Question 1

Common-size financial statements recast each statement item as:

Accepted Answer

A)  a percentage of the "bottom line." 
B)  a percentage using industry averages for the "base number." 
C)  a percentage using a base year number for each line item. 
D)  a percentage of some "base number" on the financial statement in question. 
A)  a percentage of the "bottom line." 
B)  a percentage using industry averages for the "base number." 
C)  a percentage using a base year number for each line item. 
D)  a percentage of some "base number" on the financial statement in question.

Question 2

Which of the following statements does not apply to preventing "garbage in,garbage out" when implementing a forecasting game plan?

Accepted Answer

A)  The quality of the financial statement forecasts will depend on the quality of the
Forecast assumptions. 
B)  The quantities forecasted within financial statement forecasts will depend on the quantity of the forecast assumptions. 
C)  Analysts should justify and evaluate the most important assumptions that reflect the critical risk and success factors of the firm's strategy. 
D)  Analysts can impose reality checks on the assumptions by analyzing the forecasted financial statements using ratios, common-size, and rate-of-change financial statements. 
A)  The quality of the financial statement forecasts will depend on the quality of the
Forecast assumptions. 
B)  The quantities forecasted within financial statement forecasts will depend on the quantity of the forecast assumptions. 
C)  Analysts should justify and evaluate the most important assumptions that reflect the critical risk and success factors of the firm's strategy. 
D)  Analysts can impose reality checks on the assumptions by analyzing the forecasted financial statements using ratios, common-size, and rate-of-change financial statements.

Question 3

The formula for forecasting inventory is ____________ /365 X.

Accepted Answer

Cost of go

Question 4

All of the following statements are true regarding ratios and forecasts except:

Accepted Answer

A)  Ratios cannot confirm whether forecast assumptions will turn out to be correct. 
B)  Ratios can tell whether future sales growth was accurately captured. 
C)  Ratios cannot tell whether assumptions about future cash flows are realistic. 
D)  Ratios can tell whether growth rates for sales are consistent with past sales growth performance. 
A)  Ratios cannot confirm whether forecast assumptions will turn out to be correct. 
B)  Ratios can tell whether future sales growth was accurately captured. 
C)  Ratios cannot tell whether assumptions about future cash flows are realistic. 
D)  Ratios can tell whether growth rates for sales are consistent with past sales growth performance.

Question 5

$\text { Bargains. Inc, manufactures and markets toys. Selected income statement data from } 2010 \text { and } 2009$
$\text { appear below: }$

$\begin{array}{l}
\begin{array}{lll}
\text { Bargains, Inc.}\
\text { Selected Income Statement data }\
\text { Fiscal year end}\
\text {  (amounts in thousands of dollars)}\
\text {  Net sales Cost of Goods Sold}\
 \text { Gross profit}\
\end{array}
\begin{array}{lll}
\
\
12 / 31 / 2010 & 12 / 31 / 2009\
\
\$ 5,320,185 & \$ 4,980,000 \ 
- 3,520,415 & - 3,340,290 \
 \$ 1,799,770 & \$ 1,369,710 \ 
& 998,934
\end{array}
\end{array}$

Required:
a.An analyst can sometimes estimate the variable cost as a percentage of sales for a particular cost by dividing the amount of the change in the cost item between two years by the amount of the change in sales for those two years.The analyst can then multiply the variable cost percentage times sales to determine the total variable cost.Subtracting the variable cost yields the fixed cost for that particular item.Follow this procedure to determine the cost structure for costs of goods sold for Bargains,Inc.
b.Bargains,Inc.projects sales to grow at the following percentages in future years: 2011,10percent; 2012,12 percent; 2013,16 percent.Using this information,project sales,cost of goods sold and gross profit for Bargains,Inc.for 2011 to 2013.

Accepted Answer

None

Question 6

Firms that have differentiated ___________________________________ for its products may have a greater potential to increase prices.

Accepted Answer

unique cha

Question 7

Saunders Corporation manufactures consumer electronics products.Selected income statement data for 2009 and 2010 follow (amounts in millions of dollars):
 $\begin{array}{|l|r|r|}

\hline\text { Saunders Corporation (amounts in } \
\text { millions of dollars) }

& \mathbf{2 0 0 9} & \mathbf{2 0 1 0} \
\hline \text { Sales } & 8,296 & 8,871 \
\hline \text { Cost of Goods Sold } & (5,890) & (6,290) \
\hline \text { Selling and Administrative Expenses } & (1,788) & (1,714) \
\hline \text { Operating Income before Income Taxes } & 618 & 867\
\hline
\end{array}$ 
Required
a.The analyst can sometimes estimate the variable cost as a percentage of sales for a particular cost (for example,cost of goods sold)by dividing the amount of the change in the cost item between two years by the amount of the change in sales for those two years.The analyst can then multiply total sales by the variable-cost percentage to determine the total variable cost.Subtracting the variable cost from the total cost yields the fixed cost component for that particular cost item.Follow this procedure to determine the cost structure (fixed cost plus variable cost as a percentage of sales)for cost of goods sold for Saunders.
b.Repeat requirement a.for selling and administrative expenses.
c.Saunders Corporation discloses that it expects sales to grow at the following percentages
in future years: Year 1,12 percent; Year 2,10 percent; Year 3,8 percent; Year 4,6 percent.Project sales,cost of goods sold,selling and administrative expenses,and operating income before income taxes for Saunders for Year 1 to Year 4 using the cost structure amounts derived in requirements a.and b.
d.Compute the ratio of operating income before income taxes to sales for Year 1 through Year 4.
e.Interpret the changes in the ratio computed in requirement d.in light of the expected changes in sales.

Accepted Answer

@#IMG-DLM& 
e.The percentage of operating income b

Question 8

Glad Rags,Inc.sells women's clothes.Provided below is selected financial statement information:
 $\begin{array}{l}
\begin{array}{lll}
\text {Glad Rags, Inc.}\
\text {Selected Financial Statement data}\
\text { Fiscal year end}\
\text {(amounts in thousands of dollars)}\
\text {Net sales}\
\text {Cost of Goods Sold}\
\text {Gross profit}\
\text {Inventory}\
\end{array}
\begin{array}{lll}
\
\
2010&2009\
\
\$ 47,895 & \$ 42,589 \
(35,952) & (32,588)\
\$ 11,943&\$ 10,001 \
\$ 5,548 & \$ 4,948\
\end{array}
\end{array}$ 
Required:
a.Compute the inventory turnover ratio for 2010.
b.Clothes,Inc.projects that sales will grow at a compound rate of 7% per year for years 2011-2013 and that the cost of goods sold to sales percentage will equal that realized in 2010.Compute the projected implied level of inventory at the end of 2011 to 2013.

Accepted Answer

a.Inventor

Question 9

If a company has very low operating leverage (i.e.,a low proportion of fixed costs in the cost structure)and no changes are expected in operations:

Accepted Answer

A)  percentage change income statement percentages can serve as the basis for projecting operating expenses. 
B)  using common-size income statement percentages will overstate future projected operating expenses. 
C)  using common-size income statement percentages will understate future projected operating expenses. 
D)  using common-size income statement percentages can serve as a reasonable basis for projecting future operating expenses. 
A)  percentage change income statement percentages can serve as the basis for projecting operating expenses. 
B)  using common-size income statement percentages will overstate future projected operating expenses. 
C)  using common-size income statement percentages will understate future projected operating expenses. 
D)  using common-size income statement percentages can serve as a reasonable basis for projecting future operating expenses.

Question 10

If a firm competes in a capital-intensive industry with excess capacity,all of the following are true except:

Accepted Answer

A)  price increases will be less likely. 
B)  price increases will be more likely. 
C)  companies in competitive industries face high exit barriers. 
D)  companies in competitive industries may experience future price decreases. 
A)  price increases will be less likely. 
B)  price increases will be more likely. 
C)  companies in competitive industries face high exit barriers. 
D)  companies in competitive industries may experience future price decreases.

Question 11

Financial statement forecasts should rely on _________________________ across financial statements.

Accepted Answer

The answer of Financial statement forecasts should rely on _________________________...

Question 12

When projecting ____________________,the analyst should consider economy-wide factors such as the expected rate of general price inflation in the economy.

Accepted Answer

The answer of When projecting ____________________,the analyst should consider economy-wide...

Question 13

Financial statement forecasts rely on additivity within financial statements and articulation across financial statements.Given this information sales growth forecasts will most likely affect growth in:

Accepted Answer

A)  accounts receivables. 
B)  accounts payable. 
C)  depreciation. 
D)  salary payable. 
A)  accounts receivables. 
B)  accounts payable. 
C)  depreciation. 
D)  salary payable.

Question 14

Based on the following statement from the text-"to develop forecasts of individual operating assets and liabilities,you must first determine the underlying operating activities that drive them"-explain what those underlying activities are.

Accepted Answer

For assets such as inventory and propert

Question 15

For some types of assets,such as accounts receivable,asset growth typically ____________________ future sales growth.

Accepted Answer

The answer of For some types of assets,such as accounts...

Question 16

The following information about Douglas Corp.'s Accounts Receivable and Sales are presented below:
 Year 2012-Beginning Balance of $ \mathrm{A} / \mathrm{R}=\$ 791 \mathrm{M} $
Year 2012 -Ending Balance of $ \mathrm{A} / \mathrm{R}=\$ 807 \mathrm{M} $
Year 2012 - Sales $ =\$ 3,002 \mathrm{M} $
Assumptions:
Sales growth will be equal to $ 6 \% $ per year
$ \mathrm{A} / \mathrm{R} $ turnover will stay constant throughout the forecast period 
Required:
a.Using this information,forecast Douglas Corp.'s the growth in Accounts Receivable for years 2013-2017.
b.What problem does a constant A/R turnover assumption cause?
c.Provide a solution to the problem caused by a constant A/R turnover assumption.

Accepted Answer

a. @#IMG-DLM& 
b.The constant A/R turnover assumpt

Question 17

Card Sharks, Inc.
Card Sharks, Inc.sells baseball cards and other memorabilia.The company tries to maintain a cash balance equivalent to approximately 30 days of sales.Sales in 2011 amounted to $352,412 and the company expects growth in 2012 of 30% and in 2013 of 35%.
-Given the information provided about Card Sharks,what is the company's 2013 projected cash balance?

Accepted Answer

A)  $53,934 
B)  $49,524 
C)  $21,873 
D)  $50,820 
A)  $53,934 
B)  $49,524 
C)  $21,873 
D)  $50,820

Question 18

The objective of forecasting is to develop:

Accepted Answer

A)  stand-alone financial statements for future analysis. 
B)  a set of realistic expectations for future value-relevant payoffs. 
C)  a balance sheet and income statement that articulate. 
D)  financial statements for comparison to industry averages. 
A)  stand-alone financial statements for future analysis. 
B)  a set of realistic expectations for future value-relevant payoffs. 
C)  a balance sheet and income statement that articulate. 
D)  financial statements for comparison to industry averages.

Question 19

If a firm operates at less than full capacity,then price _______________________ are not likely

Accepted Answer

The answer of If a firm operates at less than...

Question 20

For some types of assets,such as plant,property and equipment,asset growth typically ____________________ future sales growth.

Accepted Answer

The answer of For some types of assets,such as plant,property...

Common-size financial statements recast each statement item as:

Which of the following statements does not apply to preventing "garbage in,garbage out" when implementing a forecasting game plan?

The formula for forecasting inventory is ____________ /365 X.

All of the following statements are true regarding ratios and forecasts except:

Firms that have differentiated ___________________________________ for its products may have a greater potential to increase prices.

If a company has very low operating leverage (i.e.,a low proportion of fixed costs in the cost structure)and no changes are expected in operations:

If a firm competes in a capital-intensive industry with excess capacity,all of the following are true except:

Financial statement forecasts should rely on _________________________ across financial statements.

When projecting ____________________,the analyst should consider economy-wide factors such as the expected rate of general price inflation in the economy.

Financial statement forecasts rely on additivity within financial statements and articulation across financial statements.Given this information sales growth forecasts will most likely affect growth in:

Based on the following statement from the text-"to develop forecasts of individual operating assets and liabilities,you must first determine the underlying operating activities that drive them"-explain what those underlying activities are.

For some types of assets,such as accounts receivable,asset growth typically ____________________ future sales growth.

The objective of forecasting is to develop:

If a firm operates at less than full capacity,then price _______________________ are not likely

For some types of assets,such as plant,property and equipment,asset growth typically ____________________ future sales growth.

Overview of Financial Reporting, Financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Recognition

Income Flows versus Cash Flows: Understanding the Statement of Cash Flows

Profitability Analysis

Risk Analysis

Accounting Quality

Financing Activities

Investing Activities

Operating Activities

Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

Valuation: Cash-Flow-Based Approaches

Valuation: Earnings-Based Approaches

Valuation: Market-Based Approaches

Filters

Exam 10: Forecasting Financial Statements

Common-size financial statements recast each statement item as:

Which of the following statements does not apply to preventing "garbage in,garbage out" when implementing a forecasting game plan?

The formula for forecasting inventory is ____________ /365 X.

All of the following statements are true regarding ratios and forecasts except:

Firms that have differentiated ___________________________________ for its products may have a greater potential to increase prices.

If a company has very low operating leverage (i.e.,a low proportion of fixed costs in the cost structure)and no changes are expected in operations:

If a firm competes in a capital-intensive industry with excess capacity,all of the following are true except:

Financial statement forecasts should rely on _________________________ across financial statements.

When projecting ____________________,the analyst should consider economy-wide factors such as the expected rate of general price inflation in the economy.

Financial statement forecasts rely on additivity within financial statements and articulation across financial statements.Given this information sales growth forecasts will most likely affect growth in:

Based on the following statement from the text-"to develop forecasts of individual operating assets and liabilities,you must first determine the underlying operating activities that drive them"-explain what those underlying activities are.

For some types of assets,such as accounts receivable,asset growth typically ____________________ future sales growth.

The objective of forecasting is to develop:

If a firm operates at less than full capacity,then price _______________________ are not likely

For some types of assets,such as plant,property and equipment,asset growth typically ____________________ future sales growth.

Overview of Financial Reporting, Financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Recognition

Income Flows versus Cash Flows: Understanding the Statement of Cash Flows

Profitability Analysis

Risk Analysis

Accounting Quality

Financing Activities

Investing Activities

Operating Activities

Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

Valuation: Cash-Flow-Based Approaches

Valuation: Earnings-Based Approaches

Valuation: Market-Based Approaches

Filters