Question 1

The external financing need:

Accepted Answer

A)   will limit growth if unfunded.
B)   is unaffected by the dividend payout ratio.
C)   must be funded by long-term debt.
D)   ignores any changes in retained earnings.
E)   considers only the required increase in fixed assets.F) B) and E)
G) D) and E)

Question 2

You are comparing the current income statement of a firm to the pro forma income statement for next year.The pro forma is based on a four percent increase in sales.The firm is currently operating at 85 percent of capacity.Net working capital and all costs vary directly with sales.The tax rate and the dividend payout ratio are fixed.Given this information,which one of the following statements must be true?

Accepted Answer

A)   The projected net income is equal to the current year's net income.
B)   The tax rate will increase at the same rate as sales.
C)   Retained earnings will increase by four percent over its current level.
D)   Total assets will increase by less than four percent.
E)   Total liabilities and owners' equity will increase by four percent.F) A) and B)
G) A) and D)

Question 3

Martin Aerospace is currently operating at full capacity based on its current level of assets.Sales are expected to increase by 4.5 percent next year,which is the firm's internal rate of growth.Net working capital and operating costs are expected to increase directly with sales.The interest expense will remain constant at its current level.The tax rate and the dividend payout ratio will be held constant.Current and projected net income is positive.Which one of the following statements is correct regarding the pro forma statement for next year?

Accepted Answer

A)   The pro forma profit margin is equal to the current profit margin.
B)   Retained earnings will increase at the same rate as sales.
C)   Total assets will increase at the same rate as sales.
D)   Long-term debt will increase in direct relation to sales.
E)   Owners' equity will remain constant.F) B) and D)
G) B) and C)

Question 4

Country Comfort,Inc.had equity of $150,000 at the beginning of the year.At the end of the year,the company had total assets of $195,000.During the year,the company sold no new equity.Net income for the year was $63,000 and dividends were $44,640.What is the sustainable growth rate?

Accepted Answer

A)   10.32 percent
B)   10.79 percent
C)   11.78 percent
D)   12.01 percent
E)   12.24 percentF) A) and C)
G) All of the above

Question 5

Which one of the following terms is applied to the financial planning method which uses the projected sales level as the basis for determining changes in balance sheet and income statement account values?

Accepted Answer

A)   percentage of sales method
B)   sales dilution method
C)   sales reconciliation method
D)   common-size method
E)   trend methodF) None of the above
G) A) and E)

Question 6

A firm is operating at 90 percent of capacity.This information is primarily needed to project which one of the following account values when compiling pro forma statements?

Accepted Answer

A)   sales
B)   costs of goods sold
C)   accounts receivable
D)   fixed assets
E)   long-term debtF) A) and B)
G) None of the above

Question 7

The Parodies Corp.has a 22 percent return on equity and a 23 percent payout ratio.What is its sustainable growth rate?

Accepted Answer

A)   18.68 percent
B)   19.25 percent
C)   19.49 percent
D)   20.39 percent
E)   22.00 percentF) A) and B)
G) C) and E)

Question 8

Phil is working on a financial plan for the next three years.This time period is referred to as which one of the following?

Accepted Answer

A)   financial range
B)   planning horizon
C)   planning agenda
D)   short-run
E)   current financing periodF) A) and B)
G) B) and C)

Question 9

Blasco Industries is currently at full-capacity sales.Which one of the following is limiting sales to this level?

Accepted Answer

A)   net working capital
B)   long-term debt
C)   inventory
D)   fixed assets
E)   debt-equity ratioF) A) and E)
G) B) and E)

Question 10

The plowback ratio is:

Accepted Answer

A)   equal to net income divided by the change in total equity.
B)   the percentage of net income available to the firm to fund future growth.
C)   equal to one minus the retention ratio.
D)   the change in retained earnings divided by the dividends paid.
E)   the dollar increase in net income divided by the dollar increase in sales.F) A) and D)
G) A) and E)

Question 11

Smith & Daughters is getting ready to compile pro forma statements for the next few years.How can the managers establish a reasonable range of growth rates that they should consider during this planning process?

Accepted Answer

The internal growth rate establishes the...

Question 12

All else constant,which one of the following will increase the internal rate of growth?

Accepted Answer

A)   decrease in the retention ratio
B)   decrease in net income
C)   increase in the dividend payout ratio
D)   decrease in total assets
E)   increase in costs of goods soldF) A) and B)
G) All of the above

Question 13

The financial planning process:
I.involves internal negotiations among divisions.
II.quantifies senior manager's goals.
III.considers only internal factors.
IV.reconciles company activities across divisions.

Accepted Answer

A)   III and IV only
B)   II and III only
C)   I,II,and IV only
D)   II,III,and IV only
E)   I,II,III,and IVF) A) and B)
G) D) and E)

Question 14

Based on the following information,what is the sustainable growth rate of Hendrix Guitars,Inc.?

Accepted Answer

A)   7.68 percent
B)   9.52 percent
C)   11.12 percent
D)   13.49 percent
E)   14.41 percentF) A) and B)
G) A) and E)

Question 15

Atlas Industries combines the smaller investment proposals from each operational unit into a single project for planning purposes.This process is referred to as which one of the following?

Accepted Answer

A)   conjoining
B)   aggregation
C)   conglomeration
D)   appropriation
E)   summationF) B) and E)
G) A) and C)

Question 16

A firm's external financing need is financed by which of the following?

Accepted Answer

A)   retained earnings
B)   net working capital and retained earnings
C)   net income and retained earnings
D)   debt or equity
E)   owners' equity,including retained earningsF) A) and E)
G) All of the above

Question 17

When constructing a pro forma statement,net working capital generally:

Accepted Answer

A)   remains fixed.
B)   varies only if the firm is currently producing at full capacity.
C)   varies only if the firm maintains a fixed debt-equity ratio.
D)   varies only if the firm is producing at less than full capacity.
E)   varies proportionally with sales.F) A) and E)
G) A) and D)

Question 18

Sal's Pizza has a dividend payout ratio of 10 percent.The firm does not want to issue additional equity shares but does want to maintain its current debt-equity ratio and its current dividend policy.The firm is profitable.Which one of the following defines the maximum rate at which this firm can grow?

Accepted Answer

A)   internal growth rate × (1 - 0.10) 
B)   sustainable growth rate × (1 - 0.10) 
C)   internal growth rate
D)   sustainable growth rate
E)   zero percentF) C) and D)
G) B) and C)

Question 19

The Two Sisters has a 9 percent return on assets and a 75 percent retention ratio.What is the internal growth rate?

Accepted Answer

A)   6.50 percent
B)   6.75 percent
C)   6.97 percent
D)   7.24 percent
E)   7.38 percentF) A) and E)
G) B) and E)

Question 20

The financial planning process tends to place the least emphasis on which one of the following?

Accepted Answer

A)   growth limitations
B)   capacity utilization
C)   market value of a firm
D)   capital structure of a firm
E)   dividend policyF) B) and D)
G) C) and D)

Exam 4: Long-Term Financial Planning and Growthpart Three: Valuation of Future Cash Flows

Which one of the following terms is applied to the financial planning method which uses the projected sales level as the basis for determining changes in balance sheet and income statement account values?

Correct Answer
verified

The financial planning process tends to place the least emphasis on which one of the following?

Correct Answer
verified

A firm is operating at 90 percent of capacity.This information is primarily needed to project which one of the following account values when compiling pro forma statements?

Correct Answer
verified

The plowback ratio is:

Correct Answer
verified

All else constant,which one of the following will increase the internal rate of growth?

Correct Answer
verified

Correct Answer
verified

A firm's external financing need is financed by which of the following?

Correct Answer
verified

Based on the following information,what is the sustainable growth rate of Hendrix Guitars,Inc.?

Correct Answer
verified

When constructing a pro forma statement,net working capital generally:

Correct Answer
verified

Blasco Industries is currently at full-capacity sales.Which one of the following is limiting sales to this level?

Correct Answer
verified

Atlas Industries combines the smaller investment proposals from each operational unit into a single project for planning purposes.This process is referred to as which one of the following?

Correct Answer
verified

Phil is working on a financial plan for the next three years.This time period is referred to as which one of the following?

Correct Answer
verified

The Two Sisters has a 9 percent return on assets and a 75 percent retention ratio.What is the internal growth rate?

Correct Answer
verified

Correct Answer
verified

The Parodies Corp.has a 22 percent return on equity and a 23 percent payout ratio.What is its sustainable growth rate?

Correct Answer
verified

Correct Answer
verified

Country Comfort,Inc.had equity of $150,000 at the beginning of the year.At the end of the year,the company had total assets of $195,000.During the year,the company sold no new equity.Net income for the year was $63,000 and dividends were $44,640.What is the sustainable growth rate?

Correct Answer
verified

The financial planning process: I.involves internal negotiations among divisions. II.quantifies senior manager's goals. III.considers only internal factors. IV.reconciles company activities across divisions.

Correct Answer
verified

The external financing need:

Correct Answer
verified

Smith & Daughters is getting ready to compile pro forma statements for the next few years.How can the managers establish a reasonable range of growth rates that they should consider during this planning process?

Correct Answer
verified
The internal growth rate establishes the...
View Answer

Exam 4: Long-Term Financial Planning and Growthpart Three: Valuation of Future Cash Flows

Which one of the following terms is applied to the financial planning method which uses the projected sales level as the basis for determining changes in balance sheet and income statement account values?

Correct AnswerverifiedShow Answer

The financial planning process tends to place the least emphasis on which one of the following?

Correct AnswerverifiedShow Answer

A firm is operating at 90 percent of capacity.This information is primarily needed to project which one of the following account values when compiling pro forma statements?

Correct AnswerverifiedShow Answer

The plowback ratio is:

Correct AnswerverifiedShow Answer

All else constant,which one of the following will increase the internal rate of growth?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A firm's external financing need is financed by which of the following?

Correct AnswerverifiedShow Answer

Based on the following information,what is the sustainable growth rate of Hendrix Guitars,Inc.?

Correct AnswerverifiedShow Answer

When constructing a pro forma statement,net working capital generally:

Correct AnswerverifiedShow Answer

Blasco Industries is currently at full-capacity sales.Which one of the following is limiting sales to this level?

Correct AnswerverifiedShow Answer

Atlas Industries combines the smaller investment proposals from each operational unit into a single project for planning purposes.This process is referred to as which one of the following?

Correct AnswerverifiedShow Answer

Phil is working on a financial plan for the next three years.This time period is referred to as which one of the following?

Correct AnswerverifiedShow Answer

The Two Sisters has a 9 percent return on assets and a 75 percent retention ratio.What is the internal growth rate?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Parodies Corp.has a 22 percent return on equity and a 23 percent payout ratio.What is its sustainable growth rate?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Country Comfort,Inc.had equity of $150,000 at the beginning of the year.At the end of the year,the company had total assets of $195,000.During the year,the company sold no new equity.Net income for the year was $63,000 and dividends were $44,640.What is the sustainable growth rate?

Correct AnswerverifiedShow Answer

The financial planning process: I.involves internal negotiations among divisions. II.quantifies senior manager's goals. III.considers only internal factors. IV.reconciles company activities across divisions.

Correct AnswerverifiedShow Answer

The external financing need:

Correct AnswerverifiedShow Answer

Smith & Daughters is getting ready to compile pro forma statements for the next few years.How can the managers establish a reasonable range of growth rates that they should consider during this planning process?

Correct AnswerverifiedThe internal growth rate establishes the...View AnswerShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The internal growth rate establishes the...
View Answer