Chapter 17--Financial Plann - Copy

Chapter 17--Financial Plann - Copy - Chapter 17-Financial...

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Chapter 17--Financial Planning and Control Chapter 17--Financial Planning and Control Student: ___________________________________________________________________________ 1. Errors in the sales forecast can be offset by similar errors in costs and income forecasts. Thus, as long as the errors are not large, sales forecast accuracy is not critical to the firm. True False 2. As a firm's sales grow its current asset accounts tend to increase. For instance, as sales increase the firm's purchases increase and its level of accounts payable will increase. Thus, spontaneously generated funds will arise from transaction accounts that increase as sales increase. True False 3. The term "spontaneously generated funds" generally refers to increases in the cash account that result from growth in sales, assuming the firm is operating with a positive profit margin. True False 4. To determine the amount of additional funds needed, you may subtract the expected increase in liabilities (a source of funds) from the sum of the expected increases in retained earnings and assets (both uses of funds). True False 5. Two key objectives of financial planning and control are to avoid cash squeezes and to improve profitability. True False 6. One limitation of operating breakeven analysis is that variable cost must be assumed constant throughout the analysis in order to completely analyze changes in fixed investment. True False
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profitability, but it is not useful in studying the effects of a general expansion in the firm's operations. True False 8. Operating costs include variable costs, depreciation, and interest charges. True False 9. The DOL is an index number that measures the effect of a change in sales price on the operating breakeven point. True False 10. Other things held constant, if a firm is operating at a profit and then sales increase, the degree of operating leverage will decline. True False 11. Today, computer simulation models can calculate multiple breakeven charts providing management with an idea of how the firm's breakeven point would change under different assumptions for key variables. True False 12. Two firms which have the same operating leverage must also have the same ROA, since operating leverage and ROA both measure the effective utilization of assets by the firm. True False 13. The higher the percentage of a firm's total costs that are fixed, the higher the degree of operating leverage and the lower the operating breakeven point. True False 14. Alternative methods for producing a given product often have different degrees of operating leverage and hence have different breakeven points and degrees of risk. True False
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This note was uploaded on 01/18/2011 for the course FIN 3604 taught by Professor Patterson during the Spring '10 term at University of South Florida - Tampa.

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Chapter 17--Financial Plann - Copy - Chapter 17-Financial...

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