ENT 396- Ch 11

Contribution margin is the difference between the selling price and the fixed cost per unit. a. True b. False

F

Pro forma statements show the firm's present financial position. a. True b. False

F

The first step in the preparation of the cash flow budget is the identification and timing of cash outflows. a. True b. False

F

The set of assumptions on which financial projections are based have little meaning. a. True b. False

F

The traditional accounting equation is: assets + liabilities = owner's equity. a. True b. False

F

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

Fixed costs

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

Ratio analysis

A budget is one of the most powerful tools that an entrepreneur can use in planning business operations. a. True b. False

T

Break-even analysis is used to tell how many units must be sold in order to break even at a particular selling price. a. True b. False

T

Financial information pulls together all the information presented in the other segments of the business. a. True b. False

T

The cash-flow budget provides an overview of cash inflows and outflows for the budget period. a. True b. False

T

The principal objective of capital budgeting is to maximize the value of the firm. a. True b. False

T

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

balance sheet

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

cash inflows/cash outflows.

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

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

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

operating budget

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

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

zero

Capital budgeting is designed to show a. which project is most profitable. b. how to evaluate projects based on rates of return. c. which of several mutually exclusive projects should be selected d. how many projects, in total, should be selected.

how many projects, in total, should be selected.

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

maximize the value of the firm

Break-even analysis is a technique commonly used to assess the a. expected product profitability. b. rate of return on investment. c. net present value. d. total costs.

expected product profitability.

The concept of the net present value method works on the premise that a. a dollar today is worth more than a dollar in the future. b. a dollar today is worth less than a dollar in the future. c. a dollar today is worth the same 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.

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 = liabilities - owner's equity. d. assets + owner's equity = liabilities

assets = liabilities + owner's equity.

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 not do any of these.

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

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.

it quantifies all the assumptions concerning business operations