Deck 13: Short-Term Financial Planning

Question 1

Modeling is a process,which seeks to

A)establish a relationship between variables in order to estimate a dependent variable
B)eliminate a uncertainty in the business environment
C)computerize what was formerly clerical work
D)rely totally on external data to anticipate changes in a company's line of business

Answer 1

A

Question 2

Which of the following is the last stage of the modeling process?

A)model documentation
B)model logic
C)model validation
D)specification of variables

Answer 2

A

Question 3

Not all of a financial model's variables are taken as "givens" by the modeler; those such as the receivables collection pattern that the company has some degree of control over are termed

A)policy variables
B)exogenous variables
C)drivers
D)parameters

Answer 3

A

Question 4

The set of output reports one would expect from a company's short-term financial planning model would be

A)an inflation forecast
B)projected cash flows
C)projected industry production forecasts
D)none of the above

Question 5

In a short-run financial planning model,the current month's accounts payable balance is the previous month's balance plus

A)the current month's cost of goods sold
B)the current month's purchases
C)the current month's purchases less the current month's cash disbursed for purchases
D)the current month's sales less the previous month's cost of goods sold

Question 6

A forecaster found that inventories are typically 25% of sales for the Benson Musical Notes Co.The pinpointing of the 25%-of-sales relationship represents which stage of the modeling process?

A)model diagnosis
B)parameter estimation
C)model validation
D)variable specification

Question 7

Which of the following is the most sophisticated approach to estimate the collection percentages in the cash collection model:

A)Historical time period average
B)Lagged regression model
C)trial-and-error solution
D)"desired" collection percentage approach

Question 8

The basic driving variable for a company's short-term financial planning model would be:

A)Gross profit margin
B)sales
C)desired ending inventory
D)debt maturity structure

Question 9

Which of the following would rarely,if ever,be used as an appropriate driving variable for a financial planning model?

A)unit sales
B)dollar sales
C)forecasted revenues
D)dividends

Question 10

A short-run financial planning model specifies a tax payment at the end of each quarter.For the current month,taxes payable would equal the previous month's taxes payable plus

A)taxes from the current month's income statement
B)taxes from the current month's income statement less the current month's tax disbursement
C)the previous quarter's taxes payable balance less the current month's tax disbursement
D)none of the above are correct

Question 11

In the short-term forecasting model,one should be cautious and

A)Maximize the number of basic driving variables
B)Minimize the number of policy variables
C)Maximize the number of policy variables
D)Minimize the number of basic driving variables

Question 12

Of the following,for a short-term financial planning model,the objective of enhancing firm value would be to

A)maximize the interest expense
B)minimize the interest revenue
C)maximize the net interest income
D)minimize the amounts borrowed

Question 13

If there is considerable uncertainty surrounding the likely value of an input variable for a financial model,one should use a

A)stochastic model
B)hyperbolic model
C)deterministic model
D)double-entry model

Question 14

As sales grow,some of the added current asset requirement is provided by growth in current assets.This often results in what kind of source of funds?

A)spontaneous source
B)retained earnings
C)plowback funding
D)arranged financing

Question 15

Joe Schwartz has just run his company's short-term financial planning model.A credit analyst calls and tells Joe that the company's (selling)credit period has just been changed.Joe would likely

A)inform management to ignore the model's outputs because they are invalid
B)subjectively adjust the model's recommendations based on his best judgment
C)rerun the model after adjusting the model for the new cash collections
D)none of the above

Question 16

How should a modeler handle requirements that the company invest no more than $100,000 in a particular investment security?

A)it cannot be modeled -- simply report it to senior management when presenting the model's outputs
B)trial-and-error runs of the model to see if the model provides any recommendations which are consistent with that requirement
C)as constraints included in the model early in the modeling process
D)the modeler should convince senior management to drop all such requirements,because they make the modeling exercise too difficult

Question 17

In a short-run financial planning model,the current month's accounts receivable balance is the previous month's balance plus

A)the current month's credit sales
B)the current month's sales
C)current month's sales less the current month's receipts
D)the current month's sales less the previous month's receipts