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TIF_ch24 - Test Bank Chapter 24 FINANCIAL PLANNING EFS I...

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Test Bank Chapter 24: FINANCIAL PLANNING EFS I. True or False (Definitions and Concepts) F 1. Critics of the top-down process say it often fails to produce a coherent strategy for the firm as a whole and can cause the firm to appear chaotic and poorly managed. (FALSE: Should be bottom-up instead of top-down.) F 2. Critics of the bottom-up process say it tends to exaggerate the role of top managers and often results in bad investments and missed opportunities because top management may not be in touch with what is going on “in the field.” (FALSE: Should be top-down instead of bottom-up.) F 3. In the formulation phase of financial planning, budgets with specific objectives, resource allocations, and operating policies are used to clarify each manager’s responsibilities for contributing to the firm’s goals. (FALSE: Should be implementation instead of formulation.) T 4. A budget is simply part of a financial plan, and plans need to be adapted to new opportunities and circumstances. T 5. The planning process can expose inconsistencies in decision-making methods. T 6. A good financial plan includes contingency plans for unlikely outcomes. F 7. A financial plan provides a benchmark against which to identify reasons for the similarities between outcomes and forecasts. (FALSE: Should be differences instead of similarities.) T 8. Cash budgeting is the process of projecting (forecasting) and summarizing firm’s cash inflows and outflows expected during the planning horizon. F 9. Monthly cash budgets typically have a three- to six-month planning horizon. (FALSE: Should be six- to twelve-month instead of three- to six-month.) T 10. Negative net cash flows can reduce cash or be offset with additional borrowing. F 11. Some cash budgets are based on sales forecasts, because so many cash flows are tied to sales. (FALSE: Should be Most cash budgets instead of Some cash budgets.) T 12. The purpose of a cash budget is to ensure a firm’s smooth financial operation over the planning horizon. F 13. Pro forma financial statements show the effects of the firm’s decisions on its past financial statements. (FALSE: Should be future financial statements instead of past financial statements.) T 14. Pro forma statements can be complex and time-consuming to produce. T 15. A complete financial plan includes a set of pro forma financial statements, which show the firm’s planned financial position at regular points over the planning horizon.
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II. Multiple Choice (Definitions and Concepts) d 16. says to use both bottom-up and top-down processes to increase the chance of uncovering valuable ideas. a. The Behavioral Principle b. The Principle of Comparative Advantage c. The Principle of Two-Sided Transactions d. The Principle of Valuable Ideas b
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