CHAPTER 16 14FINANCIAL PLANNING AND FORECASTING
CHAPTER 16: FINANCIAL PLANNING AND FORECASTING
1. The first, and most critical, step in constructing a set of forecasted financial statements is the sales forecast.
a. True
b. False
ANSWER: True
2. A typical sales forecast, though concerned with future events, will usually be based on recent historical trends and events as well as on forecasts of economic prospects.
a. True
b. False
ANSWER: True
3. Errors in the sales forecast can be offset by similar errors in costs and income forecasts. Thus, as long as the errors are not large, sales forecast accuracy is not critical to the firm.
a. True
b. False
ANSWER: False
4. As a firm's sales grow, its current assets also tend to increase. For instance, as sales increase, the firm's inventories generally increase, and purchases of inventories result in more accounts payable. Thus, spontaneously generated funds arise from transactions brought on by sales increases.
a. True
b. False
ANSWER: True
5. 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.
a. True
b. False
ANSWER: False
6. A rapid build-up of inventories normally requires additional financing, unless the increase is matched by an equally large decrease in some other asset.
a. True
b. False
ANSWER: True
7. If a firm wants to maintain its ratios at their existing levels, then if it has a positive sales growth rate of any amount, it will require some amount of external funding.
a. True
b. False
ANSWER: False
8. To determine the amount of additional funds needed (AFN), you may subtract the expected increase in liabilities, which represents a source of funds, from the sum of the expected increases in retained earnings and assets, both of which are uses of funds.
a. True
b. False
ANSWER: False
9. When developing forecasted financial statements there are some inputs that management controls such as the growth rate
1. The first, and most critical, step in constructing a set of forecasted financial statements is the sales forecast.
a. True
b. False
ANSWER: True
2. A typical sales forecast, though concerned with future events, will usually be based on recent historical trends and events as well as on forecasts of economic prospects.
a. True
b. False
ANSWER: True
3. Errors in the sales forecast can be offset by similar errors in costs and income forecasts. Thus, as long as the errors are not large, sales forecast accuracy is not critical to the firm.
a. True
b. False
ANSWER: False
4. As a firm's sales grow, its current assets also tend to increase. For instance, as sales increase, the firm's inventories generally increase, and purchases of inventories result in more accounts payable. Thus, spontaneously generated funds arise from transactions brought on by sales increases.
a. True
b. False
ANSWER: True
5. 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.
a. True
b. False
ANSWER: False
6. A rapid build-up of inventories normally requires additional financing, unless the increase is matched by an equally large decrease in some other asset.
a. True
b. False
ANSWER: True
7. If a firm wants to maintain its ratios at their existing levels, then if it has a positive sales growth rate of any amount, it will require some amount of external funding.
a. True
b. False
ANSWER: False
8. To determine the amount of additional funds needed (AFN), you may subtract the expected increase in liabilities, which represents a source of funds, from the sum of the expected increases in retained earnings and assets, both of which are uses of funds.
a. True
b. False
ANSWER: False
9. When developing forecasted financial statements there are some inputs that management controls such as the growth rate