Typical steps in the financial planning process include A preparing a sales

Typical steps in the financial planning process

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19) Typical steps in the financial planning process includeA) preparing a sales forecast.B) analyzing cost data.C) estimating tax expense.D) all of the above.20) The first step involved in predicting financing needs is21) A sales forecast for the coming year would reflect
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22) Which of the following are considered to be spontaneous sources of financing (i.e., they arise naturally during the course of doing business)? 23) Holding other things constant, a firm's "discretionary financing needed" (the additional funds required in order to finance the firm) would be reduced if the firm experienced an increase in which of the following? A) The dividend pay-out ratio B) The profit margin C) The accounts receivable average collection period D) The expected growth rate in sales24) Long-term financial plans must include capital expenditures.25) When forecasting statements, assets always increase proportionately to sales regardless of capacity. Section B
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1) Baker & Co. has applied for a loan from the Trust Us Bank to invest in several potential opportunities. To evaluate the firm as a potential debtor, the bank would like to compare Baker & Co. to the industry. The following are the financial statements given to Trust Us Bank:Balance Sheet12/31/1312/31/14Cash $305270Accounts receivable 275290Inventory 600580Current assets 1,1801,140Plant and equipment 1,7001,940Less: acc depr (500)(600)Net plant and equipment 1,2001,340Total assets $2,380$2,480Liabilities and Owners' EquityAccounts payable $150$200Notes payable 1250Current liabilities 275200Bonds 500500Owners' equityCommon stock 165305Paid-in-capital 775775Retained earnings 665700Total owners' equity 1,6051,780Total liabilities and owners' equity $2,380$2,480Income StatementSales (100% credit) $1,100$1,330Cost of goods sold 600760Gross profit 500570Operating expenses 2030Depreciation 160200Net operating income 320340Interest expense 6457Net income before taxes 256283Taxes 8796Net income $169$187a.What are the firm's financial strengths and weaknesses? (5 pts.)Answer:The firm's liquidity has improved significantly, as indicated by the current ratio and the acid test ratio. However, the current ratio is a bit deceiving since it relies on inventory in part for liquidity. Since the inventory is not particularly liquid, the quick ratio is a better measure of liquidity, which is stillbelow the industry norm. Management has done a less-than-average job of generating operating profits on its assets. From a balance sheet perspective, the company has less financial risk than the average firmin the industry. However, owing to the firm's lower profitability, it is not covering its interest charges as well as the average firm in the industry. Owing to the low return on investment, the firm's return on
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  • Fall '17
  • John
  • Balance Sheet, Generally Accepted Accounting Principles, Apple Computers, discretionary financing

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