Deck 6: Forecasting and Pro Forma Financial Statements

Question 1

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

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

Answer 1

cyclical.

Question 2

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

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

Answer 2

trend line.

Question 3

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

Answer 3

pro forma income statement,pro forma cash budget,pro forma balance sheet

Question 4

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.

Question 5

Once we have a forecasting model,the specific units of measurement used in the model are

A)expressed in job descriptions for human resource planners.
B)expressed in units of production for long range plans.
C)the same for every area of the business.
D)expressed in units of production to determine future requirements for plant and equipment.
E)All of the above are correct.

Question 6

The absolute value of any number is

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

Question 7

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 of additional financing.

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

Question 8

Which of the following is the correct sequence of events in the percentage of sales method?

A)Find assets as a percentage of sales and multiply change in sales.Find liabilities as a percentage of sales and multiply change in sales,Multiply forecasted sales by the historic profit margin Find percentage of profit owner takes out of the business.
B)Multiply forecasted sales by the historic profit margin Find assets as a percentage of sales and multiply change in sales.Find liabilities as a percentage of sales and multiply change in sales.Find percentage of profit owner takes out of the business.
C)Find percentage of profit owner takes out of the business.Find assets as a percentage of sales and multiply change in sales.Find liabilities as a percentage of sales and multiply change in sales,Multiply forecasted sales by the historic profit margin.
D)Find percentage of profit owner takes out of the business.Find assets as a percentage of sales and multiply change in sales.Multiply forecasted sales by the historic profit margin.Find liabilities as a percentage of sales and multiply change in sales.

Question 9

The forecasting model that is not a time series model is

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

Question 10

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)moving average.
D)weighted moving average.
E)mean absolute deviation.

Question 11

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

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

Question 12

Which of the following is not one of the six basic questions that a forecast must answer?

A)Who will be using the forecast?
B)How much profit will the firm be able to make?
C)How much time do I have to develop the forecast?
D)What is the time period of the forecast?
E)How relevant is and what is the availability of historical data?

Question 13

Which of the following is a cash payment?

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

Question 14

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

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

Question 15

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

Question 16

A firm has just developed a unique new product that can easily be copied by a competitor.They want to determine how many units to produce.The forecasting method they will most likely use is the

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

Question 17

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

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

Question 18

The Bagel and Bean currently has six shops located in your city and they want to open a new shop.When evaluating property for this shop they will most likely use the model.

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

Question 19

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

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

Question 20

Operating expenses can be separated into

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

Question 21

When you check out at your local appliance store,they ask you for your zip code,before they ring up your sale.This appliance store is most likely using

A)Historical Analogy.
B)Market Research.
C)Survey of Customers.
D)both A and B above
E)both B and C above

Question 22

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 of additional financing.

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

Question 23

Which of the following is most appropriate firm to use the survey of customers?

A)Best Buy
B)Ace Hardware
C)IBM
D)K- mart
E)all of the above

Question 24

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

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

Question 25

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 26

Judgmental models include all of the following except

A)moving average.
B)market research.
C)survey of customers.
D)historical analogy.
E)survey of sales forces.

Question 27

A forecast is used to

A)determine the physical size of the plant.
B)determine future sales and revenue.
C)help plan for the hiring of personnel.
D)help plan for the purchase of equipment and machinery.
E)all of the above.

Question 28

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 of additional financing.

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

Question 29

Which of the following is the most appropriate firm to use the survey of sales force?

A)Ace Hardware
B)IBM
C)K- mart
D)Best Buy
E)Burger King

Question 30

Which of the following is a variable expense?

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

Question 31

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

Question 32

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

Question 33

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

Question 34

The formula for a regression line is y = a + bx.

Question 35

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

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

Question 36

Which of the following statements about forecasting is false?

A)There is an inverse relationship between forecast accuracy and time.
B)The longer the time horizon the more inaccurate the forecast will be.
C)The forecasting horizon should be at least as long as your strategic plan.
D)The longer the time horizon the more accurate the forecast will be.
E)Product life cycle influences the length of the forecast.

Question 37

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

Question 38

Time Series models use previous experience to determine the forecast.

Question 39

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

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

Question 40

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

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

Question 41

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

Question 42

A dependent variable is one that relies on the value of other variables for its value.

Question 43

In exponential smoothing,the value of alpha can be any whole number.

Question 44

A forecast is an accurate estimate of future demand.

Question 45

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

Question 46

On a pro forma income statement,the value we enter for sales revenue is normally derived from our forecast.

Question 47

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

Question 48

Startup expenses are those expenses that will be incurred by the business one time.

Question 49

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 50

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

Question 51

The startup business has very little history.

Question 52

An income statement is a cash flow statement.

Question 53

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

Question 54

The pro forma cash budget projects future receipts and expenditures.

Question 55

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

Question 56

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

Question 57

One should only forecast the best case scenario.

Question 58

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

Question 59

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.

Question 60

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

Question 61

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

Question 62

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

Question 63

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

Question 64

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