Question 1

Financial planning involves estimating projected cash flows, which is useful for all the following EXCEPT:

Accepted Answer

Financial planning is useful for all the given options except for auditors to determine if the company's annual report is true and correct. Financial planning provides information for internal decision-making, communicating future expectations to external stakeholders, and estimating financing needs for the firm. Auditors rely on financial statements and other financial records to determine the company's financial position and any potential misstatement or error in financial reporting.

Question 2

Suppose a firm has had the historical sales figures shown as follows. What would be the forecast for next year's sales using the naïve approach?

Accepted Answer

D

Question 3

Which of the following defines the term deseasonalize?

Accepted Answer

Deseasonalize means to remove the effects of seasonality from historic data. This involves adjusting the data to account for seasonal fluctuations and trends in order to get a more accurate picture of the underlying trends and patterns in the data. This is typically done using statistical methods such as seasonal adjustment or deseasonalizing indexes. Choices A, C, and D are not related to the definition of deseasonalize.

Question 4

Which of the following defines iterative calculation?

Accepted Answer

Iterative calculation is the process of repeatedly computing an answer in order to take into account circular dependency in a system of equations. Choice A describes circular references, which can cause errors in spreadsheet programs. Choice B is a practice to avoid circular dependencies, but it does not define iterative calculation. Choice D describes a specific formula, but it does not encompass the entire concept of iterative calculation.

Question 5

Which of the following are considered "chunky" or "lumpy" assets?

Accepted Answer

Fixed assets are considered chunky or lumpy because they are long-term assets that are not easily converted into cash and are typically more expensive than current assets. Total assets and current assets may also include some chunky or lumpy assets, but not necessarily all of them. AFN is not an asset but a financing concept used to determine the amount of external financing needed to support a firm's growth.

Question 6

Which of the following can be computed as: necessary increase in assets minus spontaneous increase in liabilities minus projected increase in retained earnings?

Accepted Answer

The formula described in the question is used to calculate the additional funds needed for a business. Therefore, the correct choice is A.

Question 7

If a firm has excess capacity when calculating AFN (Additional Funds Needed), A* will most likely equal which of the following?

Accepted Answer

Excess capacity means that the firm has unused resources, which suggests that it may not need additional fixed assets (choice C) or lumpy assets (choice D), and the firm likely already has enough total assets (choice A) to support its operations. Therefore, the best choice is current assets, which may need to be increased in order to support additional sales or operations.

Question 8

Which of the following is a set of financial statements depicting an operating division of a firm's expected financial situation in the foreseeable future under the most reasonable set of assumptions concerning relevant factors?

Accepted Answer

Pro forma financial statements are used to project the financial performance of a specific division or an entire firm under a set of assumptions about various financial and economic factors. These assumptions are often based on past trends and current market conditions. Pro forma financial statements help in assessing the impact of various decisions such as mergers and acquisitions, capital investments, and new product launches on a firm's financial performance in the future. Therefore, they depict an operating division's expected financial situation for the foreseeable future under reasonable assumptions.

Question 9

Forecasted sales drive all of the following EXCEPT:

Accepted Answer

Forecasted sales do not directly drive earnings per share on the annual report. Other factors such as expenses, taxes, and dividends also impact earnings per share.

Question 10

Which of the following is used to remove the effects of seasonality from historic data?

Accepted Answer

Deseasonalized approach is used to remove the effects of seasonality from historic data. This approach is used in time series forecasting to make more accurate predictions by removing the predictable seasonal patterns. Average approach calculates the mean of the data, Base case approach is a scenario analysis where assumptions are made about future events and Pro forma approach is used to create financial statements based on projected, estimated, or hypothetical financial data. None of these approaches specifically address seasonality in historic data.

Question 11

The additional funds needed by the firm can be calculated by assuming which of the following?

Accepted Answer

The answer of The additional funds needed by the firm...

Question 12

Which of the following is defined as assuming that future sales will be equal to the average historical value across some relevant period?

Accepted Answer

The answer of Which of the following is defined as...

Question 13

The simplest approach to estimating a future period's sales is to assume that they will be equal to those of the latest observed period. In statistics, this is often simply referred to as which of the following?

Accepted Answer

The method of assuming that future period's sales will be equal to those of the latest observed period is referred to as the Naïve approach, also known as the "no-change" or "random walk" approach. It is the simplest approach and assumes that there are no trends, seasonal variation, or other factors that might affect sales.

Question 14

Which of the following is the amount of external financing a firm must seek in order to change the asset base as necessary to support a different level of sales?

Accepted Answer

Additional funds needed is the term used to describe the amount of external financing a firm must seek in order to change the asset base as necessary to support a different level of sales. It takes into account the firm's projected increase in sales, the required investment in fixed assets and working capital, and any expected internal sources of funding.

Question 15

Which statement is most correct regarding how pro forma financial statements can be used to estimate additional funds needed?

Accepted Answer

Pro forma statements can be used to iteratively refine the amount of additional funds needed by adjusting various inputs until the desired outcome is achieved. Other methods, such as trend analysis or regression analysis, may not provide the same level of flexibility in adjusting inputs to optimize the estimate. Additionally, pro forma statements can take into account a variety of factors, such as changes in sales levels or cost of goods sold, that can impact the calculation of additional funds needed.

Question 16

What is computed by dividing the amount of assets tied directly to sales (A*) by the amount of current sales (S0)?

Accepted Answer

This calculation is for the capital intensity ratio, which measures how much capital is required for a business to generate its current level of sales. The formula is A*/S0.

Question 17

Which of the following defines MAPE?

Accepted Answer

MAPE stands for Mean Absolute Percentage Error and is a commonly used measure of forecast accuracy. It calculates the percentage difference between actual and forecasted values and then takes the mean of those percentage differences. Option A and D are incorrect because MAPE is not used to measure the accuracy of financial statements, but rather forecasted values. Option B is incorrect because it incorrectly states that MAPE is a median measure, when in fact it is a mean measure.

Question 18

The set of assumptions underlying the firm's financial plan and the resulting projected financial statements are accordingly often referred to as which of the following?

Accepted Answer

The answer of The set of assumptions underlying the firm's...

Question 19

First order effects are defined as which of the following?

Accepted Answer

First order effects refer to the immediately observable effects of changing one item on another, such as a change in temperature causing a change in a chemical reaction. The other options refer to subsequent or higher order effects, which may not be as immediately observable.

Question 20

Which of the following is the practice of one firm selling to another on credit terms?

Accepted Answer

Trade credit is the practice of one firm selling to another on credit terms, allowing the buyer to delay payment for the goods or services purchased. Accounts payable is the amount owed by a company to its suppliers and vendors, while accounts receivable is the amount owed to a company by its customers. Barter transactions involve the exchange of goods or services without the use of money.

Quiz 15: Financial Planning and Forecasting