Financial Planning and Forecasting Practice Exam
What is the primary purpose of financial forecasting?
A) To predict the future profitability of a company
B) To determine the most efficient allocation of capital
C) To estimate the future financial outcomes based on current trends
D) To evaluate the effectiveness of past financial decisions
What does a cash flow forecast primarily help businesses with?
A) Estimating the future stock price
B) Managing short-term liquidity and cash availability
C) Planning long-term investment strategies
D) Assessing market share growth
Which of the following is typically considered a short-term financial forecast?
A) A three-year capital expenditure plan
B) A monthly or quarterly sales forecast
C) An annual budget for the next five years
D) A ten-year strategic financial forecast
What does a financial planner use to predict the future financial performance of a company?
A) Break-even analysis
B) Historical data and financial trends
C) Market share analysis
D) Randomized simulation models
In financial forecasting, what is the importance of the sales forecast?
A) It helps to predict the price fluctuations of stocks
B) It is used to estimate future operating costs
C) It serves as a basis for other financial projections, such as expenses and profits
D) It determines the corporate tax rate
Which of the following is a key component of financial planning?
A) Setting up a project management schedule
B) Forecasting future cash flows
C) Conducting a competitor analysis
D) Preparing an inventory turnover ratio
In forecasting, what does “top-down” budgeting involve?
A) The budgeting process starts from the senior management and moves down to departments
B) A forecast is made based on the lowest-level departmental projections
C) Managers are not involved in the financial forecasting process
D) Budgets are generated from market analysis
Which method is used to create a forecast based on past data and applying trends to future periods?
A) Market segmentation approach
B) Trend analysis
C) Zero-based budgeting
D) Activity-based costing
What is the purpose of sensitivity analysis in forecasting?
A) To assess how sensitive a company’s profits are to changes in external market conditions
B) To evaluate how different sales volumes affect cash flow
C) To evaluate potential future investment opportunities
D) To measure the risks associated with long-term debt financing
Which forecasting model involves projecting future performance by assuming that past relationships will continue?
A) Moving averages model
B) Time-series model
C) Regression analysis
D) Delphi method
What is the primary goal of a long-term financial plan?
A) To predict short-term sales fluctuations
B) To outline a strategy for financing and investing over an extended period
C) To determine quarterly tax estimates
D) To forecast employee salaries
What is the role of “break-even analysis” in financial forecasting?
A) It helps in estimating the company’s market share
B) It calculates the minimum sales level needed to cover fixed and variable costs
C) It determines the optimal inventory level for a company
D) It forecasts the price at which the company’s stock will stabilize
Which of the following is NOT typically included in a financial forecast?
A) Projected income statement
B) Projected balance sheet
C) Sales forecast
D) Employee turnover rates
What is a primary advantage of using computer software in financial forecasting?
A) It removes the need for human judgment
B) It helps automate complex calculations and improve accuracy
C) It eliminates the necessity of reviewing historical financial data
D) It guarantees 100% accuracy in forecasting
What type of forecast is most useful for a new business?
A) Historical trend forecast
B) Judgmental or subjective forecast
C) Statistical or quantitative forecast
D) Cash flow forecast
Which financial ratio is commonly used in forecasting profitability?
A) Return on equity (ROE)
B) Quick ratio
C) Debt-to-equity ratio
D) Inventory turnover ratio
What is the “bottom-up” forecasting method?
A) Forecasts are based on aggregate projections from lower management levels
B) Senior management sets the forecast, and departments adjust it
C) Forecasts are based on industry-wide trends
D) The method focuses solely on external market factors
A rolling forecast is updated:
A) Annually
B) Semi-annually
C) Quarterly
D) Continuously or at regular intervals
What does a financial forecast typically include regarding expenses?
A) Fixed and variable cost projections
B) Only fixed cost predictions
C) Employee performance expectations
D) Projected market share growth
What financial statement is most useful when assessing the long-term financial health of a company?
A) Statement of retained earnings
B) Balance sheet
C) Income statement
D) Statement of cash flows
Which of the following is a limitation of financial forecasting?
A) It uses historical data to predict the future
B) It provides a fixed, unchangeable view of future performance
C) It is unaffected by external market conditions
D) It can predict specific events like product launches
What role does forecasting play in a business’s capital budgeting process?
A) It helps identify the most profitable projects for investment
B) It sets the tax rate for future periods
C) It outlines the company’s credit policy
D) It determines the stock split ratio
In a pro forma financial statement, the term “pro forma” means:
A) A financial statement for actual operations
B) A forecast based on assumptions and projections
C) A real-time financial report
D) A regulatory-required financial report
What is the typical time horizon for a strategic financial forecast?
A) 3 to 5 years
B) 1 to 3 years
C) 6 months to 1 year
D) More than 10 years
Which forecasting technique uses expert opinions to predict future financial conditions?
A) Exponential smoothing
B) Delphi method
C) Linear regression
D) Moving averages
Which financial forecasting tool helps businesses assess future profits by considering various market scenarios?
A) Cash flow statement
B) Sensitivity analysis
C) Profit and loss statement
D) Break-even chart
In the context of financial forecasting, what does the term “forecast bias” refer to?
A) The tendency to forecast more conservatively
B) The error between actual performance and forecasted figures
C) The use of optimistic assumptions in forecasting
D) The reliance on historical data for future predictions
What is the significance of a financial forecast’s “accuracy” in decision-making?
A) Accurate forecasts increase the risk of financial loss
B) Accurate forecasts provide guidance for better financial planning and resource allocation
C) Forecast accuracy is irrelevant as long as sales exceed costs
D) Accuracy is only important for tax purposes
What kind of data is typically used in financial forecasting?
A) Only qualitative data from interviews
B) Financial data from previous periods, market trends, and external factors
C) Market rumors and speculation
D) Purely external data without any historical financial data
What is the primary limitation of using past financial performance for forecasting future results?
A) Past data does not account for potential changes in market conditions
B) It is easy to obtain and always accurate
C) It gives a perfect prediction of future profitability
D) It is not cost-effective
31. What is the key purpose of preparing a rolling forecast?
A) To predict stock prices for the next year
B) To provide a continuous view of the financial outlook, updated periodically
C) To focus on long-term capital investment
D) To forecast employee salary trends
32. What is the advantage of using a percentage of sales method for financial forecasting?
A) It provides accurate predictions regardless of past performance
B) It is simple and based on a direct relationship between sales and expenses
C) It accounts for changes in economic conditions
D) It eliminates the need for historical data
33. In financial forecasting, what does the “horizon” refer to?
A) The period for which a forecast is projected
B) The level of financial risk involved in the forecast
C) The forecast’s projected sales growth rate
D) The base year used for comparison in the forecast
34. What is a key characteristic of an annual financial forecast?
A) It is based on quarterly data
B) It predicts only the company’s short-term performance
C) It provides projections for the next 12 months
D) It focuses on non-financial factors like employee performance
35. Which method of forecasting is based on the assumption that historical relationships between variables will continue in the future?
A) Delphi method
B) Time-series analysis
C) Moving averages
D) Market research forecasting
36. What does “variance analysis” help a company to understand in financial forecasting?
A) Differences between budgeted and actual financial performance
B) The company’s market share
C) The effectiveness of the sales department
D) The trend in stock market performance
37. In a financial forecast, which of the following best represents “fixed costs”?
A) Costs that change with the level of production
B) Costs that do not change regardless of production levels
C) Costs that fluctuate depending on the market conditions
D) Costs that are only incurred on a monthly basis
38. What is the primary function of “zero-based budgeting” in financial planning?
A) To forecast financials based on previous performance
B) To allocate funds based on the current period’s needs, without regard to past budgets
C) To reduce operational costs by eliminating obsolete activities
D) To predict cash flows for capital investment projects
39. Which of the following is NOT a component of a pro forma financial statement?
A) Projected income statement
B) Projected balance sheet
C) Historical tax filings
D) Projected statement of cash flows
40. What does a financial planner use “scenario analysis” for?
A) To evaluate the best-case, worst-case, and most likely financial scenarios
B) To assess the company’s sales growth in a specific region
C) To determine the company’s future employee needs
D) To predict changes in global economic conditions
41. What does a “trend analysis” typically focus on in financial forecasting?
A) External market conditions and competitors
B) Historical financial data to predict future performance
C) Short-term profitability for a specific quarter
D) Employee performance and human resource needs
42. Which type of forecast is particularly useful for a startup business?
A) Exponential smoothing forecast
B) Judgmental forecast based on expert opinions
C) Rolling financial forecast
D) Regression analysis forecast
43. What is a common limitation of using the “moving average” method for forecasting?
A) It assumes that future trends will exactly mirror past performance
B) It requires the use of market research data
C) It cannot account for seasonal fluctuations
D) It involves highly complex calculations
44. What role does financial forecasting play in investment decision-making?
A) It helps investors identify the potential for long-term growth and profitability
B) It is primarily used to calculate stock market values
C) It determines the company’s future tax obligations
D) It is used to estimate company employee turnover rates
45. What is the main difference between “static” and “dynamic” financial forecasts?
A) Static forecasts are based on a fixed set of assumptions, while dynamic forecasts allow for updates as conditions change
B) Static forecasts account for changes in sales volume, while dynamic forecasts do not
C) Static forecasts are used for short-term periods, while dynamic forecasts are for long-term periods
D) Static forecasts focus only on revenue, while dynamic forecasts include both revenue and expenses
46. In financial forecasting, what is the “base year” typically used for?
A) To track quarterly performance
B) To compare future financial data against a known set of historical figures
C) To set specific goals for sales growth
D) To measure annual tax obligations
47. What is the key benefit of using “qualitative forecasting” methods, such as expert opinions or market research?
A) It is based on objective, historical data
B) It allows for incorporating subjective insights and predictions when data is limited
C) It uses complex statistical models
D) It always provides precise, reliable forecasts
48. What does a “cash budget” help a company manage?
A) Long-term investments in stocks and bonds
B) Short-term liquidity and cash flow
C) The company’s fixed cost structure
D) Future capital expenditures
49. What does a “flexible budget” adjust for?
A) Changes in the company’s long-term financing structure
B) Variations in revenue or cost levels as compared to the original budget
C) Changes in employee benefits
D) Changes in the company’s corporate tax rate
50. How does “trend extrapolation” help in financial forecasting?
A) It predicts future financial outcomes based on a trend established by historical data
B) It uses expert opinions to create projections
C) It adjusts forecasts based on market competition
D) It forecasts tax obligations for future periods
51. In financial forecasting, what does a “contingency plan” address?
A) Unexpected costs or changes in business conditions that could affect the forecast
B) The company’s forecast of future dividend payouts
C) Projections of market demand for specific products
D) The analysis of competitors’ financial strategies
52. What does “capital budgeting” focus on in the context of financial forecasting?
A) Managing daily operating costs
B) Planning for long-term investments, such as property or equipment
C) Managing cash flow for short-term liquidity
D) Calculating the company’s debt-to-equity ratio
53. What is a key disadvantage of the “percentage of sales” method of forecasting?
A) It assumes that expenses and revenues grow at the same rate
B) It is based entirely on historical data and ignores future market conditions
C) It requires complex statistical analysis
D) It cannot be applied to companies with variable sales patterns
54. How does the “Delphi method” work in financial forecasting?
A) It relies on quantitative data to make predictions
B) It gathers insights from a panel of experts to make predictions
C) It is a mathematical model used to determine cash flows
D) It uses artificial intelligence to forecast financial trends
55. What is the main use of “forecast error” in financial forecasting?
A) To identify inaccuracies and improve future forecasting methods
B) To calculate projected tax liabilities
C) To assess the performance of the marketing department
D) To monitor employee satisfaction
56. Which type of financial forecast would a company use for long-term strategic planning?
A) Cash flow forecast
B) Capital expenditure forecast
C) Income statement forecast
D) Long-term financial forecast
57. What is a key feature of an “activity-based” budgeting method in financial planning?
A) It allocates resources based on the volume of sales alone
B) It considers the costs of individual activities or operations in the budget
C) It uses historical data as its only basis for planning
D) It is most suitable for short-term forecasts
58. How does “exponential smoothing” work in financial forecasting?
A) It applies decreasing weights to past data as they become older
B) It adds the forecast of each previous period to the next period’s forecast
C) It uses simple averages to smooth out financial trends
D) It compares the company’s forecast to actual market performance
59. What is the purpose of “forecast adjustments”?
A) To make the forecast more flexible and accurate by considering new information
B) To revise the tax rates in the forecast
C) To increase sales figures based on competitor performance
D) To predict global market conditions
60. What does “long-term forecasting” typically focus on?
A) Day-to-day financial management
B) Short-term liquidity and working capital
C) Strategic growth and major capital investments
D) Hourly revenue fluctuations
61. What is the primary purpose of financial forecasting?
A) To predict the exact future of a company’s stock price
B) To provide a structured projection of future financial outcomes based on available data
C) To set employee performance targets
D) To assess customer satisfaction levels
62. In which situation would a “rolling forecast” be most beneficial?
A) When a company has fixed costs that do not change throughout the year
B) When a company wants to update its financial forecast regularly as new data becomes available
C) When a company has no access to historical data
D) When a company is planning for a one-time capital expenditure
63. What is the key disadvantage of using the “simple moving average” method for forecasting?
A) It does not account for recent trends or sudden changes in the market
B) It requires complex mathematical models
C) It only works for very short time periods
D) It fails to take into account seasonal variations
64. What is the role of “budget variance” in financial forecasting?
A) It helps adjust future forecasts based on differences between actual and expected results
B) It predicts future market conditions
C) It projects potential stock market trends
D) It forecasts revenue growth based on competitor actions
65. What is the key feature of a “zero-based budget”?
A) It assumes expenses will increase by a fixed percentage each year
B) It starts from scratch and requires justification for every expense item
C) It uses historical data to estimate future costs
D) It automatically increases the budget based on inflation rates
66. Which financial forecasting method is best for companies with high levels of uncertainty in their financial operations?
A) Time-series analysis
B) Expert judgment
C) Linear regression
D) Seasonal variation forecasting
67. What does “scenario planning” typically involve in financial forecasting?
A) Focusing only on a company’s historical data
B) Developing various financial outcomes based on different assumptions of future events
C) Predicting the future performance of individual products only
D) Relying on a single, fixed set of data for long-term forecasting
68. In the context of forecasting, what does “trend analysis” primarily rely on?
A) Projections based on competitors’ data
B) Historical data to identify patterns and predict future performance
C) Random sampling of market data
D) Employee feedback and survey results
69. Which type of forecasting method would be most useful in predicting long-term capital expenditures for a growing business?
A) Moving averages
B) Judgmental forecasting
C) Time-series forecasting
D) Exponential smoothing
70. How does the “regression analysis” method work in financial forecasting?
A) It predicts future values based on the relationship between a dependent and one or more independent variables
B) It uses random sampling to predict outcomes
C) It tracks the historical trend and projects the future from it
D) It analyzes only internal company data for forecasting
71. When would a company use a “pro forma” financial statement in forecasting?
A) To compare the performance of its products against competitors
B) To forecast the financial impact of planned business activities, such as acquisitions
C) To analyze changes in the stock market
D) To track actual historical performance
72. In which situation would a company use a “capital budget”?
A) To forecast employee salaries
B) To plan for long-term investments like property and equipment
C) To predict quarterly sales figures
D) To track day-to-day expenses
73. What is the difference between “historical forecasting” and “predictive forecasting”?
A) Historical forecasting uses past data to predict future outcomes, while predictive forecasting focuses on future trends and scenarios
B) Predictive forecasting only uses qualitative data, while historical forecasting uses quantitative data
C) Historical forecasting predicts future trends based on expert opinions, while predictive forecasting is data-driven
D) Predictive forecasting only looks at financial data, while historical forecasting includes market data
74. How does “exponential smoothing” help improve forecasts?
A) It focuses entirely on the most recent data, assigning greater weight to the most recent observations
B) It uses complex statistical models to predict the future
C) It averages out historical data without accounting for trends
D) It only forecasts for short-term periods
75. In the context of financial forecasting, what does a “budget gap” represent?
A) The difference between expected revenue and the actual revenue generated
B) The difference between projected expenditures and actual expenditures
C) The shortfall between forecasted revenue and budgeted expenses
D) The difference between forecasted cash flow and actual cash flow
76. Which of the following is the best example of a “leading indicator” used in financial forecasting?
A) Historical sales data
B) Company stock prices
C) Consumer confidence index
D) Profit margins
77. What is the main purpose of creating a “cash flow forecast”?
A) To predict future stock price movements
B) To assess whether the company has enough liquidity to meet its financial obligations
C) To estimate the company’s income tax liabilities
D) To calculate potential employee salaries and bonuses
78. What is a “circular forecasting process”?
A) A process where forecast results are revisited and revised in response to actual results, often on a regular basis
B) A one-time forecast based on static assumptions
C) A process that only tracks financial performance without any adjustments
D) A method that disregards historical data
79. In financial forecasting, what does “sensitivity analysis” help identify?
A) The most likely outcome of a forecast based on various input variables
B) The historical performance of a company over a set period
C) The global economic factors that may impact a forecast
D) The costs of implementing new technologies
80. Which method would be most effective for a company with a stable historical pattern of growth but occasional market fluctuations?
A) Exponential smoothing
B) Simple moving average
C) Linear regression
D) Judgmental forecasting
81. What does “dynamic forecasting” allow companies to do?
A) Make long-term decisions based on past data only
B) Continuously adjust forecasts based on new data and changing conditions
C) Focus solely on employee-related costs
D) Forecast stock prices based on external factors
82. What is the role of “market research” in financial forecasting?
A) To analyze competitors’ strategies
B) To gather data about consumer demand and potential market conditions that impact financial performance
C) To predict future stock market movements
D) To calculate historical tax liabilities
83. Which of the following financial statements is most commonly used for predicting future profitability?
A) Balance sheet
B) Income statement
C) Statement of cash flows
D) Retained earnings statement
84. What is the key feature of “activity-based costing” in financial forecasting?
A) It focuses only on fixed costs in a business
B) It allocates overhead costs to specific business activities rather than departments or products
C) It eliminates the need for revenue forecasting
D) It does not consider variable costs
85. What is “forecasting accuracy” typically measured by?
A) The company’s market share
B) The difference between forecasted and actual performance
C) The amount of capital invested
D) The number of financial statements generated
86. In financial forecasting, what is the “base case” scenario used for?
A) To predict the worst-case scenario for the company
B) To represent the most likely outcome, based on current data and assumptions
C) To calculate projected salary increases for employees
D) To account for historical tax rates in the forecast
87. What does “integrated financial forecasting” typically involve?
A) Using a single financial metric to predict future outcomes
B) Linking different aspects of financial forecasting, such as sales, cash flow, and capital expenditures
C) Relying on external market data only
D) Limiting forecasts to only short-term projections
88. What is the main advantage of a “bottom-up” approach in financial forecasting?
A) It only uses historical sales data
B) It starts with detailed departmental forecasts, which are then aggregated to form the overall company forecast
C) It ignores departmental input and relies on company-wide averages
D) It does not require external market data
89. Which of the following is an example of a “lagging indicator” in financial forecasting?
A) Historical revenue
B) Economic growth projections
C) Consumer confidence
D) Supplier performance
90. How does the “financial ratio analysis” method contribute to forecasting?
A) It helps compare company performance against industry standards and past performance
B) It uses random sampling to predict market conditions
C) It focuses on employee satisfaction
D) It generates exact figures for future revenue
1. What is the primary objective of financial management in a business?
A) Maximizing profit for shareholders
B) Maximizing the value of the firm for shareholders
C) Minimizing expenses
D) Reducing taxes
2. Which of the following best defines “working capital”?
A) The money invested in long-term assets
B) The difference between current assets and current liabilities
C) The amount of capital used in expansion projects
D) The sum of retained earnings
3. Which of the following is an example of an operating activity in a cash flow statement?
A) Issuing stock
B) Selling a piece of equipment
C) Paying salaries to employees
D) Taking out a loan
4. What does the “time value of money” principle state?
A) The value of money remains constant over time
B) Money in hand today is worth more than the same amount in the future due to its earning potential
C) The value of money decreases as inflation increases
D) The value of money increases over time due to interest rates
5. Which of the following is a major component of the “capital structure” of a business?
A) Bonds
B) Inventory
C) Research and development costs
D) Marketing expenses
6. What is “leverage” in business finance?
A) The ratio of debt to equity used to finance the business
B) The total amount of capital invested by shareholders
C) The speed at which a company can turn assets into cash
D) The number of shares of stock outstanding
7. A firm’s “cost of equity” refers to:
A) The dividend rate paid to stockholders
B) The total interest expense paid on outstanding bonds
C) The return required by equity investors based on the risk of the investment
D) The operating cost of maintaining stockholder relations
8. What is a “balance sheet” used to assess?
A) The company’s profitability
B) The company’s financial position at a specific point in time
C) The company’s operational efficiency
D) The company’s market value
9. Which of the following is considered a “non-current liability”?
A) Accounts payable
B) Short-term loans
C) Long-term debt
D) Accrued wages
10. What is “capital budgeting”?
A) A method to determine how much to invest in research and development
B) A process used to determine which long-term projects the company should invest in
C) A technique used to assess a company’s short-term liquidity
D) A strategy to reduce capital expenses in the next fiscal year
11. What is the “weighted average cost of capital” (WACC)?
A) The average cost of all fixed assets
B) The weighted average rate of return a company is expected to pay to finance its assets
C) The average interest rate charged on a company’s debts
D) The cost of financing through issuing stock only
12. What is a “dividend payout ratio”?
A) The percentage of earnings paid to shareholders as dividends
B) The percentage of the company’s debt compared to equity
C) The percentage of revenue paid to employees as salaries
D) The percentage of gross profit allocated to operating expenses
13. In financial analysis, what does “liquidity” refer to?
A) The company’s ability to generate sales
B) The company’s ability to meet short-term financial obligations
C) The company’s overall profitability
D) The company’s capital structure
14. What is the “price-to-earnings ratio” (P/E ratio)?
A) The ratio of earnings to dividends
B) The ratio of a company’s market price per share to its earnings per share
C) The ratio of a company’s dividends to its earnings
D) The ratio of the company’s debt to equity
15. Which of the following is an example of a “fixed cost”?
A) Sales commissions
B) Rent for office space
C) Raw materials
D) Utility costs
16. What does “net present value” (NPV) measure in capital budgeting?
A) The total cost of the project
B) The present value of expected future cash flows minus the initial investment
C) The rate of return on investment
D) The annual operating costs of a project
17. What is the “internal rate of return” (IRR)?
A) The cost of equity financing
B) The rate at which a project breaks even
C) The discount rate that makes the net present value of a project equal to zero
D) The annual return required by investors
18. In a “payback period” analysis, what is being measured?
A) The time required to recover the initial investment from a project’s cash inflows
B) The time required to generate a return on equity
C) The time required to sell a business
D) The time required to break even on fixed costs
19. What does the “debt-to-equity ratio” measure?
A) The total amount of debt a company has relative to its equity
B) The total amount of sales a company generates relative to its equity
C) The total cost of financing relative to equity invested
D) The operating margin of the business
20. What is “financial leverage”?
A) The use of debt to increase the potential return on investment
B) The total equity of the company compared to its liabilities
C) The efficiency of using assets to generate sales
D) The cost of issuing new stock
21. What does “return on equity” (ROE) measure?
A) The company’s earnings after tax as a percentage of total equity
B) The company’s ability to generate sales from its assets
C) The company’s profitability in relation to total assets
D) The rate of return on investments made in company stock
22. What is the “current ratio”?
A) The ratio of total assets to current liabilities
B) The ratio of current assets to current liabilities
C) The ratio of fixed assets to total liabilities
D) The ratio of revenue to sales expenses
23. How does “diversification” impact a company’s risk profile?
A) It reduces the company’s debt-to-equity ratio
B) It increases the company’s exposure to market fluctuations
C) It reduces the overall risk by spreading investments across different sectors or assets
D) It eliminates the risk associated with debt financing
24. Which financial metric is most commonly used to assess a company’s profitability?
A) Current ratio
B) Return on assets (ROA)
C) Debt-to-equity ratio
D) Quick ratio
25. What is “operating income”?
A) The company’s earnings before interest and taxes (EBIT)
B) The company’s earnings after interest and taxes
C) The revenue generated from non-operating activities
D) The net income after all expenses
26. What is a “capital expenditure” (CapEx)?
A) Money spent on day-to-day operations
B) Money spent on long-term investments such as property or equipment
C) Money spent on marketing campaigns
D) Money spent on paying down short-term debt
27. What does “asset turnover” measure?
A) The total return generated by the assets of a business
B) The efficiency of a company in generating revenue from its assets
C) The ability of a company to sell off its fixed assets
D) The total value of the company’s equity compared to its assets
28. What does a “positive net present value” (NPV) indicate?
A) The project is expected to generate a return greater than the cost of capital
B) The project will break even
C) The project is expected to incur losses
D) The project’s internal rate of return is lower than the cost of capital
29. What is a “spreadsheet model” in business finance used for?
A) To store and organize financial data
B) To automate payroll calculations
C) To create visual presentations of financial data
D) To analyze and forecast financial scenarios and outcomes
30. Which of the following is a characteristic of a “privately-held company”?
A) Shares are publicly traded on the stock exchange
B) The company’s stock is held by a small group of investors and is not publicly traded
C) It is required to disclose financial statements to the public
D) It has a large number of shareholders
1. What is the purpose of “financial forecasting”?
A) To determine the company’s creditworthiness
B) To predict future financial performance and guide decision-making
C) To create a budget for the company
D) To measure the company’s profitability
2. Which of the following is an example of a “fixed asset”?
A) Inventory
B) Cash
C) Land
D) Accounts receivable
3. Which financial statement is primarily used to assess a company’s liquidity?
A) Income statement
B) Balance sheet
C) Cash flow statement
D) Statement of stockholders’ equity
4. What does “depreciation” represent in business finance?
A) A reduction in a company’s tax liabilities
B) A decrease in the value of an asset over time due to wear and tear
C) The process of converting assets into cash
D) A reduction in current liabilities
5. What is the “cost of capital”?
A) The cost associated with borrowing funds
B) The total cost of the company’s assets
C) The required return on investment for all financing sources
D) The annual operating expenses
6. What is the “diversification effect” in investment strategy?
A) The increase in risk by investing in different sectors
B) The reduction of risk by spreading investments across different assets
C) The strategy of only investing in a single type of asset
D) The focus on short-term profits rather than long-term stability
7. What is a “capital lease”?
A) A lease agreement where the ownership of the leased asset remains with the lessor
B) A lease agreement where the lessee assumes the risks and rewards of ownership
C) A short-term lease for office equipment
D) A lease agreement used for residential property
8. What is “operating leverage”?
A) The ratio of fixed costs to total costs in a business
B) The total amount of debt used to finance a company’s operations
C) The ability of a company to use its fixed costs to increase profits with higher sales
D) The ratio of assets to equity in a company
9. What is the main purpose of the “capital budgeting process”?
A) To assess short-term financial liquidity
B) To determine which long-term investments are worth pursuing
C) To create a financial statement
D) To calculate the company’s profit margin
10. Which of the following is a measure of a company’s short-term financial health?
A) Return on equity (ROE)
B) Quick ratio
C) Earnings before interest and taxes (EBIT)
D) Market capitalization
11. What is the “accrual basis of accounting”?
A) Recognizing revenues and expenses when cash is received or paid
B) Recognizing revenues when earned and expenses when incurred, regardless of cash flow
C) Recognizing revenues only when received
D) Recognizing only cash transactions
12. What is the primary focus of “financial analysis”?
A) Predicting stock prices
B) Analyzing historical financial data to make decisions for the future
C) Monitoring company employee performance
D) Managing corporate tax rates
13. What does “liquidity risk” refer to?
A) The risk of a company defaulting on its debt
B) The risk of not being able to convert an asset into cash quickly without significant loss
C) The risk of declining revenues
D) The risk of not being able to pay dividends
14. What is “working capital management”?
A) Managing long-term investments
B) Managing a company’s cash flow to ensure it can meet short-term obligations
C) Managing long-term debt repayment
D) Managing the stockholder relations
15. What is the “price-to-book ratio”?
A) The market value of a company divided by its total assets
B) The price of the company’s stock divided by the company’s earnings per share
C) The market value of a company’s equity divided by its book value
D) The total liabilities divided by the book value of assets
16. What is the “yield to maturity” (YTM) of a bond?
A) The coupon rate of the bond
B) The return an investor can expect to earn if the bond is held to maturity
C) The risk-free rate associated with the bond
D) The yield required by the market for the bond
17. Which of the following is an example of “financial risk”?
A) The company’s ability to meet its short-term obligations
B) The company’s risk of not being able to access capital markets
C) The company’s product liability exposure
D) The company’s risk of fluctuating inventory prices
18. What does the “return on investment” (ROI) measure?
A) The efficiency of a company in using its assets to generate profits
B) The percentage of debt relative to equity in the company
C) The cost of borrowing capital
D) The overall market performance of the company’s stock
19. What does the “time value of money” concept emphasize?
A) The value of money is constant over time
B) Money today is worth less than the same amount in the future
C) Money today is worth more than the same amount in the future due to its earning potential
D) Future cash flows are irrelevant in financial decision-making
20. What is a “dividend discount model” used for?
A) To calculate a company’s earnings
B) To estimate the value of a company based on its future dividend payments
C) To determine a company’s liquidity
D) To calculate the return on a bond investment
21. What does “market risk” refer to?
A) The risk of not having enough cash flow to meet obligations
B) The risk that market-wide factors, such as interest rates or economic downturns, will impact the value of investments
C) The risk of a specific company going bankrupt
D) The risk of losing employees due to salary disputes
22. What is the “debt ratio”?
A) The total amount of debt a company has relative to its total assets
B) The ratio of current liabilities to current assets
C) The total interest payments on debt relative to total assets
D) The ratio of debt to equity in a company
23. Which of the following is NOT an example of an “investment decision”?
A) Choosing which plant to expand
B) Deciding which marketing strategies to implement
C) Deciding whether to acquire another company
D) Deciding on long-term capital projects
24. What is the “sensitivity analysis” in financial forecasting?
A) An analysis used to assess how changes in one variable will impact the overall financial model
B) An analysis of how sensitive a company’s workforce is to changes in compensation
C) An analysis of sales and revenue figures only
D) An analysis used to forecast future market trends
25. What is the “capital structure” of a business?
A) The method used for budgeting short-term expenses
B) The combination of debt and equity used to finance a company’s operations
C) The total value of the company’s assets
D) The accounting method used to record financial transactions
26. What does “cost of debt” refer to?
A) The total interest expense on bonds and loans divided by the total amount of debt
B) The operating costs of servicing a company’s debt
C) The amount of debt used to finance company growth
D) The value of tax benefits from using debt financing
27. What does the “Earnings Before Interest and Taxes” (EBIT) represent?
A) The company’s profitability before considering interest and tax expenses
B) The amount of cash flow a company generates from operations
C) The company’s net income after tax expenses
D) The operating margin of a company’s revenue
28. What is the “price-to-sales ratio”?
A) The price of the company’s stock divided by its total sales
B) The price of a company’s stock divided by its net earnings
C) The sales per share ratio for each company in the industry
D) The total debt of a company relative to its sales
29. What is “credit risk”?
A) The risk that a borrower will default on their debt obligations
B) The risk of fluctuations in the stock market
C) The risk of economic downturns affecting the company’s operations
D) The risk associated with foreign exchange fluctuations
30. What is the “bond rating” used for?
A) To determine the profitability of a bond investment
B) To assess the likelihood of bond issuers defaulting on their debt obligations
C) To measure the return on investment for bondholders
D) To set the interest rates on bonds
1. What is the primary purpose of budgeting in cash flow management?
A) To minimize operating expenses
B) To ensure the company has sufficient cash to meet its obligations
C) To maximize net income
D) To set the company’s dividend payout
2. Which of the following is a primary component of cash flow forecasting?
A) Estimating future sales
B) Determining the stock price of the company
C) Projecting interest expenses only
D) Estimating future borrowing costs
3. What does a “cash budget” focus on?
A) Estimating the company’s revenue for the upcoming year
B) The company’s expenses and how they are distributed among different departments
C) Forecasting the cash inflows and outflows for a specific period
D) Tracking employee salaries and benefits
4. Which of the following is a cash flow activity that should be included in a cash budget?
A) Depreciation expense
B) Sale of long-term investments
C) Salary expenses
D) Unrealized gains on investments
5. In cash flow forecasting, what is meant by “operating cash flow”?
A) Cash generated from long-term investments
B) Cash received from borrowing activities
C) Cash generated from the core operations of the business
D) Cash related to the purchase of fixed assets
6. What is the “direct method” of cash flow forecasting?
A) A method where all cash receipts and payments are directly listed
B) A method where depreciation is subtracted from net income
C) A method used for long-term forecasting only
D) A method of calculating taxes paid
7. What is typically the first step in preparing a cash flow budget?
A) Estimating future expenses
B) Estimating expected cash receipts from sales
C) Projecting interest income
D) Determining the company’s tax liabilities
8. What is a potential problem when forecasting cash flow?
A) Overestimating expenses
B) Overestimating cash inflows and underestimating outflows
C) Correctly projecting depreciation
D) Predicting long-term market growth
9. What does a “cash flow statement” typically show?
A) The company’s overall profitability
B) The amount of equity in the company
C) The inflow and outflow of cash during a specific period
D) The company’s tax liabilities
10. Which type of expense is least likely to be included in a cash flow forecast?
A) Salaries
B) Rent payments
C) Depreciation
D) Loan repayments
11. What is the “indirect method” of cash flow forecasting?
A) A method that adjusts net income by adding or subtracting non-cash items
B) A method that lists all cash inflows and outflows directly
C) A method only applicable to large companies
D) A method used to project future stock prices
12. How can a company improve its cash flow forecast accuracy?
A) By relying solely on past financial data
B) By regularly updating forecasts based on actual performance
C) By ignoring small expenses that don’t affect the overall cash flow
D) By reducing the frequency of cash flow projections
13. Which of the following is a typical long-term source of cash for a company?
A) Short-term loans
B) Operating revenue
C) Issuance of equity or debt
D) Accounts payable
14. In a cash flow budget, what does “working capital” represent?
A) The amount of cash on hand for operational purposes
B) The company’s net income
C) The difference between current assets and current liabilities
D) The cash received from new investment
15. What is the main benefit of creating a cash flow forecast for a business?
A) To determine long-term investment strategies
B) To identify periods of potential liquidity shortages or surpluses
C) To calculate the company’s market value
D) To assess employee performance
16. What is an example of an investing activity in a cash flow statement?
A) Purchase of equipment
B) Payment of wages
C) Borrowing funds
D) Payment of dividends
17. When estimating cash inflows for forecasting, which of the following should be considered?
A) Expected sales revenue and collection dates
B) Depreciation and amortization schedules
C) Interest payments
D) Fixed asset depreciation
18. What is “cash flow from financing activities”?
A) Cash flows associated with the purchase and sale of assets
B) Cash flows related to issuing or repaying debt and equity
C) Cash generated by operations
D) Cash flows from interest income
19. How does a “cash flow gap” affect a business?
A) It helps the business understand potential excess liquidity
B) It shows the business can cover all its short-term obligations
C) It may indicate periods when the business will face liquidity problems
D) It represents unused capital available for investment
20. What should be done if a cash flow forecast shows a negative balance?
A) Increase the company’s borrowing capacity
B) Immediately reduce all expenses
C) Delay paying employees
D) Reassess the cash flow assumptions and find ways to increase cash inflows
21. How often should a company update its cash flow forecast?
A) Annually
B) Every quarter
C) Every month or as business conditions change
D) Only at the end of the fiscal year
22. What is an example of a non-operating cash flow activity?
A) Payment for rent
B) Purchase of machinery
C) Repayment of a loan
D) Payment of interest
23. Why is forecasting cash flow important for managing business growth?
A) To ensure there are enough funds available for operations and expansions
B) To measure employee performance
C) To analyze profit margins
D) To calculate annual revenue growth
24. What is one way to improve cash flow in the short term?
A) Reduce inventory levels
B) Increase long-term borrowing
C) Decrease product pricing
D) Slow down payment collections
25. How do changes in working capital affect cash flow?
A) Increases in working capital usually increase cash flow
B) Increases in working capital usually decrease cash flow
C) Working capital does not affect cash flow
D) Working capital only affects operating expenses, not cash flow
26. What does “free cash flow” represent?
A) The amount of cash available after accounting for capital expenditures and operating expenses
B) The cash inflows from operating activities only
C) The cash generated from the issuance of new stock
D) The total cash reserves of a company
27. What is the main challenge in forecasting cash flows for a startup business?
A) Limited access to capital
B) Uncertainty in predicting sales and expenses
C) High employee turnover
D) Low-interest rates
28. What is the effect of a “cash flow surplus”?
A) It indicates a company is facing financial difficulties
B) It provides funds that can be used for investment or debt repayment
C) It indicates a need to raise additional funds through equity issuance
D) It signals the need to reduce operating expenses
29. Which of the following is the best indicator of future cash flow problems?
A) Increased sales
B) High levels of inventory
C) Rising accounts receivable
D) Higher employee wages
30. How can a company improve its cash flow forecast reliability?
A) By forecasting only for the short-term period
B) By using a conservative approach to estimating inflows and outflows
C) By excluding long-term investments from the forecast
D) By ignoring market fluctuations
31. What is the purpose of cash flow forecasting in a business?
A) To determine the profitability of a company
B) To ensure that the business has enough cash to meet its obligations
C) To estimate future sales growth
D) To calculate the business’s market value
32. Which of the following is an example of a cash inflow?
A) Loan repayment
B) Depreciation expense
C) Sale of goods or services
D) Payment for rent
33. How does inflation typically affect cash flow forecasting?
A) It reduces the accuracy of future cash flows
B) It increases the amount of cash available in the future
C) It has no impact on cash flow forecasting
D) It makes future cash inflows more predictable
34. What is a common method used to project future cash flows?
A) Trend analysis
B) Reverse engineering
C) Regression analysis
D) Scenario planning
35. Which factor is most important when estimating cash receipts from customers in a forecast?
A) Payment terms
B) Marketing budget
C) Loan repayment schedule
D) Employee turnover rate
36. Why do companies need to monitor cash flow regularly?
A) To ensure that cash inflows are higher than outflows
B) To pay dividends to shareholders
C) To determine tax obligations
D) To analyze long-term capital investments
37. How can companies ensure they meet their cash flow needs during a cash flow shortage?
A) Decrease production costs
B) Increase borrowing or secure additional financing
C) Reduce marketing expenses
D) Increase employee salaries
38. Which of the following would most likely be included in the cash flow from operating activities?
A) Payment of dividends
B) Sale of investments
C) Cash sales of goods
D) Issuance of new debt
39. What is a primary risk when forecasting cash flow for a startup business?
A) Lack of competition in the market
B) Uncertainty in sales and market demand
C) High operational expenses
D) Excessive capital investment
40. Which of the following is a method used to improve the accuracy of cash flow forecasts?
A) Using historical financial data and market trends
B) Ignoring market fluctuations
C) Forecasting for only a short period
D) Excluding one-time expenses from the forecast
41. What effect does increased accounts payable have on cash flow?
A) It increases cash inflow
B) It reduces the company’s available cash
C) It has no effect on cash flow
D) It increases cash outflow
42. In which situation would a business likely experience a cash flow surplus?
A) Increased short-term debt
B) Increased sales and collection from customers
C) Decreased inventory turnover
D) Increased long-term capital investments
43. Which of the following is an example of an operating activity in the cash flow statement?
A) Issuing stock
B) Repaying loans
C) Selling property
D) Paying salaries
44. How should a company handle a cash flow forecast that indicates a surplus of funds?
A) Use the surplus to pay down debt or reinvest in the business
B) Save the funds in a non-interest-bearing account
C) Increase future borrowing
D) Reduce pricing to increase sales
45. How does “seasonality” affect cash flow forecasting?
A) It only affects long-term forecasting
B) It causes cash flows to be more predictable
C) It creates peaks and valleys in cash flow during certain times of the year
D) It has no effect on forecasting accuracy
46. What is an important consideration when forecasting cash outflows?
A) Customer payment terms
B) Payment schedules for operating expenses
C) Employee salary increases
D) Sales growth projections
47. Which of the following activities should be included in a capital budgeting decision related to cash flow?
A) Payment for inventory
B) Purchase of machinery
C) Payment of utilities
D) Payment of dividends
48. When forecasting cash flows, what is the effect of a longer collection period on cash flow?
A) It increases the amount of cash available
B) It has no effect on cash flow
C) It reduces the amount of cash available
D) It increases the need for short-term financing
49. What does a “rolling forecast” in cash flow management involve?
A) Using historical data to predict long-term cash flows
B) Updating the forecast regularly to reflect changes in actual performance
C) Predicting cash flows based solely on market trends
D) Forecasting only for a specific time period without adjustments
50. What could cause a business to have negative cash flow despite being profitable?
A) The business is overestimating its sales growth
B) The business is experiencing an increase in accounts payable
C) The business is investing heavily in capital expenditures or paying down debt
D) The business is managing its expenses too effectively
51. What is a benefit of having a cash flow forecast for the upcoming year?
A) It provides insight into potential short-term liquidity issues
B) It guarantees that the company will be profitable
C) It allows the company to reduce its tax liabilities
D) It helps increase sales revenue
52. What is a common reason for cash flow forecasting errors?
A) Overestimating operating expenses
B) Underestimating customer payment cycles
C) Ignoring cash flow from financing activities
D) Using outdated financial data
53. Which of the following is an example of a financing activity in cash flow forecasting?
A) Issuing bonds
B) Payment of accounts payable
C) Receipt from customer sales
D) Purchase of fixed assets
54. Why would a business want to prepare a worst-case scenario cash flow forecast?
A) To identify possible future liquidity problems and plan accordingly
B) To improve profitability by increasing revenue
C) To estimate the amount of dividend payments
D) To predict employee compensation levels
55. How would delaying capital expenditures affect cash flow forecasting?
A) It would increase cash outflows
B) It would have no impact on cash flows
C) It could improve cash flow in the short term
D) It would increase long-term liabilities
56. What is the primary function of a cash flow budget in financial planning?
A) To predict profitability over the next quarter
B) To estimate the timing of cash receipts and disbursements
C) To forecast changes in stock prices
D) To determine tax obligations for the company
57. What is the typical outcome of a poor cash flow forecast?
A) Increased inventory turnover
B) Higher-than-expected revenue
C) Liquidity problems and potential operational disruptions
D) Reduced capital expenditures
58. What is the role of depreciation in cash flow forecasting?
A) It increases cash flow
B) It does not affect cash flow since it’s a non-cash expense
C) It reduces cash flow by increasing liabilities
D) It directly affects cash inflows from sales
59. How can changes in credit terms affect cash flow?
A) Shorter credit terms typically reduce cash inflows
B) Longer credit terms increase the need for external financing
C) Shorter credit terms result in an increased cash flow surplus
D) Changes in credit terms have no impact on cash flow
60. Which of the following is true about forecasting cash flows for a growing company?
A) Cash flow forecasting becomes less critical as the company grows
B) Forecasting for growth requires estimating increased working capital needs
C) Cash flow forecasting is unnecessary if the company is profitable
D) Growth typically reduces the accuracy of cash flow forecasts
61. Which of the following best describes a “cash flow gap”?
A) The difference between expected cash inflows and outflows
B) A situation where cash inflows exceed outflows
C) The amount of cash in hand at any given time
D) A surplus of cash available for investment
62. When preparing a cash flow forecast, why is it important to account for seasonality?
A) To adjust pricing strategies during peak seasons
B) To anticipate periods of higher or lower cash inflows or outflows
C) To predict future employee compensation
D) To determine tax liabilities based on seasonal income
63. How does a change in inventory levels impact cash flow forecasting?
A) Increasing inventory can reduce available cash as funds are tied up in unsold stock
B) Decreasing inventory always leads to a cash flow surplus
C) Inventory changes have no significant effect on cash flow
D) Increased inventory always increases available cash
64. In forecasting cash flows, what is the role of accounts receivable?
A) Accounts receivable represents cash that has already been collected
B) The timing of collections affects cash flow predictions
C) It is irrelevant to cash flow forecasting since it doesn’t impact liquidity
D) Accounts receivable only impacts cash flow when a customer defaults
65. Which of the following is an example of a non-cash item that should be excluded from cash flow forecasting?
A) Depreciation
B) Interest expense
C) Revenue from sales
D) Payments to suppliers
66. How would a reduction in accounts payable impact a company’s cash flow forecast?
A) It would increase cash flow because the company has to pay less to suppliers
B) It would decrease cash flow because the company pays off more debt
C) It has no effect on cash flow
D) It would increase cash flow by increasing supplier relationships
67. What is the purpose of the “direct method” for cash flow forecasting?
A) It forecasts cash flows based on net income
B) It projects cash receipts and cash payments directly, without adjustments
C) It estimates future profits using historical data
D) It calculates cash flows from financing activities only
68. When should a company review and revise its cash flow forecast?
A) Only after the fiscal year ends
B) At the beginning of each quarter or when new financial data is available
C) When sales growth exceeds expectations
D) Whenever there is a change in the corporate tax rate
69. Which of the following activities is most likely to be considered an investing activity in cash flow forecasting?
A) Purchase of inventory
B) Repayment of a long-term loan
C) Sale of equipment
D) Payment for utilities
70. What is the primary advantage of a rolling cash flow forecast?
A) It allows a company to update projections as new data becomes available, ensuring ongoing accuracy
B) It simplifies the forecasting process by limiting the need for frequent updates
C) It focuses only on long-term projections, avoiding short-term fluctuations
D) It eliminates the need for external financing
71. Which of the following is typically excluded from cash flow forecasting?
A) Depreciation
B) Accounts payable
C) Loan repayments
D) Interest payments
72. How does using a conservative cash flow forecast benefit a business?
A) It allows for aggressive capital spending
B) It helps ensure liquidity and prevent cash shortages
C) It increases the company’s tax liabilities
D) It predicts more accurate profit margins
73. What is one reason a company might need to forecast cash flows for a long-term horizon (e.g., 5-10 years)?
A) To predict the future performance of stock prices
B) To plan for large capital investments and ensure adequate financing
C) To avoid paying corporate taxes
D) To calculate depreciation schedules
74. In cash flow forecasting, why are operating activities the most critical to monitor?
A) They include all long-term investment and financing decisions
B) They directly impact a company’s daily cash inflows and outflows
C) They provide insight into a company’s profitability
D) They are unrelated to the overall liquidity of the business
75. How can cash flow forecasting help a company manage risk?
A) It allows for better management of liquidity by identifying periods of potential cash shortages
B) It predicts changes in the company’s market value
C) It eliminates the need for external financing
D) It guarantees that the company will never experience a cash flow shortage
76. What is a key challenge when forecasting cash flows for a new business or startup?
A) Predicting customer payment behavior with limited historical data
B) Estimating long-term capital gains
C) Projecting fixed costs with high accuracy
D) Managing government tax regulations
77. How can a company use cash flow forecasting to make decisions about capital investments?
A) By forecasting future cash flow needs to ensure funds are available for investment
B) By determining how much profit the business expects to make
C) By estimating the market price of the investment in the future
D) By predicting future employee salary levels
78. What impact does increasing the payment terms to customers (e.g., from 30 days to 60 days) have on cash flow forecasting?
A) It accelerates cash inflows, improving liquidity
B) It reduces liquidity as cash inflows are delayed
C) It has no effect on cash flow, as payments are still collected
D) It increases the need for short-term financing
79. What is the main difference between cash flow forecasting and budgeting?
A) Cash flow forecasting focuses on long-term expenses, while budgeting is concerned with short-term cash flow
B) Cash flow forecasting predicts when cash will be available, while budgeting estimates how money will be spent
C) There is no difference between cash flow forecasting and budgeting
D) Budgeting is only used for investment purposes, while cash flow forecasting is used for operating activities
80. How does a company’s financing activities, such as issuing new stock or borrowing money, affect its cash flow forecast?
A) They increase cash inflows and are essential for managing liquidity
B) They have no effect on the company’s cash flow
C) They reduce the company’s cash flow due to interest payments
D) They only affect operating cash flow but not investing or financing cash flows
81. Which of the following would likely cause a company’s cash flow forecast to be inaccurate?
A) A sudden increase in the cost of raw materials
B) Forecasting cash flows based on consistent customer demand
C) Accurate predictions of employee salaries and compensation
D) Predicting cash flow based on long-term industry trends
82. What is the purpose of conducting sensitivity analysis in cash flow forecasting?
A) To determine the most likely cash flow scenario
B) To predict the company’s profitability over the long term
C) To estimate the effects of varying key assumptions on cash flow
D) To determine the tax impact of cash flows
83. How can regular updates to cash flow forecasts help a company improve decision-making?
A) They help adjust operations and financing strategies to align with actual performance
B) They allow the company to increase its dividend payouts
C) They help the company minimize operating expenses
D) They reduce the need for market research
84. What is a major consequence of failing to forecast cash flows effectively?
A) Decreased tax liabilities
B) Unforeseen cash shortages, leading to potential operational disruptions
C) Higher-than-expected profits
D) Increased investor confidence
85. Which of the following is most important when forecasting cash flows for a multinational corporation?
A) Estimating tax obligations in various countries
B) Estimating currency exchange rates and their effects on cash flows
C) Projecting global marketing strategies
D) Determining the company’s environmental impact
86. What is the primary purpose of preparing pro forma financial statements?
A) To predict a company’s future profitability and performance
B) To comply with regulatory reporting requirements
C) To prepare financial statements for tax filing
D) To calculate the company’s historical operating performance
87. How do pro forma financial statements differ from standard financial statements?
A) Pro forma statements include future projections and assumptions, while standard statements reflect historical data
B) Pro forma statements follow different accounting principles than standard financial statements
C) Pro forma statements are only used for tax purposes
D) Pro forma statements provide actual figures, while standard financial statements include estimates
88. Which of the following is typically excluded from pro forma income statements?
A) Sales revenue
B) Non-recurring gains or losses
C) Operating expenses
D) Depreciation expense
89. Pro forma financial statements are most useful for which of the following?
A) To evaluate historical performance of a company
B) To analyze future financial performance based on assumptions and projections
C) To determine tax liabilities
D) To confirm compliance with Generally Accepted Accounting Principles (GAAP)
90. Which of the following would be a reason to prepare a pro forma balance sheet?
A) To forecast the company’s financial position at a future date
B) To report the company’s actual financial position based on historical transactions
C) To comply with tax regulations
D) To report the company’s liabilities to the IRS
91. Which type of pro forma financial statement would typically be used to evaluate the impact of a merger or acquisition?
A) Pro forma income statement
B) Pro forma balance sheet
C) Pro forma cash flow statement
D) Pro forma statement of retained earnings
92. What is often the main limitation of pro forma financial statements?
A) They are based on historical data and cannot account for future uncertainties
B) They rely heavily on management assumptions, which may be inaccurate
C) They are not accepted by regulatory bodies
D) They do not include any projected data
93. When companies issue pro forma financial statements to investors, what is the key aspect they aim to highlight?
A) The impact of extraordinary events on profitability
B) The company’s historical tax liabilities
C) The impact of anticipated transactions or strategies on future performance
D) The company’s past dividend history
94. In preparing pro forma statements, what assumption is often made about future capital expenditures?
A) They are excluded as they do not affect overall financial results
B) They are projected based on historical spending trends and planned future investments
C) They are treated as income
D) They are only considered in the pro forma cash flow statement
95. Which of the following is an example of an event that could be reflected in pro forma financial statements?
A) A change in accounting policies
B) A company’s regular interest payment on debt
C) The effect of a proposed restructuring or acquisition
D) A change in the company’s inventory method
96. Why might a company prepare pro forma financial statements after a large capital investment?
A) To show the projected financial impact and potential returns from the investment
B) To report the company’s taxable income
C) To comply with financial reporting standards
D) To report employee compensation changes
97. In preparing a pro forma income statement, which of the following is an example of a non-recurring item that could be excluded?
A) Revenue from a one-time sale of an asset
B) Ongoing sales revenue from regular business operations
C) Regular salaries and wages
D) Operating expenses
98. Which of the following is most likely to be included in a pro forma cash flow statement?
A) Projected changes in working capital
B) Historical financial statements from the previous year
C) Changes in the tax rate
D) Projections of future market conditions
99. How might a company use pro forma financial statements in relation to debt financing?
A) To forecast its ability to generate future cash flows to meet debt obligations
B) To comply with debt covenant requirements
C) To report past violations of debt covenants
D) To report interest payments on debt
100. Which of the following financial ratios is most commonly used in conjunction with pro forma statements to evaluate the company’s financial health?
A) Debt-to-equity ratio
B) Earnings per share (EPS)
C) Return on equity (ROE)
D) All of the above
101. What is typically added to a pro forma income statement to show the company’s future earnings potential?
A) Projections of future sales growth
B) Depreciation of fixed assets
C) Projections of tax liabilities
D) Historical operating costs
102. What is the main benefit of using pro forma statements for budgeting?
A) They are used to track actual historical performance
B) They can project how various future actions will affect the company’s financial situation
C) They provide a guarantee that future revenues will meet projections
D) They simplify tax reporting
103. Which of the following is commonly adjusted for in pro forma financial statements to reflect a more accurate financial picture?
A) Non-operating income
B) Non-recurring expenses or gains
C) Employee salaries
D) Monthly recurring costs
104. When preparing pro forma financial statements, why is it important to include potential changes in market conditions?
A) To accurately assess the impact of fluctuations in sales, costs, and economic conditions on financial performance
B) To prepare historical data in future periods
C) To avoid any tax penalties
D) To ensure the company is in compliance with GAAP
105. Which of the following would most likely require the use of pro forma financial statements?
A) A small, privately owned company preparing its tax returns
B) A startup company seeking venture capital funding
C) A mature company preparing its annual budget
D) A government entity preparing its financial reports
106. Which of the following best describes the purpose of a pro forma income statement?
A) To project the company’s financial position at a specific future date
B) To provide a detailed record of actual past financial performance
C) To predict the company’s future profitability based on assumptions and forecasts
D) To calculate the tax liabilities of the company
107. What key information does a pro forma balance sheet typically include?
A) Sales revenue projections and costs
B) The company’s projected financial position, including assets, liabilities, and equity
C) The company’s operating expenses and operating income
D) Historical financial data for comparison purposes
108. Pro forma financial statements are primarily used to:
A) Report the actual financial performance of a company
B) Provide a snapshot of a company’s financial health over time
C) Forecast future financial performance based on certain assumptions
D) Evaluate past decisions and their financial impacts
109. When adjusting historical financial data to create pro forma financial statements, which of the following is most likely to be excluded?
A) Ongoing revenue from regular business activities
B) Extraordinary or non-recurring events
C) Depreciation of assets
D) Regular operating expenses
110. In a pro forma income statement, adjustments for non-recurring events typically include:
A) Tax changes
B) Natural disaster losses
C) Projected sales growth
D) Regular operating costs
111. What assumption is often made when preparing pro forma financial statements?
A) The company’s operations will not change
B) The company will continue its operations as per the historical pattern
C) Future market conditions will mirror past performance exactly
D) Assumptions and estimates are based on future expected events or conditions
112. Pro forma statements are especially useful for:
A) Tracking year-over-year changes in a company’s assets
B) Estimating the potential effects of changes in business activities, such as new investments or acquisitions
C) Reporting actual earnings to shareholders
D) Ensuring compliance with tax regulations
113. In a pro forma financial statement, which of the following might be adjusted to better reflect future performance?
A) Historical revenue data
B) Non-operating income and expenses
C) Historical cash flow details
D) Operating expenses from the previous year
114. How can pro forma financial statements help investors and creditors?
A) By providing an accurate historical overview of the company’s operations
B) By presenting projections that help gauge the company’s future profitability and financial stability
C) By showing only past transactions without future assumptions
D) By providing regulatory reports required by government agencies
115. Which of the following financial statements is most likely to be prepared in a pro forma format for merger and acquisition purposes?
A) Statement of changes in equity
B) Cash flow statement
C) Income statement
D) Balance sheet
116. When preparing a pro forma income statement, a company might exclude the impact of which of the following?
A) Revenue from regular business operations
B) One-time gains or losses from asset sales
C) Depreciation and amortization
D) Interest expenses on current debt
117. Why would a company include a pro forma cash flow statement in its financial reporting?
A) To predict how future cash flows will be impacted by planned business activities
B) To calculate the company’s tax liabilities
C) To summarize historical revenue from operating activities
D) To record past earnings and expenses
118. A company is preparing pro forma statements for a major expansion. Which factor would most likely be considered in the projections?
A) Future operating costs related to the expansion
B) Exact historical revenue figures from the last fiscal year
C) Detailed tax rates from the previous year
D) Past changes in capital structure
119. What is a potential limitation of pro forma financial statements?
A) They offer no insight into future performance
B) They are based on assumptions and projections, which may not accurately reflect future realities
C) They are not useful for decision-making
D) They are subject to more stringent regulatory requirements than standard financial statements
120. In a pro forma statement, how might future interest expenses be handled?
A) Interest expenses are excluded as they are not relevant to future projections
B) Interest expenses are adjusted based on the anticipated future debt levels
C) Interest expenses are included without adjustment
D) Interest expenses are converted to equity
121. Pro forma financial statements can be used by management to:
A) Report the company’s past financial performance to stakeholders
B) Make strategic decisions based on projected financial outcomes
C) Calculate the company’s historical tax obligations
D) Prepare filings for regulatory agencies
122. In a pro forma balance sheet, projections for which of the following would be included?
A) Non-recurring expenses from the previous fiscal year
B) Estimated future liabilities and equity changes due to business decisions
C) Only actual historical transactions
D) Only past income statements
123. What is one reason why pro forma statements might not be entirely reliable?
A) They include a comprehensive overview of past performance
B) They are not based on any financial assumptions
C) They rely on future assumptions that may not materialize as expected
D) They are prepared using historical data only
124. When preparing pro forma financial statements for an initial public offering (IPO), a company would most likely:
A) Focus on current tax obligations
B) Highlight the anticipated future financial performance to attract investors
C) Disregard future market conditions
D) Provide historical financial statements without projections
125. What type of adjustment might be made to the pro forma balance sheet after an acquisition?
A) Removing historical asset values
B) Including projected sales revenue
C) Adjusting for the fair value of acquired assets and liabilities
D) Excluding liabilities that were not part of the acquisition
126. Why might a company choose to prepare a pro forma financial statement before a major capital investment?
A) To determine the historical accuracy of its financial records
B) To assess how the investment will affect future profitability and financial position
C) To comply with tax regulations
D) To record past earnings and expenses
127. What is typically excluded from a pro forma income statement when projecting future performance?
A) Revenue from regular operations
B) One-time gains or losses
C) Salaries and wages
D) Depreciation of fixed assets
128. Which of the following is a key reason for creating a pro forma balance sheet after a major acquisition?
A) To reflect the historical financial data of the acquiring company
B) To estimate how the acquisition will change the combined company’s financial position
C) To calculate the taxes due on the acquisition
D) To finalize the payment terms of the acquisition
129. Which of the following projections is typically made in a pro forma cash flow statement?
A) Expected changes in working capital due to planned expansions
B) A summary of the company’s tax obligations from previous years
C) Historical trends of cash flows
D) Depreciation and amortization adjustments
130. How can pro forma financial statements help a company assess the potential impact of a new product launch?
A) By comparing historical revenue figures with future projections
B) By predicting how the new product will affect sales, profits, and cash flow
C) By recording the exact expenses from past product launches
D) By estimating the tax liabilities for the new product
131. What is one potential disadvantage of relying too heavily on pro forma financial statements for decision-making?
A) They only provide historical data
B) They may not account for unforeseen economic changes or risks
C) They are prepared without any assumptions
D) They are only useful for tax reporting
132. What is typically included in a pro forma income statement for a company that is planning to acquire another company?
A) The historical profits of the acquired company
B) Projected earnings and costs from the acquisition
C) Details on the acquisition’s impact on taxes paid
D) Historical operating expenses of the acquirer
133. How does a pro forma balance sheet help a company after an equity offering?
A) It provides an analysis of past financial data
B) It reflects how the new capital raised will affect the company’s financial position
C) It calculates the company’s tax obligations
D) It shows actual market prices of the new shares
134. Why would a company adjust its depreciation in a pro forma statement?
A) To reflect future depreciation of assets acquired after a major purchase or expansion
B) To calculate the exact depreciation for tax purposes
C) To exclude non-recurring depreciation costs from the financial picture
D) To reduce the company’s reported expenses
135. Which of the following is a typical scenario where pro forma financial statements are prepared?
A) To report the company’s historical financial results for the last fiscal year
B) To forecast the impact of strategic decisions, such as mergers, acquisitions, or major capital expenditures
C) To comply with government tax filings
D) To provide an audited financial statement to regulators
136. What is the primary purpose of pro forma financial statements in relation to external stakeholders?
A) To show the company’s actual performance for tax reporting
B) To provide a forecast of the company’s financial performance under various assumptions
C) To meet the regulatory reporting requirements
D) To show the exact performance of the company without assumptions
137. Which financial metric is most commonly adjusted in a pro forma income statement when projecting future performance?
A) Gross profit margin
B) Net income
C) Non-recurring expenses
D) Operating costs
138. A company preparing pro forma financial statements after issuing new stock would likely focus on:
A) The projected changes to the company’s cash flow and equity
B) The impact of historical tax liabilities
C) Recording the company’s earnings per share (EPS) from the past year
D) The depreciation of assets purchased in the past
139. What assumption is commonly made when preparing pro forma balance sheets?
A) The company’s financial position will remain the same as in the previous year
B) Future assets, liabilities, and equity will change according to planned activities, such as acquisitions or capital investments
C) The company will not experience any changes in its operating costs
D) The company’s earnings will remain fixed
140. What is the most likely reason a company would exclude one-time expenses (e.g., restructuring costs) from its pro forma income statement?
A) To focus on ongoing operational performance
B) To comply with GAAP reporting standards
C) To reduce the impact of these costs on tax filings
D) To make historical comparisons more accurate
141. How would a company typically treat the impact of a new financing arrangement in its pro forma financial statements?
A) The new financing arrangement would be excluded entirely
B) The company would estimate the future costs associated with the financing, including interest payments and any changes in liabilities
C) The financing arrangement would be assumed to have no impact on future financials
D) Only the amount of the financing arrangement would be reported without further adjustments
142. In which of the following cases would a company be most likely to prepare pro forma financial statements?
A) When calculating historical earnings for tax reporting
B) When analyzing the impact of a potential acquisition or significant new investment
C) When submitting regulatory reports for compliance
D) When issuing standard financial statements to investors
143. Which of the following is typically NOT included in a pro forma income statement?
A) Projections of future revenues
B) One-time gains or losses
C) Forecasted interest expense
D) Non-recurring costs related to restructuring
144. How does a pro forma income statement differ from a regular income statement?
A) A pro forma income statement includes actual revenue and expenses for the period
B) A pro forma income statement includes only past expenses and excludes future projections
C) A pro forma income statement focuses on projected performance rather than historical data
D) A pro forma income statement reports all non-recurring and non-operational items
145. When preparing a pro forma financial statement, which of the following factors is most likely to affect future cash flows?
A) A change in the company’s product prices due to inflation
B) Historical trends in sales volume
C) One-time gains from asset sales
D) Depreciation of fixed assets
146. What is the primary purpose of performing a break-even analysis?
A) To determine the number of units that need to be sold to cover all fixed and variable costs
B) To calculate the company’s total revenue from sales
C) To evaluate the profitability of a new investment
D) To determine the company’s tax obligations
147. In a break-even analysis, what does the break-even point represent?
A) The point where total revenue equals total fixed costs
B) The point where total revenue equals total expenses (fixed + variable costs)
C) The point where total revenue exceeds total fixed and variable costs
D) The point where the company maximizes its profits
148. If a company’s fixed costs are $50,000, its selling price per unit is $20, and its variable cost per unit is $10, what is the break-even point in units?
A) 2,500 units
B) 5,000 units
C) 7,500 units
D) 10,000 units
149. What effect would an increase in variable costs have on the break-even point?
A) It would decrease the break-even point
B) It would have no effect on the break-even point
C) It would increase the break-even point
D) It would make the company more profitable
150. Which of the following is NOT a component used in calculating the break-even point?
A) Fixed costs
B) Selling price per unit
C) Total revenue
D) Variable cost per unit
151. If the break-even point is 1,000 units, and a company sells 1,500 units, what is the company’s profit?
A) Equal to the fixed costs
B) Equal to the variable costs
C) Equal to the profit margin on each unit multiplied by the number of units sold above the break-even point
D) Zero, since it has just broken even
152. How does an increase in fixed costs affect the break-even point, assuming variable costs and selling price remain constant?
A) The break-even point will decrease
B) The break-even point will remain the same
C) The break-even point will increase
D) The company will never reach the break-even point
153. Which of the following would be most likely to decrease a company’s break-even point?
A) An increase in the selling price per unit
B) An increase in fixed costs
C) A decrease in the number of units sold
D) An increase in the variable cost per unit
154. A company has fixed costs of $100,000, a selling price of $50 per unit, and a variable cost of $30 per unit. What is the break-even point in sales dollars?
A) $250,000
B) $500,000
C) $750,000
D) $1,000,000
155. What is the margin of safety in break-even analysis?
A) The amount by which sales can fall before the company reaches the break-even point
B) The total profit made after breaking even
C) The difference between fixed costs and variable costs
D) The percentage of fixed costs covered by profits
156. If a company has a margin of safety of 20%, what does this indicate?
A) The company has excess capacity to produce more units
B) Sales can fall by 20% before the company reaches the break-even point
C) The company will be profitable after selling 20% more than the break-even point
D) The company’s fixed costs are 20% lower than variable costs
157. Which of the following is true about the relationship between fixed costs, variable costs, and the break-even point?
A) An increase in fixed costs lowers the break-even point
B) An increase in variable costs increases the break-even point
C) A decrease in fixed costs has no effect on the break-even point
D) A decrease in variable costs decreases the break-even point
158. A company wants to reduce its break-even point. Which of the following actions would help achieve this goal?
A) Increase fixed costs
B) Increase the selling price per unit
C) Increase variable costs
D) Decrease the selling price per unit
159. How is the contribution margin used in break-even analysis?
A) It is the difference between sales revenue and fixed costs
B) It represents the amount remaining from sales after variable costs are subtracted, contributing to covering fixed costs and generating profit
C) It shows the total cost per unit sold
D) It represents the profit margin after fixed and variable costs are subtracted
160. A company’s break-even point is 2,000 units. If it raises the price of its product from $10 to $12 and the variable cost remains unchanged at $5 per unit, what is the new break-even point?
A) 1,800 units
B) 2,000 units
C) 1,500 units
D) 1,000 units
161. What is the contribution margin ratio?
A) The ratio of fixed costs to variable costs
B) The proportion of each sales dollar that is available to cover fixed costs and contribute to profit
C) The difference between total revenue and total costs
D) The ratio of fixed costs to total sales revenue
162. If a company has fixed costs of $200,000, a selling price of $40 per unit, and a variable cost of $20 per unit, what is the contribution margin per unit?
A) $40
B) $20
C) $60
D) $80
163. What happens to the break-even point if both fixed costs and variable costs increase?
A) The break-even point will remain the same
B) The break-even point will decrease
C) The break-even point will increase
D) The break-even point will be eliminated
164. How can break-even analysis assist a company in setting sales targets?
A) By identifying the level of sales required to cover fixed costs
B) By determining the most profitable price point for each product
C) By calculating the company’s tax obligations
D) By forecasting future sales growth
165. What is the formula for calculating the break-even point in units?
A) Break-even point = Fixed Costs / Contribution Margin per Unit
B) Break-even point = Total Revenue / Total Costs
C) Break-even point = Variable Costs / Selling Price
D) Break-even point = Fixed Costs / Variable Costs
166. How can the break-even point be expressed in sales dollars?
A) Break-even point in sales dollars = Fixed Costs / Contribution Margin Ratio
B) Break-even point in sales dollars = Fixed Costs × Contribution Margin Ratio
C) Break-even point in sales dollars = Total Revenue × Contribution Margin Ratio
D) Break-even point in sales dollars = Fixed Costs / Variable Costs per Unit
167. What happens to the break-even point if the selling price per unit increases, assuming fixed and variable costs remain unchanged?
A) The break-even point increases
B) The break-even point decreases
C) The break-even point remains the same
D) The company will reach its target profit
168. If the break-even point is 1,000 units and the company increases its fixed costs by 20%, what will be the new break-even point?
A) 1,000 units
B) 1,200 units
C) 800 units
D) 1,500 units
169. A company has fixed costs of $300,000, a selling price per unit of $50, and a variable cost per unit of $30. What is the contribution margin ratio?
A) 40%
B) 20%
C) 60%
D) 10%
170. If the contribution margin ratio is 0.60 and fixed costs are $500,000, what is the break-even point in sales dollars?
A) $300,000
B) $500,000
C) $833,333
D) $1,000,000
(Break-even point in sales dollars = Fixed Costs / Contribution Margin Ratio = 500,000 / 0.60 = 833,333)
171. If a company’s break-even point is 1,500 units, what is the impact on the break-even point if the company reduces its fixed costs by 10%?
A) The break-even point will increase
B) The break-even point will remain unchanged
C) The break-even point will decrease
D) The break-even point will be eliminated
172. Which of the following would cause a decrease in the break-even point?
A) An increase in fixed costs
B) A decrease in selling price
C) A decrease in variable costs
D) A decrease in sales volume
173. What is the break-even point for a company with fixed costs of $200,000, a selling price per unit of $25, and a variable cost per unit of $15?
A) 20,000 units
B) 10,000 units
C) 5,000 units
D) 2,500 units
174. If a company has a break-even point of 5,000 units and expects to sell 6,000 units, how much profit will the company make at the 6,000-unit level?
A) Equal to fixed costs
B) Equal to the contribution margin of 1,000 units
C) Equal to the total variable costs
D) Equal to the total sales revenue
175. How would a company reduce its break-even point if it cannot lower its fixed costs?
A) Increase the selling price per unit
B) Decrease the variable cost per unit
C) Reduce the number of units sold
D) Increase total revenue
176. A company has a fixed cost of $400,000 and a contribution margin of $20 per unit. How many units must the company sell to break even?
A) 10,000 units
B) 20,000 units
C) 40,000 units
D) 50,000 units
177. A company’s break-even point in units is 2,000. If the selling price increases by 10%, what will happen to the break-even point?
A) It will increase
B) It will decrease
C) It will remain unchanged
D) It will become zero
178. What impact does a decrease in variable costs per unit have on the break-even point, assuming all other factors remain constant?
A) It will increase the break-even point
B) It will decrease the break-even point
C) It will have no effect on the break-even point
D) It will increase the fixed costs
179. A company has fixed costs of $250,000, a selling price of $60, and a variable cost of $40. What is the break-even point in units?
A) 10,000 units
B) 12,500 units
C) 5,000 units
D) 15,000 units
180. In break-even analysis, which of the following represents the amount of revenue that exceeds the break-even point?
A) Contribution margin
B) Profit margin
C) Operating income
D) Margin of safety
181. Which of the following would increase the break-even point for a company?
A) An increase in the contribution margin ratio
B) A decrease in fixed costs
C) A reduction in the selling price per unit
D) An increase in the margin of safety
182. A company has a break-even point of 10,000 units, sells 12,000 units, and has a contribution margin of $15 per unit. What is the company’s profit?
A) $30,000
B) $15,000
C) $25,000
D) $20,000
183. A company wants to achieve a profit of $100,000. The fixed costs are $400,000, and the contribution margin per unit is $25. How many units must be sold to achieve the desired profit?
A) 20,000 units
B) 25,000 units
C) 30,000 units
D) 50,000 units
184. A company has fixed costs of $100,000, and the contribution margin is 40%. What is the break-even point in sales dollars?
A) $250,000
B) $400,000
C) $500,000
D) $1,000,000
185. If a company has a break-even point of 5,000 units and fixed costs of $100,000, what is the contribution margin per unit?
A) $20
B) $25
C) $30
D) $50
186. A company’s contribution margin per unit is $15, and its break-even point in units is 2,000. What is the company’s total fixed costs?
A) $15,000
B) $30,000
C) $40,000
D) $25,000
187. What effect would an increase in variable costs per unit have on a company’s break-even point, assuming fixed costs remain unchanged?
A) It will decrease the break-even point
B) It will increase the break-even point
C) It will have no effect on the break-even point
D) It will change the contribution margin ratio
188. A company has a fixed cost of $50,000 and a selling price of $40 per unit. If the company’s variable cost per unit is $20, what is the break-even point in units?
A) 2,000 units
B) 1,500 units
C) 2,500 units
D) 3,000 units
189. What does the margin of safety indicate in break-even analysis?
A) The amount of profit generated beyond the break-even point
B) The total contribution margin after reaching break-even
C) The number of units needed to reach the break-even point
D) The level of sales decline a company can withstand before it incurs a loss
190. A company has fixed costs of $75,000, a selling price per unit of $25, and a variable cost of $10 per unit. If it sells 10,000 units, what is the company’s profit?
A) $150,000
B) $175,000
C) $200,000
D) $250,000
191. If the break-even point decreases, which of the following could be the reason?
A) An increase in fixed costs
B) A decrease in selling price per unit
C) A decrease in variable costs per unit
D) An increase in variable costs per unit
192. A company has a contribution margin ratio of 30% and fixed costs of $200,000. What is the break-even point in sales dollars?
A) $666,667
B) $600,000
C) $800,000
D) $1,000,000
193. If the company’s break-even point is 1,500 units, what would be the break-even point if the selling price increased by $5 and the variable cost decreased by $2, assuming fixed costs remain the same?
A) The break-even point will decrease
B) The break-even point will increase
C) The break-even point will stay the same
D) The break-even point will double
194. A company’s fixed costs are $50,000, and its contribution margin ratio is 40%. What is the break-even point in sales dollars?
A) $125,000
B) $100,000
C) $75,000
D) $50,000
195. If a company has a contribution margin of $100 per unit and fixed costs of $500,000, how many units must it sell to achieve a profit of $100,000?
A) 6,000 units
B) 5,000 units
C) 7,000 units
D) 8,000 units
196. The break-even point is calculated by dividing fixed costs by:
A) Variable costs per unit
B) Contribution margin per unit
C) Contribution margin ratio
D) Sales revenue per unit
197. A company has fixed costs of $300,000, a selling price per unit of $75, and a variable cost of $50 per unit. What is the break-even point in units?
A) 12,000 units
B) 10,000 units
C) 8,000 units
D) 6,000 units
198. A company’s fixed costs are $50,000, and its contribution margin per unit is $20. If it wants to achieve a profit of $80,000, how many units must be sold?
A) 5,000 units
B) 6,000 units
C) 7,000 units
D) 8,000 units
199. If the break-even point is reached, how does the company’s total sales revenue compare to its total costs?
A) Total revenue is greater than total costs
B) Total revenue equals total costs
C) Total revenue is less than total costs
D) Total revenue exceeds fixed costs only
200. A company sells its product for $40 per unit. Its variable cost is $25 per unit, and fixed costs are $90,000. What is the break-even point in units?
A) 9,000 units
B) 6,000 units
C) 5,000 units
D) 8,000 units