Which of the following would most likely be included on a summary page for Income Statement data?
Correct Answer:
Total Assets, Total Liabilities, Total Equity
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Which of the following decisions could be made by examining the Balance Sheet?
Correct Answer:
To collect more aggressively on a growing receivables balance
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Which of the following would one expect to be the highest expense?
Correct Answer:
Salaries
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Another name for the Balance Sheet is ____________________.
Correct Answer:
Statement of Financial Position
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Valuation is a ______________________.
Correct Answer:
result of Net Income, Sales, and Cash Flow
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Why would a company be conservative when projecting revenues?
Correct Answer:
Being conservative is better than being overly optimistic.
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Valuation will typically trend _______________.
Correct Answer:
upwards over time as the company increases sales
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Valuation can be calculated by ____________________.
Correct Answer:
discounting net income for the next several years
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A company has a pre-money valuation of $1,000,000. An investor will invest $100,000. The post-money valuation is _________________.
Correct Answer:
$1,100,000
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How is Cash at the beginning of the period determined?
Correct Answer:
It is taken from the prior period's ending cash balance.
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In a variance/sensitivity analysis, a company will typically calculate _________________.
Correct Answer:
both best case and worst case scenarios of altered revenues and expenses
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Which of the following would be a logical arrangement for showing revenue?
Correct Answer:
Detailed by revenue stream
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Retained Earnings reflect ____________________.
Correct Answer:
the cumulative Net Income for a company from inception until its last reporting year
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Which of the following would most likely NOT be included on summary financials?
Correct Answer:
Accounts Payable
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Which of the following is the accepted format for a forecasted Cash Flow Statement?
Correct Answer:
Net Income, Operating Activities, Financing Activities, Investing Activities
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The basic formula for a Balance Sheet is __________________.
Correct Answer:
Assets = Liabilities + Equity
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Companies calculate their valuation for the purpose of _____________________.
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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Naming assumption cells is helpful because ____________________.
Correct Answer:
it allows for easier creation and tracking of formulas built into the model
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What purpose does a central assumptions input tab serve in an Excel-based forecast?
Correct Answer:
It helps create an easy-to-use spreadsheet in which all inputs are located in one place.
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Overall, what is the purpose of a Cash Flow Statement?
Correct Answer:
It shows how the company received and spent cash each period.
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For most new ventures in the process of creating a forecast, the expense that warrants the most detailed analysis and input is _____________.
Correct Answer:
wages
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A normal revenue model will _______________.
Correct Answer:
increase revenues over time
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Would it be better to create detailed input that individually forecasts expenses or to create a simple, one-line input for Operating Expenses?
Correct Answer:
Detailed input: each expense grows based on different variables.
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What is the purpose of a summary page?
Correct Answer:
It gives a quick overview of the forecasted outcomes for various financials.
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Which of the following is the accepted format for a forecasted P&L?
Correct Answer:
Revenue, COGS, Operating Expenses
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A simple method of calculating variance is to _________________.
Correct Answer:
apply a percentage increase/decrease to each line item on the P&L
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The term "revenue driver" refers to ____________________.
Correct Answer:
any factor that drives revenue, such as site impressions
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In which of the following sections would a startup company record an investment by a venture capital firm?
Correct Answer:
Cash from Financing
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Why would an investor be interested in a company's pre-money valuation?
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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In general, a financial plan can be defined as _____________________.
Correct Answer:
a plan for spending, saving, and generating revenue
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The majority ownership of a private company is typically held by __________________.
Correct Answer:
company officers
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Ad Revenue, which is revenue generated by placing advertisements of other companies on your site, can be modeled by _________________.
Correct Answer:
figuring the average revenue per ad multiplied by the expected number of advertisement spots in a given period
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To be as specific as possible, a revenue forecast should ______________.
Correct Answer:
be detailed month by month
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Which of the following decisions would best be made by looking at cash flow?
Correct Answer:
The decision to spend less on capital assets and pay down payables in the next period
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The most logical formatting convention for assumptions would be ___________________.
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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Why is it important to create assumptions for all possible changing variables?
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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Which of the following would be the most useful forecasting interval?
Correct Answer:
Monthly
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Which of the following is the accepted format for a forecasted Balance Sheet?
Correct Answer:
Assets, Liabilities, Equity
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Which of the following decisions could be made by looking at the Balance Sheet?
Correct Answer:
To invest excess cash into higher-yield investments
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In which of the following sections would Change in Accounts Receivable be recorded?
Correct Answer:
Cash from Operations
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Another way to express the Balance Sheet formula is ________________.
Correct Answer:
Equity = Assets - Liabilities
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In what way are the Income Statement and the Balance Sheet linked in a dynamic forecast?
Correct Answer:
Net income is carried over to the Equity section.
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Capitalization is defined as ______________________.
Correct Answer:
the capital structure of a company
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The term "burn rate" refers to ______________.
Correct Answer:
the amount of cash a company spends on average in a given period
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In which of the following ways would typical Rent Expense be modeled?
Correct Answer:
Related to both the number of employees and natural increases in rent
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How is income tax forecasted?
Correct Answer:
By applying the prevailing corporate tax rate to any income for the period
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In what way are the Cash Flow Statement and the Balance Sheet linked in a dynamic forecast?
Correct Answer:
Cash from the Cash Flow Statement is carried over to the Balance Sheet cash line.
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Operating expenses should ____________________.
Correct Answer:
be detailed, showing each line item that the actual P&L will have
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Which of the following would most likely be included on a summary page for Balance Sheet data?
Correct Answer:
Net Income, Total Sales, Total Operating Expense
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Should a summary include metrics such as Gross Margin %?
Correct Answer:
Yes, they are good high-level indicators.
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The purpose of a worst case analysis is to _____________________.
Correct Answer:
show what the results would be if things do not work out as forecasted
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One method of calculating the valuation of a company is ________________.
Correct Answer:
Discounted Cash Flows
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Net Income on the Balance Sheet reflects _______________.
Correct Answer:
year-to-date Net Income
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A capitalization summary would show ______________________.
Correct Answer:
Valuation, Investment, and Ownership %
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To calculate a worst case scenario, a company would ____________ and ____________.
Correct Answer:
decrease revenues, increase operating expenses
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Why is Change in Accounts Payable added back to Net Income?
Correct Answer:
An increase in AP reflects the fact that the company did not spend cash on paying its bills.
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The Net Income on the Cash Flow Forecast comes from the __________________.
Correct Answer:
Forecasted Profit & Loss Statement
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What does an increasing trend in Accounts Payable indicate for a company?
Correct Answer:
The company is making better use of its cash and is not paying bills as quickly.
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Which of the following parties should be kept in mind when creating a financial forecast?
Correct Answer:
The end user
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Which of the following would NOT be included on a summary page?
Correct Answer:
Payroll Expense
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Is income tax forecasted?
Correct Answer:
Yes, usually
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Revenues on the Profit & Loss should be changed ___________________.
Correct Answer:
by changing assumptions on the assumptions page
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For a startup company looking to gain investor interest, which of the following seems like a reasonable amount of time to forecast ahead?
Correct Answer:
5 years
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Which of the following represents three possible revenue streams for an online venture?
Correct Answer:
Ad Revenue, Affiliate Revenue, Product Sales
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Why is it reasonable for a startup company to forecast a Net Loss for several years?
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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Why might someone forecast future years as one annual number?
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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Depreciation on the Balance Sheet reflects ___________________.
Correct Answer:
cumulative depreciation on fixed assets
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Why would a company perform a variance/sensitivity analysis?
Correct Answer:
To see how the forecast model changes based on changing dynamic inputs
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An operating budget in a corporate setting is usually prepared ________________.
Correct Answer:
for the following fiscal year
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Which of the following is NOT an operating expense?
Correct Answer:
Accounts Payable
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The primary financial statements that are forecast are _________________.
Correct Answer:
income statement, balance sheet, and cash flow
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Why does a Balance Sheet balance (assets = liabilities + equity)?
Correct Answer:
Accounting is a double-entry system of equal debits and credits.
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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 _________________.
Correct Answer:
$400,000
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Correct Answer:
a month's time
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Correct Answer:
False
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Correct Answer:
Financing needs
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Correct Answer:
Company Size
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Correct Answer:
European put and call options
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Correct Answer:
False
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Correct Answer:
one takes the opinion of non-experts while the other takes only the opinion of experts
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Correct Answer:
It is unaffected by depreciation policy
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Correct Answer:
underperform companies with lower PEG ratios
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Correct Answer:
Go down
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Correct Answer:
discount
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Correct Answer:
Additional Funds Needed
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Correct Answer:
outperfom companies with higher PEG ratios
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Correct Answer:
risk
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Correct Answer:
False
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Correct Answer:
quantitative model
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Correct Answer:
Go up
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Correct Answer:
Through the use of Pro Forma Financial Statements
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Correct Answer:
Cash Budget
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Correct Answer:
False
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Correct Answer:
Moving Average Methods
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Correct Answer:
Delphi Method
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Correct Answer:
qualitative model
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Correct Answer:
Delphi Method
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Correct Answer:
Exisiting Inventory
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Correct Answer:
False
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Correct Answer:
(All of these)
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Correct Answer:
Forward PE ratio
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Correct Answer:
Income Statement
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Correct Answer:
SRG = ROE*(1 - Dividend Payout Ratio)
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Correct Answer:
False
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Correct Answer:
Time Series
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Correct Answer:
Forecasted Sales = Current Sales(1 + Growth Rate)
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Correct Answer:
True
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Correct Answer:
Payback Method
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Correct Answer:
Long-term Debt
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Correct Answer:
(1+i)^t
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Correct Answer:
True
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Correct Answer:
lower volatility than the market
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Correct Answer:
False
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Correct Answer:
True
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Correct Answer:
(All of these)
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Correct Answer:
True
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Correct Answer:
True
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Correct Answer:
(All of these)
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Correct Answer:
Estimation of a company's future financial situation
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Correct Answer:
Earnings before Interest and Tax
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Correct Answer:
True
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Correct Answer:
False
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Correct Answer:
False
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Correct Answer:
outflows of expenses
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Correct Answer:
(All of these)
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Correct Answer:
True
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Correct Answer:
True
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Correct Answer:
Pro Forma Financial Statements
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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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Correct Answer:
True
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Correct Answer:
Internal Rate of Return (IRR)
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Correct Answer:
True
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Correct Answer:
Acceptable, because it has a positive Net Present Value (NPV).
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Correct Answer:
Depreciation
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Correct Answer:
government bonds
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Correct Answer:
False
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Correct Answer:
Pro forma Statement of Financing
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Correct Answer:
Qualitative and Quantitative
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Correct Answer:
True
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Correct Answer:
(All of these)
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Correct Answer:
True
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Financial Forecasting MCQs | Topic-wise