Financial Forecasting MCQs (Chapterwise Multiple Choice Questions)

Which of the following capital budgeting techniques calculates the length of time required to recover the initial investment for a project?

Payback Method

Simple Rate of Return Method

Discounted Cash Flow Method

Internal Rate of Return Method

Answer & Explanation

Correct Answer: Payback Method

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True of False? Forecasting future costs can be estimated by using historical data.

False

True

Answer & Explanation

Correct Answer: True

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True or False? The Bayesian Probablity method is used often for financial forecasting.

True

False

Answer & Explanation

Correct Answer: True

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What does DCF stand for?

Discounted Cash Financials

Discounted Cash Flow

Discount Cash Flow

Discount Cash Financial

Answer & Explanation

Correct Answer: Discounted Cash Flow

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The indicator approach is a type of:

(None of these)

linear model

qualitative model

quantitative model

Answer & Explanation

Correct Answer: quantitative model

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On the pro forma balance sheet, which of the following is normally the "plug" number inserted to "balance" the balance sheet?

Total Assets

Long-term Debt

Additional Funds Needed

Changes in Retained Earnings

Answer & Explanation

Correct Answer: Additional Funds Needed

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Which equation is best for forecasting future sales?

Forecasted Sales = Current Sales(1 + Growth Rate)

Forecasted Sales = Current Sales(1 - Growth Rate)

Forecasted Sales = Current Sales + (1 + Growth Rate)

Forecasted Sales = Current Sales(1 + Growth Rate)^2

Answer & Explanation

Correct Answer: Forecasted Sales = Current Sales(1 + Growth Rate)

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Company XYZ has a project that requires an immediate investment of $100,000 which management has calculated to have discounted cash inflows of $105,000. This project is:

Acceptable, because the Net Present Value (NPV) is equal to the required rate of return.

Not acceptable, because it has a negative Profitability Index.

Acceptable, because it has a positive Net Present Value (NPV).

Not acceptable, because the Internal Rate of Return (IRR) is negative.

Answer & Explanation

Correct Answer: Acceptable, because it has a positive Net Present Value (NPV).

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True or False? Dividend structure and Capital structure are crucial to financial models

False

True

Answer & Explanation

Correct Answer: True

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True of False? The longer the financial forecast, the more accurate it will be.

True

False

Answer & Explanation

Correct Answer: False

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Financial Forecasting Quick Quiz

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