Exam 18: Long-Term Financial Planning

What is the maximum dividend payout ratio consistent with not requiring external funds for a firm with an ROE of 15%, a debt-equity ratio of 40%, and an annual sales growth objective of 9%?

A firm with a 30% total debt ratio, total assets of $10 million, and an ROE of 14% has been paying out 60% of earnings to shareholders in the form of dividends. Sales are expected to increase by 10% this year, a faster growth rate than usual. Will external funding be required under these conditions? Will the debt-equity ratio remain constant?

What amount of debt should a firm include in its financing mix in order to achieve a sustainable growth rate of 9% while maintaining a 40% dividend payout, a 10% profit margin, and an asset turnover of 1.5?

A firm has projected sales of $328,000, costs of goods sold equal to 68% of sales, interest of $18,500, a tax rate of 35%, and a dividend payout ratio of 60%. What will be the addition to retained earnings?

Financial planning models must include as much detail as possible.

How are financial planning models constructed?

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?

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

Financial plans covering a short planning horizon rarely extend beyond:

Financial planning may incorporate scenario analysis as part of the planning process.

Comebaq Computers is aiming to increase its market share by slashing the price of its new range of personal computers. Are costs and assets likely to increase or decrease as a proportion of sales? Explain.

Discuss the concept of balancing items in financial planning models.

A firm's net assets equal 55% of sales. The firm expects a sales increase of $78,000 next year with $6,500 of that amount reinvested in the firm. What is the external financing need?

A major difference between financial planning and forecasting is that financial planning:

A planner's percentage of sales model forecasts that sales will grow by 20% next year. If costs of goods sold are proportionate at 70% of sales, then costs of goods sold will:

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?

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

Financial planning models routinely adjust for present value and risk.

Financial planning focuses on the big picture.

Increased needs for net working capital are: