Question 1

Which of the following is the best estimate of retained earnings in year t?

Accepted Answer

A) Retained earningsT₊₁ + Net incomeT-₁ - DividendsT-₁ 
B) Retained earningsT + Net incomeT₊₁ - DividendsT-₁ 
C) Retained earningsT-₁ + Net incomeT - DividendsT 
D) Retained earningsT + Net incomeT + DividendsT 
A) Retained earningsT₊₁ + Net incomeT-₁ - DividendsT-₁ 
B) Retained earningsT + Net incomeT₊₁ - DividendsT-₁ 
C) Retained earningsT-₁ + Net incomeT - DividendsT 
D) Retained earningsT + Net incomeT + DividendsT

Question 2

The explicit forecast period must be long enough for the company to reach a steady state.List the two characteristics that define that steady state.

Accepted Answer

1.The company grows at a constant rate b

Question 3

Which of the following are steps in making a top-down forecast?
I.Forecasting prices.
II.Sizing the total market.
III.Determining market share.
IV.Estimating customer turnover.

Accepted Answer

A) I and II only. 
B) I,II,and III only. 
C) II,III,and IV only. 
D) III and IV only. 
A) I and II only. 
B) I,II,and III only. 
C) II,III,and IV only. 
D) III and IV only.

Question 4

Which of the following is the preferred method to forecast the financing items on the balance sheet?

Accepted Answer

A) Assume that debt and equity are constant.Sum all forecasted assets except excess cash,and all liabilities and existing debt and equity.Plug the model using newly issued debt or excess cash. 
B) Financing items should be forecasted first,taking into consideration the future funding needs of the company.Correspondingly,the assets that the raised capital will fund should then be adjusted. 
C) Assume that all liabilities and equity will grow at the same rate as revenue growth. 
D) Assume that debt and equity will grow at the same constant rate in all years going forward. 
A) Assume that debt and equity are constant.Sum all forecasted assets except excess cash,and all liabilities and existing debt and equity.Plug the model using newly issued debt or excess cash. 
B) Financing items should be forecasted first,taking into consideration the future funding needs of the company.Correspondingly,the assets that the raised capital will fund should then be adjusted. 
C) Assume that all liabilities and equity will grow at the same rate as revenue growth. 
D) Assume that debt and equity will grow at the same constant rate in all years going forward.

Question 5

In industries where prices are changing or technology is advancing,forecasters should strictly use financial drivers such as revenue.

Accepted Answer

A) True 
 B)False

Question 6

When using PP&E as the forecast driver for depreciation,which of the following is most accurate?

Accepted Answer

A) From both an ideal and a practical standpoint,the driver should be net PP&E. 
B) From both an ideal and a practical standpoint,the driver should be gross PP&E. 
C) Ideally,the driver should be net PP&E,but practically the driver should be gross PP&E. 
D) Ideally,the driver should be gross PP&E,but practically the driver should be net PP&E. 
A) From both an ideal and a practical standpoint,the driver should be net PP&E. 
B) From both an ideal and a practical standpoint,the driver should be gross PP&E. 
C) Ideally,the driver should be net PP&E,but practically the driver should be gross PP&E. 
D) Ideally,the driver should be gross PP&E,but practically the driver should be net PP&E.

Exam 11: Forecasting Performance

Which of the following is the best estimate of retained earnings in year t?

The explicit forecast period must be long enough for the company to reach a steady state.List the two characteristics that define that steady state.

Which of the following are steps in making a top-down forecast? I.Forecasting prices. II.Sizing the total market. III.Determining market share. IV.Estimating customer turnover.

Which of the following is the preferred method to forecast the financing items on the balance sheet?

In industries where prices are changing or technology is advancing,forecasters should strictly use financial drivers such as revenue.

When using PP&E as the forecast driver for depreciation,which of the following is most accurate?

Why Value Value

Fundamental Principles of Value Creation

Conservation of Value and the Role of Risk

The Alchemy of Stock Market Performance

The Stock Market Is Smarter Than You Think

Return on Invested Capital

Growth

Frameworks for Valuation

Reorganizing the Financial Statements

Analyzing Performance

Estimating Continuing Value

Estimating the Cost of Capital

Moving From Enterprise Value to Value Per Share

Analyzing the Results

Using Multiples

Valuation by Parts

Taxes

Non-operating Items, Provisions, and Reserves

Leases and Retirement Obligations

Alternative Ways to Measure Return on Capital

Inflation

Cross-Border Valuation

Case Study: Heineken

Corporate Portfolio Strategy

Performance Management

Mergers and Acquisitions

Divestitures

Capital Structure, Dividends, and Share Repurchases

Investor Communications

Emerging Markets

Valuing High-Growth Companies

Cyclical Companies

Banks

Flexibility

Filters