Question 1: All of the following are major disadvantages of the percent-of-sales method of financial forecasting except
The computerized models needed for forecasting are not user-friendly
It assumes everything in the business varies as a constant percent of sales
It cannot account for business parameters that have a nonlinear relationship to sales
The model requires excessive modification to reflect the real-world business parameters
Question 2: George Inc. only sells one product and they project to sell 4500 units next year at $20 each. They currently have 230 units in stock which cost $11 per unit to manufacture last year. Next year, the cost per unit to manufacture is expected to rise to $12 per unit. They desire to have 15% of unit sales in stock at the end of the year. How many units will George Inc. need to produce next year?
5245
4720
4945
5170
Question 3: In 2012, Murray Corp. had sales of $700,000, a profit margin of 5%, common stock of $120,000 and retained earnings of $230,000. What was Murray's return on equity?
5%
10%
15%
20%
Question 4: Due to inflation, profit may be a result of increasing prices instead of actual company performance.
True
False
Question 5: Chelsea Lighting Inc. has beginning inventory of 18,000 units, will sell 60,000 units for the month, and desires to reduce ending inventory to 50% of beginning inventory. How many units should Chelsea produce?
42,000
60,000
33,000
51,000
Question 6: The following data can be found on Pinkerton Inc.'s 2012 balance sheet: Cash $45,000, Marketable Securities $70,000, Accounts Receivable $500,000, Inventory $525,000, Net Plant and Equipment $400,000, Accounts Payable $75,000, and Notes Payable $350,000. Please calculate Pinkerton Inc.'s Current Ratio.
0.21
2.68
1.45
2.39
Question 7: When employing financial ratio analysis, it is important to remember that accounting data are historical and therefore may not project current performance.
True
False
Question 8: Dull Light Company has $500,000 in assets and $200,000 of debt. They report net income of $50,000. What is the return on the stockholders' equity?
25.0%
16.7%
10.0%
18.3%
Question 9: Steve Corp. wants to know how much financing it will need next year. Last year, their sales were $500,000 and they are expected to increase by 20% next year. Their plant is currently operating at full capacity. Using the percent-of-sales-method, cash represents 5% of sales, accounts receivable $15%, inventory 20%, plant and equipment 25%, accounts payable 25% and accrued expenses 5%. If Steve Corp.'s profit margin is 6% with a dividend payout ratio of 40%, how much new funds will they require?
$20,600
$6,200
$11,000
$13,400
Question 10: Government regulatory agencies use financial ratio analysis for all of the following except
Establish rates for government contracting
Conduct audits
Establish interest rates
Evaluate new public stock issues
Question 11: When using the percent-of-sales method to forecast, no percentages are computed for notes payable, common stock, and retained earnings because they are not assumed to maintain a direct relationship with sales volume.
True
False
Question 12: Gemini Inc.'s debt decreases while their assets and return on assets remain unchanged. Gemini's return on equity will
decrease
increase
remain unchanged
cannot be determined from the information provided
Question 13: The following statements about pro forma statements are true except
With pro forma statements, firms are able to estimate future receivables, inventory, and payables
Developing pro forma statements is the most comprehensive means of financial forecasting
Pro forma statements are often required by bankers and lenders
A pro forma balance sheet must be created before developing a pro forma income statement
Question 14: Strategic business planning is one of the many types of short-range planning.
True
False
Question 15: Debt utilization ratios allow us to measure the ability of the firm to earn an adequate return on sales, total assets, and invested capital.
True
False
Question 16: George Inc. only sells one product and they project to sell 4500 units next year at $20 each. They currently have 230 units in stock which cost $11 per unit to manufacture last year. Next year, the cost per unit to manufacture is expected to rise to $12 per unit. They desire to have 15% of unit sales in stock at the end of the year. What is the projected total cost of goods sold for next year?
$54,000
$49,500
$53,770
$49,270