Chapter 17: Financial Planning and Forecasting

Financial plans usually begin with a sales forecast, which is based off of a financial review of the past a. 6 months. b. 1 year. c. 3 years. d. 5 years

d. 5 years

A financial plan is a multistep process which includes a. Assumptions about the future b. Projected financial statement c. Projected ratios d. Reexamining the entire plan e. All of these are correct

e. All of these are correct

Long-term debt and common stock are changed infrequently and in large amounts, therefore one does not need to forecast those accounts on a continual basis. True or False

False, Additional funds needed which is made up by additional borrowing and/or sales of new stock the core of financial planning.

Management will approve higher sales growth regardless of what it takes to achieve it. True or False

False, Management does not approve of higher sales if it comes at the cost of lowering prices, spending more on advertising, or giving easier credit.

The term "additional funds needed (AFN)" is generally defined as follows: a. Funds from day to day business transactions. b. Funds that will be necessary to acquire the required assets c. The amount of assets required per dollar of sales. d. Funds that will be freed up by selling fixed assets

b. Funds that will be necessary to acquire the required assets

According to the textbook which is NOT a part of forecasting financial statements: a. forecasting the income statement b. forecasting the balance sheet c. forecasting shareholder equity d. forecasting ratios and eps

c. forecasting shareholder equity