Exam 4: Long-Term Financial Planning and Growth

James Mfg. is currently operating at only 86 percent of fixed asset capacity. Fixed assets are $387,000. Current sales are $510,000 and are projected to grow to $664,000. What amount must be spent on new fixed assets to support this growth in sales?

A firm wishes to maintain a growth rate of 8 percent and a dividend payout ratio of 62 percent. The ratio of total assets to sales is constant at 1, and the profit margin is 10 percent. What must the debt-equity ratio be if the firm wishes to keep these ratios constant?

Parodies Corp. has a return on assets of 10.9 percent, a return on equity of 16.7 percent, and a retention ratio of 40 percent. What is its sustainable growth rate?

Bill's has a profit margin of 5 percent and a dividend payout ratio of 20 percent. The total asset turnover is 1.6 and the debt-equity ratio is .4. What is the sustainable rate of growth?

A firm is currently operating at full capacity. Net working capital, costs, and all assets vary directly with sales. The firm does not wish to obtain any additional equity financing. The dividend payout ratio is constant at 40 percent. If the firm has a positive external financing need, that need will be met by:

Dexter's has annual sales of $53,800, current assets of $18,900, and net working capital of $2,800. Assume this firm is operating at full capacity and that all costs, net working capital, and fixed assets vary directly with sales. The debt-equity ratio and the dividend payout ratio are constant. What is the pro forma current liabilities value for next year if sales are projected to increase by 7.5 percent?

Which one of the following is correct in relation to pro forma statements?

A pro forma statement indicates that both sales and fixed assets are projected to increase by 7 percent over their current levels. Given this, you can safely assume the firm:

Fresno Salads has current sales of $6,000 and a profit margin of 6.5 percent. The firm estimates that sales will increase by 4 percent next year and that all costs will vary in direct relationship to sales. What is the pro forma net income?

If a firm equates its pro forma sales growth to the rate of sustainable growth, and has positive net income and excess capacity, then the:

Which capital intensity ratio indicates the smallest need for fixed assets per dollar of sales?

Flo's Flowers has annual sales of $61,888, depreciation of $8,100, interest paid of $970, cost of goods sold of $29,400, taxes of $4,918, and dividends paid of $4,810. The firm has total assets of $105,300 and total debt of $51,600. The firm does not want any additional external equity financing and also wants to maintain a constant debt-equity ratio. What rate of growth can this firm maintain?

RPJ Co. has net income of $2,937, a profit margin of 6.3 percent, a retention ratio of 45 percent, total assets of $52,800, and total debt of $24,300. Assets, current liabilities, and costs are proportional to sales. The company maintains a constant dividend payout ratio and debt-equity ratio and is operating at full capacity. What is the maximum dollar increase in sales that can be sustained next year assuming no new equity is issued?

Baked at Home Cookies expects sales of $672,500 next year. The profit margin is 4.6 percent and the firm has a dividend payout ratio of 15 percent. What is the projected increase in retained earnings?

Which ratio identifies the amount of total assets a firm needs in order to generate $1 in sales?

SLG, Inc., has annual sales of $40,934, depreciation of $3,100, interest paid of $750, cost of goods sold of $22,400, taxes of $3,084, and dividends paid of $4,060. The firm has total assets of $55,300 and total debt of $32,600. The firm wants to maintain a constant payout ratio but does not want to incur any additional external financing. What is the firm's maximum rate of growth?

Deep Hollow Mills has sales of $254,600 and a profit margin of 5.2 percent. The firm has retained earnings of $113,200 after paying its annual dividend of $7,500. What is the pro forma retained earnings for next year if this firm grows at a rate of 3.6 percent and both the profit margin and the dividend payout ratio remain constant?

The Broom Maker currently has annual sales of $387,000 and is operating at 88 percent of capacity. The profit margin of 5.5 percent and the dividend payout ratio of 30 percent are projected to remain constant. What is the projected addition to retained earnings for next year based on a sales growth rate of 4.8 percent?

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

The external financing need: