Basic Finance W11 (MIT)

Which assets and liabilities spontaneously fluctuate with sales?

• Retained earnings and long-term debt

• Accounts payable and cash

• Accruals and plant and equipment

• Accounts receivable and inventory

What is the purpose of the percent of sales method of forecasting?

• To identify the assets and liabilities that do not change with sales

• To express the relationship between assets and liabilities as a simple, linear equation

• To estimate the level of assets and liabilities associated with various levels of sales

• To forecast the level of assets and liabilities that fluctuate with sales

What does the coefficient of determination measure in regression analysis?

• The proportion of the variation in the dependent variable explained by the variation in the independent variable

• The accuracy of the linear equation used to express the relationship between assets and liabilities

• The proportion of the variation in the independent variable explained by the variation in the dependent variable

• The predictive power of the percent of sales method in forecasting

How does reducing cash holdings affect external financing requirements (EFR)?

• No effect on EFR

• Cannot be determined from the given information

• Decrease EFR

• Increase EFR

What is the equation to express the relationship between inventory and sales using the percent of sales method?

• I = bS

• I = S/b

• I = S-b

• I = S+b

What is the purpose of regression analysis in forecasting external financial requirements?

• To express the relationship between assets and liabilities as a simple, linear equation

• To estimate the level of assets and liabilities associated with various levels of sales

• To forecast the level of assets and liabilities that fluctuate with sales

• To identify the assets and liabilities that do not change with sales

How does increasing retained earnings affect external financing requirements (EFR)?

• Cannot be determined from the given information

• No effect on EFR

• Increase EFR

• Decrease EFR

What is the equation to express the relationship between inventory and sales using regression analysis?

• Y = a + bX

• Y = bX

• I = bS

• I = S/b

How does paying suppliers in 90 days, rather than 60 days, affect external financing requirements (EFR)?

• No effect on EFR

• Cannot be determined from the given information

• Decrease EFR

• Increase EFR

What is the purpose of isolating assets and liabilities that change with sales in forecasting external financial requirements?

• To estimate the level of assets and liabilities associated with various levels of sales

• To express the relationship between assets and liabilities as a simple, linear equation

• To identify the assets and liabilities that do not change with sales

• To forecast the level of assets and liabilities that fluctuate with sales