Question 1

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 requiring external sources of new capital. 
D)  the product of 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 requiring external sources of new capital. 
D)  the product of the plowback ratio, ROE, and the ratio of equity to assets. A

Question 2

If sales growth for XYZ Corporation exceeds 6%,XYZ will need to seek external financing.This means that 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. B

Question 3

Which one 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. A

Question 4

The decision to acquire fixed assets is unrelated to the current level of excess capacity.

Accepted Answer

A) True 
 B)False

Question 5

A firm has projected sales of $328,000,costs of goods sold equal to 68% of sales,interest of $18,500,a tax rate of 35%,and a dividend payout ratio of 60%.What will be the addition to retained earnings?

Accepted Answer

A)  $16,667 
B)  $22,480 
C)  $24,002 
D)  $19,531 
A)  $16,667 
B)  $22,480 
C)  $24,002 
D)  $19,531

Question 6

Financial plans will rarely succeed unless the forecasts are perfect.

Accepted Answer

A) True 
 B)False

Question 7

Financial planning just means formulating the company's response to the most likely events.

Accepted Answer

A) True 
 B)False

Question 8

If a firm does not want to use either dividends or debt as the plug,then the obvious plug is:

Accepted Answer

A)  inventory 
B)  cash 
C)  new issue of equity 
D)  fixed assets 
A)  inventory 
B)  cash 
C)  new issue of equity 
D)  fixed assets

Question 9

Financial planning requires careful and consistent forecasting.

Accepted Answer

A) True 
 B)False

Question 10

If the projected growth rate is less 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.

Question 11

What is the maximum internal growth rate 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

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 13

A firm has current sales of $2.4 million and fixed assets of $1.65 million.The firm is currently operating at 88% of capacity.How high can the firm's sales go without requiring any additional fixed assets?

Accepted Answer

A)  $2.423 million 
B)  $2.509 million 
C)  $2.727 million 
D)  $2.836 million 
A)  $2.423 million 
B)  $2.509 million 
C)  $2.727 million 
D)  $2.836 million

Question 14

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.

Question 15

Dawson Metals is currently operating at 94% of its capacity and has sales of $3.1 million and fixed assets of $2.5 million.How much should the firm budget for fixed asset purchases if sales are projected to increase by 9% next year?

Accepted Answer

A)  $0 
B)  $61,500 
C)  $43,616 
D)  $98,407 
A)  $0 
B)  $61,500 
C)  $43,616 
D)  $98,407

Question 16

What would help a firm boost its internal growth rate?

Accepted Answer

A)  Plowing back a low proportion of its earnings 
B)  Achieving a high return on equity 
C)  Decreasing reinvested earnings 
D)  Maintaining a low sales-to-total assets ratio 
A)  Plowing back a low proportion of its earnings 
B)  Achieving a high return on equity 
C)  Decreasing reinvested earnings 
D)  Maintaining a low sales-to-total assets ratio

Question 17

If a firm uses external financing as a plug item,has a new capital budget of $2 million,a net income of $3 million,and a plowback ratio of 40%,how much should be raised in external funds?

Accepted Answer

A)  $200,000 
B)  $600,000 
C)  $800,000 
D)  $1,200,000 
A)  $200,000 
B)  $600,000 
C)  $800,000 
D)  $1,200,000

Question 18

Financial planning should attempt to minimize risk.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Financial planning models must include as much detail as possible.

Accepted Answer

A) True 
 B)False

Exam 18: Long-Term Financial Planning

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

If sales growth for XYZ Corporation exceeds 6%,XYZ will need to seek external financing.This means that 6% is the:

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

The decision to acquire fixed assets is unrelated to the current level of excess capacity.

A firm has projected sales of $328,000,costs of goods sold equal to 68% of sales,interest of $18,500,a tax rate of 35%,and a dividend payout ratio of 60%.What will be the addition to retained earnings?

Financial plans will rarely succeed unless the forecasts are perfect.

Financial planning just means formulating the company's response to the most likely events.

If a firm does not want to use either dividends or debt as the plug,then the obvious plug is:

Financial planning requires careful and consistent forecasting.

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

What is the maximum internal growth rate for a firm reporting net income of $500,000,a dividend payout ratio of 40%,and total assets of $10 million?

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

A firm has current sales of $2.4 million and fixed assets of $1.65 million.The firm is currently operating at 88% of capacity.How high can the firm's sales go without requiring any additional fixed assets?

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

Dawson Metals is currently operating at 94% of its capacity and has sales of $3.1 million and fixed assets of $2.5 million.How much should the firm budget for fixed asset purchases if sales are projected to increase by 9% next year?

What would help a firm boost its internal growth rate?

If a firm uses external financing as a plug item,has a new capital budget of $2 million,a net income of $3 million,and a plowback ratio of 40%,how much should be raised in external funds?

Financial planning should attempt to minimize risk.

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

Financial planning models must include as much detail as possible.

Goals and Governance of the Firm

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 and Governance

Venture Capital, IPOs, and Seasoned Offerings

Debt Policy

Payout Policy

Short-Term Financial Planning

Working Capital Management

Mergers,Acquisitions,and Corporate Control

International Financial Management

Options

Risk Management

Filters