Question 1

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. D

Question 2

The balancing items in a financial planning model are variables that adjust to maintain the consistency of a financial model.They are also known as plugs.

Accepted Answer

A) True 
 B)False  True

Question 3

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

Accepted Answer

A)  it should increase its projected growth rate. 
B)  the firm will be required to decrease its plowback ratio. 
C)  its debt-equity ratio will decrease. 
D)  the firm will be required to increase borrowing. 
A)  it should increase its projected growth rate. 
B)  the firm will be required to decrease its plowback ratio. 
C)  its debt-equity ratio will decrease. 
D)  the firm will be required to increase borrowing. C

Question 4

How are financial planning models constructed?

Accepted Answer

There is no theory or model that leads s

Question 5

In a financial planning model:

Accepted Answer

A)  inputs are used to create the model. 
B)  financial ratios are used to create the model. 
C)  financial ratios are used to develop forecasts. 
D)  equations are used to develop financial statements. 
A)  inputs are used to create the model. 
B)  financial ratios are used to create the model. 
C)  financial ratios are used to develop forecasts. 
D)  equations are used to develop financial statements.

Question 6

If the pro forma balance sheet shows that total assets must increase by $400,000 while retaining a debt-equity ratio of .75 then:

Accepted Answer

A)  debt must increase by $300,000. 
B)  equity must increase by the full $400,000. 
C)  debt must increase by $171,429. 
D)  equity must increase by $100,000. 
A)  debt must increase by $300,000. 
B)  equity must increase by the full $400,000. 
C)  debt must increase by $171,429. 
D)  equity must increase by $100,000.

Question 7

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.

Accepted Answer

If the firm reduces prices,sales revenue

Question 8

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 9

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

Accepted Answer

A)  has no need for new employees. 
B)  currently has no inventory available for sale. 
C)  must issue new equity to grow. 
D)  must increase fixed assets to increase sales. 
A)  has no need for new employees. 
B)  currently has no inventory available for sale. 
C)  must issue new equity to grow. 
D)  must increase fixed assets to increase sales.

Question 10

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

Accepted Answer

The percentage of sales model is commonl

Question 11

Increases in sales are typically accompanied by:

Accepted Answer

A)  more than proportionate increases in fixed assets. 
B)  less than proportionate decreases in debt. 
C)  more than proportionate decreases in dividends. 
D)  less than proportionate increases in working capital. 
A)  more than proportionate increases in fixed assets. 
B)  less than proportionate decreases in debt. 
C)  more than proportionate decreases in dividends. 
D)  less than proportionate increases in working capital.

Question 12

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 13

Which of the following statements is not true regarding financial planning models?

Accepted Answer

A)  They 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)  They 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 14

Which of the following might indicate the correct choice of a plug figure if a financial plan shows sources of funds to be $100,000 and uses of funds to be $90,000?

Accepted Answer

A)  External debt must increase by $10,000. 
B)  Dividend payments must decrease by $10,000. 
C)  Cash balances must increase by $10,000. 
D)  The capital budget must decrease by $10,000. 
A)  External debt must increase by $10,000. 
B)  Dividend payments must decrease by $10,000. 
C)  Cash balances must increase by $10,000. 
D)  The capital budget must decrease by $10,000.

Question 15

Which of the following would be included as inputs to a firm's financial plan?

Accepted Answer

A)  Capital, plant, and labor resources 
B)  The firm's current product line 
C)  The current balance of retained earnings 
D)  Sales and economic forecasts 
A)  Capital, plant, and labor resources 
B)  The firm's current product line 
C)  The current balance of retained earnings 
D)  Sales and economic forecasts

Question 16

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?

Accepted Answer

A)  $50,000 
B)  $225,000 
C)  $275,000 
D)  $450,000 
A)  $50,000 
B)  $225,000 
C)  $275,000 
D)  $450,000

Question 17

First-stage pro forma balance sheets do not determine:

Accepted Answer

A)  whether external financing is required. 
B)  the need for additional fixed assets. 
C)  the amount of the balancing item. 
D)  the financing mix for external funding. 
A)  whether external financing is required. 
B)  the need for additional fixed assets. 
C)  the amount of the balancing item. 
D)  the financing mix for external funding.

Question 18

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 19

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 20

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.

Exam 18: Long-Term Financial Planning

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

The balancing items in a financial planning model are variables that adjust to maintain the consistency of a financial model.They are also known as plugs.

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

How are financial planning models constructed?

In a financial planning model:

If the pro forma balance sheet shows that total assets must increase by $400,000 while retaining a debt-equity ratio of .75 then:

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.

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?

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

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

Increases in sales are typically accompanied by:

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

Which of the following statements is not true regarding financial planning models?

Which of the following might indicate the correct choice of a plug figure if a financial plan shows sources of funds to be $100,000 and uses of funds to be $90,000?

Which of the following would be included as inputs to a firm's financial plan?

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?

First-stage pro forma balance sheets do not determine:

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:

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

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

Risk, Return, and Capital Budgeting

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

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