Corporate Finance chapter 1-4 test study guide exam questions with latest update

Which one of the following is correct in relation to pro forma statements? a. Net working capital is affected only when a firm's sales are expected to exceed the firm's current production capacity b. Long-term debt varies directly with sales when a firm is currently operating at maximum capacity c. Fixed assets must increase if sales are projected to increase d. The addition to retained earnings is equal to net income plus dividends paid e. Inventory changes are directly proportional to sales changes - ANSWER-E. Inventory changes are directly proportional to sales changes 9. You are getting ready to prepare pro forma statements for your business. Which one of the following are you most apt to estimate first as you begin this process? a. current assets b. projected net income c. fixed assets d. external financing need e. sales forecast - ANSWER-E. Sales Forecast 8. Phil is working on a financial plan for the next three years. The time period is referred to as which on of the following? a. planning horizon b. financial range c. short-run d. planning agenda e. current financing period - ANSWER-A. Planning horizon 7. Which one of the following terms is applied to the financial planning method which uses the projected sales level as the basis for determining changes in balance sheet and income statement account values? a. trend method b. common-size method c. sales reconciliation method d. sales dilution method e. percentage of sales method - ANSWER-E. Percentage of sales methods 6. A pro forma statement indicates that both sales and fixed assets are projected to increase by 7 percent over their current levels. Given this, you can safely assume that the firm: a. retains all of its net income b. currently has excess capacity c. is projected to grow at the internal rate of growth