Question

MULTIPLE CHOICE:

1) Since it is based on cash flows, the discounted cash flow (DCF) method of valuation has the added advantage that it is not subject to the bias of different:

A. Discount rates

B. Internal rates of return

C. Monetary systems

D. Accounting policies for determining total assets and net income

2) Which of the following budgets must be completed before preparing a cash budget?

A. Cash receipts budget.

B. Rolling budget.

C. Cash financing budget.

D. Pro forma balance sheet.

E. Pro forma income statement.

Answer 1

Answer to Question 1 is

C. Monitory Systems

DCF is a method which is base on future cash flows of the company and which is closly related to accounting policies for determination of total assets and net income (there are many choices) , Use of a discount rate since cost of capital may be diferrent for diferrent company and & Internal Rate of return (differes by diferrent cost of Capital). Monetory Systems of a country canot be said to have bias parameters and tend to be more or less stable a country as a whole. So Monitory Systems is the answer.

Answer to Question 2 is

A. Cash Receipt Budget

The amount of Cash receipt forcast or Bdgeter figures is a must prerequisite to prepare the Cash budget. Cash financing budget (projects what amount of borrowing needed after knowing the available cash from the cash budget) , Balance Sheet should be prepared only after Cash Budget preperation since in balance sheet cash balances need to be entered is from the cash budget closing balance projected. Rolling budget is not part of master Budget ,rather it itself a master budget. Income statement can be prepared before Cash Budget but it is not a must.