Module 3

Question 1

____ is a process that at best helps the firm avoid stumbling into the future backward

Answer 1

Planning

Question 2

____ is very important in business.

Answer 2

Planning

Question 3

_____ establishes guidelines for change in a firm.

Answer 3

Financial Planning

Question 4

A lack of effective ____ is a commonly cited reason for financial distress and failure.

Answer 4

long-range planning

Question 5

The degree of _____ the firm chooses to employ - this is the firm’s capital structure policy.

Answer 5

financial leverage

Question 6

The degree of financial leverage the firm chooses to employ - this is the firm’s ____.

Answer 6

capital structure policy

Question 7

The amount of cash the firm this is necessary to pay shareholders - this is the firm’s ____

Answer 7

dividend policy

Question 8

The amount of liquidity and working capital the firm needs on an ongoing basis - this is the firm’s _____

Answer 8

net working capital decision

Question 9

A ____ is a statement of what is to be done in the future.

Answer 9

financial plan

Question 10

the time period on which the financial planning process focuses.

Answer 10

Planning horizon

Question 11

the process by which smaller investment proposals of each of a firm’s operational units are added up and treated as one big project.

Answer 11

Aggregation

Question 12

this plan would require relatively pessimistic assumptions.

Answer 12

A worst case

Question 13

this plan would require making the most likely assumptions about the company and the economy.

Answer 13

A normal case

Question 14

each division would be required to work out a case based on optimistic assumptions.

Answer 14

A best case

Question 15

what are the dimensions of financial planning?

Answer 15

• examining interactions
• exploring options
• avoiding surprises
• ensuring feasibility and internal consistency

Question 16

Most _____ require the user to specify some assumptions about the future.

Answer 16

financial planning models

Question 17

almost all financial plans require an externally supplied ____

Answer 17

sales forecast

Question 18

The ____ is usually the “driver”, meaning that the user of the planning model will supply this value, and most other values will be calculated based on it.

Answer 18

sales forecast

Question 19

A financial plan will have a forecast balance sheet, income statement, and statement of cash flows. These are called ____

Answer 19

pro forma statements

Question 20

The plan will describe projected capital spending.

Answer 20

asset requirements

Question 21

The plan will include a section about the necessary financing arrangements.

Answer 21

financial requirements

Question 22

The plan will have to state explicitly the economic environment in which the firm expects to reside over the life of the plan.

Answer 22

Economic Assumptions

Question 23

The ____ is a financial planning method in which accounts are varied depending on a firm’s predicted sales level.

Answer 23

Percentage of Sales Approach

Question 24

____ the amount of cash paid out to shareholders divided by net income.

Answer 24

Dividend payout ratio

Question 25

the addition to retained earnings divided by net income.

Answer 25

plowback ratio

Question 26

the sum of the ____ and ____ should always be equal to 100%.

Answer 26

• dividend payout ratio
• plowback ratio

Question 27

A firm’s total assets divided by its sales or the amount of assets needed to generate $1 of sales.

Answer 27

Capital Intensity Ratio

Question 28

______, projected or forecast, income statements and balance sheets

Answer 28

pro forma statements