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Exam-2-Review-FIN340-S10 - FIN 340 Spring 2010 Cash...

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FIN 340, Spring 2010 Exam 2 Review Prof. David Allen Cash Budgeting Why do firms prepare a cash budget? Why do potential creditors (e.g. banks) use cash budgets? What types of assumptions are typically made in preparing a cash budget? When building a cash budget spreadsheet, why do we list (most of) the assumptions at the top, rather than building them into the budget itself? How is the cash budget different from an accrual basis income statement? o Why does depreciation expense appear on the income statement, but not on the cash budget? o Why do the costs of buying fixed assets appear on the cash budget, but not on the income statement? o Why do principal repayments on debt appear on the cash budget, but not on the income statement? What is scenario analysis in the context of the cash budget? What purpose does it serve? Forecasting Financial Statements (Pro Formas) Why do firms forecast financial statements for future periods? What techniques are used to forecast sales in future periods?
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