Ch. 11
Revenue, costs
When using the graphic approach to break-even analysis, the entrepreneur must plot total _____ and total _____. Select one: a. costs; income b. revenue; costs c. income; expenses d. expenses; revenue
. The product should not be profitable if expected sales do not exceed the lower break-even point.
Which of the following is a decision rule for handling questionable costs? Select one: a. Decide which questionable costs to ignore. b. The product should not be profitable if expected sales do not exceed the lower break-even point. c. If expected sales don't exceed the higher break-even point, the product should be profitable. d. If expected sales are between the two break-even points, the questionable costs behavior needs to be dropped.
True
Financial information pulls together all the information presented in the other segments of the business. Select one: True False
Fixed, variable
In handling questionable costs, the cost in question is substituted first as a _____ cost and then as a _____ cost. Select one: a. variable; total b. fixed; variable c. mixed; fixed d. total; fixed
Material purchases budget
A manufacturing firm needs to establish which of the following budgets? Select one: a. profit budget b. cost budget c. accounting budget d. material purchases budget
Internal rate of return
A method that discounts future cash flows at a rate that makes the net present value of the project equal to zero is known as the Select one: a. payback method. b. internal rate of return. c. break-even point. d. net present value.
False
Accounts receivable turnover measures the rate at which accounts receivable are being collected on a monthly basis. Select one: True False
True
After the operating budget has been prepared, an entrepreneur can proceed to the next phase of the budget process, which is the cash-flow budget. Select one: True False
10
An inventory turnover ratio of 9.81 means that the average dollar volume of inventory is used up almost _____ time(s) during the fiscal year Select one: a. 1.2 b. 100 c. 10 d. 1
how many projects, in total, should be selected.
Capital budgeting is designed to show Select one: a. how many projects, in total, should be selected. b. how to evaluate projects based on rates of return. c. which of several mutually exclusive projects should be selected. d. which project is most profitable.
True
Capital investments or capital expenditures are expected to last beyond one year. Select one: True False
more favorable in its short-term effects on earnings.
Many companies continue to use the payback method because it is Select one: a. a longer loan program. b. an immediate cash payment. c. more favorable in its short-term effects on earnings. d. inexpensive to use.
False
Pro forma statements show the firm's present financial position. Select one: True False
Vertical and horizontal
Ratio analysis can be applied from which of the following directions? Select one: a. horizontal only b. vertical only c. external and internal d. vertical and horizontal
True
The cash-flow budget provides an overview of cash inflows and outflows for the budget period. Select one: True False
False
The first step in the preparation of the cash-flow budget is the identification and timing of cash outflows. Select one: True False
Complex
The process of preparing a pro forma balance sheet is Select one: a. simple. b. done first. c. complex. d. optional.
Cost of capital
The rate used to adjust future cash flows to determine their value in present period terms is the Select one: a. rate determined by the ratio of assets to liabilities. b. cost of capital. c. current interest rate. d. present value.
False
The traditional accounting equation is: Assets + Liabilities = Owners' Equity. Select one: True False
False
Vertical analysis is the application of ratio analysis to the many sets of financial statements. Select one: True False
pulls together all the information presented in other segments of the business.
Financial information is important to entrepreneurs because it Select one: a. doesn't follow any clear process about the financial operations. b. answers all questions about the business and the entrepreneur. c. pulls together all the information presented in other segments of the business. d. takes away the assumptions concerning business operations.
Is a way to anticipate conditions
From an entrepreneur's standpoint, financial statement analysis is useful because it Select one: a. is a way to anticipate conditions. b. only displays a series of various ratios. c. is good for predicting the future. d. is helpful in creating the R&D budget
True
Horizontal analysis looks at financial statements and ratios over time. Select one: True False
12
How many months of the year should be illustrated in the first pro forma income statement? Select one: a. 3 b. 6 c. 12 d. 8
True
The first type of expense to be estimated when preparing an operating budget is cost of goods sold. Select one: True False
Is worth more than a dollar in the future
The net present value method works on the premise that a dollar today Select one: a. is worth less than a dollar in the future. b. is worth more than a dollar in the future. c. is worth the same in the future. d. cannot be measured in future dollars.
(SP - VC)S - FC
Which of the following is the contribution margin approach formula? Select one: a. SP(FC - VC)S b. (SP - VC)S - FC c. (FC - VC)S - SP d. FC = (SP - VC)
Assets = Liabilities + Owners' Equity
Which of the following is the traditional accounting equation that verifies the accuracy of the entrepreneur's balance sheet? Select one: a. Assets + Liabilities = Owners' Equity b. Assets = Liabilities - Owners' Equity c. Assets + Owners' Equity = Liabilities d. Assets = Liabilities + Owners' Equity
Net present value
Which of the following works on the premise that a dollar today is worth more than a dollar in the future? Select one: a. payback period b. net profit margin c. net present value d. internal rate of return
Maximize the value of the firm
The principal objective of capital budgeting is to Select one: a. minimize the risks of the firm. b. optimize the number of project requests. c. maximize the value of the firm. d. maximize the assets of the firm.