FAC Financial Planning & Forecasting 2

Question 1

A company uses the percent-of-sales method to forecast its balance sheet. If sales increase by 20% and accounts receivable is currently $500,000, what is the projected accounts receivable?

Accepted Answer

$600,000

Answer

Using percent-of-sales, accounts receivable scales proportionally with sales: $500,000 × 1.20 = $600,000.

Question 2

Which of the following is an example of a spontaneous liability that typically increases automatically with sales growth?

Accepted Answer

Accounts payable

Answer

Accounts payable arises from purchasing inventory on credit and rises naturally as sales and purchases increase.

Question 3

In a rolling forecast, which characteristic distinguishes it from a traditional annual budget?

Accepted Answer

It is continuously updated to maintain a constant forward-looking horizon

Answer

A rolling forecast is updated regularly (monthly or quarterly), always projecting a fixed number of periods ahead.

Question 4

A firm's sustainable growth rate is best described as the rate at which it can grow while:

Accepted Answer

Maintaining its current debt-to-equity ratio and without issuing new equity

Answer

The sustainable growth rate (ROE × retention ratio) reflects growth achievable without altering financial leverage or selling new stock.

Question 5

When building a cash flow forecast, which item is added back to net income to convert it to operating cash flow?

Accepted Answer

Depreciation and amortization

Answer

Depreciation is a non-cash charge deducted in arriving at net income, so it is added back to reconcile to operating cash flow.

(FAC) Finance and Accounting Certification Practice Test

(FAC) Finance and Accounting Certification Practice Test

FAC Financial Planning & Forecasting 2