Which of the Following Statements Is Correct

question 75

Multiple Choice

Which of the following statements is correct?

• A) Any forecast of financial requirements involves determining how much money the firm will need and is obtained by adding together increases in assets and spontaneous liabilities and subtracting operating income.
• B) The projected balance sheet method of forecasting financial needs requires only a forecast of the firm's balance sheet.Although a forecasted income statement helps clarify the financing needs,it is not essential to the balance sheet method.
• C) Because dividends are paid after taxes from retained earnings,dividends are not included in the projected balance sheet method of forecasting.
• D) The projected balance sheet method forces recognition of the fact that new financing creates additional financial obligations.For instance,new financing can increase expenses which can actually decrease taxes but increase the projected financial need.
• E) Financing feedback describes the effect on the firm's stock price of the announcement that the firm will sell new equity or debt to raise needed capital.

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Definitions:

Goodwill

An intangible asset that arises when one company acquires another for a premium value, representing the excess of the purchase price over the fair market value of the identifiable assets and liabilities.

Indefinite Life

An intangible asset's useful life that is not limited to a predetermined period and could extend indefinitely.

Amortized

The process of spreading out a loan or intangible asset into a series of fixed payments over time, reducing the value of the asset or paying off the debt.

Held-To-Maturity Investment

An investment in debt securities that a company has the intent and ability to hold until maturity.