Entrepreneurship Final Chapter 11

A key concept in developing an expense budget is that of

Fixed cost

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

Fixed cost, variable cost

Capital budgeting is designed to show

How many projects, in total, should be selected

The 1 step in preparation of the cash flow budget is

Identification and timing of cash inflows

What are forms of pro forma statements?

Income statements and Balance sheets

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

0

An inventory turnover ratio of 9.80 means that the average dollar volume of inventory is used up almost ___ times during the fiscal year

10

How many months of the year should be illustrated in the first pro forma income statement?

12

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

5

Concept of the net present value method on the premise that

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

1 type of budget used by the entrepreneur is

An operating budget

The traditional accounting equation verifies the accuracy of the entrepreneurs balance sheet is

Assets = Liabilities + Owner's Equity

Investments in which returns are expected to extend beyond one year are referred to as

Capital Investments

The cash flow budget describes

Cash inflows/ Cash outflows

Cash inflows come from

Cash sales

A variable cost?

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

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

Cost of capital

A fixed cost

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

The last step in preparing the operating budget us to

Estimate operating expenses

Break-Even analysis is a technique commonly used to assess the

Expected product profitability

Break-even analysis is used to assess

Expected product profitability

After the firm has forecast its sales for the budget period

Expenses are estimated

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

Ratio analysis

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 paycheck period

Loan proceeds are not directly tied to

Sales Revenue

Contribution margin is the difference between

Selling price and variable cost per unit

For a manufacturing firm, the production budget represents...

The # of units that must be produced in order to meet the sales forecast

Contained in the pro forma balance sheet is?

The cost budget

What is needed in preparing a pro forma balance sheet?

The last balance sheet prepared before the budget period began

What is a decision rule for handling questionable costs?

The product should not be profitable if expected sales do not exceed the lower break-even point

In the simple linear regression analysis equation, y = a +bx, represents....

The slope of the line

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

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

NOT true about financial assumptions

They do not necessarily correlate with info from other parts of the business

When using the graphic approach to break-even analysis, the entrepreneur must plot?

Total revenue and total costs

Ratio analysis can be applied from what?

Vertical and horizontal

Many companies continue to use the payback method. It is

More favorable in its short-term effects on earning

A budget that is a statement of estimated income and expenses over a specified period of time is referred to as an?

Operating Budget

A manufacturing firm needs to establish which budgets?

A material purchases budget

More established ventures will use a sales forecast model where the estimation of current sales will increase a certain % over the prior period's sales. This % is based upon

A trend line analysis

The contribution margin approach formula is

FC = (SP - VC)S

Method that discounts future cash flows at a rate that makes the net present value of

Internal rate of return

Production requirements are figured by subtracting the period's beginning inventory from

Inventory needed for that period

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

It is very simple to use in comparison with other methods

The principle objective of capital budgeting is to

Maximize the value of the firm

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

The factor on which sales are dependent

One of the easiest capital budgeting methods to understand is

The payback method

Financial info is important to entrepreneurs because:

It pulls together all the info presented in other segments of the business and it qualifies all the assumptions concerning business operations

1 step in constructing an operating budget is?

Preparation of the sales forecast