Question

In which of the following ways are pro forma models not useful in projecting the future status of the company?

Group of answer choices

determine the success of projects

providing "what-if" scenarios

analyzing project feasibility

providing sensitivity analysis

Answer 1

Answer is analysing project feasibility.

A Proforma model is useful in predicting the forecast for an investment or a project. It helps in knowing the future status based on the sales and costs and various other factors like working capital, initial investment etc. The Proforma models helps in determining if the projects can be success or a failure based on forecast. It also helps in what if scenario analysis to see how the project behaves when the different variables are changed. A sensitivity analysis is also conducted based on Proforma models like change in selling price, change in variable cost, change in initial investment and change in working capital. But a Proforma model does not help in determining and analysing the project feasibility. A project feasibility is based on number of factors in which finance is one of the factors. A project feasibility report study is done before initiation of project and based on that projects are selected for implementation.