Quiz Module 6 ?s

Question 1

Which statement regarding financial forecasting is correct?

Strategic planners do not rely on financial forecasts to understand the possible outcomes from different investments options.

The most difficult aspect of preparing a financial forecast is predicting revenue.

Only a cash budget is needed to prepare a financial forecast.

Forecasting is straightforward and does not require making many assumptions.

Answer 1

The most difficult aspect of preparing a financial forecast is predicting revenue.

Question 2

Company X has decided to merge with another business. It is planning on preparing a pro forma income statement. Which condition should be included in the pro forma statement?

If the merged company will have increased Research & Development (R&D) expenses

How much the company’s revenues will increase due to the merger

All of these answers

How much the merged company’s income tax expense will increase

Answer 2

All of these answers

Question 3

In the percent-of-sales forecasting method, which balance sheet items are not assumed to increase proportionately with sales?

Accounts Receivable

Inventories

Accounts Payable

Long-term debt

Answer 3

Long-term debt

Question 4

Suppose a firm has a net profit margin of 15%, sales of $155 million, assets of $312 million, and owner’s equity of $223 million. If the dividend payout ratio is 10%, what is the firm’s sustainable growth rate?

10. 43%
11. 38%
12. 45%
13. 5%

Answer 4

9.38%

Question 5

A company had $1 million in sales last year, $1.5 million in sales this year, and projected net income of $250,000. Last year, it had $5 million of its assets tied to sales, $3 million in sales-affected liabilities, and a retention ratio of 0.3. What is its AFN?

$9,992,500

$92,500

$925,000

$23,425,000

Answer 5

$925,000