Question 1

A firm has current sales of $940,000 and is operating at 76% of its fixed asset capacity. How fast can the firm grow before any new fixed assets are needed?

Accepted Answer

A)  28.97 % 
B)  29.08 % 
C)  30.67 % 
D)  31.58 % 
E)  33.33%

Question 2

Calculate the sustainable growth rate given the following information: return on equity = 15%; retention ratio = 85%.

Accepted Answer

A)  13.61% 
B)  14.61% 
C)  15.61% 
D)  16.61% 
E)  17.61%

Question 3

If a firm has the option of growing at a 10% rate versus a 7% rate, should the firm always opt for the higher rate of growth? Explain why or why not.

Accepted Answer

The answer of If a firm has the option of...

Question 4

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 = $3,000; net income = $15,000.

Accepted Answer

A)  $10,000 
B)  $12,000 
C)  $14,000 
D)  $16,000 
E)  $18,000

Question 5

Suppose the firm wishes to maintain a constant debt-equity ratio, retains 60% of net income, and raises no new equity. Assets and costs maintain a constant ratio to sales. What is the maximum increase in sales the firm can achieve?

Accepted Answer

A)  $88 
B)  $249 
C)  $371 
D)  $429 
E)  $580

Question 6

The _________ is the amount of assets needed to generate $1 in sales.

Accepted Answer

A)  Capital intensity ratio. 
B)  Fixed-asset utilization ratio. 
C)  Internal growth rate. 
D)  Plowback ratio. 
E)  Long-term solvency ratio.

Question 7

The Smith Co., which is currently operating at full capacity, has sales of $3,000, current assets of $800, current liabilities of $400, net fixed assets of $1,900, and a 6% profit margin. The firm has no long-term debt and does not plan on acquiring any. The firm does not pay any dividends. Sales are expected to increase by 9% next year. If all assets, liabilities, and costs vary directly with sales, how much additional equity financing is required for next year?

Accepted Answer

A)  $10.80 
B)  $40.00 
C)  $103.50 
D)  $196.20 
E)  $207.00

Question 8

Which of the following is the first dimension of the financial planning process?

Accepted Answer

A)  Establish a planning horizon. 
B)  Set a dividend policy. 
C)  Aggregate the firm's investment projects. 
D)  Create alternative sets of assumptions about important variables. 
E)  Construct pro forma financial statements.

Question 9

Total asset turnover is a determinant of growth.

Accepted Answer

A) True 
 B)False

Question 10

Why is it just as important to project the statement of financial position as it is to project the statement of comprehensive income?

Accepted Answer

The answer of Why is it just as important to...

Question 11

Consider that you are a finance manager, and one of your junior staff wanted an explanation of the term capital intensity ratio. Provide a definition that conveys what the term means from a finance perspective.

Accepted Answer

The answer of Consider that you are a finance manager,...

Question 12

A firm has sales of $650,969 and is operating at 83% capacity. The firm has total assets of $498,300 and current assets of $86,900. What is the capital intensity ratio at full capacity?

Accepted Answer

A)  .52 
B)  .64 
C)  1.04 
D)  1.58 
E)  1.92

Question 13

The retention ratio is calculated as:

Accepted Answer

A)  One plus the dividend payout ratio. 
B)  Additions to retained earnings divided by net income. 
C)  Additions to retained earnings divided by shares outstanding. 
D)  Net income minus additions to retained earnings. 
E)  Net income minus cash dividends.

Question 14

Which of the following can be computed directly from a pro forma balance sheet?

Accepted Answer

A)  Current ratio. 
B)  Inventory turnover. 
C)  Profit margin. 
D)  Additions to net fixed assets. 
E)  Interval measure.

Question 15

Based on the 2018 financial statement data, Marble's sustainable growth rate is _______. (Assume the dividend payout ratio is fixed.)

Accepted Answer

A)  2.4% 
B)  2.5% 
C)  4.1% 
D)  8.2% 
E)  9.5%

Question 16

Provide three key elements of pro forma financial statements.

Accepted Answer

The answer of Provide three key elements of pro forma...

Question 17

If the Limberger Institute currently operates at full capacity, then accounts receivable would most likely vary directly with sales.

Accepted Answer

A) True 
 B)False

Question 18

All else constant, which one of the following will increase the internal growth rate?

Accepted Answer

A)  An increase in fixed assets. 
B)  An increase in the dividend payout ratio. 
C)  An increase in the plowback ratio. 
D)  A decrease in net income. 
E)  An increase in total assets.

Question 19

When projecting growth, the point where the required increase in assets is equal to the addition to retained earnings is called the:

Accepted Answer

A)  Equilibrium growth rate. 
B)  External growth rate. 
C)  Internal growth rate. 
D)  Sustainable growth rate. 
E)  Pro forma growth rate.

Question 20

Consider that you are a finance manager, and one of your junior staff wanted an explanation of the term retention ratio or plowback ratio. Provide a definition that conveys what the term means from a finance perspective.

Accepted Answer

The answer of Consider that you are a finance manager,...

Exam 4: Long-Term Financial Planning and Corporate Growth

A firm has current sales of $940,000 and is operating at 76% 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 = 15%; retention ratio = 85%.

If a firm has the option of growing at a 10% rate versus a 7% rate, should the firm always opt for the higher rate of growth? Explain why or why not.

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 = $3,000; net income = $15,000.

Suppose the firm wishes to maintain a constant debt-equity ratio, retains 60% of net income, and raises no new equity. Assets and costs maintain a constant ratio to sales. What is the maximum increase in sales the firm can achieve?

The _________ is the amount of assets needed to generate $1 in sales.

Which of the following is the first dimension of the financial planning process?

Total asset turnover is a determinant of growth.

Why is it just as important to project the statement of financial position as it is to project the statement of comprehensive income?

Consider that you are a finance manager, and one of your junior staff wanted an explanation of the term capital intensity ratio. Provide a definition that conveys what the term means from a finance perspective.

A firm has sales of $650,969 and is operating at 83% capacity. The firm has total assets of $498,300 and current assets of $86,900. What is the capital intensity ratio at full capacity?

The retention ratio is calculated as:

Which of the following can be computed directly from a pro forma balance sheet?

Based on the 2018 financial statement data, Marble's sustainable growth rate is _______. (Assume the dividend payout ratio is fixed.)

Provide three key elements of pro forma financial statements.

If the Limberger Institute currently operates at full capacity, then accounts receivable would most likely vary directly with sales.

All else constant, which one of the following will increase the internal growth rate?

When projecting growth, the point where the required increase in assets is equal to the addition to retained earnings is called the:

Consider that you are a finance manager, and one of your junior staff wanted an explanation of the term retention ratio or plowback ratio. Provide a definition that conveys what the term means from a finance perspective.