while unsecured loan can go only up to $1,000,000.

A stock offer

John is the owner of a small IT company. In exchange for a financial investment, he gave his friend Katerina 10% of the company. This is an example of what type of financing? a. A dividend b. A secured commercial loan c. An offering of debentures d. A stock offer

It is the most practical and convenient way.

Kevin is an investment banker who wants to wine and dine with prospective clients. He may not have all of the cash he requires to pay. Why should he use a credit card? a. It is the most practical and convenient way. b. He cannot get a line of credit for an expensive lunch. c. It will allow him to get the largest sum of money. d. It is the only way he can get money in less than a week.

It shouldn't have how many products his company expects to sell.

Mark from accounting has prepared a budget that has the salaries of all of the workers, rent and office utilities that are essential to the company, as well as how many products his company expects to sell. Why is this NOT an example of an administration budget? a. It should have the price of the products of the company per unit. b. It shouldn't have the salaries of the workers. c. It shouldn't have how many products his company expects to sell. d. It shouldn't have the rent and office utilities.

No, because she still owes interest

Neris takes out a loan for $100,000 to buy a house. She makes 25 payments of $4,000 and asks for the title (ownership papers) to be placed into her name. Will Neris receive the title and why? a. No, because she still owes interest b. Yes, because she has paid $100,000 c. Yes, because more than 75% of the principal is paid d. No, because she still owes payment penalties

Sue used the boat as collateral for the car loan

Sue bought a car with a loan. She stopped paying the loan on the car and the bank took her boat. Why did this happen? a. Sue used the boat as collateral for the car loan b. The bank can take anything they want to offset the remaining balance of the loan c. The loan was never recorded d. The loan was a business loan and the business owned the boat

He should because this is an example of a master budget which is a comprehensive view of the company from a financial standpoint.

Tom works in accounting, and he has to prepare a budget that will take into account all of the activities of the company. There will be a strong investment from the acquisitions department that will impact their budget but is worth less than 2% of the company's value. Should Tom wait for a new report from the acquisition's department? a. He should because anything that is worth more than 1% of the company needs to be financially disclosed. b. He shouldn't because this is an example of a master budget, and its only goal is to provide a broad overview of the company's finances. c. He should because this is an example of a master budget which is a comprehensive view of the company from a financial standpoint. d. He shouldn't because the transactions that acquisitions will perform are performed in the future and thus do not need to be included.

Determine if cash is sufficient to cover operational needs

Using cash inflows and cash outflows, what does a cash budget allow a company to do? a. Determine their debts versus income b. Monitor their bank balances over time c. Manage payroll and rent payments d. Determine if cash is sufficient to cover operational needs

Long term

Valerie intends to pay off her furniture loan in 15 months. This is an example of which type of goal? a. Long term b. Short term c. Mid-range d. Financial target

Differences between actual revenues and expenditures and planned or budgeted amounts.

What are variances in budgets? a. All of these answers are correct. b. Differences between the actual results of different departments or teams. c. Differences between different accounts in the budget. d. Differences between actual revenues and expenditures and planned or budgeted amounts.

The analysis will determine at what point the organization will cover all its expenses from the sale of goods or services

What does a break-even analysis do for an organization? a. All of these are correct b. The analysis will determine when the organization has increased production so much that equipment breaks down c. The analysis will determine at what point the organization will cover all its expenses from the sale of goods or services d. The analysis will determine when the organization has paid too much for supplies

It confirms that the objectives set are achievable from a financial point of view

What does a business plan tell managers? a. All of these are correct b. It shows how much money managers can spend on bonuses c. It confirms that the objectives set are achievable from a financial point of view d. Business managers are able to determine how to produce their products or services in an efficient way

It's an analysis that looks at the price per item and the quantity of items purchased or sold for both the budgeted and actual amount.

What is a price volume analysis? a. It's an analysis that lists out prices and quantities of items from the budget. b. It's an analysis that compares the actual selling prices of different products. c. It's an analysis that compares the quantity of items purchased or sold for different products. d. It's an analysis that looks at the price per item and the quantity of items purchased or sold for both the budgeted and actual amount.

The financial analysis process that a corporation conducts to determine if they should pursue a potential investment or project.

What is capital budgeting? a. The financial analysis process that a corporation conducts to determine if they should pursue a potential investment or project. b. The financial tracking process of figuring out where and how a corporation spends its money. c. The planning process for determining how money is saved to pay federal taxes by a corporation and still have profit. d. The amount of time it takes a corporation to save money.

Define what you want to accomplish

What is the first step in setting your financial goals? a. Develop a plan of action b. Define what you want to accomplish c. Review how much money you have now d. Set a reasonable goal

A budgeting method where management prepares a high-level budget and then department managers must create their sub-budget within the amounts allowed.

What is top-down budgeting? a. A budgeting method where budgets are only created for a few, top-level categories. b. A budgeting method where management prepares a high-level budget and then department managers must create their sub-budget within the amounts allowed. c. A method of budgeting where each department must justify every expenditure every budget cycle. d. A method of management where no budgets are prepared.

Cash flow, financial implications, investment criteria

What three factors should be taken into account when making capital budgeting decisions? a. Cash flow, financial implications, investment criteria b. Risk preference, investment return, cash flow c. Risk aversion, investment profitability, time value d. Credit availability, cash return, investment criteria

Capital budget

What type of budget provides an estimation of costs and revenue regarding a long-term business venture or fixed asset? a. Capital budget b. Materials budget c. Investment budget d. Cash budget

Issuing debentures to investors

What type of financing involves investors becoming creditors? a. Issuing stock to investors b. Obtaining a commercial loan c. Issuing debentures to investors d. Issuing preferred stock to investors

The investors are entitled to interest payments.

Which of the following is NOT a feature of a stock offered to raise equity capital? a. The investors will own a part of the company. b. The investors are entitled to interest payments. c. The stock is a security. d. The investors are entitled to share in the profits.

They hold an ownership interest in the company.

Which of the following is NOT true of investors that are issued debentures? a. They are creditors of the company. b. They hold a security. c. They are entitled to interest payments. d. They hold an ownership interest in the company.

All of these are included in a financial plan

Which of the following is included in a financial plan? a. All of these are included in a financial plan b. Financial worksheets c. Financial statements d. Cash flow projections

Forecasted unit sales

Which of the following is included in a production budget? a. Payroll taxes b. Forecasted unit sales c. Non-production overhead d. Salaries

Use of credit that must be paid back within one year

Which of the following is the best explanation of short-term financing? a. Use of credit that must be paid pack within five years b. Use of credit that must be paid back within one year c. Use of credit to finance short-term projects d. Use of money to finance short-term projects

Time value of money

Which one is NOT a technique used to make a capital budgeting decision? a. Net present value b. Time value of money c. Internal rate of return d. Payback period

Line of credit

Which type of credit involves the bank allowing a borrower to borrow money on an as needed basis up to a preset maximum? a. Line of credit b. Trade credit c. Bank loan d. Promissory note

Government grants do not have to be repaid, so they are the cheapest form of long-term financing.

Why are government grants considered the cheapest form of long-term financing? a. Government grants have to be paid off quickly, so this allows companies to be profitable. b. Government grants do not have to be repaid, so they are the cheapest form of long-term financing. c. Government grants have the lowest interest rate of all the options. d. Government grants are smaller, which means it is easier for the company to pay them off.

It involves determining whether the potential revenue of a project exceeds its anticipated costs and will increase profits.

Why is financial feasibility an important step in financial planning? a. It allows the company to gauge risk and return of a particular idea. b. It involves determining whether the potential revenue of a project exceeds its anticipated costs and will increase profits. c. It provides adequate cash flow for operations by ensuring that the company does not have to pay any more taxes than it is supposed to. d. It is a requirement of the SEC for company stock filings.

Trade credit gives buyers the flexibility to pay at a later date and does not charge interest.

Why might a business choose trade credit over other forms of short-term financing? a. The application process is simple and straight forward. b. This is favorable over a short-term loan due to the lack of collateral that is required. c. Trade credit gives buyers the flexibility to pay at a later date and does not charge interest. d. Trade credit is better than a line of credit because of the high limits it affords borrowers.

If actual volumes vary from projected, the static budget would not be accurate.

Why might a static budget give inaccurate results? a. If actual volumes vary from projected, the static budget would not be accurate. b. In cases of great profit, the static budget is not accurate. c. If the time period is not correct, the static budget would not be accurate. d. If carry-over amounts are not used, the static budget would not be accurate.

They believe it's best to develop a big picture budget and then have managers figure out how to implement that picture.

Why would a company implement top-down budgeting? a. They believe it's important to analyze every detail before finalizing a budget. b. They believe it's important to have multiple budget scenarios available, in case conditions change. c. They believe it's important to have managers develop detailed plans for their department, which are then added together to determine the total company budget. d. They believe it's best to develop a big picture budget and then have managers figure out how to implement that picture.

All of these answers are correct.

Why would we calculate price and volume differences when analyzing our results? a. All of these answers are correct. b. To determine if price or volume changes had the most impact on our actual results for the month. c. To determine if we purchased or sold more or fewer items than we anticipated during the budgeting process. d. To determine if we purchased or sold items at a higher or lower price than we anticipated during the budgeting process.

The future value

You invest $100 today, and one year from now you will have $112. What is the $112 referred to as? a. The interest rate b. The present value c. The future value d. The external value