Question 1

Financial planning focuses on the big picture.

Accepted Answer

A) True 
 B)False

Question 2

A firm's sustainable growth rate represents the:

Accepted Answer

A)  highest growth rate without decreasing the dividend. 
B)  highest growth rate without increasing financial leverage. 
C)  percentage change in sales times the profit margin. 
D)  possible growth without jeopardizing net working capital. 
A)  highest growth rate without decreasing the dividend. 
B)  highest growth rate without increasing financial leverage. 
C)  percentage change in sales times the profit margin. 
D)  possible growth without jeopardizing net working capital.

Question 3

Which of the following statements is correct for a firm that has a sustainable growth rate that exceeds its projected growth rate in assets?

Accepted Answer

A)  The projected growth in assets will be restricted. 
B)  The internal growth rate will provide the remaining assets. 
C)  The firm's ROE must increase. 
D)  The debt-equity ratio will increase unless equity is issued. 
A)  The projected growth in assets will be restricted. 
B)  The internal growth rate will provide the remaining assets. 
C)  The firm's ROE must increase. 
D)  The debt-equity ratio will increase unless equity is issued.

Question 4

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

Accepted Answer

A)  the company is facing too much competition in its original market. 
B)  the company may have valuable follow-on investments after establishing itself in the new market. 
C)  the immediate investment has a positive net present value. 
D)  all of these. 
A)  the company is facing too much competition in its original market. 
B)  the company may have valuable follow-on investments after establishing itself in the new market. 
C)  the immediate investment has a positive net present value. 
D)  all of these.

Question 5

A planning horizon refers to the amount of time necessary to develop the financial plan.

Accepted Answer

A) True 
 B)False

Question 6

Outputs from a financial plan would include such items as:

Accepted Answer

A)  sales growth forecasts. 
B)  a percentage of sales planning model. 
C)  a pro forma statement of sources and uses of cash. 
D)  the firm's current financial statements. 
A)  sales growth forecasts. 
B)  a percentage of sales planning model. 
C)  a pro forma statement of sources and uses of cash. 
D)  the firm's current financial statements.

Question 7

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 8

What amount of debt should a firm include in its financing mix in order to achieve a sustainable growth rate of 9% while maintaining a 40% dividend payout,a 10% profit margin,and an asset turnover of 1.5?

Accepted Answer

A)  66.67% debt 
B)  60.00% debt 
C)  50.00% debt 
D)  Zero debt 
A)  66.67% debt 
B)  60.00% debt 
C)  50.00% debt 
D)  Zero debt

Question 9

What is the internal growth rate for a firm with an ROE of 20%,a dividend payout ratio of 40%,and an equity-to-debt ratio of 60%?

Accepted Answer

A)  4.50% 
B)  5.39% 
C)  8.00% 
D)  12.00% 
A)  4.50% 
B)  5.39% 
C)  8.00% 
D)  12.00%

Question 10

A firm has $1 million in current sales volume and an internal growth rate of 15%.If sales are expected to increase by $100,000,then:

Accepted Answer

A)  the firm's forecast will not be met. 
B)  dividends will have to be reduced. 
C)  retained earnings will increase by $50,000. 
D)  external funding will not be required. 
A)  the firm's forecast will not be met. 
B)  dividends will have to be reduced. 
C)  retained earnings will increase by $50,000. 
D)  external funding will not be required.

Question 11

What is the maximum internal growth rate consistent with not requiring external funding for a firm reporting net income of $500,000,a dividend payout ratio of 40%,and total assets of $10 million?

Accepted Answer

A)  2% 
B)  3% 
C)  5% 
D)  6% 
A)  2% 
B)  3% 
C)  5% 
D)  6%

Question 12

The phrase "Forecasts do not develop in a vacuum" is a reminder that:

Accepted Answer

A)  forecasters are known not to work well alone. 
B)  planners will offer 10 plans when asked for 1. 
C)  competitors also make plans and react to ours. 
D)  forecasts should be developed at headquarters. 
A)  forecasters are known not to work well alone. 
B)  planners will offer 10 plans when asked for 1. 
C)  competitors also make plans and react to ours. 
D)  forecasts should be developed at headquarters.

Question 13

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)  determined by 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)  determined by the plowback ratio, ROE, and the ratio of equity to assets.

Question 14

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?

Accepted Answer

The internal growth rate represents the

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

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

Question 17

Which of the following is not a reason for building 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 18

Contingency planning is:

Accepted Answer

A)  forecasting the most likely outcomes. 
B)  worrying about unlikely events. 
C)  working through the consequences of the plan under different scenarios. 
D)  formulating responses to inevitable surprises. 
A)  forecasting the most likely outcomes. 
B)  worrying about unlikely events. 
C)  working through the consequences of the plan under different scenarios. 
D)  formulating responses to inevitable surprises.

Question 19

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

Accepted Answer

A)  Profit will grow by 20%. 
B)  The profit margin will grow by 10%. 
C)  Profit will grow proportionately faster than sales. 
D)  Ten percent of the increase in sales will become net income. 
A)  Profit will grow by 20%. 
B)  The profit margin will grow by 10%. 
C)  Profit will grow proportionately faster than sales. 
D)  Ten percent of the increase in sales will become net income.

Question 20

To avoid inconsistency,financial planners should be sure to:

Accepted Answer

A)  draw information from many different resources. 
B)  do all forecasting themselves. 
C)  produce perfectly accurate forecasts. 
D)  use forecasts based on common macroeconomic assumptions. 
A)  draw information from many different resources. 
B)  do all forecasting themselves. 
C)  produce perfectly accurate forecasts. 
D)  use forecasts based on common macroeconomic assumptions.

Exam 18: Long-Term Financial Planning

Financial planning focuses on the big picture.

A firm's sustainable growth rate represents the:

Which of the following statements is correct for a firm that has a sustainable growth rate that exceeds its projected growth rate in assets?

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

A planning horizon refers to the amount of time necessary to develop the financial plan.

Outputs from a financial plan would include such items as:

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

What amount of debt should a firm include in its financing mix in order to achieve a sustainable growth rate of 9% while maintaining a 40% dividend payout,a 10% profit margin,and an asset turnover of 1.5?

What is the internal growth rate for a firm with an ROE of 20%,a dividend payout ratio of 40%,and an equity-to-debt ratio of 60%?

A firm has $1 million in current sales volume and an internal growth rate of 15%.If sales are expected to increase by $100,000,then:

What is the maximum internal growth rate consistent with not requiring external funding for a firm reporting net income of $500,000,a dividend payout ratio of 40%,and total assets of $10 million?

The phrase "Forecasts do not develop in a vacuum" is a reminder that:

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

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?

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

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

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

Contingency planning is:

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

To avoid inconsistency,financial planners should be sure to:

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