Exam 16: Financial Planning and Control

Everything else equal, a firm that has excess capacity generally requires more external financing to support increases in operations than a firm that operates at full capacity. 

Suppose that in the control phase of the financial planning process a firm discovers it cannot raise the funds that are required to meet the forecasted sales. In this situation, the firm should ______. 

Adding lumpy assets to a firm does not affect the financial requirements associated with an expansion because the annual costs associated with growth normally are fixed, no matter the level of sales. 

A firm's financial breakeven point is defined as the operating income (NOI) at which its _____ is(are) equal to zero. 

Which of the following mathematical equations represents the operating breakeven point, QOpBEP, for a firm?

A firm should scale back its projected level of operations if the funds required to meet the forecasted sales are readily available. 

Compuvac Company just completed its initial forecasts of next year's financial statements using the projected balance sheet method. The firm determined that it needs $4 million in new debt, which can be issued at par with a 10 percent annual coupon. Additionally, the firm can sell 500,000 shares of new common equity, which will net $18.10 per share. Next year's expected dividend is $0.48 per share. After accounting for the financing feedbacks associated with raising the required funds, Compuvac expects its taxes to be $160,000 lower than were reported in the initial forecasts. Given this information, what should Compuvac find the change to be in the addition to retained earnings that is reported in the income statement that was initially forecasted after the financing feedbacks are included?

Which of the following statements about funds that a firm generates spontaneously (internally) is correct?

New World Manufacturing has determined that its degree of financial leverage (DFL) is 3.0 when sales equal $750,000, which happens to be its operating breakeven point (i.e., SOpBE = $750,000). At sales equal to $750,000, which of the following conditions must exist for New World Manufacturing? Assume everything else is equal. 

Trident Food Corporation generated the following income statement for the most recent fiscal year: Sales revenues                                    $150,000 Variable cost of sales                          (120,000) Gross profit                                            30,000 Fixed operating costs                           (10,000) Net operating income (EBIT)             $20,000 What is the degree of operating leverage (DOL) for Trident Food?

If the projected operating results are disappointing, management can reformulate its plans and develop targets that are more reasonable for the coming year. 

If a firm currently operates at less than full capacity, it must increase existing plant and equipment only if:

Which of the following account balances is most likely to change spontaneously with changes in sales?