Question 1

The final variable to have its value determined in a financial plan is often referred to as the:

Accepted Answer

A)  net income. 
B)  balancing item. 
C)  retained earnings plowback. 
D) growth forecast. 
A)  net income. 
B)  balancing item. 
C)  retained earnings plowback. 
D) growth forecast.

Question 2

Alternative "what if?" scenarios can be easily accommodated in financial planning by use of:

Accepted Answer

A)  sustainable growth models. 
B)  planning outputs. 
C)  spreadsheet programs. 
D) bond covenants. 
A)  sustainable growth models. 
B)  planning outputs. 
C)  spreadsheet programs. 
D) bond covenants.

Question 3

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

Question 4

Adaptability is not a desirable feature in financial plans.

Accepted Answer

A) True 
 B)False

Question 5

The primary aim of financial planning is to obtain better forecasts of future cash flows and earnings.

Accepted Answer

A) True 
 B)False

Question 6

Which one of the following does not provide a "solution" to a projected growth rate in assets that exceeds the sustainable growth rate?

Accepted Answer

A)  Increase the ROE. 
B)  Allow the debt-equity ratio to increase. 
C)  Increase the payout ratio. 
D) Issue new equity. 
A)  Increase the ROE. 
B)  Allow the debt-equity ratio to increase. 
C)  Increase the payout ratio. 
D) Issue new equity.

Question 7

What is the required asset turnover for a firm with a 12% profit margin, 50% equity, and a 40% dividend payout that wishes to grow at 6% without increasing financial leverage?

Accepted Answer

A)  0.42 
B)  0.56 
C)  0.63 
D) 1.00 
A)  0.42 
B)  0.56 
C)  0.63 
D) 1.00

Question 8

Which one of the following is not a reason for compiling financial plans?

Accepted Answer

A)  Considering options 
B)  Contingency planning 
C)  Choosing the optimal plan 
D) Forcing consistency 
A)  Considering options 
B)  Contingency planning 
C)  Choosing the optimal plan 
D) Forcing consistency

Question 9

A firm has current sales of $2.4 million and fixed assets of $1.65 million. The firm is currently operating at 88% of capacity. How high can the firm's sales go without requiring any additional fixed assets?

Accepted Answer

A)  $2.423 million 
B)  $2.509 million 
C)  $2.727 million 
D) $2.836 million 
A)  $2.423 million 
B)  $2.509 million 
C)  $2.727 million 
D) $2.836 million

Question 10

Which one of these is least apt to change proportionally with sales?

Accepted Answer

A)  Long-term debt 
B)  Net working capital 
C)  Cost of goods sold 
D) EBIT 
A)  Long-term debt 
B)  Net working capital 
C)  Cost of goods sold 
D) EBIT

Question 11

The sustainable growth rate:

Accepted Answer

A)  increases as ROE decreases. 
B)  increases as the payout ratio decreases. 
C)  is maximized when the plowback ratio equals zero. 
D) is always less than the internal growth rate. 
A)  increases as ROE decreases. 
B)  increases as the payout ratio decreases. 
C)  is maximized when the plowback ratio equals zero. 
D) is always less than the internal growth rate.

Question 12

A typical horizon for long-term planning is 5 years.

Accepted Answer

A) True 
 B)False

Question 13

Financial planning should attempt to minimize risk.

Accepted Answer

A) True 
 B)False

Question 14

The rate at which the assets of a firm can grow without the requirement of any external sources of financing is the:

Accepted Answer

A)  internal growth rate. 
B)  sustainable growth rate. 
C)  pro forma growth rate. 
D) plowback rate. 
A)  internal growth rate. 
B)  sustainable growth rate. 
C)  pro forma growth rate. 
D) plowback rate.

Question 15

The decision to acquire fixed assets is unrelated to the current level of excess capacity.

Accepted Answer

A) True 
 B)False

Question 16

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 17

Little Toys has $50 million invested in fixed assets and generates sales of $60 million. Currently, the company is working at only 80% of capacity. How much can sales expand without any further investment in fixed assets? How much investment in fixed assets would be required to support a 30% expansion in sales?

Accepted Answer

Sales can increase without the need for

Question 18

The implications of the forecasts from a financial plan are determined by the:

Accepted Answer

A)  plan inputs. 
B)  balancing item. 
C)  planning model. 
D) plowback ratio. 
A)  plan inputs. 
B)  balancing item. 
C)  planning model. 
D) plowback ratio.

Question 19

Consider a firm with $3 million in total assets, $400,000 in net income, and $150,000 in dividend payments. Calculate the maximum rate of growth in sales that can be obtained without tapping external sources of funds. Next, compute the growth rate if the dividend payout ratio is reduced to 20%. Do your answers suggest that shareholders must be willing to trade dividends for growth?

Accepted Answer

IG = ($400,000 - 150,000)/$3m = 0.0833,

Question 20

Financial planning requires accurate and consistent forecasting.

Accepted Answer

A) True 
 B)False

Exam 18: Long-Term Financial Planning

The final variable to have its value determined in a financial plan is often referred to as the:

Alternative "what if?" scenarios can be easily accommodated in financial planning by use of:

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

Adaptability is not a desirable feature in financial plans.

The primary aim of financial planning is to obtain better forecasts of future cash flows and earnings.

Which one of the following does not provide a "solution" to a projected growth rate in assets that exceeds the sustainable growth rate?

What is the required asset turnover for a firm with a 12% profit margin, 50% equity, and a 40% dividend payout that wishes to grow at 6% without increasing financial leverage?

Which one of the following is not a reason for compiling financial plans?

A firm has current sales of $2.4 million and fixed assets of $1.65 million. The firm is currently operating at 88% of capacity. How high can the firm's sales go without requiring any additional fixed assets?

Which one of these is least apt to change proportionally with sales?

The sustainable growth rate:

A typical horizon for long-term planning is 5 years.

Financial planning should attempt to minimize risk.

The rate at which the assets of a firm can grow without the requirement of any external sources of financing is the:

The decision to acquire fixed assets is unrelated to the current level of excess capacity.

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

The implications of the forecasts from a financial plan are determined by the:

Financial planning requires accurate and consistent forecasting.

Goals and Governance of the Corporation

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

How Corporations Raise Venture Capital and Issue Securities

Debt Policy

Payout Policy

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters