The depreciable life of an asset can significantly affect the pattern of cash flows. The shorter the the depreciable life of an asset, the more quickly the cash flow created by the depreciated write-off will be received.


Business firms are permitted to systematically charge a portion of the market value of fixed assets, as depreciation, against annual revenues.


The MACRS depreciation method requires use of the half-year convention. Assets are assumes to be acquired in the middle of the year and only one-half of the first year's depreciation is recovered in the first year.


The Modified Accelerated Cost Recovery Systems (MACRS), is?


The depreciation value of an asset, under MACRS, is ?

the original cost + installation

The depreciable life of an asset is of concern to the financial manager. In general, ?

a shorter depreciable life is preferred, because it will result in a faster receipt of cash flows.

Depreciation is considered to be an outflow of the cash since since the cash must be drawn from somewhere.


The firm's free cash flow (FCF) represents the amount of cash flow available to investors (stockholders and bondholders) after the firm has met all operating needs and after having paid for net fixed asset investments and net current asset investments.


_______ is an expense that is a legal obligation of the firm?

interest expense

The cash flows from operating activities section of the statement of cash flows considers ?

labor expense

All of the following are inflows of cash EXCEPT ?

an increase in accounts receivable

Cash flows directly related to production and sale of the firm's products and services are called ?

operating flows

Cash flows that result from debt and equity financing transactions, including incurrence and repayment of debt, cash inflows from the sale of stock, and cash outflows to pay cash dividends or repurchase stock are called ?

financial flows

All of the following are financing cash flows EXCEPT ?

payment of bonuses

For the year ended December 31, 2008, a corporation has cash flow from operating activities of $20,000, cash flow form investment activities of - $15,000, and cash flow from financing activities of -$10,000. The statement of Cash Flow would show a ?

net decrease of $5,000 in cash and marketable securities.

A firm has just ended the calendar year making a sale in the amount of $200,000 of merchandise purchased during the year at a total cost of $150,500. Although the firm paid in full for merchandise during the year, it has yet to collect at year end form the customer. One possible problem this firm may face is?


NICO corporation had net fixed assets of $2,000,000 at the end of 2010 and $1,800,000 at the end of 2009. In addition., the firm had a depreciation expense of $200,000 during 2010 and $180,000 during 2009. Using this information, NICO's net fixed asset investment for 2010 was ?


Operating financial plans are planned short-term financial actions and the anticipated financial impacts of those answers.


The key output(s) of the short-run financial planning process are a(n)?

cash budget, pro forma income statement, and pro forma balance sheet

______ generally reflect(s) the anticipated financial impact of planned long-term actions?

strategic financial plans

The primary purpose in preparing pro forma financial statements is ?

for profit planning

In general, firms that are subject to a high degree of _______, relatively short production cycles, or both tend to use shorter planning horizons?

operating uncertainty

Cash budget is a statement of the firm's planned inflows and outflows of cash that is used to estimate it's long-term cash requirement.


Cash budgets and pro forma statements are useful not only for internal financial planning but also are routinely required by the Internal Revenue Service (IRS).


The number and type of intervals in the cash budget depend on the nature of the business. The more seasonal and uncertain a firm's cash flows, the greater the number of intervals and the shorter the time intervals.


The financial manager may cope with uncertainty and make more intelligent short-term financial decisions by preparing several cash budgets, each based on differing assumptions.


Key inputs to short-term financial planning are ?

sales forecasts, and operating and financial data

They key term input to any cash budget?

sales forecast

The key input to the short-run financial planning process is?

sales forecast

Cash disbursements may include all of the following EXCEPT?

depreciation expense

If a firm expects short-term cash surpluses it can plan?

short-term investments

A firm has actual sales in November of $1,000 and projected sales in december and january of $3,000 and $4,000, respectfully. the firm makes 10% of it's sales for cash, collects 40% of it's sales one month following the sale, and collects the balance two months following the sale. The firm's total expected cash receipts in january ?

are $2,100

In October, a firm had an ending cash balance of $35,000. In November, the firm had a net cash flow of $40,000. The minimum cash balance required by the firm is $25,000. At the end of November, the firm had?

an excess cash balance of $50,000

Development of pro forma financial statements help the financial manager to project the amount, if any, of external financing required to support a given level of sales as well as a basis for analyzing in advance the level of profitability and overall financial performance of the firm in the coming year.


The key inputs for preparing pro forma income statements using the simplified approaches are the ?

sales forecast for the coming year and financial statements for the preceding year.

The ______ method of developing a pro forma income statement forecasts sales and values for the cost of goods sold, operating expenses, and interest expense that are expressed as a ratio of projected sales?


A firm has prepared the coming year's pro forma balance sheet resulting in a plug figure in a preliminary statement called the "external financing required" of negative $250,000. the firm may prepare to ?

invest in marketable securities totaling $250,000

A firm plans to retire outstanding bonds in the next planning period. The statements that will be affected are the ?

pro forma income statement, pro forma balance sheet, cash budget, and statement of retained earnings.

A weakness of the percent-of-sales method to preparing a pro forma income statement is ?

the assumption that the firm's past financial condition is an accurate predictor of its future.

Utilizing past cost and expense ratios (percent-of-sales method) when preparing pro forma financial statements will tend to ?

understate profits when sales are increasing

If transportation costs were a huge portion of a firm's expenses and the firm expected gas prices to increase greatly in the next year, then in preparing its pro forma income statement the firm should ?

increase the percentage of transportation costs from the percentage of last year's sales.

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