Question #4
Reading: Reading 14 Financial Statement Modeling
PDF File: Reading 14 Financial Statement Modeling.pdf
Page: 3
Status: Unattempted
Correct Answer: A
Question
Garcia Mendoza is currently forecasting revenue for Remnicky Inc., a global provider of sports statistics to broadcasters. Mendoza is forecasting that Remnicky's revenue growth rate will be 100bps (1%) higher than global nominal GDP rate next year due to an increased interest in tracking statistics worldwide. In consultation with his economic research department, Mendoza has predicted that the real global GDP will grow at 1% next year, before flattening out and showing zero growth for the next 4 years. Inflation is predicted to remain steady at 1.5% for the next 5 years. Which of the following statements about Mendoza's forecast for next year is most accurate?
Answer Choices:
A. Mendoza is forecasting growth of 3.5% using a hybrid approach
B. Mendoza is forecasting growth of using 2.5% a top-down approach
C. Mendoza is forecasting growth of using a 3.5% top-down approach
Explanation
Mendoza is using a top-down approach as he is modeling revenue by starting with a
forecast of the entire economy.
The predicted growth rate is 1% higher than nominal GDP rate = 1% + 1.5% + 1% = 3.5%.