MGMT 340 Chapter 11

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

FALSE

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

FALSE

A manufacturing firm needs to establish which of the following budgets? Select one: a. material purchases budget b. cost budget c. profit budget d. accounting budget

A

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.

A

In the simple linear regression analysis equation, Y = a + bx, Y represents Select one: a. the dependent variable. b. the vertical intercept. c. the slope of the line. d. expected sales.

A

Investments in which returns are expected to extend beyond one year are referred to as Select one: a. capital investments. b. mutual funds. c. bonds. d. stocks.

A

The first step in constructing an operating budget is Select one: a. preparation of the sales forecast. b. a cash-flow estimate. c. estimating fixed costs. d. a cost preparation.

A

The rate used to adjust future cash flows to determine their value in present period terms is the Select one: a. cost of capital. b. rate determined by the ratio of assets to liabilities. c. present value. d. current interest rate.

A

Which of the following is the contribution margin approach formula? Select one: a. (SP - VC)S - FC b. FC = (SP - VC) c. (FC - VC)S - SP d. SP(FC - VC)S

A

Which of the following is not a common characteristic of financial statements? Select one: a. They are holistic. b. They are complex. c. They are realistic. d. They are accurate.

B

The last step in preparing the operating budget is to estimate Select one: a. R&D costs. b. variable costs. c. operating expenses.

C

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

C

The process of preparing a pro forma balance sheet is Select one: a. optional. b. simple. c. complex. d. done first.

C

Which of the following is the first step in the preparation of the cash-flow budget? Select one: a. identification and timing of cash outflows b. identification of cash inflows c. identification of cash outflows d. identification and timing of cash inflows

D

Despite the drawbacks of the payback method, the entrepreneur should continue to use it because Select one: a. projects with a faster payback period normally have more favorable long-term effects on earnings. b. it is very simple to use in comparison with other methods. c. it provides a faster return of funds over time. d. it is inexpensive.

B

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. internal rate of return. b. payback method. c. break-even point. d. net present value.

A

Break-even analysis is used to assess Select one: a. future sales. b. expected product profitability. c. expected capital expenditures. d. revenue.

B

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. internal rate of return d. net present v

D

Accounts receivable turnover measures the rate at which accounts receivable are being collected on a monthly basis. T/F

FALSE

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

TRUE

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

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. T/F

True

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

True

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

True

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

True

When using regression analysis, the entrepreneur may draw conclusions about the relationship between product sales and advertising expenditures. T/F

True

When using the graphic approach to break-even analysis, the entrepreneur must plot total _____ and total _____. Select one: a. expenses; revenue b. revenue; costs c. income; expenses d. costs; income

B

Which of the following is needed to prepare a pro forma balance sheet? Select one: a. owners' equity b. liabilities c. the last balance sheet prepared before the budget period began d. assets

C

Which of the following is not used in balance sheet ratios? Select one: a. current liabilities b. cash c. sales d. current assets

C

The net present value method is a capital budgeting technique that helps to minimize some of the shortcomings of the payback method by Select one: a. recognizing past cash flows of projects. b. discounting all future projects. c. recognizing the payback dollars over again. d. recognizing future cash flows beyond the payback period.

D