The "Percent of Sales Method" Is a Method of Preparing

question 108

Multiple Choice

The "percent of sales method" is a method of preparing pro forma financial statements.All of the following would be examples of how the "percent of sales method" is developed except?

• A) Forecast expenses by applying a percent of projected sales, using last year's expenses as a percent of last year's sales.
• B) Forecast assets by applying a percent of projected sales, using current year's assets as a percent of current year's sales.
• C) Approximate liabilities by applying a percent of projected sales, using the last five-year average of liabilities as a percent of sales.
• D) Forecast retained earnings by applying a percent of projected sales, using current year's retained earnings as a percent of current year's sales.

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Definitions:

Market Yield

The current yield of a bond or other fixed-income security, calculated by dividing the annual interest income by the current market price.

Par-Value

The face value of a bond or stock as stated by the issuer, which is typically the amount repaid at maturity for bonds.

Modified Duration

A formula used to determine the sensitivity of a bond's price to a 1% change in interest rates, indicating the percentage change in price for each percentage point change in yields.

Market Yield

The current annual income returned on an investment, measured as a percentage of the investment's market price.