Reference no: EM132480455

Question 1) You are starting a tool and die business specializing in mining machinery that will initially require a significant cash outflow. What are the four components to creating a thorough financial plan?

Create operating budget of expected revenue and expenses from ongoing operations.

Create cash budget to identify sources and uses of funds for a specified period of time.

Create strategic plan to understand the organization's goals and capabilities for the next 2-5 years.

Create capital budget of expected investments in new assets.

Put these components in the proper sequence.

Step 1: Select

a)Cash Budget

b)Capital Budget

c)Strategic Plan

d)Operating Budget

Step 2a: Select

a)Cash Budget

b)Capital Budget

c)Strategic Plan

d)Operating Budget

Step 2b: Select

a)Cash Budget

b)Capital Budget

c)Strategic Plan

d)Operating Budget

Step 3: Select

a)Cash Budget

b)Capital Budget

c)Strategic Plan

d)Operating Budget

Question  2) You are an angel investor and have been approached by a family-owned Italian restaurant that wants to expand. They are requesting $100,000 in exchange for equity in their company. They have been profitable for the last three years, earning $200,000 in profit and achieving a return on sales ratio of 25%. You like the prospects for this company and are willing to give them the $100,000-but you want 20% equity in return. What valuation are you putting on the company?

a. $100,000

b. $200,000

c. $300,000

d. $400,000

e. $500,000

Question 3) You recently started your own financial management consulting firm. You decide to focus on companies more likely to face cash flow shortages. Which of the potential customers in the following list are likely to face cash flow shortages?

Check all that apply.

a. companies whose business is seasonal

b. Companies that collect on sales before they make any product

c. Companies that are about to invest in new equipment so they can expand

d. Startup companies

e. Companies with existing overseas operations

Question  4) As the owner of ACME Machinery, you are in the process of creating your annual operating and capital budgets for the new year. You ask your assistant to provide a number of financial reports. When you arrive this morning, you find the following reports on your desk:

Anticipated sales revenue: $20 million
Required IT software: $0.5 million
Anticipated labour costs: $8 million
Anticipated raw material costs: $1.2 million
New equipment purchases: $4 million
Construction of new production facility: $10 million
Identify whether each item belongs to the operating budget or the capital budget.

a) Anticipated sales revenue: $20 million

Select one of the following

Operating Budget

Capital Budget

b) Required IT software: $0.5 million

Select one of the following

Operating Budget

Capital Budget

c) Anticipated labour costs: $8 million

Select one of the following

Operating Budget

Capital Budget

d) Anticipated raw material costs: $1.2 million

Select one of the following

Operating Budget

Capital Budget

e) New equipment purchases: $4 million

Select one of the following

Operating Budget

Capital Budget

f) Construction of new production facility: $10 million

Select one of the following

Operating Budget

Capital Budget

Question 5) A research scientist at your family's shoe care business recently patented a new natural shoe deodorizer that will revolutionize how athletes manage the odour in their athletic shoes. As the VP of Sales, you are convinced if you redesign the facility to manufacture the new product, the company's sales and profitability will skyrocket. Your chief financial officer is not as excited about redesigning the facility. She knows it will require long-term financing-and that can be expensive. In addition, your idea will reduce overall factory capacity in order to make room for manufacturing the new product. As a result, company profits could actually go down for a while, making it difficult to make debt payments on a regular basis. You understand her concerns but remind her that, based on extensive consumer research, potential sales for the new product could triple or quadruple the size of your company within three years. This would make the company a prime acquisition target for larger companies such as Procter & Gamble-and that would mean a huge payday.

Based on the potential of the new, patented product and your CFO's concerns, the best financing option is Select one

a)Trade credit

b)Issue corporate bonds

c)Factoring

d)Angel or venture funding

e)Commercial paper

Question 6) Your watercraft manufacturing company has been in operation for many years at Wasaga Beach, Ontario. You make customized pontoon boats for several customers in Ontario. Your business is seasonal and depends on a warm summer with moderate amounts of rain. Some years have been really good and some have been really bad. As a result, you have struggled to build a good credit record, making it hard to get traditional debt financing. This past month, one of your oldest and most expensive milling machines finally wore out for good. Luckily you were able to finish the last boat and will receive payment in 7 days. However, now you have to buy a replacement for the machine that broke so that you can keep delivering goods to your customers for all of your upcoming orders-many of which are well known major watercraft retailers. But, if you pay in cash for a new machine you will be unable to cover next week's payroll for your three employees. Based on your situation, what is the most likely source of financing?

a. Unsecured bank loan

b. IPO

c. Trade credit

Question 7) You run a healthy cookie company. You specialize in making cookies that are sugar-free, gluten-free, vegan, and kosher. You just finished another successful year after getting into Whole Foods and are in the process of determining your company's cash needs for next year. In reviewing your projected financial data, you note the following:

Projected cash sales: $2.5 million
Projected COGS and other operating expenses: $1.5 million
Anticipated equipment purchases: $2.0 million
Anticipated proceeds from the sale of used equipment: $0.5 million
You have some options for financing your cash needs, but first you must determine how much you need. Based on the above information, how much is needed to cover your cash shortfall?

a. Nothing. You are cash positive.

b. $0.5 million

c. $1 million

d. $1.5 million

e. $2 million

Question 8) As a financial manager for a creative agency, you recognize the need to select the financing option that provides your business with the necessary funds at the lowest cost possible-while also meeting the strategic needs of the business. To make that determination you must evaluate five different strategic considerations before making a decision as to your method of financing. The financial plan you have just submitted to the business owner calls for an additional $500,000 in funding to cover cash needs, mostly to cover short-term obligations for research and development of a new software tool. There are a variety of methods for securing this financing, but the board of directors has made it clear they don't want to utilize any methods that give outside parties a claim on company profits. The financing consideration they are most concerned with is Select one of the following

a)the amount of financing needed

b)the term of financing

c)the cost of financing

d)the influence financing choice will have on operations

e)external factors

Question 9) You run a boutique wellness store. You specialize in providing sustainable goods at reasonable prices. All products are sold in recyclable or compostable packaging and you require customers to bring their own reusable bags. Your store has experienced a period of steady growth in your community and you now have an opportunity to expand. The expansion will require the purchase of another store. Your options to secure the needed funds are:

short-term loans

long-term loans

IPO

venture capital

private placement

Your key consideration is that you don't want to give up equity in the firm. Your best option for securing money is Select one of the following

a)short-term loans

b)long-term loans

c)IPO

d)venture capital

e)private placement

Question 10) Below are last year's revenue and expenses for a manufacturing company. Based on this information, which of the following is most likely true about their cash flow?

                            Revenue                          Expenses

January-March             $3 million                 $4 million

April-June                      $3 million                 $4 million

July-September              $8 million                  $4 million

October-December          $3 million                  $4 million

a. The company is unprofitable and will always be short of cash

b. The company has short-term cash shortages due to a negative cash flow cycle.

c. The company has short-term cash shortages due to seasonality.

d. The company is profitable and always cash positive.