Exam 6: Projecting Financial Requirements and Managing Growth

It is not unusual for a successful firm to temporarily grow more rapidly than its sustainable growth rate if the firm is in the ________ phase of business.

Which of the following choices will lead to a DECREASE in loan requirements?

Past relationships among variables on the balance sheet and income statement are typically POOR predictors of the future.

Table 6.2 -On-The-Level Manufacturing buys materials on credit at the start of the month and pays in 60 days.They also sell on credit,bill customers at the beginning of the month,and receive payment 30 days later.Using Table 6.2,what is the net cash flow from purchases and sales for the month of February?

A firm that grows too rapidly risks requiring too LITTLE financial leverage.

Felton Financial Inc,had net earnings last year of $487,000.If the firm has a dividend payout policy of 30%,what was the addition to retained earnings?

The ________ is a two-edged sword in that as its value increases the ROE should increase,but the risk to shareholders also increases.

An alternative method of projecting a firm's future financial needs (such as bank loans )involves creation of a pro forma cash budget.Would you consider a cash budget to be more appropriate for short-term or long-term projections? Why? How do monthly cash budgets aid in the development of an annual cash budget? Is a cash budget more helpful for firms with seasonal needs or for those with constant cash flow needs?

Eagle Enterprises Inc.,has an asset turnover of 1.1,a financial leverage ratio of 1.67,a profit margin of 12% and a dividend payout ratio of 25%.What is the firm's sustainable growth rate?

Forecasted net cash flows are the difference between forecasted cash inflows and forecasted cash outflows.

Jensen Inc.has net earnings of $24,000,000 this year and a dividend payout policy of 40% of earnings.If the firm follows its regular payout policy what will be the addition to retained earnings this year?

A firm that is growing more slowly than its sustainable growth rate may generates excess cash.If the firm chooses to keep the excess cash which of the following is NOT true?

Knowledge about the sustainable growth rate is important to all but one of the following groups or individuals.

Consider the four components identified by the author in the sustainable growth equation.Which if nay of these components are heavily influenced by executive management?

A cash budget is often more valuable as a LONG-term rather than a SHORT-TERM financial forecasting vehicle.

Your firm's sales are estimated to decrease by 10% in the next year.However,soon after the beginning of the year it becomes apparent that the reduction in sales is more likely to be 20%.If your cost of good sold consists of only fixed expenses,which of the following situations would you expect to be true?

When estimating a cash budget,which of the following items should the firm NOT include in the process?

When constructing a pro forma income statement,which of the following is likely to be calculated first among the items listed?

Corporations tend to be MORE reluctant to increase dividends than to cut them.

Dynamo Engines Inc.,has an ROA of 10%,a profit margin of 6%,an assets to equity ratio of 1.30,and a retention ratio of 0.70.What is the firm's sustainable growth rate?