Question 1

Financial planning may incorporate scenario analysis as part of the planning process.

Accepted Answer

A) True 
 B)False

Question 2

Calculate the rate at which a firm can grow without changing its leverage if its payout ratio is 70%,equity outstanding at the beginning of the year is $940,000,and its net income for the year is $162,000.

Accepted Answer

A)  5.17% 
B)  11.67% 
C)  14.00% 
D)  16.67% 
A)  5.17% 
B)  11.67% 
C)  14.00% 
D)  16.67%

Question 3

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

Accepted Answer

A)  Considering options 
B)  Contingency planning 
C)  Calculating the optimal plan 
D)  Forcing consistency 
A)  Considering options 
B)  Contingency planning 
C)  Calculating the optimal plan 
D)  Forcing consistency

Question 4

When a firm has no spare capacity,it:

Accepted Answer

A)  has no need for new employees. 
B)  currently has no inventory available for sale. 
C)  must issue new equity to grow. 
D)  must usually increase fixed assets to increase sales. 
A)  has no need for new employees. 
B)  currently has no inventory available for sale. 
C)  must issue new equity to grow. 
D)  must usually increase fixed assets to increase sales.

Question 5

The sustainable rate of growth assumes that the:

Accepted Answer

A)  debt-equity ratio is held constant. 
B)  market to book ratio increases. 
C)  dividend payout ratio decreases. 
D)  external debt remains constant. 
A)  debt-equity ratio is held constant. 
B)  market to book ratio increases. 
C)  dividend payout ratio decreases. 
D)  external debt remains constant.

Question 6

If a firm's pro forma statements project a net income of $5,000,dividends of $2,000,and an external financing requirement of $2,000,then:

Accepted Answer

A)  The firm must issue new equity. 
B)  The profit margin has declined. 
C)  Total assets need to grow by $5,000. 
D)  The internal growth rate is 15%. 
A)  The firm must issue new equity. 
B)  The profit margin has declined. 
C)  Total assets need to grow by $5,000. 
D)  The internal growth rate is 15%.

Question 7

Other things equal,a firm can grow more rapidly without raising new capital if:

Accepted Answer

A)  it has a low ROE. 
B)  it has a high ratio of debt to assets. 
C)  it has a low profit margin. 
D)  it pays out a small proportion of earnings. 
A)  it has a low ROE. 
B)  it has a high ratio of debt to assets. 
C)  it has a low profit margin. 
D)  it pays out a small proportion of earnings.

Question 8

A firm that wants to increase its sustainable growth rate can do so by __________ the __________ ratio or by __________ the __________,or both.

Accepted Answer

A)  increasing; payout; increasing; ROE 
B)  increasing; plowback; increasing; ROE 
C)  decreasing; plowback; increasing; ROE 
D)  decreasing; payout; decreasing; ROE 
A)  increasing; payout; increasing; ROE 
B)  increasing; plowback; increasing; ROE 
C)  decreasing; plowback; increasing; ROE 
D)  decreasing; payout; decreasing; ROE

Question 9

A typical horizon for long-term planning is 5 years.

Accepted Answer

A) True 
 B)False

Question 10

Individual capital investment projects are not considered in a financial plan unless they are very large.

Accepted Answer

A) True 
 B)False

Question 11

Financial planning is necessary because financing and investment decisions interact and should not be made independently.

Accepted Answer

A) True 
 B)False

Question 12

If factories are operating below full capacity,sales can increase without investment in fixed assets.However,beyond some sales level,new capacity must be added and additional investment in fixed assets must be made.

Accepted Answer

A) True 
 B)False

Question 13

The implications of the forecasts from a financial plan are determined by the:

Accepted Answer

A)  plan inputs. 
B)  balancing item. 
C)  planning model. 
D)  plowback ratio. 
A)  plan inputs. 
B)  balancing item. 
C)  planning model. 
D)  plowback ratio.

Question 14

A percentage of sales model projects sales to increase by 5% annually over the next 4 years.If costs are forecast at a constant 80% of sales,and this year's income is $1,250,the forecast income in the fourth year will be:

Accepted Answer

A)  $1,447.03. 
B)  $1,826.15. 
C)  $1,595.35. 
D)  $1,519.38. 
A)  $1,447.03. 
B)  $1,826.15. 
C)  $1,595.35. 
D)  $1,519.38.

Question 15

The rate at which the assets of a firm can grow without the requirement of any 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 16

Which one of the following changes will decrease a firm's internal growth rate?

Accepted Answer

A)  A decrease in dividends with a given net income 
B)  An increase in net income with a given dividend payout ratio 
C)  A decrease in the plowback ratio 
D)  A decrease in assets with a set dividend payout ratio 
A)  A decrease in dividends with a given net income 
B)  An increase in net income with a given dividend payout ratio 
C)  A decrease in the plowback ratio 
D)  A decrease in assets with a set dividend payout ratio

Question 17

A common,long-term corporate financial planning horizon would stretch for at least 15 to 20 years.

Accepted Answer

A) True 
 B)False

Question 18

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 19

Adaptability is not a desirable feature in financial plans.

Accepted Answer

A) True 
 B)False

Question 20

The first step in constructing a financial planning model is to:

Accepted Answer

A)  determine the mix of securities that the company will need to issue. 
B)  determine the amount of external financing that is needed. 
C)  determine what additional fixed assets the company will need. 
D)  project future cash flows from operations. 
A)  determine the mix of securities that the company will need to issue. 
B)  determine the amount of external financing that is needed. 
C)  determine what additional fixed assets the company will need. 
D)  project future cash flows from operations.

Exam 18: Long-Term Financial Planning

Financial planning may incorporate scenario analysis as part of the planning process.

Calculate the rate at which a firm can grow without changing its leverage if its payout ratio is 70%,equity outstanding at the beginning of the year is $940,000,and its net income for the year is $162,000.

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

When a firm has no spare capacity,it:

The sustainable rate of growth assumes that the:

If a firm's pro forma statements project a net income of $5,000,dividends of $2,000,and an external financing requirement of $2,000,then:

Other things equal,a firm can grow more rapidly without raising new capital if:

A firm that wants to increase its sustainable growth rate can do so by __________ the __________ ratio or by __________ the __________,or both.

A typical horizon for long-term planning is 5 years.

Individual capital investment projects are not considered in a financial plan unless they are very large.

Financial planning is necessary because financing and investment decisions interact and should not be made independently.

If factories are operating below full capacity,sales can increase without investment in fixed assets.However,beyond some sales level,new capacity must be added and additional investment in fixed assets must be made.

The implications of the forecasts from a financial plan are determined by the:

A percentage of sales model projects sales to increase by 5% annually over the next 4 years.If costs are forecast at a constant 80% of sales,and this year's income is $1,250,the forecast income in the fourth year will be:

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

Which one of the following changes will decrease a firm's internal growth rate?

A common,long-term corporate financial planning horizon would stretch for at least 15 to 20 years.

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:

Adaptability is not a desirable feature in financial plans.

The first step in constructing a financial planning model is to:

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

A firm that wants to increase its sustainable growth rate can do so by the ratio or by the ,or both.