Question 1

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

Accepted Answer

A)  It is maximized when the payout ratio equals zero. 
B)  It is maximized when the plowback ratio equals zero. 
C)  It cannot be less than the sustainable growth rate. 
D)  It decreases as total assets decrease. 
A)  It is maximized when the payout ratio equals zero. 
B)  It is maximized when the plowback ratio equals zero. 
C)  It cannot be less than the sustainable growth rate. 
D)  It decreases as total assets decrease.

Question 2

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

Accepted Answer

The first of three components of a finan

Question 3

Dave's Wax Inc.'s financial planners have projected a growth rate of 8% for the coming year.Currently,it has assets of $5,000,000 and retained earnings of $120,000.Calculate the amount of external financing Dave will need.

Accepted Answer

A)  $0 
B)  $70,000 
C)  $184,000 
D)  $280,000 
A)  $0 
B)  $70,000 
C)  $184,000 
D)  $280,000

Question 4

What is the maximum dividend payout ratio consistent with not requiring external funds for a firm with an ROE of 15%,a debt-equity ratio of 50%,and an annual sales growth objective of 9%?

Accepted Answer

A)  Approximately 1% 
B)  Approximately 10% 
C)  Approximately 12% 
D)  Approximately 20% 
A)  Approximately 1% 
B)  Approximately 10% 
C)  Approximately 12% 
D)  Approximately 20%

Question 5

Sources and uses of funds are made equal through:

Accepted Answer

A)  a balancing item. 
B)  pro forma financial statements. 
C)  borrowed cash. 
D)  additions to retained earnings. 
A)  a balancing item. 
B)  pro forma financial statements. 
C)  borrowed cash. 
D)  additions to retained earnings.

Question 6

What are the contents and uses of a financial plan?
B. In fact, planners must be constantly on guard against the fascination of detail, because giving in to it means slighting crucial issues like investment strategy, debt policy, and the choice of a target dividend payout ratio.
The plan is the end result. The process that produces the plan is valuable in its own right. Planning forces the financial manager to consider the combined effects of all the firm's investment and financing decisions. This is important because these decisions interact and should not be made independently.

Accepted Answer

Most firms take financial planning serio

Question 7

Discuss the concept of balancing items in financial planning.

Accepted Answer

In every financial planning situation,pl

Question 8

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)  cost projections for operating the planning models. 
D)  projected financial statements of the firm. 
A)  the firm's current financial statements. 
B)  a range of macroeconomic forecasts. 
C)  cost projections for operating the planning models. 
D)  projected financial statements of the firm.

Question 9

What is the sustainable growth rate for a firm with net income of $2.5 million,cash dividends of $1.5 million,and return on equity of 18%?

Accepted Answer

A)  3.0% 
B)  5.4% 
C)  7.2% 
D)  10.8% 
A)  3.0% 
B)  5.4% 
C)  7.2% 
D)  10.8%

Question 10

Financial planning should attempt to minimize risk.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Increased needs for net working capital are:

Accepted Answer

A)  recognized in pro forma balance sheets. 
B)  absorbed into the pro forma plug figures. 
C)  typically financed with debt. 
D)  ignored due to their great variability. 
A)  recognized in pro forma balance sheets. 
B)  absorbed into the pro forma plug figures. 
C)  typically financed with debt. 
D)  ignored due to their great variability.

Question 13

Which 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?

Accepted Answer

A)  Dividends cannot exceed $3,000. 
B)  Total assets cannot grow by more than $3,000. 
C)  Retained earnings cannot grow by more than $5,000. 
D)  The internal growth rate is 60%. 
A)  Dividends cannot exceed $3,000. 
B)  Total assets cannot grow by more than $3,000. 
C)  Retained earnings cannot grow by more than $5,000. 
D)  The internal growth rate is 60%.

Question 14

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

Accepted Answer

Possible balancing items are dividends,b

Question 15

If entering a new market will not produce an immediate net present value,why would financial planners suggest entering this new market?

Accepted Answer

A)  To create new core strengths 
B)  For the possibility of follow-up investments 
C)  The existing market is subject to takeover 
D)  To recover lost profits in their current market 
A)  To create new core strengths 
B)  For the possibility of follow-up investments 
C)  The existing market is subject to takeover 
D)  To recover lost profits in their current market

Question 16

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

Accepted Answer

A)  it may give 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 give 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 17

Financial planning models routinely adjust for present value and risk.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A)  Plowing back a high proportion of its earnings 
B)  Achieving a high return on equity 
C)  Maintaining a low debt-to-asset ratio 
D)  All of these 
A)  Plowing back a high proportion of its earnings 
B)  Achieving a high return on equity 
C)  Maintaining a low debt-to-asset ratio 
D)  All of these

Question 20

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 $900,000,and its net income for the year is $150,000.

Accepted Answer

A)  5.00% 
B)  11.67% 
C)  14.00% 
D)  16.67% 
A)  5.00% 
B)  11.67% 
C)  14.00% 
D)  16.67%

Exam 18: Long-Term Financial Planning

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

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

Dave's Wax Inc.'s financial planners have projected a growth rate of 8% for the coming year.Currently,it has assets of $5,000,000 and retained earnings of $120,000.Calculate the amount of external financing Dave will need.

What is the maximum dividend payout ratio consistent with not requiring external funds for a firm with an ROE of 15%,a debt-equity ratio of 50%,and an annual sales growth objective of 9%?

Sources and uses of funds are made equal through:

Discuss the concept of balancing items in financial planning.

The outputs of a financial planning model often include:

What is the sustainable growth rate for a firm with net income of $2.5 million,cash dividends of $1.5 million,and return on equity of 18%?

Financial planning should attempt to minimize risk.

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

Increased needs for net working capital are:

Which 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?

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

If entering a new market will not produce an immediate net present value,why would financial planners suggest entering this new market?

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

Financial planning models routinely adjust for present value and risk.

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

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

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 $900,000,and its net income for the year is $150,000.

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

Filters