Question 1

Which of the following is not typically included among the three major requirements for effective planning?

Accepted Answer

A) Financing the plan 
B) Selecting the best plan 
C) Observing the plan unfold 
D) Forecasting 
A) Financing the plan 
B) Selecting the best plan 
C) Observing the plan unfold 
D) Forecasting

Question 2

How will a percentage of sales models treat cost of goods sold if sales revenues are expected to grow by 20% to $1 million? Cost of goods sold will:

Accepted Answer

A) Grow at a slower rate than sales 
B) Remain proportionate to sales 
C) Be forecast to increase at the rate of inflation 
D) Increase to $800,000 
A) Grow at a slower rate than sales 
B) Remain proportionate to sales 
C) Be forecast to increase at the rate of inflation 
D) Increase to $800,000

Question 3

If the projected growth rate is smaller than the firm's sustainable growth rate:

Accepted Answer

A) It should increase its projected growth rate 
B) The firm will be required to decrease its plowback ratio 
C) Its debt-equity ratio will decrease 
D) The firm will be required to increase borrowing 
A) It should increase its projected growth rate 
B) The firm will be required to decrease its plowback ratio 
C) Its debt-equity ratio will decrease 
D) The firm will be required to increase borrowing

Question 4

A firm that wants to increase its sustainable growth rate can do so by __________ the __________ ratio or by __________ the __________ or both.

Accepted Answer

A) increasing; payout; increasing; ROE 
B) increasing; plowback; increasing; ROE 
C) decreasing; plowback; increasing; ROE 
D) decreasing; payout; decreasing; ROE 
A) increasing; payout; increasing; ROE 
B) increasing; plowback; increasing; ROE 
C) decreasing; plowback; increasing; ROE 
D) decreasing; payout; decreasing; ROE

Question 5

A firm cannot expect to expand its profit margin by acquiring one of its own suppliers.

Accepted Answer

A) True 
 B)False

Question 6

If the pro forma balance sheet shows that total assets must increase by $400,000 while retaining a debt-equity ratio of.75 then:

Accepted Answer

A) Debt must increase by $300,000 
B) Equity must increase by the full $400,000 
C) Debt must increase by $171,429 
D) Equity must increase by $100,000 
A) Debt must increase by $300,000 
B) Equity must increase by the full $400,000 
C) Debt must increase by $171,429 
D) Equity must increase by $100,000

Question 7

The effects of a change in sales on working capital will be seen in which section of a financial plan:

Accepted Answer

A) Output section 
B) Pro forma financial statements 
C) Planning model 
D) Sources and uses of funds 
A) Output section 
B) Pro forma financial statements 
C) Planning model 
D) Sources and uses of funds

Question 8

Calculate the plowback ratio given the following information: $$\begin{array}{l}
\begin{array} { | l | c | r | } 
\hline\text { Data: }\
\hline \text { Internal Growth Rate } & = & 3.20 \% \
\hline \text { ROE } & = & 16.00 \% \
\hline \text { Equity/Assets } & = & 60.00 \% \
\hline
\end{array}
\end{array}$$

Accepted Answer

A) .333 
B) .667 
C) .750 
D) .855 
A) .333 
B) .667 
C) .750 
D) .855

Question 9

If a firm chooses to maintain a fixed debt-equity ratio, they can raise the additional needed funds by:

Accepted Answer

A) Issuing debt, in which case dividends become the balancing item 
B) Issuing debt, in which case the amount of debt itself becomes the balancing item 
C) Issuing stock, in which case dividends become the balancing item 
D) Issuing stock, in which case no balancing item is needed 
A) Issuing debt, in which case dividends become the balancing item 
B) Issuing debt, in which case the amount of debt itself becomes the balancing item 
C) Issuing stock, in which case dividends become the balancing item 
D) Issuing stock, in which case no balancing item is needed

Question 10

A major focus of financial planning is to:

Accepted Answer

A) Minimize a firm's risk 
B) Maximize a firm's risk 
C) Analyze and select risks for the firm 
D) Train the firm's management to operate without risk 
A) Minimize a firm's risk 
B) Maximize a firm's risk 
C) Analyze and select risks for the firm 
D) Train the firm's management to operate without risk

Question 11

What is the difference between the internal and sustainable growth rates, both in definition and in calculation? In what case are the rates equal?

Accepted Answer

The internal growth rate represents the

Question 12

What is the sustainable growth rate for a firm with $250,000 in net income, $20,000 in preferred stock dividends, $80,000 in common stock dividends, and an average equity balance of $1 million?

Accepted Answer

A) 8% 
B) 10% 
C) 15% 
D) 17% 
A) 8% 
B) 10% 
C) 15% 
D) 17%

Question 13

Why do current or fixed assets often not vary proportionately with sales?

Accepted Answer

This question can be answered by focusin

Question 14

What new investment is required for a firm that projects 12% growth has $400,000 in assets, and retained earnings of $40,000?

Accepted Answer

A) $0 
B) $4,800 
C) $8,000 
D) $66,667 
A) $0 
B) $4,800 
C) $8,000 
D) $66,667

Question 15

Describe the percentage of sales model and its potential pitfalls in the financial planning process.

Accepted Answer

The percentage of sales model is commonl

Question 16

If a firm's dividend payout ratio is determined after achieving a specific capital structure, then:

Accepted Answer

A) Dividends are an input to the financial plan 
B) The capital budget should be revised 
C) Dividends are being used as a plug item 
D) Dividend forecasts become crucial to planning 
A) Dividends are an input to the financial plan 
B) The capital budget should be revised 
C) Dividends are being used as a plug item 
D) Dividend forecasts become crucial to planning

Question 17

Firms that maintain a constant ratio of debt-equity over a variable business cycle may find that:

Accepted Answer

A) Debt has grown too large, too fast 
B) It is more difficult to maintain a stable dividend 
C) Debt covenants always accommodate more debt, but often prevent debt prepayment 
D) Equity is always less expensive to obtain than debt 
A) Debt has grown too large, too fast 
B) It is more difficult to maintain a stable dividend 
C) Debt covenants always accommodate more debt, but often prevent debt prepayment 
D) Equity is always less expensive to obtain than debt

Question 18

The phrase, "Forecasts do not develop in a vacuum," is a reminder that:

Accepted Answer

A) Forecasters are known not to work well alone 
B) Planners will offer ten plans when asked for one 
C) Competitors also make plans and react to ours 
D) Forecasts should be developed at headquarters 
A) Forecasters are known not to work well alone 
B) Planners will offer ten plans when asked for one 
C) Competitors also make plans and react to ours 
D) Forecasts should be developed at headquarters

Question 19

Dividend policy is determined by all of the following except:

Accepted Answer

A) The debt-equity ratio 
B) The need for funds 
C) Forecasting 
D) As a consequence of other planning decisions 
A) The debt-equity ratio 
B) The need for funds 
C) Forecasting 
D) As a consequence of other planning decisions

Question 20

For a firm with $3 million in total assets, $400,000 in net income, and $150,000 in dividend payments, first calculate the maximum rate of growth in sales without tapping external sources of funds.Next, show how that growth rate changes if the dividend payout ratio is reduced to 20%.Do these two points suggest that shareholders must be willing to trade dividends for growth?

Accepted Answer

Internal growth rate = @#IMG-DLM& = @#IMG-DLM& = 8.33%
Inter

Exam 19: Long-Term Financial Planning

Which of the following is not typically included among the three major requirements for effective planning?

How will a percentage of sales models treat cost of goods sold if sales revenues are expected to grow by 20% to $1 million? Cost of goods sold will:

If the projected growth rate is smaller than the firm's sustainable growth rate:

A firm that wants to increase its sustainable growth rate can do so by __________ the __________ ratio or by __________ the __________ or both.

A firm cannot expect to expand its profit margin by acquiring one of its own suppliers.

If the pro forma balance sheet shows that total assets must increase by $400,000 while retaining a debt-equity ratio of.75 then:

The effects of a change in sales on working capital will be seen in which section of a financial plan:

Calculate the plowback ratio given the following information: Data: Internal Growth Rate = 3.20\% ROE = 16.00\% Equity/Assets = 60.00\%

If a firm chooses to maintain a fixed debt-equity ratio, they can raise the additional needed funds by:

A major focus of financial planning is to:

What is the difference between the internal and sustainable growth rates, both in definition and in calculation? In what case are the rates equal?

What is the sustainable growth rate for a firm with $250,000 in net income, $20,000 in preferred stock dividends, $80,000 in common stock dividends, and an average equity balance of $1 million?

Why do current or fixed assets often not vary proportionately with sales?

What new investment is required for a firm that projects 12% growth has $400,000 in assets, and retained earnings of $40,000?

Describe the percentage of sales model and its potential pitfalls in the financial planning process.

If a firm's dividend payout ratio is determined after achieving a specific capital structure, then:

Firms that maintain a constant ratio of debt-equity over a variable business cycle may find that:

The phrase, "Forecasts do not develop in a vacuum," is a reminder that:

Dividend policy is determined by all of the following except:

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

A firm that wants to increase its sustainable growth rate can do so by the ratio or by the or both.