Question 1

If a firm does not want to use either dividends or debt as its balancing item, then it is most apt to use _____ for that purpose.

Accepted Answer

A)  inventory 
B)  cash 
C)  equity 
D) fixed assets 
A)  inventory 
B)  cash 
C)  equity 
D) fixed assets

Question 2

Managers sometimes state a target growth rate for sales or earnings per share. Do you think that either makes sense as a corporate goal? If not, why do you think that managers focus on them?

Accepted Answer

Neither the growth rate of earnings nor

Question 3

Under which one of the following capital structures will a firm's internal growth rate exceed its sustainable growth rate?

Accepted Answer

A)  Total debt-to-asset ratio equals 35%. 
B)  Equity-to-debt ratio equals 60%. 
C)  Equity-to-debt ratio equals 125%. 
D) None of these. 
A)  Total debt-to-asset ratio equals 35%. 
B)  Equity-to-debt ratio equals 60%. 
C)  Equity-to-debt ratio equals 125%. 
D) None of these.

Question 4

Financial planning is concerned with possible surprises as well as the most likely outcomes.

Accepted Answer

A) True 
 B)False

Question 5

Which one of the following is not an output of a financial plan?

Accepted Answer

A)  Financial ratios 
B)  Pro forma statements 
C)  Sources and uses of cash statement 
D) Sales forecasts 
A)  Financial ratios 
B)  Pro forma statements 
C)  Sources and uses of cash statement 
D) Sales forecasts

Question 6

Which one of these best describes the relationship between net working capital (NWC) and sales?

Accepted Answer

A)  NWC will change by the same percentage as sales. 
B)  NWC is unaffected by changes in the sales level. 
C)  NWC changes by a greater percentage than the change in sales, but the change is linear in nature. 
D) NWC changes in direct relation to sales, but the change may be less than proportional with sales. 
A)  NWC will change by the same percentage as sales. 
B)  NWC is unaffected by changes in the sales level. 
C)  NWC changes by a greater percentage than the change in sales, but the change is linear in nature. 
D) NWC changes in direct relation to sales, but the change may be less than proportional with sales.

Question 7

The outputs of a financial planning model often include:

Accepted Answer

A)  the firm's current financial statements. 
B)  a range of macroeconomic forecasts. 
C)  the number of employees required. 
D) projected financial statements of the firm. 
A)  the firm's current financial statements. 
B)  a range of macroeconomic forecasts. 
C)  the number of employees required. 
D) projected financial statements of the firm.

Question 8

Financial models ensure consistency between growth assumptions and financing plans, and they identify the best financing plan.

Accepted Answer

A) True 
 B)False

Question 9

A potential downfall of using dividends as the plug item is that:

Accepted Answer

A)  it may send shareholders mixed signals. 
B)  dividends are constant within a planning horizon. 
C)  the firm may have to borrow cash to pay dividends. 
D) shareholders may receive an excessive return. 
A)  it may send shareholders mixed signals. 
B)  dividends are constant within a planning horizon. 
C)  the firm may have to borrow cash to pay dividends. 
D) shareholders may receive an excessive return.

Question 10

The sustainable rate of growth assumes the:

Accepted Answer

A)  debt-equity ratio is held constant. 
B)  market to book ratio increases. 
C)  dividend payout ratio decreases. 
D) external debt remains constant. 
A)  debt-equity ratio is held constant. 
B)  market to book ratio increases. 
C)  dividend payout ratio decreases. 
D) external debt remains constant.

Question 11

Which one of the following statements regarding financial planning models is false?

Accepted Answer

A)  The models should include as much detail as possible. 
B)  The results of a model are pro forma financial statements. 
C)  The plug variable maintains consistency. 
D) Financial analysis is not used in financial planning. 
A)  The models should include as much detail as possible. 
B)  The results of a model are pro forma financial statements. 
C)  The plug variable maintains consistency. 
D) Financial analysis is not used in financial planning.

Question 12

Debt can be used as a plug item in financial planning.

Accepted Answer

A) True 
 B)False

Question 13

If a firm uses external financing as a plug item, has a new capital budget of $2 million, a net income of $3 million, and a plowback ratio of 40%, how much should be raised in external funds?

Accepted Answer

A)  $200,000 
B)  $600,000 
C)  $800,000 
D) $1,200,000 
A)  $200,000 
B)  $600,000 
C)  $800,000 
D) $1,200,000

Question 14

Individual capital investment projects are not considered in a financial plan unless they are very large.

Accepted Answer

A) True 
 B)False

Question 15

Pro formas are projected or forecasted financial statements.

Accepted Answer

A) True 
 B)False

Question 16

If sales growth for XYZ Corporation exceeds 6%, XYZ will need to seek external financing. This means that 6% is the:

Accepted Answer

A)  external growth rate. 
B)  internal growth rate. 
C)  optimal growth rate. 
D) sustainable growth rate. 
A)  external growth rate. 
B)  internal growth rate. 
C)  optimal growth rate. 
D) sustainable growth rate.

Question 17

If factories are operating below full capacity, sales can increase without investment in fixed assets. However, beyond some sales level, new capacity must be added and additional investment in fixed assets must be made.

Accepted Answer

A) True 
 B)False

Question 18

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 19

Why is it important that financial plans incorporate adaptability?

Accepted Answer

Even in the case of developing financial

Question 20

Which one of the following is not typically included among the three major components of a financial planning model?

Accepted Answer

A)  Inputs: current financial statements, forecasts of key variables 
B)  Planning model: equations specifying key relationships 
C)  Outputs: pro formas, financial ratios, sources and uses of cash 
D) Intuitions: common sense, guesses 
A)  Inputs: current financial statements, forecasts of key variables 
B)  Planning model: equations specifying key relationships 
C)  Outputs: pro formas, financial ratios, sources and uses of cash 
D) Intuitions: common sense, guesses

Exam 18: Long-Term Financial Planning

If a firm does not want to use either dividends or debt as its balancing item, then it is most apt to use _____ for that purpose.

Managers sometimes state a target growth rate for sales or earnings per share. Do you think that either makes sense as a corporate goal? If not, why do you think that managers focus on them?

Under which one of the following capital structures will a firm's internal growth rate exceed its sustainable growth rate?

Financial planning is concerned with possible surprises as well as the most likely outcomes.

Which one of the following is not an output of a financial plan?

Which one of these best describes the relationship between net working capital (NWC) and sales?

The outputs of a financial planning model often include:

Financial models ensure consistency between growth assumptions and financing plans, and they identify the best financing plan.

A potential downfall of using dividends as the plug item is that:

The sustainable rate of growth assumes the:

Which one of the following statements regarding financial planning models is false?

Debt can be used as a plug item in financial planning.

If a firm uses external financing as a plug item, has a new capital budget of $2 million, a net income of $3 million, and a plowback ratio of 40%, how much should be raised in external funds?

Individual capital investment projects are not considered in a financial plan unless they are very large.

Pro formas are projected or forecasted financial statements.

If sales growth for XYZ Corporation exceeds 6%, XYZ will need to seek external financing. This means that 6% is the:

If factories are operating below full capacity, sales can increase without investment in fixed assets. However, beyond some sales level, new capacity must be added and additional investment in fixed assets must be made.

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

Why is it important that financial plans incorporate adaptability?

Which one of the following is not typically included among the three major components of a financial planning model?

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