Question 1

The internal growth rate equals

Accepted Answer

A) plowback ratio × profit margin. 
B) plowback ratio × return on equity. 
C) plowback ratio × return on equity × [equity/net assets]. 
D) None of these answers are correct. 
A) plowback ratio × profit margin. 
B) plowback ratio × return on equity. 
C) plowback ratio × return on equity × [equity/net assets]. 
D) None of these answers are correct.

Question 2

Short-term financial plan models are offered by
I.banks;
II.accounting firms;
III.management consultants;
IV.specialized computer software firms

Accepted Answer

A) I only. 
B) I and II only. 
C) I, II, and III only 
D) I, II, III, and IV. 
A) I only. 
B) I and II only. 
C) I, II, and III only 
D) I, II, III, and IV.

Question 3

Briefly discuss some of the problems associated with the use of the percentage of sales model.

Accepted Answer

The percentage of sales model assumes th

Question 4

Among models used to develop a financial plan, the following is the simplest:

Accepted Answer

A) percentage of sales model. 
B) regression model. 
C) computer simulation model. 
D) optimization model. 
A) percentage of sales model. 
B) regression model. 
C) computer simulation model. 
D) optimization model.

Question 5

When firms prepare a financial plan, they use the following:

Accepted Answer

A) Guessing simulations. 
B) Guessing simulations and sensitivity analysis. 
C) Guessing simulations, sensitivity analysis, and scenario analysis. 
D) Sensitivity analysis and scenario analysis. 
A) Guessing simulations. 
B) Guessing simulations and sensitivity analysis. 
C) Guessing simulations, sensitivity analysis, and scenario analysis. 
D) Sensitivity analysis and scenario analysis.

Question 6

Briefly describe the cash cycle.

Accepted Answer

The cash cycle starts with cash. Firms u

Question 7

The main difference between short-term and long-term finance is

Accepted Answer

A) the risk of long-term cash flows is more important than short-term risks. 
B) long-term cash flows have greater present values than short-term cash flows. 
C) short-term cash flows occur within a year or less. 
D) All of these answers are correct. 
A) the risk of long-term cash flows is more important than short-term risks. 
B) long-term cash flows have greater present values than short-term cash flows. 
C) short-term cash flows occur within a year or less. 
D) All of these answers are correct.

Question 8

Arrange the following assets in decreasing order of liquidity, i.e., the most liquid should be listed first.
I.equipment and machinery;
II.inventories;
III.accounts receivable;
IV.marketable securities

Accepted Answer

A) I, II, III, and IV 
B) II, III, IV, and I 
C) III, IV, II, and I 
D) IV, III, II, and I 
A) I, II, III, and IV 
B) II, III, IV, and I 
C) III, IV, II, and I 
D) IV, III, II, and I

Question 9

A firm that chooses Strategy A, as portrayed in Chapter 29, should plan to

Accepted Answer

A) maintain a high ratio of current assets to sales. 
B) use high levels of short-term debt and low levels of long-term financing. 
C) decrease its dividend soon. 
D) have surplus cash that can be invested in short-term securities. 
A) maintain a high ratio of current assets to sales. 
B) use high levels of short-term debt and low levels of long-term financing. 
C) decrease its dividend soon. 
D) have surplus cash that can be invested in short-term securities.

Question 10

The growth rate that a company can achieve using external funds is called the internal growth rate.

Accepted Answer

A) True 
 B)False

Question 11

A company has forecast sales in the first three months of the year as follows (figures in millions): January, $60; February, $80; March, $100. 60 percent of sales are usually paid for in the month that they take place and 40 percent in the following month. Receivables at the end of December were $24 million. What are the forecasted collections on accounts receivable in March?

Accepted Answer

A) $88 million 
B) $92 million 
C) $100 million 
D) $140 million 
A) $88 million 
B) $92 million 
C) $100 million 
D) $140 million

Question 12

A cash-flow statement categorizes cash flows into which three general categories?

Accepted Answer

A) Working capital, short-term cash flows, and long-term cash flows. 
B) Operating activities, investing activities, and financing activities. 
C) Cash accounts, bank accounts, and transfer accounts. 
D) Inventory, accounts receivable, and accounts payable. 
A) Working capital, short-term cash flows, and long-term cash flows. 
B) Operating activities, investing activities, and financing activities. 
C) Cash accounts, bank accounts, and transfer accounts. 
D) Inventory, accounts receivable, and accounts payable.

Question 13

The sustainable growth rate equals

Accepted Answer

A) plowback ratio × return on equity. 
B) return on equity/plowback ratio. 
C) return on assets × plowback ratio. 
D) plowback ratio × return on equity × (equity/net assets). 
A) plowback ratio × return on equity. 
B) return on equity/plowback ratio. 
C) return on assets × plowback ratio. 
D) plowback ratio × return on equity × (equity/net assets).

Question 14

Last year Axle Inc. reported net assets of $400, equity of $200, net income of $50, dividends of $10, and earnings retained in the period of $40. What is Axle Inc.'s internal growth rate?

Accepted Answer

A) 10.0 percent 
B) 57.1 percent 
C) 20.0 percent 
D) 71.4 percent 
A) 10.0 percent 
B) 57.1 percent 
C) 20.0 percent 
D) 71.4 percent

Question 15

Net working capital is defined as

Accepted Answer

A) the current assets in a business. 
B) the difference between current assets and current liabilities. 
C) the present value of all short-term cash flows. 
D) the difference between total assets and total liabilities. 
A) the current assets in a business. 
B) the difference between current assets and current liabilities. 
C) the present value of all short-term cash flows. 
D) the difference between total assets and total liabilities.

Question 16

Most firms make a permanent investment in net working capital.

Accepted Answer

A) True 
 B)False

Question 17

Strategy A, as portrayed in Chapter 29, implies a permanent need for short-term borrowing.

Accepted Answer

A) True 
 B)False

Question 18

The term short-term planning usually indicates planning for the next 12 months.

Accepted Answer

A) True 
 B)False

Question 19

A company has forecast sales in the first three months of the year as follows (figures in millions): January, $200; February, $140; March, $100. 50 percent of sales are usually paid for in the month that they take place, 30 percent in the following month, and the final 20 percent in the month after that. Receivables at the end of December were $100 million. What are the forecasted collections on accounts receivable in March?

Accepted Answer

A) $132 million 
B) $100 million 
C) $240 million 
D) $92 million 
A) $132 million 
B) $100 million 
C) $240 million 
D) $92 million

Exam 29: Financial Planning

The internal growth rate equals

Short-term financial plan models are offered by I.banks; II.accounting firms; III.management consultants; IV.specialized computer software firms

Briefly discuss some of the problems associated with the use of the percentage of sales model.

Among models used to develop a financial plan, the following is the simplest:

When firms prepare a financial plan, they use the following:

Briefly describe the cash cycle.

The main difference between short-term and long-term finance is

Arrange the following assets in decreasing order of liquidity, i.e., the most liquid should be listed first. I.equipment and machinery; II.inventories; III.accounts receivable; IV.marketable securities

A firm that chooses Strategy A, as portrayed in Chapter 29, should plan to

The growth rate that a company can achieve using external funds is called the internal growth rate.

A cash-flow statement categorizes cash flows into which three general categories?

The sustainable growth rate equals

Last year Axle Inc. reported net assets of $400, equity of $200, net income of $50, dividends of $10, and earnings retained in the period of $40. What is Axle Inc.'s internal growth rate?

Net working capital is defined as

Most firms make a permanent investment in net working capital.

Strategy A, as portrayed in Chapter 29, implies a permanent need for short-term borrowing.

The term short-term planning usually indicates planning for the next 12 months.

Introduction to Corporate Finance

How to Calculate Present Values

Valuing Bonds

The Value of Common Stocks

Net Present Value and Other Investment Criteria

Making Investment Decisions With the Net Present Value Rule

Introduction to Risk and Return

Portfolio Theory and the Capital Asset Pricing Model

Risk and the Cost of Capital

Project Analysis

How to Ensure That Projects Truly Have Positive Npvs

Agency Problems and Investment

Efficient Markets and Behavioral Finance

An Overview of Corporate Financing

How Corporations Issue Securities

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Real Options

Credit Risk and the Value of Corporate Debt

The Many Different Kinds of Debt

Leasing

Managing Risk

Managing International Risks

Financial Analysis

Working Capital Management

Mergers

Corporate Restructuring

Governance and Corporate Control Around the World

Filters