Question 1

Financial plans will rarely succeed unless the forecasts are perfect.

Accepted Answer

A) True 
 B)False

Question 2

What is the sustainable growth rate for a firm with $250,000 in net income,$20,000 in preferred stock dividends,$80,000 in common stock dividends,and an average equity balance of $1 million?

Accepted Answer

A)  8% 
B)  10% 
C)  15% 
D)  17% 
A)  8% 
B)  10% 
C)  15% 
D)  17%

Question 3

Which of the following will not permit a higher internal growth rate,other things equal?

Accepted Answer

A)  A higher plowback ratio 
B)  A higher debt-to-asset ratio 
C)  A higher return on equity 
D)  A higher return on assets 
A)  A higher plowback ratio 
B)  A higher debt-to-asset ratio 
C)  A higher return on equity 
D)  A higher return on assets

Question 4

A firm has set its target capital structure at 40% debt.Further,it intends to continue with a 30% dividend payout.Finally,it hopes to maintain a constant growth rate of 7%.If the profit margin and asset turnover are currently 8% and .9,respectively,do the constraints sound realistic? If not,what might you suggest?

Accepted Answer

@#IMG-DLM& No,the current characteristics will not

Question 5

How will a percentage of sales model treat cost of goods sold if sales revenues are expected to grow by 20% to $1 million? Cost of goods sold will:

Accepted Answer

A)  grow at a slower rate than sales. 
B)  remain proportionate to sales. 
C)  be forecast to increase at the rate of inflation. 
D)  increase to $800,000. 
A)  grow at a slower rate than sales. 
B)  remain proportionate to sales. 
C)  be forecast to increase at the rate of inflation. 
D)  increase to $800,000.

Question 6

The flexibility of financial plans is evident in the extent that:

Accepted Answer

A)  actual profits will deviate from projected profits. 
B)  the plans can be adapted when conditions change. 
C)  use of the plans can be extended. 
D)  planning output is the same regardless of economic conditions. 
A)  actual profits will deviate from projected profits. 
B)  the plans can be adapted when conditions change. 
C)  use of the plans can be extended. 
D)  planning output is the same regardless of economic conditions.

Question 7

Calculate the sustainable growth rate for a firm with an 8% profit margin,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?

Accepted Answer

@#IMG-DLM& If ROE is fixed,the only thing that cou

Question 8

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

Accepted Answer

A)  the inputs of a financial plan. 
B)  the planning model for the financial plan. 
C)  the outputs of the financial plan. 
D)  no part of the financial plan. 
A)  the inputs of a financial plan. 
B)  the planning model for the financial plan. 
C)  the outputs of the financial plan. 
D)  no part of the financial plan.

Question 9

The rate at which the assets of a firm can grow without the requirement of external sources of financing is the:

Accepted Answer

A)  internal growth rate. 
B)  sustainable growth rate. 
C)  pro forma growth rate. 
D)  plowback rate. 
A)  internal growth rate. 
B)  sustainable growth rate. 
C)  pro forma growth rate. 
D)  plowback rate.

Question 10

Financial models ensure consistency between growth assumptions and financing plans,and they identify the best financing plan.
Financial models ensure consistency between growth assumptions and financing plans,but they do not identify the best financing plan.

Accepted Answer

A) True 
 B)False

Question 11

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:

Accepted Answer

A)  the firm paid a dividend of $500. 
B)  the firm plowed $500 back into the company. 
C)  $500 went into retained earnings. 
D)  debt increased by $2,000. 
A)  the firm paid a dividend of $500. 
B)  the firm plowed $500 back into the company. 
C)  $500 went into retained earnings. 
D)  debt increased by $2,000.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Financial plans covering a short planning horizon rarely extend beyond:

Accepted Answer

A)  1 year. 
B)  3 years. 
C)  5 years. 
D)  10 years. 
A)  1 year. 
B)  3 years. 
C)  5 years. 
D)  10 years.

Question 14

What new investment is required for a firm that projects 12% growth,has $400,000 in assets,and retained earnings of $40,000?

Accepted Answer

A)  $0 
B)  $4,800 
C)  $8,000 
D)  $66,667 
A)  $0 
B)  $4,800 
C)  $8,000 
D)  $66,667

Question 15

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?

Accepted Answer

A)  $200,000 
B)  $500,000 
C)  $800,000 
D)  No external financing is required. 
A)  $200,000 
B)  $500,000 
C)  $800,000 
D)  No external financing is required.

Question 16

Which 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

Question 17

Pro formas refer to:

Accepted Answer

A)  plans developed by a certified financial planner. 
B)  the inputs in the financial planning process. 
C)  projected financial statements. 
D)  deviations in results from previous financial plans. 
A)  plans developed by a certified financial planner. 
B)  the inputs in the financial planning process. 
C)  projected financial statements. 
D)  deviations in results from previous financial plans.

Question 18

If sales growth for XYZ Corporation exceeds 6%,which in turn causes XYZ to seek external financing,then 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 19

If a firm with an asset base of $3 million recently added $150,000 to retained earnings after a dividend payment of $100,000,then its internal growth rate is:

Accepted Answer

A)  1.67%. 
B)  3.33%. 
C)  5.00%. 
D)  8.33%. 
A)  1.67%. 
B)  3.33%. 
C)  5.00%. 
D)  8.33%.

Question 20

If a firm's sales increased by 12%,and it has no spare capacity,it must increase fixed assets by:

Accepted Answer

A)  0%. 
B)  6%. 
C)  9%. 
D)  12%. 
A)  0%. 
B)  6%. 
C)  9%. 
D)  12%.

Exam 18: Long-Term Financial Planning

Financial plans will rarely succeed unless the forecasts are perfect.

What is the sustainable growth rate for a firm with $250,000 in net income,$20,000 in preferred stock dividends,$80,000 in common stock dividends,and an average equity balance of $1 million?

Which of the following will not permit a higher internal growth rate,other things equal?

How will a percentage of sales model treat cost of goods sold if sales revenues are expected to grow by 20% to $1 million? Cost of goods sold will:

The flexibility of financial plans is evident in the extent that:

Calculate the sustainable growth rate for a firm with an 8% profit margin,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 firm's current financial statements would be included in:

The rate at which the assets of a firm can grow without the requirement of external sources of financing is the:

Financial models ensure consistency between growth assumptions and financing plans,and they identify the best financing plan. Financial models ensure consistency between growth assumptions and financing plans,but they do not identify the best financing plan.

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:

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

Financial plans covering a short planning horizon rarely extend beyond:

What new investment is required for a firm that projects 12% growth,has $400,000 in assets,and retained earnings of $40,000?

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?

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

Pro formas refer to:

If sales growth for XYZ Corporation exceeds 6%,which in turn causes XYZ to seek external financing,then 6% is the:

If a firm with an asset base of $3 million recently added $150,000 to retained earnings after a dividend payment of $100,000,then its internal growth rate is:

If a firm's sales increased by 12%,and it has no spare capacity,it must increase fixed assets by:

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