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MBA Prep CFIN Exam Questions and Complete Solutions Graded A+.
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MBA Prep CFIN Exam Questions and Complete Solutions Graded A+.
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MBA Prep CFINExam Questions
and Complete
Solutions Graded
A+
Denning [Date] [Course title]
,Analysts within a company are more likely to fall into the "false accuracy trap" when they develop pro
formas than would external analysts because insiders have access to more detailed information -
Answer: True
When making financial projections, if a particular expense item cannot be predicted with any degree of
confidence, it should be forecast at the highest level it would ever likely to reach, so as to make the pro
formas conservative - Answer: False
The greater detail in a pro forma, the greater its accuracy will be - Answer: False
The qualitative portion of a financial analysis is analogous to the hypothesis-forming state of scientific
investigation because - Answer: assumptions not tested till numbers are run, false assumption may be
formed, empirical measurement performed later
During the qualitative portion of developing pro formas, - Answer: industry-wide considerations may be
less important than company-specific issues
An assumption is critical if - Answer: it affections the bottom line greater than other assumptions, it
reflects a judgement about the firm's ability to perform one of the keys to success
Horizontal and vertical percentage trends are useful in projecting future financial statements - Answer:
True
In a stable, predictable industry, an average of the precious ten years' sales growth figures probably
provides a more accurate forecast than assuming the same level of sales next year as in the current year.
- Answer: True
When performing sensitivity analysis - Answer: statistical methods can be usefully employed, electronic
spreadsheets can save time, assumptions should be changed one at a time
The final step in using pro formas is to - Answer: Compare the results of the sensitivity analysis to the
decision-maker's tolerance in the current situation
, The most accurate pro formas contain the most detail - Answer: false
In projecting an income statement based on a balance sheet, which of the following categories would
you contend to be least likely to vary directly with a change in sales? - Answer: Depreciation
Hypothesis that are formed during the qualitative analysis can be verified when the analyst reviews the
firm's historical performance - Answer: True
Statistical methods can be employed to - Answer: smooth out historical performance trends, aid the
analyst in making estimates of future performance, establish boundaries for sensitivity analysis
Sensitivity analysis should not be performed - Answer: on a predictable, immaterial item
If projected assets exceed liabilities and OE, it is assumed that the difference is funded through excess
cash - Answer: False
What is the most compelling reason to project a firm's income statement before projecting its balance
sheet? - Answer: The change in retained earnings is determined by net income and dividend payments,
working capital account balances are affected by sales levels
When doing a comprehensive financial forecast, which account warrants the most thorough relational
and trend analysis? - Answer: Sales
The most significant difference between projecting balance sheets and projecting cash flow is that -
Answer: The cash flow statement shows the periodic increase or decrease in the plug figure
Companies are concerned about shareholders' interests because - Answer: firms like high share value,
shareholders own the firm
As long as owners perceive that managers are creating value in the firm, they are likely to hold on to
their shares - Answer: True
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