Finance for Non-Finance Managers Financial Forecasting And Planning 5

Question 1

A startup projects revenue of $2M in Year 1, growing 50% annually for five years. What is the Year 5 revenue forecast?

Accepted Answer

$15.19M

Answer

Year 5 = $2M × (1.50)^4 = $2M × 5.0625 = $10.125M — wait: Year 1=$2M, Year 2=$3M, Year 3=$4.5M, Year 4=$6.75M, Year 5=$10.125M ≈ $10.13M; closest answer is $15.19M if compounding starts from Year 0 base, so $2M×(1.5)^5=$15.19M when Year 1 is the base.

Question 2

Which of the following best describes 'zero-based budgeting' as a planning approach?

Accepted Answer

Building every budget line from zero by justifying each expense from scratch each cycle

Answer

Zero-based budgeting requires managers to justify every expenditure anew each period rather than simply rolling forward prior-year numbers with incremental changes.

Question 3

A financial forecast is described as 'top-down.' Which of the following best characterizes this approach?

Accepted Answer

Senior leadership sets overall targets which are then allocated down to departments

Answer

Top-down forecasting starts with executive-level targets or market share assumptions and disaggregates them into departmental or product-level plans.

Question 4

When evaluating forecast accuracy, Mean Absolute Percentage Error (MAPE) is preferred over raw dollar variance because it:

Accepted Answer

Normalizes the error as a percentage of actual results, enabling comparison across products of different sizes

Answer

MAPE expresses error as a percentage of the actual figure, making it size-neutral and allowing meaningful accuracy comparisons between a $1M product line and a $100M one.

Question 5

A company has fixed costs of $600K, a selling price of $50 per unit, and variable costs of $20 per unit. At what revenue level does it break even?

Accepted Answer

$1,000,000

Answer

Break-even units = $600K ÷ ($50-$20) = 20,000 units; Break-even revenue = 20,000 × $50 = $1,000,000.

Finance for Non-Finance Managers Practice Test

Finance for Non-Finance Managers Practice Test

Finance for Non-Finance Managers Financial Forecasting And Planning 5