Financial Forecasting Test Answers
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Which of the following is an example of
financial forecasting?
Tailing PE ratio
Forward PE ratio
PE ratio
Market capitalization
True or False? Bayes theorem is often used in
financial forecasting.
False
True
True or False? The Bayesian Probablity method
is used often for financial forecasting.
True
False
Which of the following pro forma statements is
likely to be calculated first while forecasting financials?
Balance Sheet
Income Statement
Statement of Cash Flow
Statement of Retained Earnings
What are the two overarching financial
forecasting approaches?
Average and Exponential
Qualitative and Quantitative
Rate Conversation and Sales Smoothing
Exponential and Qualitative
Which of the following balance
sheet items is NOT likely to vary directly with changes in revenue?
Long-term Debt
Accounts Payable
Inventory
Accounts Receivable
What is the formula for compound interest?
(1+it) / (t)
(1+i)^t
(1+i) / (t)
(1+ it)
Which of the following is NOT a forecasted
financial statement?
Pro forma Income Statement
Pro forma Statement of Financing
Pro forma Balance Sheet
Pro forma Statement of Cash Flows
Which type of security is used as a
measurement of a low risk rate?
(none of these)
LIBOR
corporate bonds
government bonds
True of False? The longer the financial
forecast, the more accurate it will be.
False
True
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:
Internal Rate of Return (IRR)
Price to Earnings (P/E)
Rate of Asset Return (RAR)
Turnover Rate
What does EBIT stand for?
Earnings before Interest and Taxable Income
Earnings before Income and Tax
Earnings before Interest and Tax
Projected financial statements are called:
Pro Forma Financial Statements
Cash Budgets
Annual Reports
SEC 10K Filings
True or False? A Monte Carlo distribution
could be a bell curve.
False
True
True or False? Verification is the process of
comparing actual results and predicted results.
True
False
A security that has a beta of less than 1 has
__________?
lower volatility than the market
higher volatility than the market
True or False? Financial forecasting can
always predict future events.
False
True
Which of the following items would NOT be
included in a cash budget?
Depreciation
Payments to Suppliers
Taxes
Cash receipts
True or False? Present value is the future
amount of money that is discounted to today.
False
True
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:
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.
Acceptable, because the Net Present Value (NPV)
is equal to the required rate of return.
True of False? Forecasting future revenues is
one of the most difficult aspects when preparing a financial forecast.
True
False
Management will use sensitivity analysis
during financial forecasting to:
Analyze how previous financial forecasts performed
versus actual company performance.
Analyze foreign economic conditions to determine
currency risk.
Determine how different values of an independent
variable will impact a particular dependent variable under a set of
stated assumptions.
Determine the type of forecasting method
to use.
True or False? The Monte Carlo method is often
used in modeling.
True
False
What does DCF stand for?
Discounted Cash Financials
Discount Cash Flow
Discounted Cash Flow
Discount Cash Financial
Which of the following helps create a
financial model?
growth rate
gross margin
expected tax rate
(All of these)
True or False? Dividend structure and Capital
structure are crucial to financial models
True
False
Which equation is best for forecasting future
sales?
Forecasted Sales = Current Sales(1 + Growth Rate)
Forecasted Sales = Current Sales(1 + Growth Rate)^2
Forecasted Sales = Current Sales(1 - Growth Rate)
Forecasted Sales = Current Sales + (1 + Growth
Rate)
Which Method uses historical data as the basis
of estimating future outcomes/information
Time Series
Econometric Forecasting Methods
Artificial Intelligence Methods
Judgmental Methods
True or False? The problem with Monte Carlo
analysis is that you can only run one trial.
True
False
Which of the following capital budgeting
techniques calculates the length of time required to recover the initial
investment for a project?
Simple Rate of Return Method
Discounted Cash Flow Method
Internal Rate of Return Method
Payback Method
A company’s Sustainable Rate of Growth (SRG)
is determined by which of the following:
SRG = ROE*(1 - Dividend Payout Ratio)
SRG = Net Income/Common Equity
SRG = Sales/Assets
SRG = Common Equity/Assets
A cash forecast is an estimate of future
inflows of revenue and _______?
outflows of profits
outflows of expenses
inflows of expenses
True or False? A foward price-earning ratio is
an example of financial forecasting.
False
True
The time series method:
gives less importance to extreme data points
most commonly used
takes into account several methods using past and
current data
(All of these)
Which of the following items is NOT likely
found on a capital budget?
Exisiting Inventory
Replacement Equipment
New Equipment
Research and Development
The indicator approach takes into account:
unemployment figures
(All of these)
GDP
(None of these)
Which of the following is not included under
the quantitative forecasting method?
Naive Method
Moving Average
Delphi Method
Trend Analysis
What is an example of qualitative forecasting
technique?
Seasonal Indexes
Last Period Demand
Delphi Method
Simple Exponential Smoothing
The Delphi method is a type of:
quantitative model
(None of these)
qualitative model
linear model
Which of the following is not included under
the qualitative forecasting method?
Delphi Method
Market Research
Moving Average Methods
Executive Opinions
True or False? Black swan events are typically
included in financial forecasts.
False
True
True or False? Predicting revenue is not part
of financial forecasting.
False
True
True or False? Forecasting is based on
historical information and assumptions.
True
False
True or False? Use of historical data is
irrelevant to a financial forcast.
True
False
Which of the following could be used in
financial forecasts?
financial models
Information on balance sheets
(All of these)
Historical data of earnings
What is financial forecasting?
Determination of a company's current financial
situation
Estimation of a company's future financial
situation
(None of these)
True or False? A sensitivity analysis is
changing a value or an original assumption to see what effect it has on the
overall model.
True
False
The primary purpose of a cash budget is:
To determine the cash collection pattern
To determine monthly cash receipts
To divide the income statement into monthly periods
To determine whether the company has enough cash to
fulfill regular operations or will generate excess cash
True of False? Forecasting future costs can be
estimated by using historical data.
False
True
The most encompassing means of financial
forecasting is:
Done using a long-term time horizon
Through the use of Pro Forma Financial Statements
Done using a short-term time horizon
Through the use of securities analyst's forecasts
for the firm
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?
Go up
stay the same
Go down
True or False? Quantitative models typically
use experts opinions to form future trends.
True
False
What does EPS stand for?
Earnings Per Sector
Earnings Per Share
Estimated Pre Sales
(None of these)
Financial forecasting is used for:
(All of these)
private companies
public companies
countries
The indicator approach is a type of:
qualitative model
(None of these)
quantitative model
linear model
Which budget is prepared to
determine how much external financing will be needed to support estimated
sales?
Balance Sheet Budget
Income Statement Budget
Shareholder's Equity Budget
Cash Budget
True or False? A black swan is an example of
an internality.
False
True
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
What does the x-axis of the security market
line measure?
risk
slope
expected return
Companies with lower PEG ratios typically:
outperfom companies with higher PEG ratios
underperform companies with higher PEG ratios
there is no correlation between PEG and performance
(None of these)
Companies with higher PEG ratios typically:
(None of these)
have no correlation with companies who have lower
PEG ratios
underperform companies with lower PEG ratios
outperfom companies with lower PEG ratios
If a company has a very high forward PE ratio,
what do you expect the share price to do in the future?
Go up
stay the same
Go down
If the yield to maturity > current yield
> coupon yield, the bond is sold at a ______?
premium
par
discount
What is an advantage of the EV / EBITDA
multiple?
It is unaffected by depreciation policy
Ignores value created through tax management
It reports variations in capital expenditures and
depreciation
How does market research differ from the
delphi method?
both are similar but the delphi method is a newer
name
both take the opinions of experts but the delphi
method takes into account their previous forecasting results
one takes the opinion of non-experts while the
other takes only the opinion of experts
(None of these)
The Black-Scholes model calculates the price
of a:
Share Price
Bond Price
European put and call options
American put and call option
True or False? Bayes theorem does not use
balance sheets to make predictions.
True
False
Which of the following are important
characteristics when identifying peer companies to use in firm valuation?
Growth Rate
All
Cash Flow
Company Size
The Percent of Sales Method of financial
forecasting will help to identify:
The rationale behind sales increases
Financing needs
Changes to earnings
Relationship changes between assets and liabilities
True or False? Prediction markets are
informative markets that are created for the purpose of making market
predictions.
True
False
Before they are updated, financial forecasts
are typically used for:
5 year's time
a year's time
a month's time
(None of these)
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