Question 1

Which of the following statements is correct?

Accepted Answer

A)  When we use the AFN formula, we assume that the ratios of assets and liabilities to sales (A*/S0 and L*/S0)  vary from year to year in a stable, predictable manner.
B)  Firms whose fixed assets are "lumpy" frequently have excess capacity, and this should be accounted for in the financial forecasting process.
C)  For a firm that uses lumpy assets, it is impossible to have small increases in sales without expanding fixed assets.
D)  When fixed assets are added in large, discrete units as a company grows, the assumption of constant ratios is more appropriate than if assets are relatively small and can be added in small increments as sales grow.E) A) and B)
F) None of the above

Question 2

Jefferson City Computers has developed a forecasting model to estimate its AFN for the upcoming year.All else being equal,which factor is most likely to lead to an increase of the additional funds needed?

Accepted Answer

A)  a sharp increase in its forecasted sales
B)  a sharp reduction in its forecasted sales
C)  a reduction in its dividend payout ratio
D)  excess capacity in its fixed assetsE) None of the above
F) B) and C)

Question 3

If a firm's capital intensity ratio (A*/S0) decreases as sales increase,use of the AFN formula is likely to understate the amount of additional funds required,other things held constant.

Accepted Answer

A) True 
 B)False

Question 4

Sales forecasts are usually based on which of the following?

Accepted Answer

A)  historical trends
B)  economic forecasts
C)  past marketing strategy
D)  both a and bE) B) and C)
F) A) and B)

Question 5

Which of the following is NOT a key element in strategic planning as it is described in the text?

Accepted Answer

A)  the mission statement
B)  the statement of the corporation's scope
C)  the statement of cash flows
D)  the statement of corporate objectivesE) A) and C)
F) A) and B)

Question 6

Which of the following best describes a firm that professionally uses corporate financial planning?

Accepted Answer

A)  High-performance companies are likely to place more emphasis on forecasting, planning, and business strategy than on cost management and cost accounting.
B)  High-performance companies are less likely to place more emphasis on forecasting, planning, and business strategy than on cost management and cost accounting.
C)  High-performance companies are indifferent regarding the use of forecasting, planning, and business strategy than on cost management and cost accounting.
D)  Low-performance companies are likely to place more emphasis on forecasting, planning, and business strategy than on cost management and cost accounting.E) B) and D)
F) All of the above

Question 7

Which of the following best defines the term "capital intensity ratio"?

Accepted Answer

A)  sales divided by total assets, i.e., the total assets turnover ratio
B)  the percentage of liabilities that increase spontaneously as a percentage of sales
C)  the ratio of current assets to sales
D)  the amount of assets required per dollar of sales, or A*/S0E) B) and C)
F) None of the above

Question 8

By developing a financial plan,a firm benefits by being forced to think about and forecast the future,set goals and establish priorities,and ensure that goals are internally consistent.

Accepted Answer

A) True 
 B)False

Question 9

A rapid build-up of inventories normally requires additional financing,unless the increase is matched by an equally large decrease in some other asset.

Accepted Answer

A) True 
 B)False

Question 10

Suppose a firm with a positive net worth is operating its fixed assets at full capacity and its dividend payout ratio is 100%,and it wants to hold all financial ratios constant.Then,for any positive growth rate in sales,it will require external financing.

Accepted Answer

A) True 
 B)False

Question 11

The term "spontaneously generated funds" generally refers to increases in the cash account that result from growth in sales,assuming the firm is operating with a positive profit margin.

Accepted Answer

A) True 
 B)False

Exam 5: Financial Planning and Forecasting Financial Statements

Which of the following is NOT a key element in strategic planning as it is described in the text?

Correct Answer
verified

By developing a financial plan,a firm benefits by being forced to think about and forecast the future,set goals and establish priorities,and ensure that goals are internally consistent.

Correct Answer
verified

Which of the following best describes a firm that professionally uses corporate financial planning?

Correct Answer
verified

If a firm's capital intensity ratio (A*/S₀) decreases as sales increase,use of the AFN formula is likely to understate the amount of additional funds required,other things held constant.

Correct Answer
verified

Suppose a firm with a positive net worth is operating its fixed assets at full capacity and its dividend payout ratio is 100%,and it wants to hold all financial ratios constant.Then,for any positive growth rate in sales,it will require external financing.

Correct Answer
verified

The term "spontaneously generated funds" generally refers to increases in the cash account that result from growth in sales,assuming the firm is operating with a positive profit margin.

Correct Answer
verified

Sales forecasts are usually based on which of the following?

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

A rapid build-up of inventories normally requires additional financing,unless the increase is matched by an equally large decrease in some other asset.

Correct Answer
verified

Which of the following best defines the term "capital intensity ratio"?

Correct Answer
verified

Jefferson City Computers has developed a forecasting model to estimate its AFN for the upcoming year.All else being equal,which factor is most likely to lead to an increase of the additional funds needed?

Correct Answer
verified

Exam 5: Financial Planning and Forecasting Financial Statements

Which of the following is NOT a key element in strategic planning as it is described in the text?

Correct AnswerverifiedShow Answer

By developing a financial plan,a firm benefits by being forced to think about and forecast the future,set goals and establish priorities,and ensure that goals are internally consistent.

Correct AnswerverifiedShow Answer

Which of the following best describes a firm that professionally uses corporate financial planning?

Correct AnswerverifiedShow Answer

If a firm's capital intensity ratio (A*/S0) decreases as sales increase,use of the AFN formula is likely to understate the amount of additional funds required,other things held constant.

Correct AnswerverifiedShow Answer

Suppose a firm with a positive net worth is operating its fixed assets at full capacity and its dividend payout ratio is 100%,and it wants to hold all financial ratios constant.Then,for any positive growth rate in sales,it will require external financing.

Correct AnswerverifiedShow Answer

The term "spontaneously generated funds" generally refers to increases in the cash account that result from growth in sales,assuming the firm is operating with a positive profit margin.

Correct AnswerverifiedShow Answer

Sales forecasts are usually based on which of the following?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

A rapid build-up of inventories normally requires additional financing,unless the increase is matched by an equally large decrease in some other asset.

Correct AnswerverifiedShow Answer

Which of the following best defines the term "capital intensity ratio"?

Correct AnswerverifiedShow Answer

Jefferson City Computers has developed a forecasting model to estimate its AFN for the upcoming year.All else being equal,which factor is most likely to lead to an increase of the additional funds needed?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

If a firm's capital intensity ratio (A*/S₀) decreases as sales increase,use of the AFN formula is likely to understate the amount of additional funds required,other things held constant.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified