Deck 15: Financial Planning and Forecasting

Question 1

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.

Answer 1

auditors to determine if the company's annual report is true and correct.

Question 2

Suppose a firm has had the historical sales figures shown as follows. What would be the forecast for next year's sales using the naïve approach? Year 2013 2014 2015 2016 2017
Sales $10,000,000 $10,500,000 $10,700,000 $11,000,000 $12,000,000

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

Answer 2

$12,000,000

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

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 5

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 6

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 7

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 8

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 9

Forecasted sales drive 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 10

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 11

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 12

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

Question 13

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 14

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 15

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 16

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 17

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 18

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

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

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 21

Suppose a firm has had the historical sales figures shown as follows. What would be the forecast for next year's sales using the average approach? Year 2013 2014 2015 2016 2017
Sales $1,000,000 $2,000,000 $1,700,000 $1,800,000 $2,200,000

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

Question 22

Suppose a firm has had the historical sales figures shown as follows. 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"? Year 2013 2014 2015 2016 2017
Sales $1,600,000 $1,500,000 $1,700,000 $1,700,000 $1,800,000

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

Question 23

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 percent increase in sales. If the firm's sales do increase by 20 percent, it is expected that spontaneous liabilities will increase by $1 million. The firm currently pays out 30 percent 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 24

Suppose that Runner Industries currently has the balance sheet shown as follows, 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? Assets
Liabilities and Equity
Current assets
$
1,500,000
Current liabilities
$
600,000
Fixed assets
3,000,000
Long-term debt
1,400,000
Equity
2,500,000
Total assets
$
4,500,000
Total liabilities and equity
$
4,500,000

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

Question 25

Suppose a firm has had the historical sales figures shown as follows. What would be the forecast for next year's sales using regression to estimate a trend? Year 2013 2014 2015 2016 2017
Sales $12,000,000 $11,800,000 $12,200,000 $12,400,000 $12,300,000

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

Question 26

Suppose a firm has had the historical sales figures shown as follows. What would be the forecast for next year's sales using the naïve approach? Year 2013 2014 2015 2016 2017
Sales $2,500,000 $3,750,000 $2,400,000 $2,000,000 $2,900,000

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

Question 27

Suppose a firm has had the historical sales figures shown as follows. What would be the forecast for next year's sales using the average approach if it is determined that 2016 is a "stale" year? Year 2013 2014 2015 2016 2017
Sales $500,000 $600,000 $700,000 $400,000 $700,000

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

Question 28

Suppose a firm has had the historical sales figures shown as follows. What would be the forecast for next year's sales using regression to estimate a trend? Year
2008
2009
2010
2011
2012
Sales $2,000,000 $1,800,000 $2,200,000 $2,400,000 $2,300,000

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

Question 29

Suppose a firm has had the historical sales figures shown as follows. What would be the forecast for next year's sales using the average approach if it was determined that years 2013 and 2014 were "stale"? Year 2013 2014 2015 2016 2017
Sales $1,900,000 $2,100,000 $2,700,000 $2,800,000 $3,000,000

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

Question 30

Suppose a firm has had the historical sales figures shown as follows. What would be the forecast for next year's sales using the average approach? Year 2013 2014 2015 2016 2017
Sales $10,000,000 $10,500,000 $10,700,000 $11,000,000 $12,000,000

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

Question 31

Suppose a firm has had the historical sales figures shown as follows. What would be the forecast for next year's sales using the average approach? Year 2013 2014 2015 2016 2017
Sales $1,200,000 $1,750,000 $1,100,000 $2,000,000 $1,500,000

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

Question 32

Suppose a firm has had the historical sales figures shown as follows. What would be the forecast for next year's sales using the naïve approach? Year 2013 2014 2015 2016 2017
Sales $1,500,000 $1,750,000 $1,400,000 $2,000,000 $2,200,000

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

Question 33

Suppose that PBJ Industries, Inc. currently has the balance sheet shown as follows, and that sales for the year just ended were $10 million. The firm also has a profit margin of 10 percent, a retention ratio of 25 percent, and expects sales of $12 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? Assets
Liabilities and Equity
Current assets
$
1,000,000
Current liabilities
$
1,000,000
Fixed assets
2,000,000
Long-term debt
1,000,000
Equity
1,000,000
Total assets
$
3,000,000
Total liabilities and equity
$
3,000,000

A)$0
B)$6,250
C)$30,000
D)$100,000

Question 34

Suppose a firm has had the historical sales figures shown as follows. What would be the forecast for next year's sales using the average approach? Year 2013 2014 2015 2016 2017
Sales $500,000 $600,000 $700,000 $400,000 $700,000

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

Question 35

Suppose that Gyp Sum Industries currently has the balance sheet shown as follows, 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? Assets
Liabilities and Equity
Current assets
$
2,000,000
Current liabilities
$
1,500,000
Fixed assets
14,000,000
Long-term debt
1,500,000
Equity
13,000,000
Total assets
$
16,000,000
Total liabilities and equity
$
16,000,000

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

Question 36

Suppose a firm has had the historical sales figures shown as follows. What would be the forecast for next year's sales using regression to estimate a trend? Year 2013 2014 2015 2016 2017
Sales $800,000 $810,000 $825,000 $835,000 $850,000

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

Question 37

Suppose a firm has had the historical sales figures shown as follows. What would be the forecast for next year's sales using the average approach if it was determined that 2013 is a "stale" year? Year 2013 2014 2015 2016 2017
Sales $1,000,000 $2,000,000 $1,700,000 $1,800,000 $2,200,000

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

Question 38

Suppose that BBM Industries, Inc. currently has the balance sheet shown as follows, and that sales for the year just ended were $2 million. The firm also has a profit margin of 5 percent, a retention ratio of 50 percent, and expects sales of $2.5 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? Assets
Liabilities and Equity
Current assets
$
1,000,000
Current liabilities
$
1,000,000
Fixed assets
2,000,000
Long-term debt
1,000,000
Equity
1,000,000
Total assets
$
3,000,000
Total liabilities and equity
$
3,000,000

A)$0
B)$62,500
C)$437,500
D)$500,000

Question 39

Suppose a firm has had the historical sales figures shown as follows. What would be the forecast for next year's sales using the average approach? Year 2013 2014 2015 2016 2017
Sales $4,300,000 $3,950,000 $2,100,000 $2,000,000 $2,200,000

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

Question 40

Suppose that the 2017 actual and 2018 projected financial statements for Counter Corp. are initially as shown in the following tables. 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? Income Statement
2017 2018
Actual Forecast
Sales
$
4,000,000
$
5,400,000
Costs except depreciation
2,000,000
2,700,000
Depreciation
1,500,000
2,025,000
EBIT
$
500,000
$
675,000
Less Interest
216,000
227,587
EBT
$
284,000
$
447,413
Taxes (40%)
113,600
178,965
Net income
$
170,400
$
268,448
Common Dividends
$
150,000
$
150,000
Addition to Retained Earnings
$
20,400
$
118,448
Balance Sheet
2017 2018
Actual Forecast
Assets
Cash
$
500,000
$
675,000
Accounts Receivable
550,000
742,500
Inventories
1,000,000
1,350,000
Total Current Assets
$
2,050,000
$
1,417,500
Net Plant and Equipment
4,000,000
5,400,000
Total Assets
$
6,050,000
$
6,817,500
Liabilities and Equity
Accounts Payable
$
600,000
$
810,000
Notes Payable
900,000
900,000
Accruals
500,000
675,000
Total Current Liabilities
$
2,000,000
$
2,385,000
Long-term bonds
1,800,000
1,800,000
Total Debt
$
3,800,000
$
4,185,000
Common Stock
$
2,000,000
$
2,000,000
Retained Earnings
250,000
270,400
Total Common Equity
$
2,250,000
$
2,270,000
Total Liabilities and Equity
$
6,050,000
$
6,455,400

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 the options are correct.

Question 41

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 percent 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 42

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 percent 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

Question 43

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 percent 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 percent
B)10.84 percent
C)10.28 percent
D)9.69 percent

Question 44

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 percent 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 percent 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 45

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 46

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 47

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 the optionsare correct.

Question 48

Suppose that Wind Em Corp. currently has the balance sheet shown as follows, 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? Assets
Liabilities and Equity
Current assets
$
2,000,000
Current liabilities
$
2,500,000
Fixed assets
8,000,000
Long-term debt
1,500,000
Equity
6,000,000
Total assets
$
10,000,000
Total liabilities and equity
$
10,000,000

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

Question 49

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

A)6.71 percent
B)5.73 percent
C)(-8.14 percent)
D)(-6.67 percent)

Question 50

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

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

Question 51

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 the options.

Question 52

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

A)0.24 percent
B)1.01 percent
C)0 percent
D)(-0.43 percent)

Question 53

Suppose that Wind Em Corp. currently has the balance sheet shown as follows, 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? Assets
Liabilities and Equity
Current assets
$
2,000,000
Current liabilities
$
2,500,000
Fixed assets
8,000,000
Long-term debt
1,500,000
Equity
6,000,000
Total assets
$
10,000,000
Total liabilities and equity
$
10,000,000

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

Question 54

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)The firm's retention ratio is increased

Question 55

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 percent 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 percent
B)2.99 percent
C)4.11 percent
D)3.64 percent

Question 56

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 options will tend to increase spontaneously with sales.

Question 57

Suppose that Wind Em Corp. currently has the balance sheet shown as follows, 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? Assets
Liabilities and Equity
Current assets
$
2,000,000
Current liabilities
$
2,500,000
Fixed assets
8,000,000
Long-term debt
1,500,000
Equity
6,000,000
Total assets
$
10,000,000
Total liabilities and equity
$
10,000,000

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

Question 58

Suppose that Wind Em Corp. currently has the balance sheet shown as follows, 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? Assets
Liabilities and Equity
Current assets
$
2,000,000
Current liabilities
$
2,500,000
Fixed assets
8,000,000
Long-term debt
1,500,000
Equity
6,000,000
Total assets
$
10,000,000
Total liabilities and equity
$
10,000,000

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

Question 59

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 percent increase in sales. If the firm's sales do increase by 20 percent, it is expected that spontaneous liabilities will increase by $500,000. The firm currently pays out 30 percent 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 60

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 61

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 percent 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 62

ABC Inc. has total assets of $550,000 and a debt ratio of 60 percent. If last year's sales were $950,000 and sales are expected to grow 10 percent in the future, what is ABC Inc. capital intensity ratio?

A)1.72
B)0.52
C)1.90
D)0.58

Question 63

Which of the following statements is correct?

A)The sales forecast is the driver for corporate financial planning.
B)The addition to retained earnings is the driver for corporate financial planning.
C)The debt ratio is the driver for corporate financial planning.
D)None of the statements are correct.

Question 64

Suppose you were forecasting sales for a firm that exhibited a cyclical pattern within each week. How would you go about forecasting sales for this firm?

A)You would need to compute day-of-the week indices centered on the seven days around each day of the week and use these indices to deseasonalize the historical observations.
B)Calculate the monthly average because it automatically deseasonalizes the historical observations.
C)Ignore the seasonality.
D)Compute the daily change as a percent of sales and calculate the geometric average.

Question 65

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)It cannot be determined without knowing the impact on the profit margin.

Question 66

Silly Putty Inc. has had sales of $10 million, $15 million, and $8 million for each of the last three years. What would be the MAPE if the actual sales were $12 million using the average approach?

A)11.00 percent
B)20.00 percent
C)26.67 percent
D)33.33 percent

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 the options are correct.

Question 68

Silly Putty Inc. has had sales of $10 million, $15 million, and $8 million for each of the last three years. What would be the MAPE if the actual sales were $12 million using the naïve approach?

A)66.66 percent
B)33.33 percent
C)(-33.33 percent)
D)(-66.66 percent)

Question 69

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

A)The firm cuts its dividend by 50 percent.
B)The firm reduces its usage of trade credit.
C)The firm has unused fixed assets.
D)All of the options would increase the firm's additional funds needed.

Question 70

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 percent 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