Question 1

As a firm progresses through the decline life-cycle stage, what type of flexible account will it be more likely to use to balance the balance sheet?

Accepted Answer

A)   issued debt
B)   growth related assets
C)   issued equity
D)   stock buy-backs D

Question 2

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. B

Question 3

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. B

Question 4

Given the information provided about Card Sharks, what is the company's 2012 projected year-end cash balance?

Accepted Answer

A)   $966
B)   $50,820
C)   $15,623
D)   $38,524

Question 5

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.

Question 6

Financial statement forecasts should rely on ____________________ within financial statements.

Accepted Answer

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

Question 7

To ensure that the financial statements articulate, it is important that the change in the cash balance on the balance sheet each year agrees with:

Accepted Answer

A)   the cash collections from sales in the projected income statement.
B)   the cash provided by or used by operations on the projected statement of cash flows.
C)   the net change in cash on the projected statement of cash flows.
D)   the net change in working capital from period to period.

Question 8

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...

Question 9

Projecting sales price changes depends on factors specific to the firm and its industry that might affect demand and price elasticity. Which of the following companies would most likely not be able to increase prices in the near future?

Accepted Answer

A)   A firm in a capital intensive industry that is expected to operate near capacity for the near future.
B)   A firm in a capital intensive industry in which excess capacity exists.
C)   A firm operating in an industry that is expected to maintain its current production processes.
D)   A firm operating in an industry that is transitioning from the introduction phase to the high growth phase of its life cycle.

Question 10

Analysts must develop realistic expectations for the outcomes of future business activities. To develop these expectations, analysts build a set of _____________________________.

Accepted Answer

The answer of Analysts must develop realistic expectations for the...

Question 11

When projecting operating expenses, it is important to determine the mix of fixed and variable costs; one clue suggesting the presence of fixed costs is:

Accepted Answer

A)   the percentage change in cost of goods sold in prior years is significantly greater than the percentage change in sales.
B)   the percentage change in cost of goods sold in prior years is significantly less than the percentage change in sales.
C)   low capital intensity in the production process.
D)   the percentage change in sales in prior years is significantly greater than the percentage change in receivables.

Question 12

The authors set forth a seven-step forecasting game plan for preparing pro forma financial statements. Discuss the seven steps necessary to prepare the three principal financial statements.

Accepted Answer

The answer of The authors set forth a seven-step forecasting...

Question 13

Given the information provided about Card Sharks, what are the company's 2013 projected annual sales?

Accepted Answer

A)   $656,191
B)   $493,377
C)   $618,482
D)   $542,333

Question 14

Sparky's forecasts that sales will grow by 25% in 2013 and that its cost of goods sold to sales ratio will be the same in 2013 as it was in 2012. If these assumptions prove correct and Sparky's inventory turnover ratio for 2013 is 4.5 what will be the level of inventory at the end of 2013?

Accepted Answer

A)   $31,353
B)   $26,475
C)   $40,000
D)   $42,314

Question 15

To develop forecasts of individual assets, the analyst must first link historical growth rates for individual assets to historical growth rates in ____________________ and other activity-based drivers.

Accepted Answer

The answer of To develop forecasts of individual assets, the...

Question 16

It may be difficult to forecast sales for firms with _________________________ patterns because their historical growth rates reflect wide variations in both direction and amount from year to year.

Accepted Answer

The answer of It may be difficult to forecast sales...

Question 17

One problem caused by using turnover ratios to calculate asset balances is that it can lead to volatility in projected ending balances. What might an analyst do to reduce the "sawtooth" pattern caused by using turnover ratios?

Accepted Answer

The answer of One problem caused by using turnover ratios...

Question 18

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 19

Financial statement forecasts should rely on _________________________ across financial statements.

Accepted Answer

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

Question 20

All of the following are true regarding the key principles of forecasting except :

Accepted Answer

A)   Financial statement forecasts need not be comprehensive.
B)   Forecasts should not manifest wishful thinking.
C)   Financial statement forecasts must be internally consistent.
D)   Financial statement forecasts must rely on assumptions that have external validity.

Exam 10: Forecasting Financial Statements