Deck 6: Forecasting and Pro Forma Financial Statements

Question 1

On a pro forma income statement, all values will increase by the same percentage as sales increase.

Answer 1

False

Question 2

Judgmental models are quantitative because they use expert opinion and previous experience to determine the forecast.

Answer 2

False

Question 3

Lenders require pro forma statements because they want to make sure the business will generate enough profit for the owner to get a large salary.

Answer 3

False

Question 4

Time Series models use historical records that are readily available within the firm to predict future sales.

Question 5

There is a direct relationship between the forecast accuracy and time.

Question 6

The longer the time horizon, the more accurate the forecast will be.

Question 7

The start -up business has very little history.

Question 8

Once we select a forecasting model, changing market conditions may require us to change the model if it no longer performs as desired.

Question 9

Time Series models use previous experience to determine the forecast.

Question 10

Operating margin often increases by an amount greater than the increase in sales.

Question 11

One should only forecast the best -case scenario.

Question 12

Lenders require pro forma statements because they want to make sure the business will generate enough profit to pay back both the principal and interest on the loan.

Question 13

Historical Analogy uses historical records that are readily available within the firm to predict future sales.

Question 14

The vast majority of entrepreneurs desire to go into a business where they already have some prior experience.

Question 15

In the percentage of sales method of determining new financing, if the final number is positive we do not require new financing.

Question 16

A forecast is an accurate estimate of future demand.

Question 17

Start -up expenses are those expenses that will be incurred by the business one time.

Question 18

Judgmental models are qualitative because they use expert opinion and previous experience to determine the forecast.

Question 19

The difference between an actual figure and a budgeted figure is known as a variance.

Question 20

An increase in sales on the income statement will cause a buildup in assets.

Question 21

The forecasting model that is not a time series model is

A) exponential smoothing.
B) historical analogy.
C) mean absolute deviation.
D) moving average.
E) weighted moving average.

Question 22

The forecasting model that uses a panel of experts who may not even know each other is the model.

A) Delphi Method
B) Historical Analogy
C) Market Research
D) Survey of Customers
E) Survey of Sales Forces

Question 23

Table 6 -1. Actual Sales Data

Refer to Table 6 -1. Using the exponential smoothing model with an a of 0.2 and a smoothed forecast for period 1 of 350, what is the forecast for period 4?

A) 349
B) 355
C) 369
D) 385
E) 402

Question 24

Table 6 -1. Actual Sales Data

Refer to Table 6 -1. Using a weighted moving average with weights of 0.1, 0.3, and 0.6, the forecast sales for periods 4 and 5 are approximately

A) 363 and 399.
B) 383 and 418.
C) 403 and 435.
D) 418 and 448.
E) 435 and 460.

Question 25

Table 6 -1. Actual Sales Data

Refer to Table 6 -1. Using the exponential smoothing model with an a of 0.2 and a smoothed forecast for period 1 of 350, what is the forecast for period 2?

A) 349
B) 355
C) 369
D) 385
E) 402

Question 26

The forecasting model that uses the constant alpha as an adjustment is

A) exponential smoothing.
B) historical analogy.
C) mean absolute deviation.
D) moving average.
E) weighted moving average.

Question 27

The forecasting model that assumes previous time periods have some influence on future sales, but the influence varies by time period, is

A) exponential smoothing.
B) historical analogy.
C) mean absolute deviation.
D) moving average.
E) weighted moving average.

Question 28

The formula for a regression line is Y = a + bx. If your solution is Y = 15 + 4x, then the regression line will move

A) up and to the left.
B) down and to the right.
C) up and to the right.
D) down and to the left.
E) Cannot tell with the information provided.

Question 29

The formula for a regression line is Y = a + bx. If your solution is Y = 15 - 4x, then the regression line will move

A) up and to the left.
B) down and to the right.
C) down and to the left.
D) up and to the right.
E) Cannot tell with the information provided.

Question 30

Table 6 -1. Actual Sales Data

Refer to Table 6 -1. Using a three -month moving average, the forecast sales for periods 5 and 7 are approximately

A) 383 and 418.
B) 383 and 448.
C) 418 and 448.
D) 418 and 473.
E) 448 and 473.

Question 31

When interest rates increase by one percent, housing starts will decrease by five percent. The forecasting method that is used for this data is

A) cause and effect.
B) qualitative.
C) quantitative.
D) expert opinion.

Question 32

Table 6 -1. Actual Sales Data

Refer to Table 6 -1. Using a three -month moving average, the forecast sales for periods 4 and 6 are approximately

A) 383 and 418.
B) 383 and 448.
C) 418 and 448.
D) 418 and 473.
E) 448 and 473.

Question 33

The absolute value of any number is

A) positive.
B) positive or negative.
C) zero.
D) negative.

Question 34

The forecasting model that assumes previous time periods have an equal influence on future sales is

A) exponential smoothing.
B) historical analogy.
C) mean absolute deviation.
D) moving average.
E) weighted moving average.

Question 35

In those months where cash inflows exceed cash outflows, we repay the lender the amount that exceeds the minimum cash balance.

Question 36

One does not need to determine if the operating expenses are in line with industry averages.

Question 37

An income statement is a cash flow statement.

Question 38

Table 6 -1. Actual Sales Data

Refer to Table 6 -1. Using a three -month moving average, the forecast sales for periods 4 and 5 are approximately

A) 383 and 418.
B) 383 and 448.
C) 418 and 448.
D) 418 and 473.
E) 448 and 473.

Question 39

Table 6 -1. Actual Sales Data

Refer to Table 6 -1. Using a three -month moving average, the forecast sales for periods 5 and 6 are approximately

A) 383 and 418.
B) 383 and 448.
C) 418 and 448.
D) 418 and 473.
E) 448 and 473.

Question 40

Table 6 -1. Actual Sales Data

Refer to Table 6 -1. Using the exponential smoothing model with an a of 0.2 and a smoothed forecast for period 1 of 350, what is the forecast for period 3?

A) 349
B) 355
C) 369
D) 385
E) 402

Question 41

The formula for a regression line is Y = a + bx. If your solution is Y = 15 + 4x and the value of x is 5, then the value of a is

A) 4.
B) 5.
C) 15.
D) 35.

Question 42

Which of the following is an example of a profit center?

A) marketing
B) research and development
C) personnel
D) none of the above

Question 43

With the regression function, the area of variation that represents general growth or decline within an industry is

A) noise.
B) economic.
C) seasonal.
D) trend line.
E) cyclical.

Question 44

Which of the following is the correct sequence of events?

A) pro forma balance sheet, pro forma income statement, pro forma cash budget
B) pro forma balance sheet, pro forma cash budget, pro forma income statement
C) pro forma income statement, pro forma cash budget, pro forma balance sheet
D) None of the above.

Question 45

Table 6 -2.

Refer to Table 6 -2. The regression line formula for this set of numbers is

A) Y = 230 + 11x.
B) Y = 228.66 + 230x.
C) Y = 235 + 8.98x.
D) Y = 8.98 + 228.66x.
E) Y = 228.66 + 8.98x.

Question 46

XYZ Company has assets that are traditionally 80% of sales, and its liabilities traditionally are 30% of sales. Sales for this year are $70,000 and sales for next year are projected to be $120,000 with a profit margin of 6%. No owner payout will be taken. Using the percentage of sales method, XYZ will need

A) $7,200
B) $25,000
C) $17,800
D) $30,000 of additional financing.
E) No financing is required.

Question 47

Which of the following is a variable expense?

A) a utility bill
B) a phone bill
C) a security deposit
D) sales commission

Question 48

With the regression function, the area of variation that represents unexplained changes is

A) seasonal.
B) noise.
C) trend line.
D) economic.
E) cyclical.

Question 49

XYZ Company has assets that are traditionally 85% of sales, and its liabilities traditionally are 50% of sales. Sales for this year are $50,000 and sales for next year are projected to be $150,000 with a profit margin of 10%. No owner payout will be taken. Using the percentage of sales method, XYZ will need

A) $15,000
B) $70,000
C) $52,500
D) $20,000 of additional financing.
E) No financing is required.

Question 50

You have a current balance sheet with liabilities of $50,000 and assets of $75,000. You estimate that you will have to purchase a new vehicle next year for $20,000. You believe you will be able to pay 20% down and can finance the remainder through your bank. If nothing else changes, your pro forma balance sheet will show assets of and liabilities of .

A) $95,000; $66,000
B) $95,000; $70,000
C) $91,000; $66,000
D) $91,000; $54,000

Question 51

Operating expenses can be separated into

A) expenses that increase as sales increase.
B) expenses that do not increase with sales.
C) mortgage and lease payments that increase with sales.
D) all of the above.

Question 52

Which of the following is a cash payment?

A) operating expenses
B) labor costs
C) inventory purchases
D) all of the above

Question 53

With the regression function, the area of variation that represents changes due to general economic factors that affect an industry is

A) trend line.
B) cyclical.
C) seasonal.
D) economic.
E) noise.

Question 54

Which of the following are reasons to generate a pro forma cash budget on a monthly basis?

A) Sales are recognized as income when the sale is made.
B) A business can monitor the actual cash on hand.
C) An income statement indicates a profit but the budget may indicate a loss.
D) All of the above.

Question 55

XYZ Company has assets that are traditionally 75% of sales, and its liabilities traditionally are 20% of sales. Sales for this year are $100,000 and sales for next year are projected to be $200,000 with a profit margin of 8%. The owners take a 60% payout. Using the percentage of sales method, XYZ will need

A) $70,000
B) $68,400
C) $48,600
D) $50,000 of additional financing.
E) No new financing is required.

Question 56

The formula for a regression line is Y = a + bx. If your solution is Y = 15 + 4x and the value of x is 5, then the value of Y is

A) 4.
B) 5.
C) 15.
D) 35.