MCQs > Finance & Management > Financial Forecasting MCQs > Basic Financial Forecasting MCQs

Basic Financial Forecasting MCQ

1.

Which of the following would most likely be included on a summary page for Income Statement data?

Answer

Correct Answer: Total Assets, Total Liabilities, Total Equity

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2.

Which of the following decisions could be made by examining the Balance Sheet?

Answer

Correct Answer: To collect more aggressively on a growing receivables balance

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3.

Which of the following would one expect to be the highest expense?

Answer

Correct Answer: Salaries

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4.

Another name for the Balance Sheet is ____________________.

Answer

Correct Answer: Statement of Financial Position

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5.

Valuation is a ______________________.

Answer

Correct Answer: result of Net Income, Sales, and Cash Flow

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6.

Why would a company be conservative when projecting revenues?

Answer

Correct Answer: Being conservative is better than being overly optimistic.

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7.

Valuation will typically trend _______________.

Answer

Correct Answer: upwards over time as the company increases sales

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8.

Valuation can be calculated by ____________________.

Answer

Correct Answer: discounting net income for the next several years

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9.

A company has a pre-money valuation of $1,000,000. An investor will invest $100,000. The post-money valuation is _________________.

Answer

Correct Answer: $1,100,000

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10.

How is Cash at the beginning of the period determined?

Answer

Correct Answer: It is taken from the prior period's ending cash balance.

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11.

In a variance/sensitivity analysis, a company will typically calculate _________________.

Answer

Correct Answer: both best case and worst case scenarios of altered revenues and expenses

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12.

Which of the following would be a logical arrangement for showing revenue?

Answer

Correct Answer: Detailed by revenue stream

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13.

Retained Earnings reflect ____________________.

Answer

Correct Answer: the cumulative Net Income for a company from inception until its last reporting year

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14.

Which of the following would most likely NOT be included on summary financials?

Answer

Correct Answer: Accounts Payable

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15.

Which of the following is the accepted format for a forecasted Cash Flow Statement?

Answer

Correct Answer: Net Income, Operating Activities, Financing Activities, Investing Activities

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16.

The basic formula for a Balance Sheet is __________________.

Answer

Correct Answer: Assets = Liabilities + Equity

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17.

Companies calculate their valuation for the purpose of  _____________________.

Answer

Correct Answer: using the outcome as a basis for working with investors and deciding how much equity an investment is worth

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18.

Naming assumption cells is helpful because ____________________.

Answer

Correct Answer: it allows for easier creation and tracking of formulas built into the model

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19.

What purpose does a central assumptions input tab serve in an Excel-based forecast?

Answer

Correct Answer: It helps create an easy-to-use spreadsheet in which all inputs are located in one place.

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20.

Overall, what is the purpose of a Cash Flow Statement?

Answer

Correct Answer: It shows how the company received and spent cash each period.

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21.

For most new ventures in the process of creating a forecast, the expense that warrants the most detailed analysis and input is _____________.

Answer

Correct Answer: wages

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22.

A normal revenue model will _______________.

Answer

Correct Answer: increase revenues over time

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23.

Would it be better to create detailed input that individually forecasts expenses or to create a simple, one-line input for Operating Expenses?

Answer

Correct Answer: Detailed input: each expense grows based on different variables.

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24.

What is the purpose of a summary page?

Answer

Correct Answer: It gives a quick overview of the forecasted outcomes for various financials.

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25.

 Which of the following is the accepted format for a forecasted P&L?

Answer

Correct Answer: Revenue, COGS, Operating Expenses

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26.

A simple method of calculating variance is to _________________.

Answer

Correct Answer: apply a percentage increase/decrease to each line item on the P&L

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27.

The term "revenue driver" refers to ____________________.

Answer

Correct Answer: any factor that drives revenue, such as site impressions

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28.

In which of the following sections would a startup company record an investment by a venture capital firm?

Answer

Correct Answer: Cash from Financing

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29.

Why would an investor be interested in a company's pre-money valuation?

Answer

Correct Answer: Knowing the valuation allows the investor to secretly calculate how much he can expect in return.
Knowing the valuation allows the investor to secretly calculate how much he can expect in return.

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30.

In general, a financial plan can be defined as _____________________.

Answer

Correct Answer: a plan for spending, saving, and generating revenue

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31.

The majority ownership of a private company is typically held by __________________.

Answer

Correct Answer: company officers

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32.

Ad Revenue, which is revenue generated by placing advertisements of other companies on your site, can be modeled by  _________________.

Answer

Correct Answer: figuring the average revenue per ad multiplied by the expected number of advertisement spots in a given period

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33.

To be as specific as possible, a revenue forecast should  ______________.

Answer

Correct Answer: be detailed month by month

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34.

Which of the following decisions would best be made by looking at cash flow?

Answer

Correct Answer: The decision to spend less on capital assets and pay down payables in the next period

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35.

The most logical formatting convention for assumptions would be ___________________.

Answer

Correct Answer: to outline and use red text in all input cells, and to add a note at the top of the assumptions stating that only red-text cells are to be changed, with uniform formatting and assumptions placement

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36.

Why is it important to create assumptions for all possible changing variables?

Answer

Correct Answer: It makes future updates to the model easier because the user does not need to search for numbers embedded in formulas in the financial statements.

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37.

Which of the following would be the most useful forecasting interval?

Answer

Correct Answer: Monthly

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38.

Which of the following is the accepted format for a forecasted Balance Sheet?

Answer

Correct Answer: Assets, Liabilities, Equity

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39.

Which of the following decisions could be made by looking at the Balance Sheet?

Answer

Correct Answer: To invest excess cash into higher-yield investments

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40.

In which of the following sections would Change in Accounts Receivable be recorded?

Answer

Correct Answer: Cash from Operations

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41.

Another way to express the Balance Sheet formula is ________________.

Answer

Correct Answer: Equity = Assets - Liabilities

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42.

In what way are the Income Statement and the Balance Sheet linked in a dynamic forecast?

Answer

Correct Answer: Net income is carried over to the Equity section.

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43.

Capitalization is defined as ______________________.

Answer

Correct Answer: the capital structure of a company

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44.

The term "burn rate" refers to ______________.

Answer

Correct Answer: the amount of cash a company spends on average in a given period

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45.

In which of the following ways would typical Rent Expense be modeled?

Answer

Correct Answer: Related to both the number of employees and natural increases in rent

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46.

How is income tax forecasted?

Answer

Correct Answer: By applying the prevailing corporate tax rate to any income for the period

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47.

In what way are the Cash Flow Statement and the Balance Sheet linked in a dynamic forecast?

Answer

Correct Answer: Cash from the Cash Flow Statement is carried over to the Balance Sheet cash line.

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48.

Operating expenses should ____________________.

Answer

Correct Answer: be detailed, showing each line item that the actual P&L will have

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49.

Which of the following would most likely be included on a summary page for Balance Sheet data?

Answer

Correct Answer: Net Income, Total Sales, Total Operating Expense

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50.

Should a summary include metrics such as Gross Margin %?

Answer

Correct Answer: Yes, they are good high-level indicators.

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51.

The purpose of a worst case analysis is to _____________________.

Answer

Correct Answer: show what the results would be if things do not work out as forecasted

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52.

One method of calculating the valuation of a company is ________________.

Answer

Correct Answer: Discounted Cash Flows

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53.

Net Income on the Balance Sheet reflects _______________.

Answer

Correct Answer: year-to-date Net Income

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54.

A capitalization summary would show ______________________.

Answer

Correct Answer: Valuation, Investment, and Ownership %

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55.

To calculate a worst case scenario, a company would ____________ and ____________.

Answer

Correct Answer: decrease revenues, increase operating expenses

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56.

Why is Change in Accounts Payable added back to Net Income?

Answer

Correct Answer: An increase in AP reflects the fact that the company did not spend cash on paying its bills.

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57.

The Net Income on the Cash Flow Forecast comes from the __________________.

Answer

Correct Answer: Forecasted Profit & Loss Statement

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58.

What does an increasing trend in Accounts Payable indicate for a company?

Answer

Correct Answer: The company is making better use of its cash and is not paying bills as quickly.

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59.

Which of the following parties should be kept in mind when creating a financial forecast?

Answer

Correct Answer: The end user

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60.

Which of the following would NOT be included on a summary page?

Answer

Correct Answer: Payroll Expense

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61.

Is income tax forecasted?

Answer

Correct Answer: Yes, usually

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62.

Revenues on the Profit & Loss should be changed ___________________.

Answer

Correct Answer: by changing assumptions on the assumptions page

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63.

 For a startup company looking to gain investor interest, which of the following seems like a reasonable amount of time to forecast ahead?

Answer

Correct Answer: 5 years

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64.

Which of the following represents three possible revenue streams for an online venture?

Answer

Correct Answer: Ad Revenue, Affiliate Revenue, Product Sales

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65.

Why is it reasonable for a startup company to forecast a Net Loss for several years?

Answer

Correct Answer: As the company launches and grows, expenses will often exceed any revenue-generating abilities; hence, the expected payoff will not come until future years.

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66.

Why might someone forecast future years as one annual number?

Answer

Correct Answer: Because it is difficult to predict what will happen, applying a growth percentage to the year is the most reasonable assumption.

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67.

Depreciation on the Balance Sheet reflects ___________________.

Answer

Correct Answer: cumulative depreciation on fixed assets

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68.

Why would a company perform a variance/sensitivity analysis?

Answer

Correct Answer: To see how the forecast model changes based on changing dynamic inputs

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69.

An operating budget in a corporate setting is usually prepared ________________.

Answer

Correct Answer: for the following fiscal year

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70.

Which of the following is NOT an operating expense?

Answer

Correct Answer: Accounts Payable

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71.

The primary financial statements that are forecast are _________________.

Answer

Correct Answer: income statement, balance sheet, and cash flow

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72.

Why does a Balance Sheet balance (assets = liabilities + equity)?

Answer

Correct Answer: Accounting is a double-entry system of equal debits and credits.

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73.

A company has a post-money valuation of $500,000. The last investor put in $100,000. The pre-money valuation before the investor came in was _________________.

Answer

Correct Answer: $400,000

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74. Before they are updated, financial forecasts are typically used for:

Answer

Correct Answer: a month's time

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75. True or False? Prediction markets are informative markets that are created for the purpose of making market predictions.

Answer

Correct Answer: False

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76. The Percent of Sales Method of financial forecasting will help to identify:

Answer

Correct Answer: Financing needs

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77. Which of the following are important characteristics when identifying peer companies to use in firm valuation?

Answer

Correct Answer: Company Size

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78. The Black-Scholes model calculates the price of a:

Answer

Correct Answer: European put and call options

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79. True or False? Bayes theorem does not use balance sheets to make predictions.

Answer

Correct Answer: False

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80. How does market research differ from the delphi method?

Answer

Correct Answer: one takes the opinion of non-experts while the other takes only the opinion of experts

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81. What is an advantage of the EV / EBITDA multiple?

Answer

Correct Answer: It is unaffected by depreciation policy

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82. Companies with higher PEG ratios typically:

Answer

Correct Answer: underperform companies with lower PEG ratios

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83. If a company has a very high forward PE ratio, what do you expect the share price to do in the future?

Answer

Correct Answer: Go down

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84. If the yield to maturity > current yield > coupon yield, the bond is sold at a ______?

Answer

Correct Answer: discount

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

Answer

Correct Answer: Additional Funds Needed

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86. Companies with lower PEG ratios typically:

Answer

Correct Answer: outperfom companies with higher PEG ratios

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87. What does the x-axis of the security market line measure?

Answer

Correct Answer: risk

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88. True or False? A black swan is an example of an internality.

Answer

Correct Answer: False

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89. The indicator approach is a type of:

Answer

Correct Answer: quantitative model

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90. If a company has a low PE ratio and is expected to maintain profit, what do you expect the share price to do in the future?

Answer

Correct Answer: Go up

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91. The most encompassing means of financial forecasting is:

Answer

Correct Answer: Through the use of Pro Forma Financial Statements

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92. Which budget is prepared to determine how much external financing will be needed to support estimated sales?

Answer

Correct Answer: Cash Budget

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93. True or False? Quantitative models typically use experts opinions to form future trends.

Answer

Correct Answer: False

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94. Which of the following is not included under the qualitative forecasting method?

Answer

Correct Answer: Moving Average Methods

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95. Which of the following is not included under the quantitative forecasting method?

Answer

Correct Answer: Delphi Method

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96. The Delphi method is a type of:

Answer

Correct Answer: qualitative model

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97. What is an example of qualitative forecasting technique?

Answer

Correct Answer: Delphi Method

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98. Which of the following items is NOT likely found on a capital budget?

Answer

Correct Answer: Exisiting Inventory

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99. True or False? Black swan events are typically included in financial forecasts.

Answer

Correct Answer: False

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100. The time series method:

Answer

Correct Answer: (All of these)

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101. Which of the following is an example of financial forecasting?

Answer

Correct Answer: Forward PE ratio

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102. Which of the following pro forma statements is likely to be calculated first while forecasting financials?

Answer

Correct Answer: Income Statement

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103. A company’s Sustainable Rate of Growth (SRG) is determined by which of the following:

Answer

Correct Answer: SRG = ROE*(1 - Dividend Payout Ratio)

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104. True or False? The problem with Monte Carlo analysis is that you can only run one trial.

Answer

Correct Answer: False

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105. Which Method uses historical data as the basis of estimating future outcomes/information

Answer

Correct Answer: Time Series

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106. Which equation is best for forecasting future sales?

Answer

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

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

Answer

Correct Answer: True

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

Answer

Correct Answer: Payback Method

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109. Which of the following balance sheet items is NOT likely to vary directly with changes in revenue?

Answer

Correct Answer: Long-term Debt

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110. What is the formula for compound interest?

Answer

Correct Answer: (1+i)^t

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111. True or False? Verification is the process of comparing actual results and predicted results.

Answer

Correct Answer: True

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112. A security that has a beta of less than 1 has __________?

Answer

Correct Answer: lower volatility than the market

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113. True or False? Financial forecasting can always predict future events.

Answer

Correct Answer: False

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114. True or False? A Monte Carlo distribution could be a bell curve.

Answer

Correct Answer: True

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115. Financial forecasting is used for:

Answer

Correct Answer: (All of these)

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

Answer

Correct Answer: True

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117. True or False? A sensitivity analysis is changing a value or an original assumption to see what effect it has on the overall model.

Answer

Correct Answer: True

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118. Which of the following could be used in financial forecasts?

Answer

Correct Answer: (All of these)

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119. What is financial forecasting?

Answer

Correct Answer: Estimation of a company's future financial situation

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120. What does EBIT stand for?

Answer

Correct Answer: Earnings before Interest and Tax

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121. True or False? Forecasting is based on historical information and assumptions.

Answer

Correct Answer: True

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122. True or False? Predicting revenue is not part of financial forecasting.

Answer

Correct Answer: False

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123. True or False? Use of historical data is irrelevant to a financial forcast.

Answer

Correct Answer: False

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124. A cash forecast is an estimate of future inflows of revenue and _______?

Answer

Correct Answer: outflows of expenses

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125. Which of the following helps create a financial model?

Answer

Correct Answer: (All of these)

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126. True of False? Forecasting future revenues is one of the most difficult aspects when preparing a financial forecast.

Answer

Correct Answer: True

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

Answer

Correct Answer: True

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128. Projected financial statements are called:

Answer

Correct Answer: Pro Forma Financial Statements

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129. Management will use sensitivity analysis during financial forecasting to:

Answer

Correct Answer: Determine how different values of an independent variable will impact a particular dependent variable under a set of stated assumptions.

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130. True or False? The Monte Carlo method is often used in modeling.

Answer

Correct Answer: True

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131. What is the discount rate often used in capital budgeting that makes the Net Present Value (NVP) of all cash flows from a particular project equal to zero:

Answer

Correct Answer: Internal Rate of Return (IRR)

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132. True or False? Present value is the future amount of money that is discounted to today.

Answer

Correct Answer: True

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133. 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:

Answer

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

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134. Which of the following items would NOT be included in a cash budget?

Answer

Correct Answer: Depreciation

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135. Which type of security is used as a measurement of a low risk rate?

Answer

Correct Answer: government bonds

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

Answer

Correct Answer: False

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137. Which of the following is NOT a forecasted financial statement?

Answer

Correct Answer: Pro forma Statement of Financing

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138. What are the two overarching financial forecasting approaches?

Answer

Correct Answer: Qualitative and Quantitative

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139. True or False? Bayes theorem is often used in financial forecasting.

Answer

Correct Answer: True

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140. The indicator approach takes into account:

Answer

Correct Answer: (All of these)

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141. True or False? Probability models are often used for financial forecasts.

Answer

Correct Answer: True

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