Exam 18: Long-Term Financial Planning

A firm has set its target capital structure at 40% debt. Further, it intends to continue with a 30% dividend payout. Finally, it hopes to maintain a constant growth rate of 7%. If the profit margin and asset turnover are currently 8% and .9, respectively, do the constraints sound realistic? If not, what might you suggest?

Outputs from a financial plan would include such items as:

First-stage pro forma balance sheets do not determine:

A common, long-term corporate financial planning horizon would stretch for at least 15 to 20 years.

List and briefly describe the components of a financial planning model.

Assume a firm wants to hold its current long-term debt-to-equity ratio constant at 0.55 and its payout ratio constant at 35%. The firm neither issues nor repurchases shares. If the firm generates $326,000 of net income, what is the maximum amount that the firm can increase its long-term debt?

What is the maximum internal growth rate for a firm reporting net income of $500,000, a dividend payout ratio of 40%, and total assets of $10 million?

A forecast using a percentage of sales model expects sales to increase by 5% annually over the next 4 years. If all costs are proportional to sales at 80%, and this year's net income is $1,250, the net income in the fourth year will be:

The observation that additions to fixed assets are lumpier than additions to current assets indicates that:

Which one of the following statements is correct for a firm that has a sustainable growth rate that exceeds its projected growth rate in assets?

What are the contents and uses of a financial plan?

A financial plan:

Which effort will help a firm boost its internal growth rate?

Pro formas refer to:

When a firm is said to have no spare capacity, it:

The flexibility of financial plans is evident in the extent that:

Which one of the following is correct when a firm's pro forma statements project a net income of $5,000 and an external financing requirement of $2,000?

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

Financial planning just means formulating the company's response to the most likely events.

Calculate the rate at which a firm can grow without changing its leverage if its payout ratio is 70%, equity outstanding at the beginning of the year is $940,000, and its net income for the year is $162,000.