Exam 18: Long-Term Financial Planning

Calculate the sustainable growth rate for a firm with a profit margin of 8%, an asset turnover of 1.25, a total debt ratio of 45%, and a plowback ratio of 65%. Assuming that the ROE remains constant, how large can the sustainable growth rate become?

The sustainable growth rate is the rate at which the firm can grow without changing its leverage ratio.

A financial planning model will generally include all of the following except the:

How can a firm quickly determine if its desired rate of growth is feasible?

When most of the elements of a financial plan are related to sales levels, the plan is:

Planners have determined that sales will increase by 20% next year, and the profit margin will remain at 10% of sales. Which one of the following statements is correct if the payout ratio remains at 30%?

How much is required in external financing if first-stage pro forma statements indicate $1 million in net income, $300,000 in dividends, and a $900,000 increase in total assets?

Percentage of sales models are planning models in which the sales forecasts are the driving variables and most other variables are proportional to sales.

A firm has $4 million in total assets and $2.2 million in equity. How much of its $500,000 capital budget should be debt-financed to retain the same debt-equity ratio?

What is the difference between the internal and sustainable growth rates, both in definition and in calculation? Under what condition will the rates be equal?

Which one of the following statements is correct concerning the internal growth rate?

Which one of the following is most apt to occur if a financial plan shows sources of funds to be $100,000 and uses of funds to be $90,000?

The firm's current financial statements would be included in:

With respect to the balance sheet, an increase in equity of $2,000 with an increase in net income to $2,500, leads us to believe:

Financial plans will rarely succeed unless the forecasts are perfect.

What are the possible choices of balancing items when using a financial planning model? Discuss whether some are generally preferable to others.

In the percentage of sales model, which one of these is least apt to increase in a linear fashion as sales increase?

Planners often recommend entering a market for "strategic" reasons because the:

Discuss the percentage of sales model and its potential pitfalls in the financial planning process.