©THEBRIGHT EXAM SOLUTIONS 2024/2025
ALL RIGHTS RESERVED.
MBA Prep CFIN Exam Questions With
Verified Answers
Analysts within a company are more likely to fall into the "false accuracy trap" when they
develop pro formas than would external analysts because insiders have access to more detailed
information - Answers✔True
When making financial projections, if a particular expense item cannot be predicted with any
degree of confidence, it should be forecast at the highest level it would ever likely to reach, so as
to make the pro formas conservative - Answers✔False
The greater detail in a pro forma, the greater its accuracy will be - Answers✔False
The qualitative portion of a financial analysis is analogous to the hypothesis-forming state of
scientific investigation because - Answers✔assumptions not tested till numbers are run, false
assumption may be formed, empirical measurement performed later
During the qualitative portion of developing pro formas, - Answers✔industry-wide
considerations may be less important than company-specific issues
An assumption is critical if - Answers✔it affections the bottom line greater than other
assumptions, it reflects a judgement about the firm's ability to perform one of the keys to success
Horizontal and vertical percentage trends are useful in projecting future financial statements -
Answers✔True
In a stable, predictable industry, an average of the precious ten years' sales growth figures
probably provides a more accurate forecast than assuming the same level of sales next year as in
the current year. - Answers✔True
When performing sensitivity analysis - Answers✔statistical methods can be usefully employed,
electronic spreadsheets can save time, assumptions should be changed one at a time
The final step in using pro formas is to - Answers✔Compare the results of the sensitivity
analysis to the decision-maker's tolerance in the current situation
The most accurate pro formas contain the most detail - Answers✔false
, ©THEBRIGHT EXAM SOLUTIONS 2024/2025
ALL RIGHTS RESERVED.
In projecting an income statement based on a balance sheet, which of the following categories
would you contend to be least likely to vary directly with a change in sales? -
Answers✔Depreciation
Hypothesis that are formed during the qualitative analysis can be verified when the analyst
reviews the firm's historical performance - Answers✔True
Statistical methods can be employed to - Answers✔smooth out historical performance trends, aid
the analyst in making estimates of future performance, establish boundaries for sensitivity
analysis
Sensitivity analysis should not be performed - Answers✔on a predictable, immaterial item
If projected assets exceed liabilities and OE, it is assumed that the difference is funded through
excess cash - Answers✔False
What is the most compelling reason to project a firm's income statement before projecting its
balance sheet? - Answers✔The change in retained earnings is determined by net income and
dividend payments, working capital account balances are affected by sales levels
When doing a comprehensive financial forecast, which account warrants the most thorough
relational and trend analysis? - Answers✔Sales
The most significant difference between projecting balance sheets and projecting cash flow is
that - Answers✔The cash flow statement shows the periodic increase or decrease in the plug
figure
Companies are concerned about shareholders' interests because - Answers✔firms like high share
value, shareholders own the firm
As long as owners perceive that managers are creating value in the firm, they are likely to hold
on to their shares - Answers✔True
Value is created in a firm through - Answers✔Asset acquisition, which improve earnings or
efficiencies, capitalization decisions, the reduction of operational and financial risks
A firm's dividend policy can usually be established independently of its growth plans -
Answers✔False
Dividends are the sole source of returns for shareholders - Answers✔false
It is likely that - Answers✔prudent managers have a detailed knowledge of the composition of
their shareholders and mixing asset purchase and financing decisions could cause managers to
make poor decisions
Financial risk - Answers✔is related to the amount of debit in a firm's capitalization
ALL RIGHTS RESERVED.
MBA Prep CFIN Exam Questions With
Verified Answers
Analysts within a company are more likely to fall into the "false accuracy trap" when they
develop pro formas than would external analysts because insiders have access to more detailed
information - Answers✔True
When making financial projections, if a particular expense item cannot be predicted with any
degree of confidence, it should be forecast at the highest level it would ever likely to reach, so as
to make the pro formas conservative - Answers✔False
The greater detail in a pro forma, the greater its accuracy will be - Answers✔False
The qualitative portion of a financial analysis is analogous to the hypothesis-forming state of
scientific investigation because - Answers✔assumptions not tested till numbers are run, false
assumption may be formed, empirical measurement performed later
During the qualitative portion of developing pro formas, - Answers✔industry-wide
considerations may be less important than company-specific issues
An assumption is critical if - Answers✔it affections the bottom line greater than other
assumptions, it reflects a judgement about the firm's ability to perform one of the keys to success
Horizontal and vertical percentage trends are useful in projecting future financial statements -
Answers✔True
In a stable, predictable industry, an average of the precious ten years' sales growth figures
probably provides a more accurate forecast than assuming the same level of sales next year as in
the current year. - Answers✔True
When performing sensitivity analysis - Answers✔statistical methods can be usefully employed,
electronic spreadsheets can save time, assumptions should be changed one at a time
The final step in using pro formas is to - Answers✔Compare the results of the sensitivity
analysis to the decision-maker's tolerance in the current situation
The most accurate pro formas contain the most detail - Answers✔false
, ©THEBRIGHT EXAM SOLUTIONS 2024/2025
ALL RIGHTS RESERVED.
In projecting an income statement based on a balance sheet, which of the following categories
would you contend to be least likely to vary directly with a change in sales? -
Answers✔Depreciation
Hypothesis that are formed during the qualitative analysis can be verified when the analyst
reviews the firm's historical performance - Answers✔True
Statistical methods can be employed to - Answers✔smooth out historical performance trends, aid
the analyst in making estimates of future performance, establish boundaries for sensitivity
analysis
Sensitivity analysis should not be performed - Answers✔on a predictable, immaterial item
If projected assets exceed liabilities and OE, it is assumed that the difference is funded through
excess cash - Answers✔False
What is the most compelling reason to project a firm's income statement before projecting its
balance sheet? - Answers✔The change in retained earnings is determined by net income and
dividend payments, working capital account balances are affected by sales levels
When doing a comprehensive financial forecast, which account warrants the most thorough
relational and trend analysis? - Answers✔Sales
The most significant difference between projecting balance sheets and projecting cash flow is
that - Answers✔The cash flow statement shows the periodic increase or decrease in the plug
figure
Companies are concerned about shareholders' interests because - Answers✔firms like high share
value, shareholders own the firm
As long as owners perceive that managers are creating value in the firm, they are likely to hold
on to their shares - Answers✔True
Value is created in a firm through - Answers✔Asset acquisition, which improve earnings or
efficiencies, capitalization decisions, the reduction of operational and financial risks
A firm's dividend policy can usually be established independently of its growth plans -
Answers✔False
Dividends are the sole source of returns for shareholders - Answers✔false
It is likely that - Answers✔prudent managers have a detailed knowledge of the composition of
their shareholders and mixing asset purchase and financing decisions could cause managers to
make poor decisions
Financial risk - Answers✔is related to the amount of debit in a firm's capitalization
