CH 11 HW

T/F A budget is one of the most powerful tools that an entrepreneur can use in planning business operations.

T

T/F Break-even analysis is used to tell how many units must be sold in order to break even at a particular selling price.

T

T/F Financial information pulls together all the information presented in the other segments of the business.

T

T/F The cash-flow budget provides an overview of cash inflows and outflows for the budget period.

T

T/F The principal objective of capital budgeting is to maximize the value of the firm.

T

The concept of the net present value method works on the premise that

a dollar today is worth more than a dollar in the future.

The traditional accounting equation that verifies the accuracy of the entrepreneur's balance sheet is

assets = liabilities + owner's equity.

Which of the following is a form of the pro forma statement?

balance sheet

Capital budgeting is designed to show

how many projects, in total, should be selected.

Financial information is important to entrepreneurs because: it pulls together all the information presented in other segments of the business and

it quantifies all the assumptions concerning business operations.

The principle objective of capital budgeting is to

maximize the value of the firm.

A budget that is a statement of estimated income and expenses over a specified period of time is referred to as an

operating budget

Comparing financial numbers in order to make decisions is referred to as:

ratio analysis.

Contribution margin is the difference between

selling price and variable cost per unit.

When using the internal rate of return method, the future cash flows are discounted at a rate that makes the net present value equal to

zero

Pro Forma Statements

- Are projections of a firm's financial position over a future period (pro forma income statement) or on a future date (pro forma balance sheet). - Using beginning balance sheet balances, they depict projected changes on the operating and cash-flow budgets which are added to create projected balance sheet totals.

T/F Contribution margin is the difference between the selling price and the fixed cost per unit.

F

T/F Pro forma statements show the firm's present financial position.

F

T/F The first step in the preparation of the cash flow budget is the identification and timing of cash outflows.

F

T/F The set of assumptions on which financial projections are based have little meaning.

F

T/F The traditional accounting equation is: assets + liabilities = owner's equity.

F

The cash flow budget describes

cash inflows/cash outflows.

A variable cost

changes in the same direction and in direct proportion to changes in operation activity

A fixed cost

does not change in response to changes in activity for a given period of time.

Break-even analysis is a technique commonly used to assess the

expected product profitability.

A key concept in developing an expense budget is that of

fixed costs