Module 6 Planning and Financing the Business

Question 1

What is the purpose of financial planning

Answer 1

Map financial direction, plan characteristics, budgeting

Question 2

Describe the 8 considerations of the typical planning process

Answer 2

1. Vision - what does the company want to do
2. Mission - purpose and direction - set objectives
3. Situation - Define past, present, future, competitive environment
4. Assessment - Evaluate SWAT
5. Strategies - Means to achieve objectives - set comp philosophy
6. Sub unit plans - general and detailed plans to implement strategy
7. Types of budgets - operating, capital, cash flow
8. Evaluate and control - compare actual vs plan

Question 3

What are the 3 operating budget methods?

Define each…

Answer 3

1. Fixed - last years budget adjusted for inflation or activity
2. Flexible - Based on units to be produced (metrics) hrs per stat…
3. Zero-Based - blank sheet each year and every expenditure must be justified every year.

Question 4

What is included in the Capital Budget?

Answer 4

Land
Buildings
Equipment

Question 5

What are 4 considerations of capital policy?

Answer 5

Dollar amount required to capitalize
Useful life greater than 1 yr
Should be required for operations
Usually tangible (physical item)

Question 6

What are the available capital financing sources?

Answer 6

Long-Term - Equity and long-term debt

Leases - Financial and operating leases ( allow use of assets without full cash outlay)

Short-Term - Bank loans, commercial papers, factoring, collateral loans, accounts payable.

Question 7

When a company begins the planning process, what should be considered first?

A. Assessment
B. Vision
C. Situation
D. Mission

Answer 7

B. Vision

Question 8

Which of the following are examples of zero-based budgets and fixed expense budgets?

A. Cash Flow Budgets
B. Capital Budgets
C. Operating Budgets
D. Personnel Budgets

Answer 8

C. Operating Budgets

Question 9

How should a company evaluate a capital project investment?

A. Payback Time
B. Discount Rate
C. Future Value
D. Sales Enhancement

Answer 9

A. Payback Time

Question 10

Which of the following is a source of long term financing?

A. Factoring
B. Commercial Paper
C. Accounts Payable
D. Mortgages

Answer 10

D. Mortgages