Question 1

In most industries, planning beyond the period of one year is not very useful.

Accepted Answer

Long-term planning is crucial in most industries for strategic direction, resource allocation, and adapting to market trends, often involving plans that extend beyond one year to ensure sustainability and growth.

Question 2

Sales forecasts are a common element among financial planning models.

Accepted Answer

Sales forecasts are essential in financial planning models as they predict future sales and are crucial for budgeting, setting production levels, and planning for growth.

Question 3

Very few financial planning models require an externally supplied sales forecast.

Accepted Answer

Most financial planning models require an externally supplied sales forecast as a fundamental input to predict revenue, which in turn affects budgeting, expense planning, and other financial projections.

Question 4

Financial planning is important because the only way for a firm to prosper is for it to grow.

Accepted Answer

Financial planning is important for various reasons beyond just growth, such as managing cash flows, minimizing risks, ensuring financial stability, and preparing for unforeseen expenses. Growth is one aspect but not the sole purpose of financial planning.

Question 5

A pro forma balance sheet must always maintain the current debt-equity ratio of a firm.

Accepted Answer

A pro forma balance sheet is a financial document that projects the future financial position of a company, and it does not necessarily have to maintain the current debt-equity ratio. It can reflect changes in the company's capital structure based on future plans and investments.

Question 6

A pro forma income statement should consider both macroeconomic and industry forecasts.

Accepted Answer

A pro forma income statement projects future income and expenses, and considering both macroeconomic and industry forecasts helps in making more accurate predictions by accounting for external factors that could impact the business.

Question 7

With good financial planning, managers can be less vigilant in their day to day management of the firm.

Accepted Answer

Good financial planning is essential, but it does not replace the need for daily vigilance in management. Managers must continuously monitor operations, market conditions, and financial performance to ensure the firm's success and adapt to changes.

Question 8

A pro forma balance sheet should include consideration of the capacity level of the firm.

Accepted Answer

A pro forma balance sheet projects future financial position and should consider the capacity level of the firm to accurately forecast assets and liabilities, reflecting the company's operational capabilities and expansion plans.

Question 9

Pro forma statements are a common element among financial planning models.

Accepted Answer

Pro forma statements are used in financial planning to project future financial performance based on past data and assumptions about future conditions, making them a common element in financial planning models.

Question 10

By developing a financial plan, a firm benefits by being forced to focus on best case scenarios.

Accepted Answer

Developing a financial plan forces a firm to consider both best case and worst case scenarios, ensuring preparedness for various financial outcomes.

Question 11

Asset requirements is a common element among financial planning models.

Accepted Answer

Asset requirements are a common element in financial planning models as they help in determining the amount and type of assets needed to meet future financial goals and obligations.

Question 12

By developing a financial plan, a firm benefits by being forced to set goals and establish priorities.

Accepted Answer

Developing a financial plan requires a firm to articulate its goals and priorities, which helps in setting a clear direction for its financial activities and resource allocation.

Question 13

Conventional wisdom holds that financial plans don't work, but financial planning does.

Accepted Answer

Financial plans may not always work as intended due to the unpredictable nature of life and markets, but the process of financial planning is valuable for adapting to changes and achieving long-term goals.

Question 14

All else equal, the lower the forecast growth the larger the level of external financing needed.

Accepted Answer

All else equal, the lower the forecast growth, the smaller the level of external financing needed, as a company with lower growth forecasts would typically generate sufficient internal funds to meet its investment needs, reducing the necessity for external financing.

Question 15

The firm's investment and financing decisions are unrelated and should not be analyzed at the same time.

Accepted Answer

The firm's investment and financing decisions are interrelated and should be analyzed together because the choice of financing can affect the cash flows and the risk of the investment, and thus its value.

Question 16

If total assets increase by the same percentage as sales increase it is likely assets and sales will increase by identical dollar amounts.

Accepted Answer

An increase by the same percentage does not guarantee identical dollar amounts unless the initial amounts of assets and sales are the same. Different initial amounts will result in different dollar increases even with the same percentage increase.

Question 17

Pro forma statements should consider the dividend policy of the firm.

Accepted Answer

Pro forma statements, which are forward-looking financial statements, should consider the dividend policy of the firm because dividends impact the cash flow and retained earnings, thus affecting the firm's financial position and future growth potential.

Question 18

Financial planning helps investigate the linkages between goals and the different aspects of a firm's business.

Accepted Answer

Financial planning involves analyzing how a company's goals are connected to its operations, investments, and financial performance, ensuring that all aspects of the business are aligned to achieve those goals.

Question 19

Aggregation refers to the process by which a firm first projects its aggregate investment requirement, then it breaks that total up and allocates it to the investment proposals of the firm's smaller units.

Accepted Answer

The answer of Aggregation refers to the process by which...

Question 20

By developing a financial plan, a firm benefits by being forced to think about and forecast the future.

Accepted Answer

Developing a financial plan requires a firm to analyze its current financial situation, set future objectives, and forecast future revenues, expenses, and cash flows, thereby encouraging strategic thinking about the future.

Quiz 4: Long-Term Financial Planning and Corporate Growth