Question 1

A major difference between financial planning and forecasting is that financial planning:

Accepted Answer

A)  is forward-looking. 
B)  relies on the preferences of management. 
C)  determines the rate of profitability. 
D)  is equally concerned with less likely outcomes. 
A)  is forward-looking. 
B)  relies on the preferences of management. 
C)  determines the rate of profitability. 
D)  is equally concerned with less likely outcomes.

Question 2

If a firm commits to a dividend payment and the amount of debt that it is prepared to issue,what must be the balancing item?

Accepted Answer

A)  the profit margin. 
B)  new equity issues. 
C)  cost of goods sold. 
D)  return on equity. 
A)  the profit margin. 
B)  new equity issues. 
C)  cost of goods sold. 
D)  return on equity.

Question 3

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

Accepted Answer

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

Question 4

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.

Question 5

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)  the number of employees required. 
D)  projected financial statements of the firm. 
A)  the firm's current financial statements. 
B)  a range of macroeconomic forecasts. 
C)  the number of employees required. 
D)  projected financial statements of the firm.

Question 6

Which one of these best describes the relationship between net working capital (NWC)and sales?

Accepted Answer

A)  NWC will change by the same percentage as sales. 
B)  NWC is unaffected by changes in the sales level. 
C)  NWC changes by a greater percentage than the change in sales, but the change is linear in nature. 
D)  NWC changes in direct relation to sales, but the change may be less than proportional with sales. 
A)  NWC will change by the same percentage as sales. 
B)  NWC is unaffected by changes in the sales level. 
C)  NWC changes by a greater percentage than the change in sales, but the change is linear in nature. 
D)  NWC changes in direct relation to sales, but the change may be less than proportional with sales.

Question 7

Which one of the following would increase the sustainable growth rate?

Accepted Answer

A)  Reduce the ROE. 
B)  Increase the asset beta. 
C)  Reduce the payout ratio. 
D)  Reduce the operating leverage. 
A)  Reduce the ROE. 
B)  Increase the asset beta. 
C)  Reduce the payout ratio. 
D)  Reduce the operating leverage.

Question 8

A firm has an ROE of 15% and a debt-equity ratio of 40%.If it wishes to grow by 9% a year without external financing,what is the maximum proportion of earnings that it can pay out?

Accepted Answer

A)  1% 
B)  10% 
C)  12% 
D)  16% 
A)  1% 
B)  10% 
C)  12% 
D)  16%

Question 9

A firm can achieve a higher growth rate without raising external capital if it:

Accepted Answer

A)  has a high dividend payout ratio. 
B)  has a low ROE. 
C)  has a low debt-to-asset ratio. 
D)  has a low profit margin. 
A)  has a high dividend payout ratio. 
B)  has a low ROE. 
C)  has a low debt-to-asset ratio. 
D)  has a low profit margin.

Question 10

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 11

If book equity increases by $2,000,the firm does not issue new equity,and its net income is $2,500,then:

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

A financial planning model will generally include all of the following except the:

Accepted Answer

A)  listing of the firm's goals. 
B)  required increase in fixed assets. 
C)  projected sales. 
D)  forecast increase in retained earnings. 
A)  listing of the firm's goals. 
B)  required increase in fixed assets. 
C)  projected sales. 
D)  forecast increase in retained earnings.

Question 13

Short-term financial rarely look beyond:

Accepted Answer

A)  1 year. 
B)  1 month. 
C)  1 week. 
D)  1 day. 
A)  1 year. 
B)  1 month. 
C)  1 week. 
D)  1 day.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

A firm's goal is to maintain a 75% debt-equity ratio.How much equity would be required if the results of a financial planning model indicate that the firm's assets will grow to $4 million?

Accepted Answer

A)  $1.00 million 
B)  $1.71 million 
C)  $2.29 million 
D)  $3.00 million 
A)  $1.00 million 
B)  $1.71 million 
C)  $2.29 million 
D)  $3.00 million

Question 16

The primary aim of financial planning is to obtain better forecasts of future cash flows and earnings.

Accepted Answer

A) True 
 B)False

Question 17

Which one of the following is not an output of a financial plan?

Accepted Answer

A)  Financial ratios 
B)  Pro forma statements 
C)  Sources and uses of cash statement 
D)  Sales forecasts 
A)  Financial ratios 
B)  Pro forma statements 
C)  Sources and uses of cash statement 
D)  Sales forecasts

Question 18

Which one of the following will reduce the 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 19

What is the sustainable growth rate for a firm with $250,000 in net income,$100,000 in common stock dividends,and equity of $1 million?

Accepted Answer

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

Question 20

The sustainable growth rate is the maximum growth rate that the firm can achieve

Accepted Answer

A)  without external financing. 
B)  while maintaining its debt ratio. 
C)  without investing in additional fixed assets. 
D)  without excessive strains on management. 
A)  without external financing. 
B)  while maintaining its debt ratio. 
C)  without investing in additional fixed assets. 
D)  without excessive strains on management.

Exam 18: Long-Term Financial Planning

A major difference between financial planning and forecasting is that financial planning:

If a firm commits to a dividend payment and the amount of debt that it is prepared to issue,what must be the balancing item?

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

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

The outputs of a financial planning model often include:

Which one of these best describes the relationship between net working capital (NWC)and sales?

Which one of the following would increase the sustainable growth rate?

A firm has an ROE of 15% and a debt-equity ratio of 40%.If it wishes to grow by 9% a year without external financing,what is the maximum proportion of earnings that it can pay out?

A firm can achieve a higher growth rate without raising external capital if it:

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

If book equity increases by $2,000,the firm does not issue new equity,and its net income is $2,500,then:

A financial planning model will generally include all of the following except the:

Short-term financial rarely look beyond:

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

A firm's goal is to maintain a 75% debt-equity ratio.How much equity would be required if the results of a financial planning model indicate that the firm's assets will grow to $4 million?

The primary aim of financial planning is to obtain better forecasts of future cash flows and earnings.

Which one of the following is not an output of a financial plan?

Which one of the following will reduce the internal growth rate,other things equal?

What is the sustainable growth rate for a firm with $250,000 in net income,$100,000 in common stock dividends,and equity of $1 million?

The sustainable growth rate is the maximum growth rate that the firm can achieve

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