Question 1

If a firm competes in a capital-intensive industry with excess capacity,all of the following are true except:

Accepted Answer

A)  price increases will be less likely. 
B)  price increases will be more likely. 
C)  companies in competitive industries face high exit barriers. 
D)  companies in competitive industries may experience future price decreases. 
A)  price increases will be less likely. 
B)  price increases will be more likely. 
C)  companies in competitive industries face high exit barriers. 
D)  companies in competitive industries may experience future price decreases.

Question 2

All of the following are true regarding the key principles of forecasting except:

Accepted Answer

A)  Financial statement forecasts need not be comprehensive. 
B)  Forecasts should not manifest wishful thinking. 
C)  Financial statement forecasts must be internally consistent. 
D)  Financial statement forecasts must rely on assumptions that have external validity. 
A)  Financial statement forecasts need not be comprehensive. 
B)  Forecasts should not manifest wishful thinking. 
C)  Financial statement forecasts must be internally consistent. 
D)  Financial statement forecasts must rely on assumptions that have external validity.

Question 3

As a firm progresses through the decline life-cycle stage,what type of flexible account will it be more likely to use to balance the balance sheet?

Accepted Answer

A)  issued debt. 
B)  growth related assets. 
C)  issued equity. 
D)  stock buy-backs. 
A)  issued debt. 
B)  growth related assets. 
C)  issued equity. 
D)  stock buy-backs.

Question 4

Card Sharks, Inc.
Card Sharks, Inc. sells baseball cards and other memorabilia. The company tries to maintain a cash balance equivalent to approximately 30 days of sales. Sales in 2011 amounted to $352,412 and the company expects growth in 2012 of 30% and in 2013 of 35%.
-Given the information provided about Card Sharks,what is the company's 2013 projected annual sales?

Accepted Answer

A)  $656,191 
B)  $493,377 
C)  $618,482 
D)  $542,333 
A)  $656,191 
B)  $493,377 
C)  $618,482 
D)  $542,333

Question 5

Repair Specialists is a leading retailer of home improvement products.It operates large warehouse-style stores.Despite declining sales and difficult economic conditions in 2009 and 2010,Repair Specialists continued to invest in new stores.The following table provides summary data for Repair Specialists.
 $\begin{array}{|l|r|r}
\hline \begin{array}{l}
\text { Repair Specialists } \
\text { (amounts in millions except number of } \
\text { stores) }
\end{array} & \mathbf{2 0 0 9} & \mathbf{2 0 1 0} \
\hline \text { Number of stores } & 2,234 & 2,274 \
\hline \text { Sales revenues } & \$ 77,349 & \$ 71,288 \
\hline \text { Inventory } & \$ 11,731 & \$ 10,673 \
\hline \text { Capital expenditures, net } & \$ 3,558 & \$ 1,847 \
\hline
\end{array}$
 
Required: 
a.Use the preceding data for Repair Specialists to compute average revenues per store,
capital spending per new store,and ending inventory per store in 2010.
b.Assume that Repair Specialists will add 100 new stores by the end of Year1.Use
the data from 2010 to project Year 1 sales revenues,capital spending,and ending
inventory.Assume that each new store will be open for business for an average of
one-half year in Year1.For simplicity,assume that in Year 1,Repair Specialists' sales
revenues will grow,but only because it will open new stores.

Accepted Answer

In this problem,students work through th

Question 6

One problem caused by using turnover ratios to calculate asset balances is that it can lead to volatility in projected ending balances.What might an analyst do to reduce the "sawtooth" pattern caused by using turnover ratios?

Accepted Answer

One thing an analyst might do

Question 7

The first step in the forecasting game plan is to project sales and other other operating activities.Sales numbers are determined by both a volume component and price component.Projecting prices depends on factors specific to the firm and its industry that might affect demand and price elasticity.For the following types of firms discuss whether it would be likely that the firm would be able to raise future prices:
a.A firm in a capital-intensive industry that is expected to operate near capacity for the near future.
b.A firm in an industry that is expected to experience numerous technological improvements.
c.A firm with products which are transitioning from the growth to maturity phase of the product life cycle.
d.A firm that has established a well known brand name and image.

Accepted Answer

Suggested answers:
a.In this case,due to

Question 8

Financial statement forecasts rely on additivity within financial statements and articulation across financial statements.Given this information sales growth forecasts will most likely affect growth in

Accepted Answer

A)  accounts receivables. 
B)  accounts payable. 
C)  depreciation. 
D)  salary payable. 
A)  accounts receivables. 
B)  accounts payable. 
C)  depreciation. 
D)  salary payable.

Question 9

Saunders Corporation manufactures consumer electronics products.Selected income statement data for 2009 and 2010 follow (amounts in millions of dollars):
 $$\begin{array} { | l | r | r | } 
\hline \text { Saunders Corporation (amaunts in } & 2009 &  { 2010 } \
\text { millions of dollars) } & & \
\hline \text { Sales } & 8,296 & 8,871 \
\hline \text { Cast af Gonds Sold } & ( 5,890 ) & ( 6,290 ) \
\hline \text { Selling and Adrinistrative Eagenses } & ( 1,788 ) & ( 1,714 ) \
\hline \text { Operating Incame befare Income Tares } & 618 & 867 \
\hline
\end{array}$$ 
Required: a.The analyst can sometimes estimate the variable cost as a percentage of sales for a particular cost (for example,cost of goods sold)by dividing the amount of the change in the cost item between two years by the amount of the change in sales for those two years.The analyst can then multiply total sales by the variable-cost percentage to determine the total variable cost.Subtracting the variable cost from the total cost yields the fixed cost component for that particular cost item.Follow this procedure to determine the cost structure (fixed cost plus variable cost as a percentage of sales)for cost of goods sold for Saunders.
b.Repeat requirement a.for selling and administrative expenses.
c.Saunders Corporation discloses that it expects sales to grow at the following percentages
in future years: Year 1,12 percent;Year 2,10 percent;Year 3,8 percent;Year 4,6 percent.Project sales,cost of goods sold,selling and administrative expenses,and operating income before income taxes for Saunders for Year 1 to Year 4 using the cost structure amounts derived in requirements a.and b.
d.Compute the ratio of operating income before income taxes to sales for Year 1 through Year 4.
e.Interpret the changes in the ratio computed in requirement d.in light of the expected changes in sales.

Accepted Answer

Identifying the Cost Structure &nbs

Question 10

Financial statement forecasts are important analysis tools because forecasts of ______________________________ play a central role in valuation and many other financial decision contexts.

Accepted Answer

The answer of Financial statement forecasts are important analysis tools...

Question 11

Glad Rags,Inc.sells women's clothes.Provided below is selected financial statement information:
   
Required: a.Compute the inventory turnover ratio for 2010.
b.Clothes,Inc.projects that sales will grow at a compound rate of 7% per year for years 2011-2013 and that the cost of goods sold to sales percentage will equal that realized in 2010.Compute the projected implied level of inventory at the end of 2011 to 2013.

Accepted Answer

a. Inventory Turnove

Question 12

Which of the following statements does not apply to preventing "garbage in,garbage out" when implementing a forecasting game plan?

Accepted Answer

A)  The quality of the financial statement forecasts will depend on the quality of the
Forecast assumptions. 
B)  The quantities forecasted within financial statement forecasts will depend on the quantity of the forecast assumptions. 
C)  Analysts should justify and evaluate the most important assumptions that reflect the critical risk and success factors of the firm's strategy. 
D)  Analysts can impose reality checks on the assumptions by analyzing the forecasted financial statements using ratios, common-size, and rate-of-change financial statements. 
A)  The quality of the financial statement forecasts will depend on the quality of the
Forecast assumptions. 
B)  The quantities forecasted within financial statement forecasts will depend on the quantity of the forecast assumptions. 
C)  Analysts should justify and evaluate the most important assumptions that reflect the critical risk and success factors of the firm's strategy. 
D)  Analysts can impose reality checks on the assumptions by analyzing the forecasted financial statements using ratios, common-size, and rate-of-change financial statements.

Question 13

To ensure that the financial statements articulate,it is important that the change in the cash balance on the balance sheet each year agrees with

Accepted Answer

A)  the cash collections from sales in the projected income statement. 
B)  the cash provided by or used by operations on the projected statement of cash flows. 
C)  the net change in cash on the projected statement of cash flows. 
D)  the net change in working capital from period to period. 
A)  the cash collections from sales in the projected income statement. 
B)  the cash provided by or used by operations on the projected statement of cash flows. 
C)  the net change in cash on the projected statement of cash flows. 
D)  the net change in working capital from period to period.

Question 14

To develop forecasts of individual assets,the analyst must first link historical growth rates for individual assets to historical growth rates in ____________________ and other activity-based drivers.

Accepted Answer

The answer of To develop forecasts of individual assets,the analyst...

Question 15

Projecting sales price changes depends on factors specific to the firm and its industry that might affect demand and price elasticity.Which of the following companies would most likely not be able to increase prices in the near future?

Accepted Answer

A)  A firm in a capital intensive industry that is expected to operate near capacity for the near future. 
B)  A firm in a capital intensive industry in which excess capacity exists. 
C)  A firm operating in an industry that is expected to maintain its current production processes. 
D)  A firm operating in an industry that is transitioning from the introduction phase to the high growth phase of its life cycle. 
A)  A firm in a capital intensive industry that is expected to operate near capacity for the near future. 
B)  A firm in a capital intensive industry in which excess capacity exists. 
C)  A firm operating in an industry that is expected to maintain its current production processes. 
D)  A firm operating in an industry that is transitioning from the introduction phase to the high growth phase of its life cycle.

Question 16

Sparky's
Sparky's sells auto parts. Provided below is selected financial information from the company's 2012 annual report:
 
$\text { Sparky's Selected Financial Statement data }$

$$\begin{array} { l r r } 
\text { Fiscalyear end } & 2012 & 2011 \
\text { (amounts in thousands of dollars) } & & \
\text { Net sales } & \$ 125,410 & \$ 106,380 \
\text { Cost of Goods Sold } & - 104,090 & - \mathbf { - 8 5 , 3 5 5 } \
\text { Grass Prafit } & \$ 21,320 & \$ 17,021 \
\text { Irventory } & \$ 31,353 & \$ 30,850
\end{array}$$
-Sparky's forecasts that sales will grow by 25% in 2013 and that its cost of goods sold to sales ratio will be the same in 2013 as it was in 2012.If these assumptions prove correct and Sparky's inventory turnover ratio for 2013 is 4.5 what will be the level of inventory at the end of 2013?

Accepted Answer

A)  $31,353 
B)  $26,475 
C)  $40,000 
D)  $42,314 
A)  $31,353 
B)  $26,475 
C)  $40,000 
D)  $42,314

Question 17

Simmons Company
These data represent a summary of your first-iteration forecast amounts for Year1.Simmons uses dividends as a flexible financial account.
 $\begin{array}{l|r} 
& \text { Year }+\mathbf{l} \
\hline \text { Operating Income } & \$ 58 \
\hline \text { Interest Expense } & 8 \
\hline \text { Income before Tax } & \$ 50 \
\hline \text { Tax Provision (20.0 percent effective tax rate) } & 10 \
\hline \text { Net Income } & \$ 40 \
\hline \text { Total Assets } & \$ 200 \
\hline \text { Accrued Liabilities } & \$ 43 \
\hline \text { Long-Term Debt } & \$ 80 \
\hline \text { Common Stock, at par } & \$ 20 \
\hline \text { Retained Earnings (at the beginning of Year } 1) & \$ 34
\end{array}$
 
A.See the information for Simmons Company.
Compute the amount of dividends you can assume that Simmons will pay in order to balance your projected balance sheet.Present the projected balance sheet.
B.See the information for Simmons Company.
Now assume that Simmons pays common shareholders a dividend of $25 in Year +1.Also assume that Simmons uses long-term debt as a flexible financial account,increasing borrowing when it needs capital and paying down debt when it generates excess capital.For simplicity,assume that Simmons pays 10.0 percent interest expense on the ending balance in long-term debt for the year and that interest expense is tax deductible at Simmons' average tax rate of 20.0 percent.
Present the projected income statement and balance sheet for Year +1.(Hint: Because of the circularity between interest expense,net income,and debt,several iterations may be needed to balance the projected balance sheet and to have the projected balance sheet articulate with net income.You may find it helpful to program a spreadsheet to work the iterative computations.)

Accepted Answer

A.This problem basically asks students t

Question 18

Card Sharks, Inc.
Card Sharks, Inc. sells baseball cards and other memorabilia. The company tries to maintain a cash balance equivalent to approximately 30 days of sales. Sales in 2011 amounted to $352,412 and the company expects growth in 2012 of 30% and in 2013 of 35%.
-Given the information provided about Card Sharks,what is the company's 2013 projected cash balance?

Accepted Answer

A)  $53,934 
B)  $49,524 
C)  $21,873 
D)  $50,820 
A)  $53,934 
B)  $49,524 
C)  $21,873 
D)  $50,820

Question 19

Arco is an integrated manufacturer in capital-intensive industry.Nuwak manufactures more commodity-level products in the same industry at the lower end of the market and uses less capital-intensive processes.The following data describe sales and cost of products sold for both firms for Years 3 and 4.
   
Industry analysts anticipate the following annual changes in sales for the next five years:
Year +1,5 percent increase;Year +2,10 percent increase;Year +3,20 percent increase;Year +4,10 percent decrease;Year +5,20 percent decrease.
Required: a.The analyst can sometimes estimate the variable cost as a percentage of sales for a
particular cost (for example,cost of products sold)by dividing the amount of the
change in the cost item between two years by the amount of the change in sales for
those two years.The analyst can then multiply the variable-cost percentage times
sales to estimate the total variable cost.Subtracting the variable cost from the total
cost yields an estimate of the fixed cost for that particular cost item.Follow this procedure
to estimate the manufacturing cost structure (variable cost as a percentage of
sales,total variable costs,and total fixed costs)for cost of products sold for both Arco and Nuwak in Year 4.
b.Discuss the structure of manufacturing cost (that is,fixed versus variable)for each
firm in light of the manufacturing process and type of product produced.
c.Using the analysts' forecasts of sales changes,compute the projected sales,cost of
products sold,gross profit,and gross margin (gross profit as a percentage of sales)
of each firm for Year +1 through Year +5.
d.Why do the levels and variability of the gross margin percentages differ for these two
firms for Year +1 through Year +5?

Accepted Answer

a. Compute the cost structure for each f

Question 20

Financial statement forecasts rely on additivity within financial statements and articulation across financial statements.Given this information forecasts of future growth in inventory will most likely affect growth in

Accepted Answer

A)  accounts receivables. 
B)  accounts payable. 
C)  depreciation. 
D)  salary payable. 
A)  accounts receivables. 
B)  accounts payable. 
C)  depreciation. 
D)  salary payable.

If a firm competes in a capital-intensive industry with excess capacity,all of the following are true except:

All of the following are true regarding the key principles of forecasting except:

As a firm progresses through the decline life-cycle stage,what type of flexible account will it be more likely to use to balance the balance sheet?

One problem caused by using turnover ratios to calculate asset balances is that it can lead to volatility in projected ending balances.What might an analyst do to reduce the "sawtooth" pattern caused by using turnover ratios?

Financial statement forecasts rely on additivity within financial statements and articulation across financial statements.Given this information sales growth forecasts will most likely affect growth in

Financial statement forecasts are important analysis tools because forecasts of ______________________________ play a central role in valuation and many other financial decision contexts.

Which of the following statements does not apply to preventing "garbage in,garbage out" when implementing a forecasting game plan?

To ensure that the financial statements articulate,it is important that the change in the cash balance on the balance sheet each year agrees with

To develop forecasts of individual assets,the analyst must first link historical growth rates for individual assets to historical growth rates in ____________________ and other activity-based drivers.

Projecting sales price changes depends on factors specific to the firm and its industry that might affect demand and price elasticity.Which of the following companies would most likely not be able to increase prices in the near future?

Financial statement forecasts rely on additivity within financial statements and articulation across financial statements.Given this information forecasts of future growth in inventory will most likely affect growth in

Overview of Financial Reporting, financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Measurement

Income Flows Versus Cash Flows: Understanding the Statement of Cash Flows

Profitability Analysis

Risk Analysis

Accounting Quality

Financing Activities

Investing Activities

Operating Activities

Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

Valuation: Cash-Flow-Based Approaches

Valuation: Earnings-Based Approaches

Valuation: Market-Based Approaches

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Exam 10: Forecasting Financial Statements

If a firm competes in a capital-intensive industry with excess capacity,all of the following are true except:

All of the following are true regarding the key principles of forecasting except:

As a firm progresses through the decline life-cycle stage,what type of flexible account will it be more likely to use to balance the balance sheet?

One problem caused by using turnover ratios to calculate asset balances is that it can lead to volatility in projected ending balances.What might an analyst do to reduce the "sawtooth" pattern caused by using turnover ratios?

Financial statement forecasts rely on additivity within financial statements and articulation across financial statements.Given this information sales growth forecasts will most likely affect growth in

Financial statement forecasts are important analysis tools because forecasts of ______________________________ play a central role in valuation and many other financial decision contexts.

Which of the following statements does not apply to preventing "garbage in,garbage out" when implementing a forecasting game plan?

To ensure that the financial statements articulate,it is important that the change in the cash balance on the balance sheet each year agrees with

To develop forecasts of individual assets,the analyst must first link historical growth rates for individual assets to historical growth rates in ____________________ and other activity-based drivers.

Projecting sales price changes depends on factors specific to the firm and its industry that might affect demand and price elasticity.Which of the following companies would most likely not be able to increase prices in the near future?

Financial statement forecasts rely on additivity within financial statements and articulation across financial statements.Given this information forecasts of future growth in inventory will most likely affect growth in

Overview of Financial Reporting, financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Measurement

Income Flows Versus Cash Flows: Understanding the Statement of Cash Flows

Profitability Analysis

Risk Analysis

Accounting Quality

Financing Activities

Investing Activities

Operating Activities

Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

Valuation: Cash-Flow-Based Approaches

Valuation: Earnings-Based Approaches

Valuation: Market-Based Approaches

Filters