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Finances, Financial Planning, Strategic Planning and Financial Statements

Assistance needed with finding background information on these financial questions. Please include in-text citations and references used. Thank you!

1. Fixed vs variable costs - What are the basic differences between fixed and variable expenses and how do you consider these in a financial plan?
2. Financial planning - How are investment decisions related to financing decisions?
3. Investment and financing decisions - Identify the steps in the financial planning process
4. Pro forma financial statements - What are pro forma financial statements and why are they important part of the financial planning process?
5. Strategic planning - Explain why strategic planning is the most crucial planning step.
6. Financing plan - Explain why financing plan sets for the ways in which the capital projects will be financed for a firm.

Solution Preview

Step 1
The basic difference between fixed costs and variable costs is that variable costs vary with the level of activity or the number of units produced. Fixed costs on the other hand do not change with the number of units produced. For example, direct materials is an example of variable cost, however, the rent paid for the factory is a fixed cost. In a financial plan if an objective is set for production, the units of product made will determine the variable costs (a). The production objective will not affect the fixed cost. With higher variable costs the working capital required will increase. The financial plan must provide for working capital according to the variable cost.

Step 2
Investment decisions are related to financing decisions. Financing decisions are related to the source of finance such as bank OD, bonds, and equity. Investment decision is related to how money is invested by the business. Is it invested in expansion projects, modernization projects, or working capital? If the ...

Solution Summary

Answers questions about finance, fixed vs variable costs, financial planning, investment decisions, complete with references.

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