Exam 9: Projecting Financial Statements

The "constant-ratio forecasting method" is a variant of the "percent-of-sales forecasting method."

Which of the following is not a step in forecasting sales for a seasoned firm?

During which life cycle stage is a venture typically most accurate in forecasting sales?

Your firm recorded sales for the most recent year of $10 million generated from an asset base of $7 million, producing a $500,000 net income. Sales are projected to grow at 20%, causing spontaneous liabilities to increase by $200,000. In the most recent year, $200,000 was paid out as dividends, and the current payout ratio will continue in the upcoming years. What is your firm's AFN?

Preparing a projected statement of cash flows serves as check on the projected income statement and projected balance sheet.

The cost of obtaining additional funds, such as additional interest expenses from borrowing funds, may be explicit and impact AFN.

"Spontaneously generated funds" are increases in accounts receivable and accounts payable that accompany sales increases.

The rate at which a firm can grow sales based on the retention of business profits is known as sustainable sales growth rate.

Public or seasoned financing is generally associated with which one of the following life cycle stages:

A firm's maximum sustainable sales growth rate occurs at a retention ratio of 100%.

Sales forecasts usually are based on either a single specific scenario or weighted averages of several possible realizations.

Sales forecasting accuracy is usually lowest during a venture's development stage in its life cycle.

The percent of sales forecasting method must project all cost and balance sheet items at the same growth rate as sales.

Which one of the following would increase a firm's need for additional funds?

Forecasting for firms with operating histories is generally much easier than forecasting for early-stage ventures.

A firm with a positive growth rate in sales will require some additional funds, assuming the existing ratios will not be changed.

The added costs associated with obtaining equity capital are based on investor expected rates of return and are explicit costs which affect AFN.

During which round of financing is a venture typically most accurate in forecasting sales?

The financial funds needed to acquire assets necessary to support a firm's sales growth is called:

The volatility of a firm's cash balance will steadily decreases as the firm progresses from the survival stage to the rapid-growth stage.