ch. 11 kuratko quiz

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

False

In handling questionable costs, the cost in question is substituted first as a _____ cost and then as a _____ cost.

a fixed, a variable

Financial information is important to entrepreneurs because it

pulls together all the information presented in other segments of the business

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

ratio analysis

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

Which of the following is the contribution margin approach formula?

(SP-VC)S-FC

Which of the following is the traditional accounting equation that verifies the accuracy of the entrepreneur's balance sheet?

Assets=liability+stockholders equity

_____ analysis looks at financial statements and ratios over time.

Horizontal

Which of the following is not one of the most common methods used in capital budgeting?

an anticipated change in the net income method

Which of the following is the first step in the preparation of the cash-flow budget?

identification and timing of cash inflows

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

internal rate of return

The net present value method is a capital budgeting technique that helps to minimize some of the shortcomings of the payback method by

recognizing future cash flows beyond the payback period

One of the easiest capital budgeting methods to understand is

the payback method

T/F: The first type of expense to be estimated when preparing an operating budget is cost of goods sold.

True

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

True

T/F: The typical business will have cash inflows from three sources: cash sales, cash payments received on account, and loan proceeds

True

The process of preparing a pro forma balance sheet is

complex

The rate used to adjust future cash flows to determine their value in present period terms is the

cost of capital

Which of the following balance sheet ratios measures solvency?

current

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

false

T/F: Capital budgeting is used to help the entrepreneur plan for capital depreciation.

false

T/F: It is typical for a firm to prepare an operating budget but not a cash-flow budget.

false

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

false

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

false

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

false

T/F: Vertical analysis is the application of ratio analysis to the many sets of financial statements.

false

When using trend line analysis, how many periods are required?

five

Capital budgeting is designed to show

how many projects, in total, should be selected

Despite the drawbacks of the payback method, the entrepreneur should continue to use it because

it is very simple to use in comparison with other methods

A manufacturing firm needs to establish which of the following budgets?

material purchases budget

The principal objective of capital budgeting is to

maximize the value of the firm

Many companies continue to use the payback method because it is

more favorable in the short-term effects on earnings

Which of the following works on the premise that a dollar today is worth more than a dollar in the future?

net present value

A budget that is a statement of estimated income and expenses over a specified period of time is referred to as a(n) _____ budget.

operating

The last step in preparing the operating budget is to estimate

operating expenses

When using the graphic approach to break-even analysis, the entrepreneur must plot total _____ and total ____

revenue and costs

In the production budget for a manufacturing firm, the number of units needed in inventory is determined by

the sum of the desired ending inventory and the number of units to be sold.

Which of the following is not a common characteristic of financial statements?

they are complex

Which of the following statements about financial assumptions is not true?

they do not necessarily correlate with information from other parts of the business

T/F: 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.

true

T/F: Capital investments or capital expenditures are expected to last beyond one year.

true

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

true

T/F: Horizontal analysis looks at financial statements and ratios over time.

true

T/F: The first step in creating an operating budget is to prepare the sales forecast.

true

T/F: The handling questionable costs approach of break-even analysis was specifically designed for firms that have expenses that are difficult to assign.

true

A cost that changes in the same direction and proportion to changes in operating activity is a

variable cost

Ratio analysis can be applied from which of the following directions?

vertical and horizontal

In the simple linear regression analysis equation, Y = a + bx, which of the following variables represents expected sales?

y

T/F: The pro forma income statement is prepared before the pro forma balance sheet.

true

In the simple linear regression analysis equation, Y = a + bx, Yrepresents

the dependent variable