FIN 300 EXAM 2-STEIN CSU QUESTIONS AND ANSWERS
Chapter 6: Pro Forma Financial Statements - CORRECT ANSWER✅✅...
What makes up a sales forecast? - CORRECT ANSWER✅✅Marketing (sales estimate) + Top
Management (policy, strategy) + Production (capacity, schedules) + Accounting (financial statements,
depreciation, taxes) = Finance Department (sales forecast)
Sales growth can create needs - CORRECT ANSWER✅✅May require additional resources:
Current Assets: Inventory, AR, Cash
Fixed Assets: Plant and Equipment
Pro Forma Financial Statements - CORRECT ANSWER✅✅Forecast of the firm's future financial
statements
based on a certain set of assumptions about sales trends and
the relationships between sales and various
financial variables, and between other financial
statement variables relative to each other.
Base assumptions for producing pro formas - CORRECT ANSWER✅✅Spontaneous balance sheet
accounts vary with sales
Fixed expenses stay fixed
Variable expenses vary (COGS)
Interest Expense stays fixed
Tax rate stays fixed (will be given)
Fixed assets stay fixed
All financing decisions are static
*Any assumption can be overridden by given information*
, Steps in forecasting pro forma statement - CORRECT ANSWER✅✅
Step 1 - CORRECT ANSWER✅✅Determine sales growth (projected-current)/current
Step 2 - CORRECT ANSWER✅✅Calculate projected Net Income:
*Calculate New COGS*: Old COGS x (1+projected sales growth)
Insert into projected section and eventually calculate NI
Step 3 - CORRECT ANSWER✅✅Forecast increase in assets (% of sales)
Current assets x (1+projected sales growth)
Net fixed assets x (1+projected sales growth)
Total will equal forecasted increase in assets as % of sales
Step 4 - CORRECT ANSWER✅✅Forecast increase in spontaneous liabilities
A/P x (1+projected sales growth)
Accrued expenses x (1+projected sales growth)
Step 5 - CORRECT ANSWER✅✅Forecast increase in retained earnings
New retained earnings = old retained earnings +additions to retained earnings
= old retained earnings + [Net income (1-dividend payout)]
Net income = decimal version of projection (calculated in step 2)
Dividend payout= given in problem
Chapter 6: Pro Forma Financial Statements - CORRECT ANSWER✅✅...
What makes up a sales forecast? - CORRECT ANSWER✅✅Marketing (sales estimate) + Top
Management (policy, strategy) + Production (capacity, schedules) + Accounting (financial statements,
depreciation, taxes) = Finance Department (sales forecast)
Sales growth can create needs - CORRECT ANSWER✅✅May require additional resources:
Current Assets: Inventory, AR, Cash
Fixed Assets: Plant and Equipment
Pro Forma Financial Statements - CORRECT ANSWER✅✅Forecast of the firm's future financial
statements
based on a certain set of assumptions about sales trends and
the relationships between sales and various
financial variables, and between other financial
statement variables relative to each other.
Base assumptions for producing pro formas - CORRECT ANSWER✅✅Spontaneous balance sheet
accounts vary with sales
Fixed expenses stay fixed
Variable expenses vary (COGS)
Interest Expense stays fixed
Tax rate stays fixed (will be given)
Fixed assets stay fixed
All financing decisions are static
*Any assumption can be overridden by given information*
, Steps in forecasting pro forma statement - CORRECT ANSWER✅✅
Step 1 - CORRECT ANSWER✅✅Determine sales growth (projected-current)/current
Step 2 - CORRECT ANSWER✅✅Calculate projected Net Income:
*Calculate New COGS*: Old COGS x (1+projected sales growth)
Insert into projected section and eventually calculate NI
Step 3 - CORRECT ANSWER✅✅Forecast increase in assets (% of sales)
Current assets x (1+projected sales growth)
Net fixed assets x (1+projected sales growth)
Total will equal forecasted increase in assets as % of sales
Step 4 - CORRECT ANSWER✅✅Forecast increase in spontaneous liabilities
A/P x (1+projected sales growth)
Accrued expenses x (1+projected sales growth)
Step 5 - CORRECT ANSWER✅✅Forecast increase in retained earnings
New retained earnings = old retained earnings +additions to retained earnings
= old retained earnings + [Net income (1-dividend payout)]
Net income = decimal version of projection (calculated in step 2)
Dividend payout= given in problem
