FAC Financial Planning & Forecasting 3

Question 1

A firm has a net profit margin of 5%, an asset turnover of 2.0, and an equity multiplier of 1.5. What is its return on equity (ROE)?

Accepted Answer

15%

Answer

Using the DuPont formula: ROE = 5% × 2.0 × 1.5 = 15%.

Question 2

Which forecasting method uses historical data to identify patterns such as trend, seasonality, and cycles to project future values?

Accepted Answer

Time series analysis

Answer

Time series analysis extracts patterns from historical data over time to forecast future outcomes.

Question 3

In a scenario analysis for financial planning, the 'bear case' scenario typically assumes:

Accepted Answer

Adverse conditions such as lower revenues and higher costs

Answer

The bear case represents a pessimistic scenario with unfavorable conditions to stress-test the financial plan.

Question 4

What does the 'plug' figure represent in a pro forma balance sheet?

Accepted Answer

The external financing needed to balance assets with liabilities and equity

Answer

The plug is the additional external financing required when projected assets exceed projected liabilities and equity.

Question 5

A company with $10 million in sales wants to maintain a cash conversion cycle of 30 days. Which of the following actions would REDUCE the cash conversion cycle?

Accepted Answer

Delaying payments to suppliers

Answer

Delaying supplier payments increases days payable outstanding, which shortens the cash conversion cycle (CCC = DIO + DSO – DPO).

(FAC) Finance and Accounting Certification Practice Test

(FAC) Finance and Accounting Certification Practice Test

FAC Financial Planning & Forecasting 3