CFAI Practice: M12 Financial Modeling

Total: 5 questions


Question 1

A top-down revenue model that begins with GDP growth and estimates industry and company market share is best described as:

  • A. A bottom-up approach
  • B. A growth-relative-to-GDP approach
  • C. A hybrid approach

Question 2

When modeling a company’s cost of goods sold (COGS), an analyst most commonly projects COGS as:

  • A. A fixed dollar amount based on historical averages
  • B. A percentage of projected revenue
  • C. A function of capital expenditures

Question 3

When projecting a company’s balance sheet, accounts receivable is most commonly estimated using:

  • A. A fixed dollar amount from the prior year
  • B. Projected revenue and historical days sales outstanding
  • C. The change in cash flow from operations

Question 4

In sensitivity analysis, an analyst changes:

  • A. Multiple assumptions simultaneously to model a complete scenario
  • B. One key assumption at a time while holding others constant
  • C. The discount rate only to see its effect on valuation

Question 5

Scenario analysis differs from sensitivity analysis in that scenario analysis:

  • A. Changes only one variable at a time
  • B. Combines changes in multiple assumptions to reflect a coherent economic narrative
  • C. Is only applicable to fixed income instruments