ssignment 3 Management Learning Objectives After you have studied pages 104 to 143 of the reading material, you will be able to • Discuss how to prepare the following types of budgets:

Assignment 3
Management
Learning Objectives
After you have studied pages 104 to 143 of the reading material, you will be able to
• Discuss how to prepare the following types of budgets:
– sales budget
– purchase budget
– expense budget
– cash budget
• Identify and compare alternatives for business financing.
• Explain how and why a business would perform a SWOT analysis.
• Cite examples of business decisions that would be made based on financial and
SWOT analyses.
• Describe how businesses are valuated.
When you have completed the reading and feel confident you have mastered the
objectives, complete Exam 3, which begins on the next page.
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Exam 3
Management
AJE4C
Instructions: Select the item which best answers the question or makes the statement
true. In all cases there is only one best choice. Mark the letter of that choice on the
answer sheet provided. Upon completion of the exam send only the answer sheet to
the school for grading. Do not wait until you complete the next exam.
1. The best person or entity to forecast revenue increases in a small business is
the __________.
a. local Chamber of Commerce
b. auditor
c. accountant
d. entrepreneur
2. Outside investors are often less enthusiastic about putting money into a
business if they see that the __________.
a. owner is withdrawing substantial dividends
b. owner has a substantial personal investment in the business
c. business is retaining earnings
d. earnings are being reinvested
3. If Larry’s Landscaping Inc. had not procured a large city contract, would the
business have grown or shrunk between 20X2 and 20X3, and by about how
much?
a. shrunk by about 10%
b. shrunk by less than 5%
c. grown by less than 5%
d. grown by about 10%
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4. Further to Question 3, what percentage growth did Larry forecast for 20X4?
a. flat revenue (no growth)
b. growth of 5%
c. growth of 10%
d. growth of 20%
5. Which of the following statements is TRUE?
a. It is usually advantageous for small businesses to make expansion plans
during times of economic recession.
b. Using sales growth from the past to estimate sales growth in the future is
less reliable for a business that has not been in operation for very long.
c. It is reasonable to expect a business to continue large growth rates after
the first few years.
d. Budgeting is done independently of predictions about how the general
economy is expected to perform.
6. By definition, equity financing entails __________.
a. offering personal assets as collateral
b. dealing with financial institutions
c. short-term borrowing
d. giving up a piece of the business
7. Which of the following is NOT included in the cash budget?
a. amortization
b. dividends to shareholders
c. income taxes
d. bank loans
8. With regard to Larry’s Landscaping Inc., when Larry approached venture
capitalists for possible financing, they turned him down. What was the reason
for this?
a. They were worried his business was not profitable.
b. They did not like the terms Larry was offering.
c. They considered Larry’s business to be too small and not to have large
enough expansion possibilities to be of interest to them.
d. They were afraid that Larry was planning to make a public stock offering.
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9. Which of the following statements related to purchase and expense budgets is
FALSE?
a. The dollar amount of fixed costs does not change as sales rise.
b. The fixed-cost percents calculated on the comparative income
statement are very useful in preparing the expenses budget.
c. The variable-cost percents calculated on the comparative income
statement are useful in preparing the purchase budget.
d. Managers often use the most recent year’s dollar amounts from the
income statement to project some expenses in the upcoming year.
10. A lease is a type of __________.
a. bank loan
b. venture capital financing
c. equity financing
d. external debt financing
11. Which of the following is NOT an element of a SWOT analysis?
a. Sales
b. Weaknesses
c. Opportunities
d. Threats
12. Regarding Larry’s calculation of variable costs for 20X4, Larry chose to budget
the same percentage for repairs and maintenance as he had in 20X3 (3%). If
Larry had decided instead to budget 5% for this item for 20X4, what would the
estimated dollar cost have been for this item in 20X4?
a. $10,725
b. $14,300
c. $17,875
d. $18,785
13. A pro forma financial statement is a/an __________.
a. average
b. forecast
c. forensic analysis of past performance
d. condensed version of a statement
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14. What method was used to prepare the quarterly estimates for fixed expenses
on Larry’s Landscaping Inc.’s 20X4 budget?
a. The 20X4 dollar amounts were simply divided by four.
b. The quarterly amounts were based on the quarterly percent of annual
revenue estimates.
c. The 20X4 dollar amounts were divided by three, and nothing was
allowed for the fourth quarter, since it had zero projected sales.
d. A different formula was used for each expense category.
15. The NAICS can be used to find the __________ for a particular business.
a. ownership profile
b. tax records
c. credit history
d. industry code
16. What resolution did Larry make regarding bill paying for the coming year
(20X4)?
a. He will maintain the successful bill-paying policy from the previous years.
b. He will start paying bills as soon as they come in.
c. He will pay most bills in the same quarter in which the goods are
purchased.
d. He will hold on to all bills for at least 90 days before paying them.
17. If the business is successful, a venture capitalist who invests in the business
expects to make returns in the area of __________ times the original investment.
a. 2
b. 5
c. 10
d. 20
18. On the 20X4 cash budget for Larry’s Landscaping Inc., many items are zero or
left blank for Quarter 4. Which of the following is NOT one of these?
a. cash in from sales
b. total outflows
c. total purchases
d. contractual persons
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19. The risk-free rate is the borrowing rate set by or experienced by __________.
a. preferred creditors
b. the entrepreneur himself
c. the primary lending institution
d. the government
20. After examining his cash budget for 20X4, Larry decided that he should
consider expanding business activities during which season?
a. spring
b. summer
c. fall
d. winter
21. There are five Cs that many banks look at when evaluating the risk of making a
loan. Which of these is concerned with net worth?
a. capital
b. capacity
c. collateral
d. conditions
22. Which of the following statements about debt versus equity financing is FALSE?
a. Debt financing is more expensive than equity financing.
b. With debt financing, interest is tax-deductible.
c. Equity financing is more flexible than debt financing.
d. With debt financing, failure to make promised payments could result in
bankruptcy.
23. After conducting his SWOT analysis, what did Larry decide about his idea for
possible off-season expansion?
a. He decided it was a bad idea and that he would drop the idea
permanently.
b. He decided that the time wasn’t right to try it this year, but he would
revisit the idea later.
c. He decided that he would try it, but start small.
d. He decided to go all out to implement the idea.
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24. Which of the following budgets is generally prepared last?
a. sales budget
b. purchase budget
c. expense budget
d. cash budget
25. The frequency at which budgets need to be prepared varies from company to
company. However, your reading material states that very often a business
prepares its budgets __________.
a. monthly
b. quarterly
c. twice a year
d. annually
This completes Exam 3 and Module 4. Please be sure to transfer your answers to the
answer sheet after reviewing them. Then mail the answer sheet to the school in the
postage-paid envelope provided, submit it through our web site at
www.scitraining.com, or fax it to us toll free at 1-888-486-9428. You may now begin
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