1. For most companies, financial modeling begins with the statement of cash flows.

true or false

2. Forecasts of accounts receivable, accounts payable, and inventory are very closely linked to income statement projections.

true or false

3. Which of the following would be the best method to forecast interest expense on a pro forma income statement?

Assume interest will grow at the same rate as sales.

Forecast debt on the balance sheet, then multiply that by the cost of debt to get the interest expense.

Assume interest will grow at the same percent it has in the past regardless of debt levels.

4. An effective forecast model must be based on a thorough understanding of a companys business, management, strategy, external environment, and historical results.

true or false

5. A top-down approach for developing inputs to equity valuation models begins at the level of the individual company or a unit within the company.

true or false

6. Modeling net sales using the average annual growth rate is an example of using a bottom-up approach.

true or false

7. Modeling a company's sales by assuming industry sales will grow at the same rate as nominal GDP and estimating a company will have a particular percentage point decline in market share is an example of a top-down approach.

true or false.