Question 1

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 2

Which one of the following statements regarding financial planning models is false?

Accepted Answer

A)  The models should include as much detail as possible. 
B)  The results of a model are pro forma financial statements. 
C)  The plug variable maintains consistency. 
D)  Financial analysis is not used in financial planning. 
A)  The models should include as much detail as possible. 
B)  The results of a model are pro forma financial statements. 
C)  The plug variable maintains consistency. 
D)  Financial analysis is not used in financial planning.

Question 3

In the percentage of sales model,which one of these is most likely to increase in uneven increments as sales increase?

Accepted Answer

A)  Cost of raw materials 
B)  Accounts receivable 
C)  Accounts payable 
D)  Fixed assets 
A)  Cost of raw materials 
B)  Accounts receivable 
C)  Accounts payable 
D)  Fixed assets

Question 4

If a firm's dividend payout ratio is determined after achieving a specific capital structure,then:

Accepted Answer

A)  dividends are an input to the financial plan. 
B)  the capital budget should be revised. 
C)  dividends are being used as a plug item. 
D)  dividend forecasts become crucial to planning. 
A)  dividends are an input to the financial plan. 
B)  the capital budget should be revised. 
C)  dividends are being used as a plug item. 
D)  dividend forecasts become crucial to planning.

Question 5

The sustainable growth rate is the rate at which the firm can grow without changing its leverage ratio.

Accepted Answer

A) True 
 B)False

Question 6

A financial plan:

Accepted Answer

A)  is generally considered to be a useless exercise due to unforeseen events. 
B)  should include all possible contingencies. 
C)  provides a basis for evaluating future performance. 
D)  should always be based on the worst-case scenario. 
A)  is generally considered to be a useless exercise due to unforeseen events. 
B)  should include all possible contingencies. 
C)  provides a basis for evaluating future performance. 
D)  should always be based on the worst-case scenario.

Question 7

Which one of these is least likely to change proportionally with sales?

Accepted Answer

A)  Depreciation 
B)  Investment in receivables 
C)  Cost of goods sold 
D)  EBIT 
A)  Depreciation 
B)  Investment in receivables 
C)  Cost of goods sold 
D)  EBIT

Question 8

Outputs from a financial plan would include such items as:

Accepted Answer

A)  sales growth forecasts. 
B)  a percentage of sales planning model. 
C)  a pro forma statement of sources and uses of cash. 
D)  the firm's current financial statements. 
A)  sales growth forecasts. 
B)  a percentage of sales planning model. 
C)  a pro forma statement of sources and uses of cash. 
D)  the firm's current financial statements.

Question 9

A firm has sales of $1.2 million,a profit margin of 5%,and a dividend payout ratio of 25%.How much will be added to retained earnings next year if sales increase by 6%?

Accepted Answer

A)  $15,900 
B)  $21,600 
C)  $47,700 
D)  $42,000 
A)  $15,900 
B)  $21,600 
C)  $47,700 
D)  $42,000

Question 10

Financial planning models routinely adjust for present value and risk.

Accepted Answer

A) True 
 B)False

Question 11

Planners often recommend entering a market for "strategic" reasons because the:

Accepted Answer

A)  company is facing too much competition in its original market. 
B)  company may have valuable follow-on investments in the new market. 
C)  immediate investment has a positive net present value. 
D)  manager has a personal interest in a particular market. 
A)  company is facing too much competition in its original market. 
B)  company may have valuable follow-on investments in the new market. 
C)  immediate investment has a positive net present value. 
D)  manager has a personal interest in a particular market.

Question 12

Increased needs for net working capital are:

Accepted Answer

A)  recognized in pro forma balance sheets. 
B)  totally absorbed by retained earnings. 
C)  typically financed with short-term debt. 
D)  ignored due to their great variability. 
A)  recognized in pro forma balance sheets. 
B)  totally absorbed by retained earnings. 
C)  typically financed with short-term debt. 
D)  ignored due to their great variability.

Question 13

A percentage-of-sales model forecasts that cost of goods sold will remain at 80% of sales.If sales revenues are expected to grow by 20% next year,cost of goods sold:

Accepted Answer

A)  will grow by 16%. 
B)  will grow by 20%. 
C)  could grow either faster or slower than sales. 
D)  will remain constant. 
A)  will grow by 16%. 
B)  will grow by 20%. 
C)  could grow either faster or slower than sales. 
D)  will remain constant.

Question 14

Sources and uses of funds are made equal through:

Accepted Answer

A)  a balancing item. 
B)  pro forma financial statements. 
C)  borrowed cash. 
D)  additions to retained earnings. 
A)  a balancing item. 
B)  pro forma financial statements. 
C)  borrowed cash. 
D)  additions to retained earnings.

Question 15

If the pro forma balance sheet shows that total assets must increase by $400,000 while retaining a debt-equity ratio of 0.75 then:

Accepted Answer

A)  debt must increase by $300,000. 
B)  equity must increase by the full $400,000. 
C)  debt must increase by $171,429. 
D)  equity must increase by $100,000. 
A)  debt must increase by $300,000. 
B)  equity must increase by the full $400,000. 
C)  debt must increase by $171,429. 
D)  equity must increase by $100,000.

Question 16

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)  $600,000 
D)  No external financing is required. 
A)  $200,000 
B)  $500,000 
C)  $600,000 
D)  No external financing is required.

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Financial planning focuses on the big picture.

Accepted Answer

A) True 
 B)False

Question 19

What is the internal growth rate for a firm with an ROE of 20%,a dividend payout ratio of 40%,and an equity-to-debt ratio of 60%?

Accepted Answer

A)  4.50% 
B)  5.39% 
C)  8.00% 
D)  12.00% 
A)  4.50% 
B)  5.39% 
C)  8.00% 
D)  12.00%

Question 20

What is the sustainable growth rate for a firm with net income of $2.5 million,cash dividends of $1.5 million,and return on equity of 18%?

Accepted Answer

A)  3.0% 
B)  5.4% 
C)  7.2% 
D)  10.8% 
A)  3.0% 
B)  5.4% 
C)  7.2% 
D)  10.8%

Exam 18: Long-Term Financial Planning

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

Which one of the following statements regarding financial planning models is false?

In the percentage of sales model,which one of these is most likely to increase in uneven increments as sales increase?

If a firm's dividend payout ratio is determined after achieving a specific capital structure,then:

The sustainable growth rate is the rate at which the firm can grow without changing its leverage ratio.

A financial plan:

Which one of these is least likely to change proportionally with sales?

Outputs from a financial plan would include such items as:

A firm has sales of $1.2 million,a profit margin of 5%,and a dividend payout ratio of 25%.How much will be added to retained earnings next year if sales increase by 6%?

Financial planning models routinely adjust for present value and risk.

Planners often recommend entering a market for "strategic" reasons because the:

Increased needs for net working capital are:

A percentage-of-sales model forecasts that cost of goods sold will remain at 80% of sales.If sales revenues are expected to grow by 20% next year,cost of goods sold:

Sources and uses of funds are made equal through:

If the pro forma balance sheet shows that total assets must increase by $400,000 while retaining a debt-equity ratio of 0.75 then:

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?

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

Financial planning focuses on the big picture.

What is the internal growth rate for a firm with an ROE of 20%,a dividend payout ratio of 40%,and an equity-to-debt ratio of 60%?

What is the sustainable growth rate for a firm with net income of $2.5 million,cash dividends of $1.5 million,and return on equity of 18%?

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