Question 1

What are the possible choices of balancing items when using a financial planning model? Discuss whether some are generally preferable to others.

Accepted Answer

Possible balancing items are dividends,

Question 2

If a firm with an asset base of $3 million recently added $150,000 to retained earnings after a dividend payment of $100,000, then its internal growth rate is:

Accepted Answer

A) 1.67% 
B) 3.33% 
C) 5.00% 
D) 8.33% 
A) 1.67% 
B) 3.33% 
C) 5.00% 
D) 8.33%

Question 3

Increased needs for net working capital are:

Accepted Answer

A) Recognized in pro forma balance sheets 
B) Absorbed into the pro forma plug figures 
C) Typically financed with debt 
D) Ignored due to their great variability 
A) Recognized in pro forma balance sheets 
B) Absorbed into the pro forma plug figures 
C) Typically financed with debt 
D) Ignored due to their great variability

Question 4

First-stage pro forma balance sheets do not determine:

Accepted Answer

A) Whether external financing is required 
B) The need for additional fixed assets 
C) The amount of the balancing item 
D) The financing mix for external funding 
A) Whether external financing is required 
B) The need for additional fixed assets 
C) The amount of the balancing item 
D) The financing mix for external funding

Question 5

If a firm's sales increased by 12% and it has no spare capacity, it must increase fixed assets by:

Accepted Answer

A) 0% 
B) 6% 
C) 9% 
D) 12% 
A) 0% 
B) 6% 
C) 9% 
D) 12%

Question 6

If a firm uses external financing as a plug item, has a new capital budget of $2 million, a net income of $3 million, and a plowback ratio of 40%, how much should be raised in external funds?

Accepted Answer

A) $200,000 
B) $600,000 
C) $800,000 
D) $1,200,000 
A) $200,000 
B) $600,000 
C) $800,000 
D) $1,200,000

Question 7

If it is determined in a first-stage pro forma balance sheet that additional funding will be required, then a second-stage pro forma will decide the:

Accepted Answer

A) Amount of the additional funds required 
B) Financing mix of the additional funds required 
C) Interest rate to be paid on the additional funds 
D) Optimal mix of additional debt and equity 
A) Amount of the additional funds required 
B) Financing mix of the additional funds required 
C) Interest rate to be paid on the additional funds 
D) Optimal mix of additional debt and equity

Question 8

Which of the following will not permit a higher internal growth rate, other things equal?

Accepted Answer

A) A higher plowback ratio 
B) A higher debt-to-asset ratio 
C) A higher return on equity 
D) A higher return on assets 
A) A higher plowback ratio 
B) A higher debt-to-asset ratio 
C) A higher return on equity 
D) A higher return on assets

Question 9

A firm's internal growth rate of 10% means that:

Accepted Answer

A) Sales can grow by 10% before external equity is needed 
B) Retained earnings can increase by 10% before total assets will change 
C) External capital will not be required unless sales growth exceeds 10% 
D) Debt can increase by 10% before retained earnings will fall 
A) Sales can grow by 10% before external equity is needed 
B) Retained earnings can increase by 10% before total assets will change 
C) External capital will not be required unless sales growth exceeds 10% 
D) Debt can increase by 10% before retained earnings will fall

Question 10

All of the following are part of the financial planning process except:

Accepted Answer

A) Deciding which risks are worth taking 
B) Analyzing investment and financing options 
C) Projecting the future 
D) Minimizing risk 
A) Deciding which risks are worth taking 
B) Analyzing investment and financing options 
C) Projecting the future 
D) Minimizing risk

Question 11

Calculate ROE given the following information: $$\begin{array}{l}
\begin{array} { | l | c | c | } 
\hline\text { Data: }\
\hline \text { Internal Growth Rate } & = & 5.50 \% \
\hline \text { Plowback Ratio } & = & 40.00 \% \
\hline \text { Equity/Assets } & = & 75.00 \% \
\hline
\end{array}
\end{array}$$

Accepted Answer

A) 21.33% 
B) 20.33% 
C) 19.33% 
D) 18.33% 
A) 21.33% 
B) 20.33% 
C) 19.33% 
D) 18.33%

Question 12

Which of the following changes will decrease a firm's internal growth rate?

Accepted Answer

A) A decrease in dividends with a given net income 
B) An increase in net income with a given dividend payout ratio 
C) A decrease in the plowback ratio 
D) A decrease in assets with a set dividend 
A) A decrease in dividends with a given net income 
B) An increase in net income with a given dividend payout ratio 
C) A decrease in the plowback ratio 
D) A decrease in assets with a set dividend

Question 13

Why is it uncommon to expect assets to change proportionately with sales?

Accepted Answer

This question can be answered by focusin

Question 14

Financial planning focuses on the big picture.

Accepted Answer

A) True 
 B)False

Question 15

Percentage of sales models usually assume that costs, fixed assets, and working capital all increase at the same rate as sales.When do you think that these assumptions do not make sense? Would you feel happier using a percentage of sales model for short-term or long-term planning?

Accepted Answer

percentage of sales models assume that m

Question 16

When most of the elements of a financial plan are related to sales levels, the plan is:

Accepted Answer

A) Less likely to be effective 
B) Using sales as a plug figure 
C) A percentage of sales model 
D) Not adjusted for inflation 
A) Less likely to be effective 
B) Using sales as a plug figure 
C) A percentage of sales model 
D) Not adjusted for inflation

Question 17

Which of the following would be most likely included as inputs to a firm's financial plan?

Accepted Answer

A) Capital, plant and labour resources 
B) The firm's current product line 
C) The current balance of retained earnings 
D) Sales and economic forecasts 
A) Capital, plant and labour resources 
B) The firm's current product line 
C) The current balance of retained earnings 
D) Sales and economic forecasts

Question 18

A firm's internal growth rate is all of the following except:

Accepted Answer

A) The rate below which external financing is needed 
B) The ratio of retained earnings to assets 
C) The maximum growth rate without external sources of new capital 
D) Determined by the plowback ratio, ROE, and the ratio of equity to assets 
A) The rate below which external financing is needed 
B) The ratio of retained earnings to assets 
C) The maximum growth rate without external sources of new capital 
D) Determined by the plowback ratio, ROE, and the ratio of equity to assets

Question 19

A firm's goal is to maintain a 75% debt-equity ratio.How much equity would be required if the results of a financial planning model indicate that the firm's assets will grow to $4 million?

Accepted Answer

A) Approximately $1.00 million 
B) Approximately $1.71 million 
C) Approximately $2.29 million 
D) Approximately $3.00 million 
A) Approximately $1.00 million 
B) Approximately $1.71 million 
C) Approximately $2.29 million 
D) Approximately $3.00 million

Question 20

A firm has $1 million in current sales volume and an internal growth rate of 15%.If sales are expected to increase by $100,000, then:

Accepted Answer

A) The firm's forecast will not be met 
B) Dividends will have to be reduced 
C) Retained earnings will increase by $50,000 
D) External funding will not be required 
A) The firm's forecast will not be met 
B) Dividends will have to be reduced 
C) Retained earnings will increase by $50,000 
D) External funding will not be required

Exam 19: Long-Term Financial Planning

What are the possible choices of balancing items when using a financial planning model? Discuss whether some are generally preferable to others.

If a firm with an asset base of $3 million recently added $150,000 to retained earnings after a dividend payment of $100,000, then its internal growth rate is:

Increased needs for net working capital are:

First-stage pro forma balance sheets do not determine:

If a firm's sales increased by 12% and it has no spare capacity, it must increase fixed assets by:

If a firm uses external financing as a plug item, has a new capital budget of $2 million, a net income of $3 million, and a plowback ratio of 40%, how much should be raised in external funds?

If it is determined in a first-stage pro forma balance sheet that additional funding will be required, then a second-stage pro forma will decide the:

Which of the following will not permit a higher internal growth rate, other things equal?

A firm's internal growth rate of 10% means that:

All of the following are part of the financial planning process except:

Calculate ROE given the following information: Data: Internal Growth Rate = 5.50\% Plowback Ratio = 40.00\% Equity/Assets = 75.00\%

Which of the following changes will decrease a firm's internal growth rate?

Why is it uncommon to expect assets to change proportionately with sales?

Financial planning focuses on the big picture.

Percentage of sales models usually assume that costs, fixed assets, and working capital all increase at the same rate as sales.When do you think that these assumptions do not make sense? Would you feel happier using a percentage of sales model for short-term or long-term planning?

When most of the elements of a financial plan are related to sales levels, the plan is:

Which of the following would be most likely included as inputs to a firm's financial plan?

A firm's internal growth rate is all of the following except:

A firm's goal is to maintain a 75% debt-equity ratio.How much equity would be required if the results of a financial planning model indicate that the firm's assets will grow to $4 million?

A firm has $1 million in current sales volume and an internal growth rate of 15%.If sales are expected to increase by $100,000, then:

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, Ipos, and Seasoned Offerings

Debt Policy

Leasing

Payout Policy

Short-Term Financial Planning

Cash and Inventory Management

Credit Management and Collection

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters