Deck 15: Financial Planning and Forecasting

Question 1

Which of the following is defined as assuming that future sales will be equal to the average historical value across some relevant period?

A) average approach
B) base case approach
C) naïve approach
D) pro forma approach

Answer 1

average approach

Question 2

The set of assumptions underlying the firm's financial plan and the resulting projected financial statements are accordingly often referred to as which of the following?

A) base case projections
B) deseaonalized financial statements
C) naïve financial statements
D) pro forma financial statements

Answer 2

base case projections

Question 3

Which of the following defines the term deseasonalize?

A) to use pro forma statements to determine future years' forecasts
B) to remove the effects of seasonality from historic data
C) to remove fixed asset growth that does not tie into sales growth
D) to fix asset growth to smooth out the seasonality of sales growth

Answer 3

to remove the effects of seasonality from historic data

Question 4

The additional funds needed by the firm can be calculated by assuming which of the following?

A) The firm's additional sales will grow proportionately as assets are purchased.
B) The firm's additional capital needed will grow proportionately with projected changes in sales.
C) The firm's balance sheet will grow proportionately with projected changes in sales.
D) The firm's additional sales will grow proportionately as capital is brought on to the balance sheet.

Question 5

Forecasted sales drives all of the following except:

A) the amount of assets needed.
B) the liabilities needed.
C) the external funds needed.
D) earnings per share on the annual report.

Question 6

If a firm has excess capacity when calculating AFN (Additional Funds Needed), A* will most likely equal which of the following?

A) Total Assets
B) Current Assets
C) Fixed Assets
D) Lumpy Assets

Question 7

Which of the following are considered "chunky" or "lumpy" assets?

A) Total Assets
B) Current Assets
C) Fixed Assets
D) Additional Funds Needed (AFN)

Question 8

What is computed by dividing the amount of assets tied directly to sales (A*) by the amount of current sales (S0)?

A) capital intensity ratio
B) current ratio
C) quick ratio
D) spontaneous assets

Question 9

Which of the following defines iterative calculation?

A) The practice of overriding a spreadsheet program or calculator in order to be able to compute an answer so as to take into account circular dependency in a system of equations.
B) The practice of ensuring there are no circular dependencies in a system of equations.
C) The practice of letting a spreadsheet program or calculator repeatedly compute an answer so as to take into account circular dependency in a system of equations.
D) The practice of using the AFN formula to calculate an answer in order to avoid circular dependencies in a system of equations.

Question 10

Which of the following is the amount of external financing a firm must seek in order to change the asset base as necessary to support a different level of sales?

A) additional funds needed
B) capital intensity ratio
C) current ratio
D) spontaneous assets

Question 11

Which of the following is the practice of one firm selling to another on credit terms?

A) accounts payable
B) accounts receivable
C) barter transactions
D) trade credit

Question 12

Which statement is most correct regarding how pro forma financial statements can be used to estimate additional funds needed?

A) Pro forma statements can be used to iteratively refine the amount of additional funds needed.
B) Pro forma statements are less precise than other methods for determining additional funds needed.
C) Pro forma statements take into account changes in cost of goods sold that other methods of determining additional funds needed ignore.
D) Pro forma statements take into account dividend payments that other methods of determining additional funds needed ignore.

Question 13

Suppose a firm has had the historical sales figures shown below. What would be the forecast for next year's sales using the naïve approach?

A) $1,000,000
B) $1,740,000
C) $1,925,000
D) $2,200,000

Question 14

Which of the following is a set of financial statements depicting an operating division of a firm's expected financial situation in the foreseeable future under the most reasonable set of assumptions concerning relevant factors?

A) base case projections
B) deseaonalized financial statements
C) naïve financial statements
D) pro forma financial statements

Question 15

Which of the following defines MAPE?

A) Median absolute percentage error, a measure of a financial statement's accuracy.
B) Median absolute percentage error, a measure of a forecast's accuracy.
C) Mean absolute percentage error, a measurement of a forecast's accuracy.
D) Mean absolute percentage error, a measure of a financial statement's accuracy.

Question 16

Financial planning involves estimating projected cash flows, which is useful for all the following except:

A) setting internal goals.
B) providing information to shareholders and other external stakeholders concerning the firm's future expectations.
C) estimating the firm's future needs for internal and external financing.
D) auditors to determine if the company's annual report is true and correct.

Question 17

Which of the following can be computed as: Necessary increase in assets minus spontaneous increase in liabilities minus projected increase in retained earnings?

A) additional funds needed
B) capital intensity ratio
C) current ratio
D) spontaneous assets

Question 18

Which of the following is used to remove the effects of seasonality from historic data?

A) average approach
B) base case approach
C) deseasonalized approach
D) pro forma approach

Question 19

First order effects are defined as which of the following?

A) The subsequent, less observable effects of the change.
B) The subsequent, more observable effects of the change.
C) Higher order effects of the change.
D) The immediately observable effects of changing one item on another.

Question 20

The simplest approach to estimating a future period's sales is to assume that they will be equal to those of the latest observed period. In statistics, this is often simply referred to as which of the following?

A) base case approach
B) deseaonalized approach
C) naïve approach
D) pro forma approach

Question 21

Suppose that Road Industries currently has the balance sheet shown below, and that sales for the year just ended were $80 million. The firm also has a profit margin of 5 percent, a retention ratio of 10 percent, and expects sales of $82 million next year. If fixed assets have enough capacity to cover the increase in sales and all other assets and current liabilities are expected to increase with sales, what amount of additional funds will the company need from external sources to fund the expected growth?

A) $0
B) $122,500
C) $112,500
D) $287,500

Question 22

Suppose a firm has had the historical sales figures shown below. What would be the forecast for next year's sales using the average approach if it is determined that none of the years are "stale"?

A) $1,600,000
B) $1,660,000
C) $1,700,000
D) $1,800,000

Question 23

Suppose a firm has had the historical sales figures shown below. What would be the forecast for next year's sales using the average approach if it is determined that 2007 is a "stale" year?

A) $400,000
B) $580,000
C) $625,000
D) $700,000

Question 24

Suppose that Wave Industries currently has the balance sheet shown below, and that sales for the year just ended were $25 million. The firm also has a profit margin of 10 percent, a retention ratio of 20 percent, and expects sales of $27 million next year. If fixed assets have enough capacity to cover the increase in sales and all other assets and current liabilities are expected to increase with sales, what amount of additional funds will the company need from external sources to fund the expected growth?

A) $0
B) $300,000
C) $340,000
D) $20,000

Question 25

Suppose that Team Industries, Inc. currently has the balance sheet shown below, and that sales for the year just ended were $3 million. The firm also has a profit margin of 20 percent, a retention ratio of 30 percent, and expects sales of $6 million next year. If all assets and current liabilities are expected to increase with sales, what amount of additional funds will the company need from external sources?

A) $2,140,000
B) $2,320,000
C) $2,500,000
D) $4,500,000

Question 26

Suppose a firm has had the historical sales figures shown below. What would be the forecast for next year's sales using the average approach?

A) $1,000,000
B) $1,740,000
C) $1,925,000
D) $2,200,000

Question 27

Suppose that the 2009 actual and 2010 projected financial statements for Carrier Corp are initially as shown below. In these tables, sales are projected to rise 40 percent in the coming year, and the components of the income statement and balance sheet that are expected to increase at the same 40 percent rate as sales are indicated with an italics font. Assuming that Carrier Corp wants to cover the AFN with 50 percent equity, 25 percent long-term debt, and the remainder from notes payable, what amount of additional funds will they need to raise if debt carries a 10 percent interest rate?

A) $120,000 equity; $60,000 long-term debt; $60,000 notes payable
B) $60,000 equity; $120,000 notes payable; $60,000 long-term debt
C) $60,000 equity; $120,000 long-term debt; $60,000 notes payable
D) none of these answers are correct

Question 28

Suppose a firm has had the historical sales figures shown below. What would be the forecast for next year's sales using the average approach if it was determined that 2008 is a "stale" year?

A) $1,000,000
B) $1,740,000
C) $1,925,000
D) $2,200,000

Question 29

Suppose a firm has had the historical sales figures shown below. What would be the forecast for next year's sales using regression to estimate a trend?

A) $12,000,000
B) $12,140,000
C) $12,300,000
D) $12,500,000

Question 30

Suppose a firm has had the historical sales figures shown below. What would be the forecast for next year's sales using the naïve approach?

A) $10,000,000
B) $10,550,000
C) $10,840,000
D) $12,000,000

Question 31

Suppose that TV Industries, Inc. currently has the balance sheet shown below, and that sales for the year just ended were $5 million. The firm also has a profit margin of 15 percent, a retention ratio of 25 percent, and expects sales of $5.5 million next year. If all assets and current liabilities are expected to increase with sales, what amount of additional funds will the company need from external sources to fund the expected growth?

A) $0
B) $6,250
C) $206,250
D) $12,500

Question 32

Suppose that Runner Industries currently has the balance sheet shown below, and that sales for the year just ended were $5 million. The firm also has a profit margin of 10 percent, a retention ratio of 20 percent, and expects sales of $7 million next year. If fixed assets have enough capacity to cover the increase in sales and all other assets and current liabilities are expected to increase with sales, what amount of additional funds will the company need from external sources to fund the expected growth?

A) $0
B) $140,000
C) $220,000
D) $180,000

Question 33

Suppose a firm has had the historical sales figures shown below. What would be the forecast for next year's sales using the average approach?

A) $500,000
B) $580,000
C) $625,000
D) $700,000

Question 34

Suppose that the 2009 actual and 2010 projected financial statements for Counter Corp are initially as shown below. In these tables, sales are projected to rise 35 percent in the coming year, and the components of the income statement and balance sheet that are expected to increase at the same 35 percent rate as sales are indicated with an italics font. Assuming that Counter Corp wants to cover the AFN with 60 percent equity, 25 percent long-term debt, and the remainder from notes payable, what amount of additional funds will they need to raise if debt carries an 8 percent interest rate?

A) $217,260 equity; $90,525 long-term debt; $54,315 notes payable
B) $217,260 equity; $90,525 notes payable; $54,315 long-term debt
C) $54,315 equity; $90,525 long-term debt; $217,260 notes payable
D) none of these answers are correct

Question 35

Suppose that the 2009 actual and 2010 projected financial statements for Cypress Corp are initially as shown below. In these tables, sales are projected to rise 15 percent in the coming year, and the components of the income statement and balance sheet that are expected to increase at the same 15 percent rate as sales are indicated with an italics font. Assuming that Cypress Corp wants to cover the AFN with 35 percent equity, 35 percent long-term debt, and the remainder from notes payable, what amount of additional funds will they need to raise if debt carries a 9 percent interest rate?

A) $4,165 equity; $4,165 long-term debt; $3,570 notes payable
B) $4,165 equity; $3,570 notes payable; $4,165 long-term debt
C) $5,850 equity; $5,850 long-term debt; $0 notes payable
D) none of these answers are correct

Question 36

Suppose a firm has had the historical sales figures shown below. What would be the forecast for next year's sales using regression to estimate a trend?

A) $2,440,000
B) $2,500,000
C) $2,575,000
D) $2,600,000

Question 37

Suppose a firm has had the historical sales figures shown below. What would be the forecast for next year's sales using the average approach?

A) $10,000,000
B) $10,550,000
C) $10,840,000
D) $12,000,000

Question 38

Suppose a firm has had the historical sales figures shown below. What would be the forecast for next year's sales using regression to estimate a trend?

A) $2,140,000
B) $2,225,000
C) $2,300,000
D) $2,500,000

Question 39

Suppose a firm has had the historical sales figures shown below. What would be the forecast for next year's sales using regression to estimate a trend?

A) $850,000
B) $860,000
C) $861,500
D) $874,000

Question 40

Suppose a firm has had the historical sales figures shown below. What would be the forecast for next year's sales using the average approach if it was determined that years 2004 and 2005 were "stale"?

A) $1,900,000
B) $2,500,000
C) $2,833,333
D) $3,000,000

Question 41

Suppose a firm has had the historical sales figures shown below. What would be the forecast for next year's sales using the naïve approach?

A) $2,450,000
B) $2,900,000
C) $2,350,000
D) $2,585,000

Question 42

Suppose that Wind Em Corp. currently has the balance sheet shown below, and that sales for the year just ended were $15 million. The firm also has a profit margin of 23 percent, a retention ratio of 40 percent, and expects sales of $20 million next year. If all assets and current liabilities are expected to grow with sales, how much will spontaneous liabilities increase with the increase in sales?

A) $833,300
B) $240,000
C) $366,957.14
D) $1,125,000

Question 43

Suppose a firm has had the historical sales figures shown below. What would be the forecast for next year's sales using the average approach?

A) $2,730,000
B) $2,810,000
C) $2,910,000
D) $2,990,000

Question 44

Suppose a firm has had the historical sales figures shown below. What would be the forecast for next year's sales using the naïve approach?

A) $2,100,000
B) $2,200,000
C) $1,780,000
D) $1,730,000

Question 45

Goldilochs Inc. reported sales of $8 million and net income of $1.5 million. The firm has $10.5 million in total assets. The firm's chief financial officer is projecting a 20% increase in sales. If the firm's sales do increase by 20%, it is expected that spontaneous liabilities will increase by $500,000. The firm currently pays out 30% of its net income to shareholders. Assuming that all assets are expected to grow with sales, how much in additional funds will Goldilochs need from external sources to fund the expected growth?

A) $340,000
B) $299,000
C) $321,000
D) $360,000

Question 46

Suppose that Psy Ops Industries currently has the balance sheet shown below, and that sales for the year just ended were $6 million. The firm also has a profit margin of 9 percent, a retention ratio of 5 percent, and expects sales of $8.5 million next year. If fixed assets have enough capacity to cover the increase in sales and all other assets and current liabilities are expected to increase with sales, how much additional funds will Psy Ops need from external sources to fund the expected growth?

A) $795,100
B) $141,300
C) $783,600
D) $214,900

Question 47

Which of the following will increase the additional funds needed from external sources?

A) The firm's profit margin increases.
B) The firm's dividend payout ratio decreases.
C) The firm's debt ratio decreases.
D) The firm becomes more capital intensive.

Question 48

Suppose that Wind Em Corp. currently has the balance sheet shown below, and that sales for the year just ended were $15 million. The firm also has a profit margin of 20 percent, a retention ratio of 30 percent, and expects sales of $22 million next year. If all assets and current liabilities are expected to grow with sales, how much will spontaneous liabilities increase with the increase in sales?

A) $1,950,000
B) $2,240,000
C) $2,366,000
D) $1,167,000

Question 49

Suppose that Gyp Sum Industries currently has the balance sheet shown below, and that sales for the year just ended were $20 million. The firm also has a profit margin of 22 percent, a retention ratio of 42 percent, and expects sales of $30 million next year. If all assets and current liabilities are expected to grow with sales, how much additional funds will Gyp Sum need from external sources to fund the expected growth?

A) $3,925,000
B) $3,695,000
C) $4,124,000
D) $4,478,000

Question 50

Suppose that Wind Em Corp. currently has the balance sheet shown below, and that sales for the year just ended were $15 million. The firm also has a profit margin of 19 percent, a retention ratio of 30 percent, and expects sales of $22 million next year. If all assets and current liabilities are expected to grow with sales, what is the projected increase in retained earnings?

A) $1,250,000
B) $1,240,000
C) $1,366,957.14
D) $1,840,000

Question 51

Suppose that Wind Em Corp. currently has the balance sheet shown below, and that sales for the year just ended were $12 million. The firm also has a profit margin of 20 percent, a retention ratio of 30 percent, and expects sales of $22 million next year. If all assets and current liabilities are expected to grow with sales, what is the necessary increase in assets?

A) $6,240,000
B) $6,333,333.33
C) $8,333,333.33
D) $4,833,000

Question 52

Suppose a firm has had the historical sales figures shown below. What would be the forecast for next year's sales using the average approach?

A) $1,990,000
B) $1,830,000
C) $2,160,000
D) $2,080,000

Question 53

Suppose a firm has had the historical sales figures shown below. What would be the forecast for next year's sales using the average approach?

A) $1,370,000
B) $1,430,000
C) $1,510,000
D) $1,625,000

Question 54

Suppose a firm has had the historical sales figures shown below. What would be the forecast for next year's sales using the naïve approach?

A) $1,780,000
B) $1,650,000
C) $2,100,000
D) $1,686,00

Question 55

Which of the following will increase the additional funds needed from external sources?

A) The firm's profit margin increases.
B) The firm's dividend payout ratio decreases.
C) The firm's debt ratio decreases.
D) None of these

Question 56

Suppose that the 2009 actual and 2010 projected financial statements for Camera Corp are initially as shown below. In these tables, sales are projected to rise 40 percent in the coming year, and the components of the income statement and balance sheet that are expected to increase at the same 40 percent rate as sales are indicated with an italics font. Assuming that Camera Corp wants to cover the AFN with 40 percent equity, 30 percent long-term debt, and the remainder from notes payable, what amount of additional funds will they need to raise if debt carries a 7 percent interest rate?

A) $81,200 equity; $60,900 long-term debt; $60,900 notes payable
B) $60,900 equity; $81,200 notes payable; $60,900 long-term debt
C) $203,000 equity; $0 long-term debt; $0 notes payable
D) none of the answers are correct

Question 57

Goldilochs Inc. reported sales of $5 million and net income of $1 million. The firm has $10.5 million in total assets. The firm's chief financial officer is projecting a 20% increase in sales. If the firm's sales do increase by 20%, it is expected that spontaneous liabilities will increase by $1 million. The firm currently pays out 30% of its net income to shareholders. Assuming that all assets are expected to grow with sales, how much in additional funds will Goldilochs need from external sources to fund the expected growth?

A) $245,000
B) $197,000
C) $221,000
D) $260,000

Question 58

Suppose that Wind Em Corp. currently has the balance sheet shown below, and that sales for the year just ended were $15 million. The firm also has a profit margin of 23 percent, a retention ratio of 40 percent, and expects sales of $20 million next year. If all assets and current liabilities are expected to grow with sales, what is the necessary increase in assets?

A) $240,000
B) $3,333,333.33
C) $1,366,957.14
D) $1,840,000

Question 59

Suppose that the 2009 actual and 2010 projected financial statements for Cramner Corp are initially as shown below. In these tables, sales are projected to rise 35 percent in the coming year, and the components of the income statement and balance sheet that are expected to increase at the same 35 percent rate as sales are indicated with an italics font. Assuming that Cramner Corp wants to cover the AFN with 45 percent equity, 25 percent long-term debt, and the remainder from notes payable, what amount of additional funds will they need to raise if debt carries an 8 percent interest rate?

A) $660,600 equity; $367,000 long-term debt; $440,400 notes payable
B) $660,600 equity; $440,400 notes payable; $367,000 long-term debt
C) $1,468,000 equity; $0 long-term debt; $0 notes payable
D) none of the answers are correct

Question 60

Suppose that Wind Em Corp. currently has the balance sheet shown below, and that sales for the year just ended were $15 million. The firm also has a profit margin of 23 percent, a retention ratio of 40 percent, and expects sales of $20 million next year. If all assets and current liabilities are expected to grow with sales, what is the projected increase in retained earnings?

A) $1,050,000
B) $1,240,000
C) $1,366,957.14
D) $1,840,000

Question 61

Which of the following is likely to increase the firm's additional funds needed?

A) The firm cuts its dividend by 50%.
B) The firm reduces its usage of trade credit.
C) The firm has unused fixed assets.
D) All of these

Question 62

Which of the following will increase the additional funds needed from external sources?

A) The firm's profit margin increases.
B) The firm's sales forecast is decreased.
C) The firm reduces its usage of trade credit.
D) None of these

Question 63

Goldilochs Inc. reported sales of $8 million and net income of $2 million. The firm has a total asset turnover of 3.2. The firm's chief financial officer is projecting a $5 million increase in sales and that spontaneous liabilities will increase by $350,000 automatically. The firm currently pays out 80% of its net income to shareholders. Assuming that all assets and current liabilities are expected to grow with sales, how much in additional funds will Goldilochs need from external sources to fund the expected growth?

A) $501,900
B) $562,500
C) $601,800
D) $446,600

Question 64

Which of the following will increase a firm's need for additional funds?

A) An increase in the firm's average collection period.
B) An increase in the retention ratio.
C) A decrease in sales growth.
D) An increase in accrued wages.

Question 65

Goldilochs Inc. reported sales of $8 million and net income of $1.5 million. The firm has $12 million in total assets and $500,000 in current liabilities. The firm currently pays out 25% of its net income to shareholders. Assume that all assets and current liabilities are expected to grow with sales. If Goldilochs does not want to rely on any external sources of funds, what is the most sales can grow (in dollars)?

A) $887,900
B) $867,500
C) $928,800
D) $964,100

Question 66

Which of the following will decrease the additional funds needed from external sources?

A) The firm's profit margin decreases.
B) The firm's retention ratio is increased.
C) The firm reduces its usage of trade credit.
D) None of these

Question 67

Which of the following statements is incorrect?

A) For most businesses, increases in spontaneous liabilities will be enough to fund the necessary increases in assets.
B) The capital intensity ratio indicates the amount of assets the firm needs to invest to generate each dollar in sales.
C) The vast majority of fixed assets are "chunky" or "lumpy" since they have to be bought in non-divisible quantities.
D) All of these statements are correct.

Question 68

Goldilochs Inc. reported sales of $8 million and net income of $1.5 million. The firm has $12 million in total assets and $500,000 in current liabilities. The firm currently pays out 25% of its net income to shareholders. Assume that all assets and current liabilities are expected to grow with sales. If Goldilochs does not want to rely on any external sources of funds, what is the most sales can grow (in percent)?

A) 11.13%
B) 10.84%
C) 10.28%
D) 9.69%

Question 69

All of the following will tend to increase spontaneously with sales except _________.

A) Accrued wages
B) Notes payable
C) Accounts payable
D) All of the above will tend to increase spontaneously with sales.

Question 70

Silly Putty Inc. has had sales of $12 million, $17 million, and $16 million for each of the last 3 years. What would be the MAPE if the actual sales were $15 million using the naïve approach?

A) 6.71%
B) 5.73%
C) -8.14%
D) -6.67%

Question 71

Goldilochs Inc. reported sales of $8 million and net income of $2 million. The firm has a total asset turnover of 1.2. The firm's chief financial officer is projecting a $6 million increase in sales and that spontaneous liabilities will increase by $1 million automatically. The firm currently pays out 50% of its net income to shareholders. Assuming that all assets and current liabilities are expected to grow with sales, how much in additional funds will Goldilochs need from external sources to fund the expected growth?

A) $1,250,000
B) $1,750,000
C) $2,500,000
D) $2,250,000

Question 72

Which of the following will decrease the additional funds needed from external sources?

A) The firm's profit margin decreases.
B) The firm's retention ratio is decreased.
C) The firm becomes less capital intensive.
D) The firm reduces its usage of trade credit.

Question 73

Abracadabra Inc. has total assets of $106,000 and a debt ratio of 40%. If last year's sales were $145,000 and sales are expected to grow 10% in the future, what is Abracadabra's capital intensity ratio?

A) 0.73
B) 1.37
C) 0.44
D) 2.27

Question 74

Silly Putty Inc. has had sales of $12 million, $17 million, and $16 million for each of the last 3 years. What would be the MAPE if the actual sales were $15 million using the average approach?

A) 0.24%
B) 1.01%
C) 0%
D) -0.43%

Question 75

Which of the following statements is correct?

A) An auto manufacturer is less capital intensive than a bakery.
B) An accounting firm is more capital intensive than a railroad.
C) An oil refinery is more capital intensive than Starbucks.
D) None of these.

Question 76

Goldilochs Inc. reported sales of $8 million and net income of $1.5 million. The firm has $10.5 million in total assets. The firm's chief financial officer is projecting a 25% increase in sales. The firm has $1.25 million in accounts payable and $1,500,000 in long-term debt (bonds). The firm currently pays out 20% of its net income to shareholders. Assuming that all assets and spontaneous liabilities are expected to grow with sales, how much in additional funds will Goldilochs need from external sources to fund the expected growth?

A) $902,700
B) $812,500
C) $821,000
D) $746,600

Question 77

Goldilochs Inc. reported sales of $8 million and net income of $1.5 million. The firm has $10.5 million in total assets and $1 million in current liabilities. The firm currently pays out 75% of its net income to shareholders. Assume that all assets and current liabilities are expected to grow with sales. If Goldilochs does not want to rely on any external sources of funds, what is the most sales can grow (in percent)?

A) 3.18%
B) 2.99%
C) 4.11%
D) 3.64%

Question 78

What would be the appropriate way to forecast sales for a firm that has stable year-to-year sales, but seasonally fluctuating month-to-month sales?

A) Forecasts would need to be adjusted for a trend, but would not need a regression to adjust for seasonality.
B) Forecasts would need to be adjusted for seasonality, but would not need a regression to adjust for a trend.
C) Ignore both the trend and the seasonality.
D) None of these.

Question 79

Suppose a firm was planning to greatly reduce its raw materials inventory next year by introducing just-in-time inventory control procedures. Assuming no other changes to the firm's operations, what would this do to AFN?

A) It would not change the AFN.
B) The AFN would decrease.
C) The AFN would increase.
D) Unable to determine without knowing the impact on the profit margin.

Question 80

Goldilochs Inc. reported sales of $8 million and net income of $1.5 million. The firm has $10.5 million in total assets and $1 million in current liabilities. The firm currently pays out 75% of its net income to shareholders. Assume that all assets and current liabilities are expected to grow with sales. If Goldilochs does not want to rely on any external sources of funds, what is the most sales can grow (in dollars)?

A) $187,900
B) $299,900
C) $328,800
D) $364,100