Question 1

Financial planning generally considers:

Accepted Answer

A)  Two to five proposals over the short-term. 
B)  A two to five year time frame while aggregating smaller proposals. 
C)  The details of each individual project over the long-term. 
D)  Three alternative scenarios over the short-term. 
E)  An aggregation of projects over the next twenty-four months. 
A)  Two to five proposals over the short-term. 
B)  A two to five year time frame while aggregating smaller proposals. 
C)  The details of each individual project over the long-term. 
D)  Three alternative scenarios over the short-term. 
E)  An aggregation of projects over the next twenty-four months. B

Question 2

Which one of the following statements is true concerning the construction of pro forma statements using the percentage of sales approach?

Accepted Answer

A)  The profit margin tends to vary considerably. 
B)  The dividend dollar amount is held constant. 
C)  Long-term debt is held as a constant percentage of sales. 
D)  Retained earnings vary directly with sales. 
E)  Inventory generally varies directly with sales. 
A)  The profit margin tends to vary considerably. 
B)  The dividend dollar amount is held constant. 
C)  Long-term debt is held as a constant percentage of sales. 
D)  Retained earnings vary directly with sales. 
E)  Inventory generally varies directly with sales. E

Question 3

The sustainable growth rate rises as the _______ declines.

Accepted Answer

A)  Profit margin. 
B)  Retention ratio. 
C)  Debt-equity ratio. 
D)  Dividend payout ratio. 
E)  Total asset turnover. 
A)  Profit margin. 
B)  Retention ratio. 
C)  Debt-equity ratio. 
D)  Dividend payout ratio. 
E)  Total asset turnover. D

Question 4

The following balance sheet and income statement should be used:     Hilltop, Inc. is currently operating at 69% of capacity. What is the full-capacity level of sales?

Accepted Answer

A)  $50,959.00 
B)  $51,376.81 
C)  $52,493.82 
D)  $55,418.07 
E)  $56,376.81 
A)  $50,959.00 
B)  $51,376.81 
C)  $52,493.82 
D)  $55,418.07 
E)  $56,376.81

Question 5

Net income = $150; Total assets = $1,000; Total liabilities = $400; Total asset turnover = 4.0

What is the sustainable growth rate assuming dividends paid total $50?

Accepted Answer

A)  2.5% 
B)  5.3% 
C)  8.3% 
D)  9.1% 
E)  20% 
A)  2.5% 
B)  5.3% 
C)  8.3% 
D)  9.1% 
E)  20%

Question 6

When utilizing the percentage of sales approach, managers can ignore any projected dividends.

Accepted Answer

A) True 
 B)False

Question 7

A firm has a payout ratio of 40 percent and a sustainable growth rate of 8.5%. The capital intensity ratio is 1.1 and the debt-equity ratio is.5. What is the profit margin?

Accepted Answer

A)  5.4% 
B)  7.9% 
C)  9.6 % 
D)  11.9% 
E)  14.4% 
A)  5.4% 
B)  7.9% 
C)  9.6 % 
D)  11.9% 
E)  14.4%

Question 8

Calculate payout ratio given the following information: cash dividends paid = $19,950; sales = $250,000; cost of goods sold = $100,000; selling and administrative expenses = $50,000; interest expense = $5,000; tax rate = 30%.

Accepted Answer

A)  70% 
B)  30% 
C)  50% 
D)  35% 
E)  65% 
A)  70% 
B)  30% 
C)  50% 
D)  35% 
E)  65%

Question 9

Consultants, Inc. maintains a constant dividend payout ratio. The firm is currently operating at full capacity. What is the maximum rate at which the firm can grow without acquiring any additional external financing?

Accepted Answer

A)  2.42% 
B)  3.89% 
C)  7.65% 
D)  9.45% 
E)  12.65% 
A)  2.42% 
B)  3.89% 
C)  7.65% 
D)  9.45% 
E)  12.65%

Question 10

The sustainable growth rate:

Accepted Answer

A)  Assumes there is no external financing of any kind. 
B)  Is normally higher than the internal growth rate. 
C)  Assumes the debt-equity ratio is variable. 
D)  Is based on receiving additional external debt and equity financing. 
E)  Assumes that 100 percent of all income is retained by the firm. 
A)  Assumes there is no external financing of any kind. 
B)  Is normally higher than the internal growth rate. 
C)  Assumes the debt-equity ratio is variable. 
D)  Is based on receiving additional external debt and equity financing. 
E)  Assumes that 100 percent of all income is retained by the firm.

Question 11

Financial planning generally:

Accepted Answer

A)  Outlines the investment options a firm desires but does not address the funding of those options. 
B)  Includes the development of contingency plans. 
C)  Includes only those assumptions and actions which are most likely to occur. 
D)  Is limited to forecasting the revenues and expenses of a firm given an assumed economic environment. 
E)  Outlines the investment opportunities available to a firm without establishing a list of priorities. 
A)  Outlines the investment options a firm desires but does not address the funding of those options. 
B)  Includes the development of contingency plans. 
C)  Includes only those assumptions and actions which are most likely to occur. 
D)  Is limited to forecasting the revenues and expenses of a firm given an assumed economic environment. 
E)  Outlines the investment opportunities available to a firm without establishing a list of priorities.

Question 12

The external financing need tends to ______ as the projected growth rate in sales increases.

Accepted Answer

A)  decrease 
B)  increase 
C)  remain constant 
D)  vary in an unpredictable manner 
E)  increase and then decrease 
A)  decrease 
B)  increase 
C)  remain constant 
D)  vary in an unpredictable manner 
E)  increase and then decrease

Question 13

Calculate the external financing needed given the following information: current sales = $1,000; current sales capacity = 90%; current fixed assets = $1,800; projected future sales = $1,250.

Accepted Answer

A)  $225 
B)  $2025 
C)  450 
D)  $4050 
E)  $675 
A)  $225 
B)  $2025 
C)  450 
D)  $4050 
E)  $675

Question 14

Consultants, Inc. is currently operating at 95% of capacity. What is the required increase in fixed assets if sales are projected to increase by 10%?

Accepted Answer

A)  $0 
B)  $207 
C)  $230 
D)  $427 
E)  $460 
A)  $0 
B)  $207 
C)  $230 
D)  $427 
E)  $460

Question 15

The composition of the liability and equity sections of a pro forma statement depend most heavily on a firm's:

Accepted Answer

A)  Net working capital policies. 
B)  Financing and dividend policies. 
C)  Desired level of liquidity. 
D)  Capital budgeting and working capital policies. 
E)  Level of capacity utilization and net working capital policy. 
A)  Net working capital policies. 
B)  Financing and dividend policies. 
C)  Desired level of liquidity. 
D)  Capital budgeting and working capital policies. 
E)  Level of capacity utilization and net working capital policy.

Question 16

Which one of the following statements is correct concerning the external financing need (EFN) and the dividend payout ratio? Assume EFN is a positive number.

Accepted Answer

A)  The dividend payout ratio has no effect on the EFN. 
B)  An increase in the dividend payout ratio will decrease the EFN. 
C)  An increase in the dividend payout ratio will increase the EFN. 
D)  The effect on EFN caused by an increase in the dividend payout ratio cannot be predicted. 
E)  An increase in EFN causes the dividend payout ratio to decrease. 
A)  The dividend payout ratio has no effect on the EFN. 
B)  An increase in the dividend payout ratio will decrease the EFN. 
C)  An increase in the dividend payout ratio will increase the EFN. 
D)  The effect on EFN caused by an increase in the dividend payout ratio cannot be predicted. 
E)  An increase in EFN causes the dividend payout ratio to decrease.

Question 17

Calculate retention ratio given the following information: EBIT $100,000; tax rate 30%; dividends paid $24,500.

Accepted Answer

A)  35% 
B)  65% 
C)  40% 
D)  50% 
E)  70% 
A)  35% 
B)  65% 
C)  40% 
D)  50% 
E)  70%

Question 18

When fixed assets on a pro forma statement are projected to increase at a rate equivalent to the projected rate of sales growth, it can be assumed that the firm is:

Accepted Answer

A)  Projected to grow at the internal rate of growth. 
B)  Projected to grow at the sustainable rate of growth. 
C)  Creating excess capacity. 
D)  Currently operating at full capacity. 
E)  Retaining all of its projected net income. 
A)  Projected to grow at the internal rate of growth. 
B)  Projected to grow at the sustainable rate of growth. 
C)  Creating excess capacity. 
D)  Currently operating at full capacity. 
E)  Retaining all of its projected net income.

Question 19

Moore Money Inc. has a profit margin of 11% and a retention ratio of 70%. Last year, the firm had sales of $500 and total assets of $1,000. What is the internal growth rate?

Accepted Answer

A)  1.7% 
B)  2.6% 
C)  3.7% 
D)  4.0% 
E)  5.9% 
A)  1.7% 
B)  2.6% 
C)  3.7% 
D)  4.0% 
E)  5.9%

Question 20

All else the same, lower return on assets (ROA) ratio would likely be associated with a firm which has a high capital intensity ratio, relative to other firms in the same industry.

Accepted Answer

A) True 
 B)False

Exam 4: Long-Term Financial Planning and Corporate Growth

Financial planning generally considers:

Which one of the following statements is true concerning the construction of pro forma statements using the percentage of sales approach?

The sustainable growth rate rises as the _______ declines.

The following balance sheet and income statement should be used: Hilltop, Inc. is currently operating at 69% of capacity. What is the full-capacity level of sales?

Net income = $150; Total assets = $1,000; Total liabilities = $400; Total asset turnover = 4.0 What is the sustainable growth rate assuming dividends paid total $50?

When utilizing the percentage of sales approach, managers can ignore any projected dividends.

A firm has a payout ratio of 40 percent and a sustainable growth rate of 8.5%. The capital intensity ratio is 1.1 and the debt-equity ratio is.5. What is the profit margin?

Calculate payout ratio given the following information: cash dividends paid = $19,950; sales = $250,000; cost of goods sold = $100,000; selling and administrative expenses = $50,000; interest expense = $5,000; tax rate = 30%.

Consultants, Inc. maintains a constant dividend payout ratio. The firm is currently operating at full capacity. What is the maximum rate at which the firm can grow without acquiring any additional external financing?

The sustainable growth rate:

Financial planning generally:

The external financing need tends to ______ as the projected growth rate in sales increases.

Calculate the external financing needed given the following information: current sales = $1,000; current sales capacity = 90%; current fixed assets = $1,800; projected future sales = $1,250.

Consultants, Inc. is currently operating at 95% of capacity. What is the required increase in fixed assets if sales are projected to increase by 10%?

The composition of the liability and equity sections of a pro forma statement depend most heavily on a firm's:

Which one of the following statements is correct concerning the external financing need (EFN) and the dividend payout ratio? Assume EFN is a positive number.

Calculate retention ratio given the following information: EBIT $100,000; tax rate 30%; dividends paid $24,500.

When fixed assets on a pro forma statement are projected to increase at a rate equivalent to the projected rate of sales growth, it can be assumed that the firm is:

Moore Money Inc. has a profit margin of 11% and a retention ratio of 70%. Last year, the firm had sales of $500 and total assets of $1,000. What is the internal growth rate?

All else the same, lower return on assets (ROA) ratio would likely be associated with a firm which has a high capital intensity ratio, relative to other firms in the same industry.

Introduction to Corporate Finance

Financial Statements, Cash Flow, and Taxes

Working With Financial Statements

Introduction to Valuation: the Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Lessons From Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Dividend Policy

Short-Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Enterprise Risk Management

Options and Corporate Securities

Behavioural Finance: Implications for Financial Management

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