Question 18 If you constructed a set of pro forma financial statements for 2014

ID: 2756695 • Letter: Q

Question

Question 18

If you constructed a set of pro forma financial statements for 2014 and found that projected Total Assets exceeded projected Total Liabilities and Equity by $11,250, you would know that:
If you constructed a set of pro forma financial statements for 2014 and found that projected Total Assets exceeded projected Total Liabilities and Equity by $11,250, you would know that:

A. your forecasting method is inaccurate

B. your forecasting assumptions or calculations must be in error, because projected Assets and projected Liabilities and Equity must always balance

C. you must arrange for $11,250 in additional financing

D. your firm will have $11,250 of excess funds available in 2014

Question 19
Considering each action independently and holding other things constant, which of the following actions would reduce a firm's need for additional capital?
Considering each action independently and holding other things constant, which of the following actions would reduce a firm's need for additional capital?

A. An increase in the dividend payout ratio.

B. A decrease in the profit margin.

C. A decrease in the days sales outstanding.

D. An increase in expected sales growth.

Question 21
The company forecasts that its sales will increase by 10 percent in 2014 and its operating costs will increase in proportion to sales. The company's interest expense is expected to remain at $200 million, and the tax rate will remain at 40 percent. The company plans to pay out 50 percent of its net income as dividends, the other 50 percent will be additions to retained earnings. What is the forecasted addition to retained earnings for 2014?

Kenney Corporation recently reported the following income statement for 2013 (numbers are in millions of dollars):

Sales $7,000
Total operating costs 3,000
EBIT 4,000
Interest 200
Earnings before tax (EBT) 3,800
Taxes (40%) 1,520
Net income available to common shareholders 2,280

The company forecasts that its sales will increase by 10 percent in 2014 and its operating costs will increase in proportion to sales. The company's interest expense is expected to remain at $200 million, and the tax rate will remain at 40 percent. The company plans to pay out 50 percent of its net income as dividends, the other 50 percent will be additions to retained earnings. What is the forecasted addition to retained earnings for 2014?

A. $1,140

B. $1,260

C. $1,440

D. $1,790

E. $1,810

Question 22
Other things held constant, which of the following will cause an increase in net working capital?

A. Cash is used to buy marketable securities

B. A cash dividend is declared and paid

C. Merchandise is sold at a profit, but the sale is on credit

D. Long-term bonds are retired with the proceeds of a preferred stock issue

E. Missing inventory is written off against retained earnings

Question 23
Paul Stone can get 3/15, net 65 from his suppliers. Paul would like to delay paying the suppliers as long as possible because his cash account balance is very low, but his Dad, a famous financial expert, recommends that he borrow from his local bank at 10% and pay early to take advantage of the discount. Which of the following should Paul do?
Paul Stone can get 3/15, net 65 from his suppliers. Paul would like to delay paying the suppliers as long as possible because his cash account balance is very low, but his Dad, a famous financial expert, recommends that he borrow from his local bank at 10% and pay early to take advantage of the discount. Which of the following should Paul do?

A. Pay within 15 days, borrowing from the bank, if necessary, to get the money.

B. Pay on the 16th day

C. Pay on the 65th day

D. Send a hit man after his Dad

Question 24
Stone's Stones and Rocks buys on terms of 2/10, net 30 from its suppliers. If it pays on the 8th day, taking the discount, what is the percent cost of the trade credit that it receives?
Stone's Stones and Rocks buys on terms of 2/10, net 30 from its suppliers. If it pays on the 8th day, taking the discount, what is the percent cost of the trade credit that it receives?

A. 91.84%

B. 33.39%

C. 2%

D. 0%

Explanation / Answer

Question 22:-

Other things held constant, which of the following will cause an increase in net working capital ?

Answer:- The Option C is the right answer. Merchandise is sold at a profit, but the sale is on credit.

Question 19:-

Considering each action independently and holding other things constant, which of the following actions would reduce a firm's need for additional capital ?

Answer:- The Option C is the right answer. A decrease in the days sales outstanding.

Question 18:-

If you constructed a set of pro forma financial statements for 2014 and found that projected Total Assets exceeded projected Total Liabilities and Equity by $11,250, you would know that:

Answer:- The Option B is the right answer. Your forecasting assumptions or calculations must be in error, because projected Assets and projected Liabilities and Equity must always balance.

Question 21:- The forecasted addition to retained earnings for 2014:-

Sales ( 7000 + 10%)

(-) Total Operating costs (3000 + 10%)

7700

3300

EBIT

(-) Interest

4400

200

EBT

(-) Tax @ 40 %

4200

1680

The forecasted addition to retained earnings for 2014 = 2520 * 50 %

= $ 1260

Conclusion:- The Option B is the right answer. $ 1260.

Particulars Amount (in $)