Question 1

A potential downside to using dividends as the plug item is that:

Accepted Answer

A)  changes in dividends may send shareholders mixed signals. 
B)  the plan may suggest negative dividends. 
C)  the firm may have to borrow cash to pay dividends. 
D)  shareholders may receive an excessive return. 
A)  changes in dividends may send shareholders mixed signals. 
B)  the plan may suggest negative dividends. 
C)  the firm may have to borrow cash to pay dividends. 
D)  shareholders may receive an excessive return.

Question 2

A firm's net assets equal 55% of sales.The firm expects sales to increase of $78,000 next year and to generate $6,500 of retained earnings.What is the external financing need?

Accepted Answer

A)  $49,400 
B)  $21,200 
C)  $28,600 
D)  $36,400 
A)  $49,400 
B)  $21,200 
C)  $28,600 
D)  $36,400

Question 3

A firm has $4 million in total assets and $2.2 million in equity.How much of its $500,000 capital budget should be debt-financed to retain the same debt-equity ratio?

Accepted Answer

A)  $50,000 
B)  $225,000 
C)  $275,000 
D)  $450,000 
A)  $50,000 
B)  $225,000 
C)  $275,000 
D)  $450,000

Question 4

Assume a firm wants to hold its current long-term debt-to-equity ratio constant at 0.55 and its payout ratio constant at 35%.The firm neither issues nor repurchases shares.If the firm generates $326,000 of net income,what is the maximum amount that the firm can increase its long-term debt?

Accepted Answer

A)  $116,545 
B)  $95,355 
C)  $122,615 
D)  $0 
A)  $116,545 
B)  $95,355 
C)  $122,615 
D)  $0

Question 5

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 6

Planners have determined that sales will increase by 20% next year,and the profit margin will remain at 10% of sales.Which one of the following statements is correct if the payout ratio remains at 30%?

Accepted Answer

A)  Net income will increase by 10% next year. 
B)  The addition to retained earnings will increase by 20% next year. 
C)  The dividend will increase by 6% next year. 
D)  The addition to retained earnings will equal 6% of the sales increase next year. 
A)  Net income will increase by 10% next year. 
B)  The addition to retained earnings will increase by 20% next year. 
C)  The dividend will increase by 6% next year. 
D)  The addition to retained earnings will equal 6% of the sales increase next year.

Question 7

Which one 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)  Shareholders' risk preferences 
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)  Shareholders' risk preferences

Question 8

A firm plans to grow at 6% a year without increasing financial leverage.It expects to earn a 10% return on equity.What proportion of earnings should it plan to pay out?

Accepted Answer

A)  0.40 
B)  0.60 
C)  0.67 
D)  0.00 
A)  0.40 
B)  0.60 
C)  0.67 
D)  0.00

Question 9

Contingency planning is:

Accepted Answer

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

Question 10

Pro formas are projected or forecasted financial statements.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

When most of the elements of a financial plan are related to sales levels,the plan is:

Accepted Answer

A)  less likely to be effective. 
B)  using sales as a plug figure. 
C)  a percentage of sales model. 
D)  not adjusted for inflation. 
A)  less likely to be effective. 
B)  using sales as a plug figure. 
C)  a percentage of sales model. 
D)  not adjusted for inflation.

Question 13

Financial models identify the best financing plan.

Accepted Answer

A) True 
 B)False

Question 14

A firm has a policy of not issuing debt and paying out 40% of its earnings.Its asset turnover is 2.0 and its profit margin is 10%.What is its sustainable growth rate?

Accepted Answer

A)  20.0% 
B)  8.0% 
C)  3.0% 
D)  12.0% 
A)  20.0% 
B)  8.0% 
C)  3.0% 
D)  12.0%

Question 15

A firm currently has sales of $382,000 and net working capital of $45,840.Assume net working capital changes in direct proportion to sales.What will be the increase in net working capital if sales increase by 8%?

Accepted Answer

A)  $1,222 
B)  $2,809 
C)  $3,091 
D)  $3,667 
A)  $1,222 
B)  $2,809 
C)  $3,091 
D)  $3,667

Question 16

A planner's percentage of sales model forecasts that sales will grow by 20% next year.If costs of goods sold are proportionate at 70% of sales,then costs of goods sold will:

Accepted Answer

A)  grow to 90% of sales. 
B)  grow in dollars by 70%. 
C)  not change in dollar amount. 
D)  increase by 20% in dollar terms. 
A)  grow to 90% of sales. 
B)  grow in dollars by 70%. 
C)  not change in dollar amount. 
D)  increase by 20% in dollar terms.

Question 17

Which one of the following is most apt to occur if a financial plan shows sources of funds to be $100,000 and uses of funds to be $90,000?

Accepted Answer

A)  External debt of $10,000 will need to be raised. 
B)  Dividend payments will be decreased by $10,000. 
C)  Cash balances will be increased by $10,000. 
D)  The capital budget will be decreased by $10,000. 
A)  External debt of $10,000 will need to be raised. 
B)  Dividend payments will be decreased by $10,000. 
C)  Cash balances will be increased by $10,000. 
D)  The capital budget will be decreased by $10,000.

Question 18

Percentage of sales models are planning models in which the sales forecasts are the driving variables and most other variables are proportional to sales.

Accepted Answer

A) True 
 B)False

Question 19

Under which one of the following capital structures will a firm's internal growth rate exceed its sustainable growth rate?

Accepted Answer

A)  Total debt-to-asset ratio equals 35%. 
B)  Equity-to-debt ratio equals 60%. 
C)  Equity-to-debt ratio equals 125%. 
D)  None of the options. 
A)  Total debt-to-asset ratio equals 35%. 
B)  Equity-to-debt ratio equals 60%. 
C)  Equity-to-debt ratio equals 125%. 
D)  None of the options.

Question 20

The sustainable growth rate:

Accepted Answer

A)  increases as ROE decreases. 
B)  increases as the payout ratio decreases. 
C)  is maximized when the plowback ratio equals zero. 
D)  cannot be greater than the internal growth rate. 
A)  increases as ROE decreases. 
B)  increases as the payout ratio decreases. 
C)  is maximized when the plowback ratio equals zero. 
D)  cannot be greater than the internal growth rate.

Exam 18: Long-Term Financial Planning

A potential downside to using dividends as the plug item is that:

A firm's net assets equal 55% of sales.The firm expects sales to increase of $78,000 next year and to generate $6,500 of retained earnings.What is the external financing need?

A firm has $4 million in total assets and $2.2 million in equity.How much of its $500,000 capital budget should be debt-financed to retain the same debt-equity ratio?

Assume a firm wants to hold its current long-term debt-to-equity ratio constant at 0.55 and its payout ratio constant at 35%.The firm neither issues nor repurchases shares.If the firm generates $326,000 of net income,what is the maximum amount that the firm can increase its long-term debt?

Pro formas refer to:

Planners have determined that sales will increase by 20% next year,and the profit margin will remain at 10% of sales.Which one of the following statements is correct if the payout ratio remains at 30%?

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

A firm plans to grow at 6% a year without increasing financial leverage.It expects to earn a 10% return on equity.What proportion of earnings should it plan to pay out?

Contingency planning is:

Pro formas are projected or forecasted financial statements.

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

When most of the elements of a financial plan are related to sales levels,the plan is:

Financial models identify the best financing plan.

A firm has a policy of not issuing debt and paying out 40% of its earnings.Its asset turnover is 2.0 and its profit margin is 10%.What is its sustainable growth rate?

A firm currently has sales of $382,000 and net working capital of $45,840.Assume net working capital changes in direct proportion to sales.What will be the increase in net working capital if sales increase by 8%?

A planner's percentage of sales model forecasts that sales will grow by 20% next year.If costs of goods sold are proportionate at 70% of sales,then costs of goods sold will:

Which one of the following is most apt to occur if a financial plan shows sources of funds to be $100,000 and uses of funds to be $90,000?

Percentage of sales models are planning models in which the sales forecasts are the driving variables and most other variables are proportional to sales.

Under which one of the following capital structures will a firm's internal growth rate exceed its sustainable growth rate?

The sustainable growth rate:

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