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MGM101 Test 2 - 2011

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Dave Swanston

MGM101 Test 2 Short Answer QuestionsAn important part of financial planning is developing budgets Briefly describe the three primary types of budgets and discuss the role budgets play in the financial planning process 4 MarksOne mark each for describing the three types of budgets and one mark for discussing the role budgets play See Nickels text pages 515 to 516Budgets describe and quantify the firms strategies It outlines managements expectations and plans It is used to guide operational decision making and also acts as a benchmark to measure performance controlOperating master budgetsummarizes the businesss anticipated financial activities Pulls together the other budgets Projects revenues and allocates financial resources towards various costs and expenses required to achieve those revenuesCapital budgetThe firms projections for large asset investments requiring significant capital resourcesCash budgetprojecting the firms cash inflows and outflows broken down into periods to identify short term financing requirements and short term sources of fundsManaging risk is a major issue for businesses Outline the differences between Speculative and Pure risk Also describe the four strategies that managers can utilize to deal with the threat ofrisks once they have been identified 6 MarksTwo marks for describing the difference between Speculative and Pure risk One mark each for re
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