Question 1

Which of the following can be computed as: necessary increase in assets minus spontaneous increase in liabilities minus projected increase in retained earnings?

Accepted Answer

A)  Additional funds needed 
B)  Capital intensity ratio 
C)  Current ratio 
D)  Spontaneous assets

Question 2

Suppose a firm has had the historical sales figures shown as follows. What would be the forecast for next year's sales using the average approach?
$$\begin{array} { c c c c c c } 
\text { Year } & 2013 & 2014 & 2015 & 2016 & 2017 \
\text { Sales } & \$ 1,000,000 & \$ 2,000,000 & \$ 1,700,000 & \$ 1,800,000 & \$ 2,200,000
\end{array}$$

Accepted Answer

A)  $1,000,000 
B)  $1,740,000 
C)  $1,925,000 
D)  $2,200,000

Question 3

Suppose a firm has had the historical sales figures shown as follows. What would be the forecast for next year's sales using the naïve approach?
$$\begin{array} { l l l c l l l } 
\text { Year } & 2013 & 2014 & 2015 & 2016 & 2017 \
\text { Sales } & \$ 500,000 & \$  750,000 & \$ 700,000 & \$ 750,000 & \$ 775,000
\end{array}$$

Accepted Answer

A)  $695,000 
B)  $700,000 
C)  $750,000 
D)  $775,000

Question 4

What would be the appropriate way to forecast sales for a firm that has stable year-to-year sales, but seasonally fluctuating month-to-month sales?

Accepted Answer

A)  Forecasts would need to be adjusted for a trend, but would not need a regression to adjust for seasonality. 
B)  Forecasts would need to be adjusted for seasonality, but would not need a regression to adjust for a trend. 
C)  Ignore both the trend and the seasonality. 
D)  None of the options.

Question 5

Which of the following is defined as assuming that future sales will be equal to the average historical value across some relevant period?

Accepted Answer

A)  Average approach 
B)  Base case approach 
C)  Naïve approach 
D)  Pro forma approach

Question 6

Suppose that TV Industries, Inc. currently has the balance sheet shown as follows, and that sales for the year just ended were $5 million. The firm also has a profit margin of 15 percent, a retention ratio of 25 percent, and expects sales of $5.5 million next year. If all assets and current liabilities are expected to increase with sales, what amount of additional funds will the company need from external sources to fund the expected growth?
$$\begin{array} { l r l l l } 
 \text { Assets } & & { \text { Liabilities and Equity } } \
\text { Current Assets } & \$ 1,000,000 & \text { Current Liabilities } & \$ 1,000,000 \
\text { Fixed Assets } &  2,000,000 & \text { Long-tern Debt } & 1,000,000 \
& & \text { Equity } & 1,000,000 \
\text { Total Assets } & \$ 3,000,000 & \text { Total Liabilities ard Equity } & \$ 3,000,000
\end{array}$$

Accepted Answer

A)  $0 
B)  $6,250 
C)  $206,250 
D)  $12,500

Question 7

________ assumes that future sales will be equal to the average historical value across some relevant period.

Accepted Answer

A)  naïve approach 
B)  average approach 
C)  mean absolute percentage error 
D)  none of the above

Question 8

Suppose a firm has had the historical sales figures shown as follows. What would be the forecast for next year's sales using the naïve approach?
$$\begin{array} { c c c c c c } 
\text { Year } & 2013 & 2014 & 2015 & 2016 & 2017 \
\text { Sales } & \$ 1,000,000 & \$ 2,000,000 & \$ 1,700,000 & \$ 1,800,000 & \$ 2,200,000
\end{array}$$

Accepted Answer

A)  $1,000,000 
B)  $1,740,000 
C)  $1,925,000 
D)  $2,200,000

Question 9

Goldilochs Inc. reported sales of $8 million and net income of $2 million. The firm has a total asset turnover of 1.2. The firm's chief financial officer is projecting a $6 million increase in sales and that spontaneous liabilities will increase by $1 million automatically. The firm currently pays out 50 percent of its net income to shareholders. Assuming that all assets and current liabilities are expected to grow with sales, how much in additional funds will Goldilochs need from external sources to fund the expected growth?

Accepted Answer

A)  $1,250,000 
B)  $1,750,000 
C)  $2,500,000 
D)  $2,250,000

Question 10

Suppose a firm has had the historical sales figures shown as follows. What would be the forecast for next year's sales using the naïve approach?
$$\begin{array} { c c c c c c } 
\text { Year } & 2013 & 2014 & 2015 & 2016 & 2017 \
\text { Sales } & \$ 10,000,000 & \$ 10,500,000 & \$ 10,700,000 & \$ 11,000,000 & \$ 12,000,000
\end{array}$$

Accepted Answer

A)  $10,000,000 
B)  $10,550,000 
C)  $10,840,000 
D)  $12,000,000

Question 11

All of the following will tend to increase spontaneously with sales EXCEPT

Accepted Answer

A)  accrued wages. 
B)  notes payable. 
C)  accounts payable. 
D)  All of the options will tend to increase spontaneously with sales.

Question 12

Suppose you were forecasting sales for a firm that exhibited a cyclical pattern within each week. How would you go about forecasting sales for this firm?

Accepted Answer

A)  You would need to compute day-of-the week indices centered on the seven days around each day of the week and use these indices to deseasonalize the historical observations 
B)  Calculate the monthly average because it automatically deseasonalizes the historical observations. 
C)  Ignore the seasonality. 
D)  Compute the daily change as a percent of sales and calculate the geometric average.

Question 13

Suppose that Wind Em Corp. currently has the balance sheet shown as follows, and that sales for the year just ended were $15 million. The firm also has a profit margin of 23 percent, a retention ratio of 40 percent, and expects sales of $20 million next year. If all assets and current liabilities are expected to grow with sales, what is the projected increase in retained earnings?
$$\begin{array} { l r l r r } 
 \text { Assets } && { \text { Iiabilities ard Equity } } \
\text { Current Assets } & \$ 2,000,000 & \text { Current Liabilities } & \$ 2,500,000 \
\text { Fixed Assets } &  8,000,000 & \text { Long-tern Debt } &1,5000,000 \
& & \text { Equity } & 6,000,000 \
\text { Total Assets } & \$ 10,000,000 & \text { Total Liabilities and Equity } & \$ 10,000,000
\end{array}$$

Accepted Answer

A)  $1,050,000 
B)  $1,240,000 
C)  $1,366,957.14 
D)  $1,840,000

Question 14

Which of the following will increase the additional funds needed from external sources?

Accepted Answer

A)  The firm's profit margin increases. 
B)  The firm's sales forecast is decreased. 
C)  The firm reduces its usage of trade credit. 
D)  The firm's retention ratio is increased.

Question 15

Goldilochs Inc. reported sales of $8 million and net income of $1.5 million. The firm has $10.5 million in total assets. The firm's chief financial officer is projecting a 20 percent increase in sales. If the firm's sales do increase by 20 percent, it is expected that spontaneous liabilities will increase by $500,000. The firm currently pays out 30 percent of its net income to shareholders. Assuming that all assets are expected to grow with sales, how much in additional funds will Goldilochs need from external sources to fund the expected growth?

Accepted Answer

A)  $340,000 
B)  $299,000 
C)  $321,000 
D)  $360,000

Question 16

The simplest approach to estimating a future period's sales is to assume that they will be equal to those of the latest observed period. In statistics, this is often simply referred to as which of the following?

Accepted Answer

A)  Base case approach 
B)  Deseasonalized approach 
C)  Naïve approach 
D)  Pro forma approach

Question 17

Which of the following is likely to increase the firm's additional funds needed?

Accepted Answer

A)  The firm cuts its dividend by 50 percent. 
B)  The firm reduces its usage of trade credit. 
C)  The firm has unused fixed assets. 
D)  All of the options would increase the firm's additional funds needed.

Question 18

Abracadabra Inc. has total assets of $106,000 and a debt ratio of 40 percent. If last year's sales were $145,000 and sales are expected to grow 10 percent in the future, what is Abracadabra's capital intensity ratio?

Accepted Answer

A)  0.73 
B)  1.37 
C)  0.44 
D)  2.27

Question 19

Which of the following is the practice of one firm selling to another on credit terms?

Accepted Answer

A)  Accounts payable 
B)  Accounts receivable 
C)  Barter transactions 
D)  Trade credit

Question 20

Suppose that Wind Em Corp. currently has the balance sheet shown as follows, and that sales for the year just ended were $15 million. The firm also has a profit margin of 19 percent, a retention ratio of 30 percent, and expects sales of $22 million next year. If all assets and current liabilities are expected to grow with sales, what is the projected increase in retained earnings?
$$\begin{array} { l r l r r } 
 \text { Assets } && { \text { Iiabilities ard Equity } } \
\text { Current Assets } & \$ 2,000,000 & \text { Current Liabilities } & \$ 2,500,000 \
\text { Fixed Assets } &  8,000,000 & \text { Long-tern Debt } &1,5000,000 \
& & \text { Equity } & 6,000,000 \
\text { Total Assets } & \$ 10,000,000 & \text { Total Liabilities and Equity } & \$ 10,000,000
\end{array}$$

Accepted Answer

A)  $1,254,000 
B)  $1,240,000 
C)  $1,366,957.14 
D)  $1,840,000

Exam 15: Financial Planning and Forecasting