MGMT 113 MINDTAP CH 11

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

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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.

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

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

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

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Capital budgeting is designed to show a. how many projects, in total, should be selected. b. which project is most profitable. c. projects that will increase business goals. d. how to evaluate projects based on rates of return.

how many projects, in total, should be selected.

A fixed cost a. changes in response to changes in activity for a given period of time. b. does not change in response to changes in activity for a given period of time. c. changes inversely to changes in activity for a given period of time. d. does none of these.

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 a. rate of return on investment. b. expected product profitability. c. net present value. d. total costs.

expected product profitability.

A key concept in developing an expense budget is that of a. fixed costs. b. labor costs. c. taxes. d. rent.

fixed costs

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 a. assets minus liabilities. b. assets minus owner's equity. c. assets minus (liabilities plus owner's equity). d. zero.

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.

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

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

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

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

F

The concept of the net present value method works on the premise that a. a dollar today is worth less than a dollar in the future. b. a dollar today is worth the same in the future. c. a dollar today is worth more than a dollar in the future. d. a dollar today cannot be measured in future dollars.

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

Financial information is important to entrepreneurs because: it pulls together all the information presented in other segments of the business and: a. it quantifies all the assumptions concerning business operations. b. it answers all questions about the business and the entrepreneur. c. it justifies long term commitment to the business. d. it predicts the competitive environment in which the business operates.

a. it quantifies all the assumptions concerning business operations.

The traditional accounting equation that verifies the accuracy of the entrepreneur's balance sheet is a. assets = liabilities + owner's equity. b. assets + liabilities = owner's equity. c. assets + owner's equity = liabilities. d. assets = liabilities - owner's equity.

assets = liabilities + owner's equity.

A budget that is a statement of estimated income and expenses over a specified period of time is referred to as an a. anticipated budget. b. operating budget. c. entrepreneurial budget. d. expected results budget

b. operating budget

Which of the following is a form of the pro forma statement? a. costs of goods sold b. cash flow statement c. balance sheet d. budget

balance sheet

The cash flow budget describes a. cash inflows/cash outflows. b. cash outflows/accounts receivables. c. interest income/interest expense. d. profits/costs.

cash inflows/cash outflows.

A variable cost a. changes in the same direction and in inverse proportion to changes in operating activity. b. changes in the opposite direction and in direct proportion to changes in operating activity. c. changes in the same direction and in direct proportion to changes in operation activity. d. is synonymous with labor costs.

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

The principle objective of capital budgeting is to a. minimize the risks of the firm. b. maximize the value of the firm. c. maximize the assets of the firm. d. optimize the number of project requests.

maximize the value of the firm.

Comparing financial numbers in order to make decisions is referred to as: a. ratio analysis. b. debt reduction. c. comparable fractions. d. descriptive statistics.

ratio analysis.

Contribution margin is the difference between a. selling price and fixed cost per unit. b. purchase price and variable cost per unit. c. selling price and variable cost per unit. d. purchase price and fixed cost per unit.

selling price and variable cost per unit.