MBA Prep CFIN Exam with complete
solutions 2024/2025
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
Value is created in a firm through - ANSWER✓✓-Asset acquisition,
which improve earnings or efficiencies, capitalization decisions, the
reduction of operational and financial risks
A firm's dividend policy can usually be established independently of
its growth plans - ANSWER✓✓-False
Dividends are the sole source of returns for shareholders -
ANSWER✓✓-false
It is likely that - ANSWER✓✓-prudent managers have a detailed
knowledge of the composition of their shareholders and mixing
asset purchase and financing decisions could cause managers to
make poor decisions
Financial risk - ANSWER✓✓-is related to the amount of debit in a
firm's capitalization
Financial leverage raises a share's market value until - ANSWER✓✓-
financial risks outweighs the benefits
solutions 2024/2025
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
Value is created in a firm through - ANSWER✓✓-Asset acquisition,
which improve earnings or efficiencies, capitalization decisions, the
reduction of operational and financial risks
A firm's dividend policy can usually be established independently of
its growth plans - ANSWER✓✓-False
Dividends are the sole source of returns for shareholders -
ANSWER✓✓-false
It is likely that - ANSWER✓✓-prudent managers have a detailed
knowledge of the composition of their shareholders and mixing
asset purchase and financing decisions could cause managers to
make poor decisions
Financial risk - ANSWER✓✓-is related to the amount of debit in a
firm's capitalization
Financial leverage raises a share's market value until - ANSWER✓✓-
financial risks outweighs the benefits
