BUSN 5200 Quiz for week 5
Note: In the questions below, the correct answer is identified with an asterisk
(1) List the items to be included in the budget
(2) Summarize what is known about how each item in the budget is expected to change in the future.
(3) Apply the expected changes to each budget item to produce the budget
The company’s average annual sales growth rate from 2005 through 2009 was:
d. Can’t tell without further information
The company forecasts that its sales will increase by 10 percent in 2010 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 2010?
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 2010
Sales $8,000,000 x 1.15 = $9,200,000
COGS 6,500,000 x 1.15 = 7,475,000
Gross Profit 1,500,000 $1,725,000
Sales growth in 2010 is expected to be 15%
If COGS is assumed to vary directly with sales, then Gross Profit for 2010 will be:
Accounts payable $ 350 x 2 = $ 700
Accrued wages 150 x 2 = 300
Notes payable 2,000 2,000
Mortgage 26,500 26,500
Common stock 3,200 3,200
Retained earnings 4,000 + $1,000 = 5,000
Total liabilities & equity $36,200 $37,700
AFN = $38,400 – $37,700 = $700
Jill has just invented a non-slip wig for men which she expects will cause sales to double from $10,000 to $20,000, increasing net income to $1,000. On Jill’s balance sheet the cash, accounts receivable, and inventory accounts, and the accounts payable and accrued wages accounts all vary directly with sales (that is, when sales changes these accounts change by the same percentage). Jill also feels that she can handle the increase in sales without adding any fixed assets. (1) Will Jill need any outside capital if she pays no dividends? (2) If so, how much?
a. No; zero
b. Yes; $7,700
c. Yes; $1,700
d. Yes; $700
e. No; there will be a $700 surplus.
End of quiz