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1. If external financing needed cannot be obtained due to poor market conditions, a firm could reduce the amount needed by increasing its retention ratio.

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a. True

b. False

2. Is it possible for the cash budget and the pro forma income statement to have different results?

a. yes, because revenues and expenses included in each statement are different.

b. yes, because revenues and expenses are accounted for over different time periods.

c. no, because they contain the same variables, while just using different formats.

d. no, because the cash budget and the pro forma income statement provide forecasts for the same time period.

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3. AFB, Inc. is expecting sales to increase by 20% next year, but its net fixed assets are expected to remain at their current level. This is an example of:

a. economies of scale.

b. lumpy assets.

c. spontaneous financing.

d. discretionary financing.


4. A firm’s cash position would most likely be helped by:

a. delaying payment of accounts payable.

b. more liberal credit policies for their customers.

c. purchasing land for investment purposes.

d. holding larger inventories.

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5. A discretionary form of financing would be:

a. notes payable.

b. accounts payable.

c. accrued expenses.

d. A and B.

6. Ribbon Industries reported sales of $3 million and a net income of $400,000 for 2010. The retained earnings balance at the end of 2012 is $7 million. Ribbon Industries has a dividend payout ratio of 30%. If sales are expected to increase by 25% next year, what will be the projected balance in retained earnings using the percent of sales method?

a. $7,280,000.

b. $6,720,000.

c. $7,350,000.

d. $8,750,000. Get Accounting help Today

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