Question 1

Financial planning should attempt to minimize risk.

Accepted Answer

False

Question 2

Financial models ensure consistency between growth assumptions and financing plans,and they identify the best financing plan.
Financial models ensure consistency between growth assumptions and financing plans,but they do not identify the best financing plan.

Accepted Answer

False

Question 3

Financial planning is necessary because financing and investment decisions interact and should not be made independently.

Accepted Answer

Financial planning involves considering both financing decisions (such as borrowing or issuing stock) and investment decisions (such as where to allocate funds and how to manage risks). These decisions are interconnected and should be made in a coordinated manner to achieve the best outcomes for the organization.

Question 4

Financial planning just means formulating the company's response to the most likely events.

Accepted Answer

Financial planning goes beyond responding to likely events. It involves creating a comprehensive strategy for achieving financial goals and objectives, as well as identifying and managing potential risks and uncertainties.

Question 5

Pro formas are projected or forecasted financial statements.

Accepted Answer

Pro formas are indeed projected or forecasted financial statements. They are useful for businesses to estimate future financial performance and plan accordingly.

Question 6

A planning horizon refers to the amount of time necessary to develop the financial plan.

Accepted Answer

A planning horizon refers to the amount of time for which the financial plan is developed, not the amount of time necessary to develop the plan.

Question 7

A typical horizon for long-term planning is 5 years.

Accepted Answer

A typical horizon for long-term planning is generally considered to be 3-10 years, and 5 years is a commonly used timeframe.

Question 8

Financial planning is concerned with possible surprises as well as the most likely outcomes.

Accepted Answer

Financial planning involves analyzing different scenarios, assessing risks, and creating strategies to address potential surprises or unexpected events. It is not just about planning for the most likely outcomes but also preparing for the unforeseen circumstances that may affect one's financial goals.

Question 9

A common,long-term corporate financial planning horizon would stretch for at least 15 to 20 years.

Accepted Answer

The answer of A common,long-term corporate financial planning horizon would...

Question 10

Financial planning is a process of deciding which risks to take.

Accepted Answer

Financial planning involves assessing and managing financial risks to achieve financial goals.

Question 11

Individual capital investment projects are not considered in a financial plan unless they are very large.

Accepted Answer

The answer of Individual capital investment projects are not considered...

Question 12

Financial planning requires accurate and consistent forecasting.

Accepted Answer

Financial planning involves creating a comprehensive plan for the future based on current and past financial data. Accurate and consistent forecasting is crucial for developing a realistic plan that can help achieve financial goals. Without accurate forecasting, financial planning is likely to be ineffective and may lead to unexpected financial difficulties.

Question 13

Financial planning focuses on the big picture.

Accepted Answer

Financial planning involves creating a comprehensive plan that takes into account a person's long-term financial goals and how to achieve them. It is about the big picture of an individual's financial future, rather than just addressing short-term financial needs.

Question 14

If factories are operating below full capacity,sales can increase without investment in fixed assets.However,beyond some sales level,new capacity must be added (and additional investment in fixed assets must be made).

Accepted Answer

If factories are operating below full capacity, there is room for increased production without the need for additional fixed assets. However, once sales reach a certain level, more capacity must be added, which does require additional investment in fixed assets.

Question 15

Adaptability is not a desirable feature in financial plans.

Accepted Answer

Adaptability is a desirable feature in financial plans as it allows for adjustments to be made to accommodate changes in circumstances or goals. A rigid and inflexible financial plan may not be suitable for the long-term and can lead to financial difficulties.

Question 16

The sustainable growth rate is the rate at which the firm can grow without changing its leverage ratio.

Accepted Answer

The sustainable growth rate is the rate at which the firm can grow using only its internal resources (retained earnings) without having to issue new equity or debt. Therefore, the leverage ratio remains unchanged.

Question 17

The decision to acquire fixed assets is unrelated to the current level of excess capacity.

Accepted Answer

The answer of The decision to acquire fixed assets is...

Question 18

Financial plans will rarely succeed unless the forecasts are perfect.

Accepted Answer

While having accurate forecasts is important for creating a sound financial plan, it is rare for forecasts to be completely perfect. Many external factors can impact financial outcomes, and it is important to continuously monitor and adjust the plan as needed.

Question 19

The primary aim of financial planning is to obtain better forecasts of future cash flows and earnings.

Accepted Answer

The answer of The primary aim of financial planning is...

Question 20

Financial planning models must include as much detail as possible.

Accepted Answer

The answer of Financial planning models must include as much...

Quiz 18: Long-Term Financial Planning