Question

Answer true of false to each of the following. briefly explain your reasoning for each answer.

a. All else equal, increasing the projected amount of accounts receivable in a financial forecast will increase external funding required.

b. Estimates of external funding required based on cash flow forecasts are usually higher than estimates based on pro forma financial statements.

c. An annual financial forecast for 2018 showing no external funding required assures a company that no cash shortfalls are likely to occur during 2018.

Answer 1

Answer true of false to each of the following. briefly explain your reasoning for each answer.

a. All else equal, increasing the projected amount of accounts receivable in a financial forecast will increase external funding required.

TRUE

Increase in AR requires more funds. Hence, it will increase EFN, all else remaining equal.

b. Estimates of external funding required based on cash flow forecasts are usually higher than estimates based on pro forma financial statements.

FALSE

It can be higher or lower.

c. An annual financial forecast for 2018 showing no external funding required assures a company that no cash shortfalls are likely to occur during 2018.

FALSE

The annual forecast will give the year end situation. It will not indicate whether shortfalls would be there duirng the year. For that to be known, the forecast should be broken down into shorter periods--quarters or months.