Learning Module 3

The sales price for an item that costs $10, assuming a retailer wishes to achieve a target margin of 20%, would equal: $50.00 $12.50 $12.00 $8.00

$12.50

If 2019 sales were $500,000 and 2020 sales are expected to be $545,000, the expected percentage change in sales is: -8.26% 8.26% 9% -9%

9%

_______________ is the process we use to justify the acquisition of capital assets (assets that have an expected useful life in excess of one year) or the investment in projects that support the expansion of business operations. Working capital management Percentage of sales Capital budgeting Section 179 analysis

Capital budgeting

Primary market research is performed to provide insight regarding the size and complexity of an industry, the number and nature of its participants, and the economic, political, market, and other factors that affect it. True False

False

The payback method determines the actual rate of return of an investment. Its calculation considers the time value of money. True False

False

When performing capital budgeting analysis, the business owner must determine four types of costs. _______________ are the costs that will be incurred before a new asset or project can begin to provide its intended benefit. Operational costs Start-up costs Working capital costs Tax costs

Start-up costs

A schedule of start-up costs, like many schedules the entrepreneur will create, begins with a list of words, rather than numbers. True False

True

As a business moves forward in time and becomes more mature, there will generally be more asset and liability line items included on the business's balance sheet. True False

True

Every time the pro forma income statements (or early pro forma balance sheets) are updated with new information, every existing pro forma balance sheet, reconciliation of cash, reconciliation of equity, and statement of cash flows dated on or after that change will also have to be updated. True False

True

Subject to a variety of limitations, Section 179 of the U.S. tax code allows businesses to immediately expense up to 100% of the cost of a fixed-asset purchase for tax purposes when that fixed-asset purchase meets certain criteria. True False

True

The amount added to the cost of a good to determine its sales price is called markup. True False

True

The payback method favors investments with a quick return over those with the largest overall return because it doesn't consider the value of the cash flows that occur beyond the payback period. True False

True

The percentage of sales method is a technique used to develop a pro forma balance sheet based on the fact that the assets and liabilities of a company typically vary with its sales. True False

True

When making a decision using net present value (NPV), if the NPV is positive, make the investment. If the NPV is negative, don't make the investment. True False

True

When performing capital budgeting analysis, a benefit must take into account the income taxes that must be paid on it before it can be considered a true benefit. True False

True

The percentage of sales method involves a 7-step process, the first step of which is: a) calculating or determining the expected percentage increase or decrease in sales from the previous year to the current year b) incorporating into the preliminary balance sheet those assumptions and expectations about the future of the company about which we are confident c) calculating subtotals and totals on the preliminary balance sheet d) creating a reconciliation of cash and a reconciliation of equity

a) calculating or determining the expected percentage increase or decrease in sales from the previous year to the current year

When performing capital budgeting analysis, the business owner must determine the benefits associated with the investment or project under consideration. Examples of such benefits include all of the following except: a) the amount of any increase in productivity b) the amount of any decrease in income taxes to be paid c) the amount of any decrease in cash flow d) the salvage value associated with any fixed-asset purchase

c) the amount of any decrease in cash flow

Which of the following expenses is more likely to be a variable expense? insurance rent materials going into the final product administrative salaries

materials going into the final product

The stage of the pro forma which relates to the period before the start-up sells any products is called: early beginning pre-revenue post-seed

pre-revenue

This type of research relates to direct interviews and surveys: primary secondary institutional interview

primary