The preparation of pro forma financial statements accomplishes which of the following objectives?
A) It allows management to pinpoint a firm's optimal stock price.
B) It is essential if the firm is to accurately estimate its weighted average cost of capital.
C) It assists management in making decisions with respect to raising the capital that is needed for growth.
D) It pinpoints periods when the firm will have short-term cash surpluses.

Question

Quizplus · Accepted Answer

Pro forma financial statements assist management in making decisions with respect to raising the capital that is needed for growth. Pro forma financial statements are financial projections that estimate what a company's financial statements will look like in the future based on certain assumptions. These assumptions can include potential growth in revenue, changes in operating costs, or the impact of a new investment or project. By preparing pro forma financial statements, management can evaluate the financial impact of different decisions and determine the amount of capital that is needed to achieve certain goals. Option A, B, and D are incorrect because pro forma financial statements do not provide information about a firm's optimal stock price, the weighted average cost of capital, or short-term cash surpluses.

The Preparation of Pro Forma Financial Statements Accomplishes Which of the Following