Question 1

Financial planning:

Accepted Answer

A)  Encourages managers to separate their goals from their plans. 
B)  Is generally based solely on the best-case scenario. 
C)  Generally has been found ineffective. 
D)  Helps managers establish priorities. 
E)  Prevents firms from encountering surprise events.

Question 2

The retention ratio is equal to one plus the dividend payout ratio.

Accepted Answer

A) True 
 B)False

Question 3

Assuming that a company has a policy of paying out a constant fraction of net income in the form of a cash dividends, calculate the addition to retained earnings given the following information: cash dividends = $88; net income = $264.

Accepted Answer

A)  $176 
B)  $245 
C)  $328 
D)  $402 
E)  $485

Question 4

Assume Marble is projecting a 20% increase in sales for the coming year, with current assets, all costs, and current liabilities proportional to sales. Long-term debt is not proportional to sales. If the firm's tax rate remains unchanged, the dividend payout is 40%, and Marble is operating at 70% of capacity, what is the external financing needed (EFN) for 2018 ($ in millions)?

Accepted Answer

A)  EFN is negative 
B)  $21.94 
C)  $48.31 
D)  $76.32 
E)  $89.85

Question 5

A firm desires a sustainable growth rate of 13.3273% while maintaining a 30 percent dividend payout ratio and an 8% profit margin. The firm has a total asset turnover ratio of 1.5. What is the debt-equity ratio that is required to achieve the firm's desired rate of growth?

Accepted Answer

A)  28 %t 
B)  35% 
C)  40 % 
D)  44% 
E)  52%

Question 6

The following balance sheet and income statement should be used:   Assume that all costs, assets, and current liabilities of Taylor, Inc. increase directly with sales. Also assume that the tax rate, the dividend payout ratio and profit margin ratio are constant. The firm is currently operating at full capacity. What is the external financing need if sales increase by 8 percent?

Accepted Answer

A)  -$123.92 
B)  -$12.87 
C)  -$9.20 
D)  $11.68 
E)  $108.14

Question 7

Pro forma statements are a common element among financial planning models.

Accepted Answer

A) True 
 B)False

Question 8

A Toronto firm has current sales of $1,465,000 and is operating at 87% of its fixed asset capacity. How fast can the firm grow before any new fixed assets are needed?

Accepted Answer

A)  11.49% 
B)  13.00 % 
C)  14.94% 
D)  15.07 % 
E)  15.81 %

Question 9

Calculate the sustainable growth rate given the following information: return on equity = 25%; payout ratio = 30%.

Accepted Answer

A)  21.21% 
B)  22.32% 
C)  23.43% 
D)  24.54% 
E)  25.65%

Question 10

Calculate total current assets given the following information. Cash $10,000; supplies $3,000; average collection period 54.75 days; days' sales in inventory 91.25 days; sales $80,000; COGS $60,000.

Accepted Answer

A)  $42,000 
B)  $40,000 
C)  $38,000 
D)  $36,000 
E)  $34,000

Question 11

Assume costs and assets increase at the same rate as sales. Also assume 40% of net income is paid out in dividends, the current debt to equity ratio is optimal, and that no new equity sales are possible. Forecast the addition to retained earnings assuming the firm's sales increase at the maximum percent possible given these assumptions.

Accepted Answer

A)  $43.2 
B)  $88.5 
C)  $113.3 
D)  $146.7 
E)  $167.8

Question 12

In most industries, planning beyond the period of one year is not very useful.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A)  Directly with sales. 
B)  With the level of capacity utilization. 
C)  Directly with the growth rate of fixed assets. 
D)  Based upon the financial leverage employed. 
E)  As necessary to get the balance sheet to balance.

Question 14

Financial planning:

Accepted Answer

A)  Is limited to projecting activities of a firm for the next twelve months. 
B)  Formulates the way in which financial goals are to be achieved. 
C)  Is formulated based primarily on a net income assumption. 
D)  For capital acquisitions is done on a purely segregated basis. 
E)  Focuses solely on the assumptions that are most likely to occur.

Question 15

Assume costs, assets, and accounts payable all increase at the same rate as sales. Also assume 80% of net income is paid out in dividends. If sales grow at 25%, compute external financing needed.

Accepted Answer

A)  $0.00 
B)  $4.50 
C)  $22.50 
D)  $29.50 
E)  $52.00

Question 16

Assets, accounts payable and costs are proportional to sales. Debt and equity are not.
The sales of Douglass Enterprises are expected to increase by 9% next year. The debt-equity ratio and the dividend payout ratio are to be held constant. Currently the firm is producing at 82% of capacity. What is the addition to retained earnings?

Accepted Answer

A)  $311 
B)  $385 
C)  $437 
D)  $475 
E)  $518

Question 17

Calculate payout ratio given the following information: cash dividends paid = $35,525; sales = $900,000; cost of goods sold = $625,000; selling and administrative expenses = $100,000; interest expense = $30,000; tax rate= 30%.

Accepted Answer

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

Question 18

If a firm is to grow at its sustainable growth rate, its growth depends on which of the following factors?

Accepted Answer

A)  Leverage and activity ratios. 
B)  Short-term solvency ratios. 
C)  The number of units sold. 
D)  Revenues, expenses, and profit margin, 
E)  Profit margin, financial policy and dividend policy.

Question 19

Which one of the following is the key driver of most financial plans?

Accepted Answer

A)  Net income target. 
B)  Sales forecast. 
C)  Available net working capital. 
D)  Cost of goods sold. 
E)  Return on equity.

Question 20

Calculate net working capital turnover given the following data. Total fixed assets $200,000; long-term liabilities $55,000; total liabilities $80,000; total shareholders' equity $220,000; total sales $800,000.

Accepted Answer

A)  13.75 
B)  12.67 
C)  11.75 
D)  10.67 
E)  9.67

Exam 4: Long-Term Financial Planning and Corporate Growth

Financial planning:

The retention ratio is equal to one plus the dividend payout ratio.

Assuming that a company has a policy of paying out a constant fraction of net income in the form of a cash dividends, calculate the addition to retained earnings given the following information: cash dividends = $88; net income = $264.

A firm desires a sustainable growth rate of 13.3273% while maintaining a 30 percent dividend payout ratio and an 8% profit margin. The firm has a total asset turnover ratio of 1.5. What is the debt-equity ratio that is required to achieve the firm's desired rate of growth?

Pro forma statements are a common element among financial planning models.

A Toronto firm has current sales of $1,465,000 and is operating at 87% of its fixed asset capacity. How fast can the firm grow before any new fixed assets are needed?

Calculate the sustainable growth rate given the following information: return on equity = 25%; payout ratio = 30%.

Calculate total current assets given the following information. Cash $10,000; supplies $3,000; average collection period 54.75 days; days' sales in inventory 91.25 days; sales $80,000; COGS $60,000.

In most industries, planning beyond the period of one year is not very useful.

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

Financial planning:

Assume costs, assets, and accounts payable all increase at the same rate as sales. Also assume 80% of net income is paid out in dividends. If sales grow at 25%, compute external financing needed.

Calculate payout ratio given the following information: cash dividends paid = $35,525; sales = $900,000; cost of goods sold = $625,000; selling and administrative expenses = $100,000; interest expense = $30,000; tax rate= 30%.

If a firm is to grow at its sustainable growth rate, its growth depends on which of the following factors?

Which one of the following is the key driver of most financial plans?

Calculate net working capital turnover given the following data. Total fixed assets $200,000; long-term liabilities $55,000; total liabilities $80,000; total shareholders' equity $220,000; total sales $800,000.