A firm can reduce its cash conversion cycle by ________. A) increasing the average age of inventory B) increasing the average collection period C) increasing the operating cycle D) increasing the average payment period ANSWER D
In the EBIT-EPS approach to capital structure, risk is represented by ________. A) the slope of the capital market line B) shifts in the cost of debt capital C) the slope of the capital structure line D) shifts in the times-interest-earned ratio ANSWER C
Which is NOT true of depreciation as found in the pro forma statement? A) Depreciation, unlike sales, tends to go down each year with the Modified Asset Cost Recovery System (MACRS). B) Unless there is a change to investments in plant, property and equipment increasing the depreciation line item, using the same percentage as that […]
Which of the below does a pro forma statement tell us? A) For every sales dollar, it tells us what percentage went to produce the product. B) For every dollar in cost, it tells us what percentage ends up as net income. C) For every sales dollar, it tells us how much shareholders received in […]
To estimate the firm’s potential performance for the coming year, we typically start with the sales forecast from the ________ and prepare a pro forma income statement using the percentages of the ________ for each category. A) finance department; prior year B) marketing department; prior year C) marketing department; next year D) sales department; current […]
When developing a pro forma income statement, depreciation, unlike sales, tends to ________ each year with the Modified Asset Cost Recovery System (MACRS). A) go up B) remain the same C) increase exponentially D) go down ANSWER Answer: D
As applied to the pro forma balance sheet, which of the statements below is FALSE? A) The company looks at the prior year’s balance sheet and finds each line’s percentage of total assets. B) The company forecasts the coming year’s total assets based on expected changes such as the completion of capital projects, desired levels […]
A firm with a cash conversion cycle of 175 days can stretch its average payment period from 30 days to 45 days. This will result in a/an ________. A) decrease of 30 days in the cash conversion cycle B) increase of 15 days in the cash conversion cycle C) decrease of 15 days in the […]
An aspect of ________ is forecasting operating cash flow and ultimately the profitability of the company in the coming period. A) short-term financial planning B) medium-term financial planning C) long-term financial planning D) short-term financial investing ANSWER Answer: A
A firm has a cash conversion cycle of 120 days, an average collection period of 25 days, and an average payment period of 50 days. The firm’s average age of inventory is ________ days. A) 45 B) 95 C) 125 D) 145 ANSWER D