Question 1

Which one of the following capital intensity ratios indicates the largest need for fixed assets per dollar of sales?

Accepted Answer

A) 0.70 
B) 0.86 
C) 1.00 
D) 1.06 
E) 1.15 
A) 0.70 
B) 0.86 
C) 1.00 
D) 1.06 
E) 1.15

Question 2

Stop and Go has a 4.5 percent profit margin and an 18 percent dividend payout ratio.The total asset turnover is 1.6 and the debt-equity ratio is 0.45.What is the sustainable rate of growth?

Accepted Answer

A) 8.13 percent 
B) 8.54 percent 
C) 8.89 percent 
D) 9.26 percent 
E) 9.36 percent 
A) 8.13 percent 
B) 8.54 percent 
C) 8.89 percent 
D) 9.26 percent 
E) 9.36 percent

Question 3

A firm's net working capital and all of its expenses vary directly with sales.The firm is operating currently at 96 percent of capacity.The firm wants no additional external financing of any kind.Which one of the following statements related to the firm's pro forma statements for next year must be correct?

Accepted Answer

A) Total liabilities will remain constant at this year's value. 
B) The maximum rate of sales increase is 4 percent. 
C) The firm cannot exceed its internal rate of growth. 
D) The projected owners' equity will equal this year's ending equity balance. 
E) Fixed assets must remain constant at the current level. 
A) Total liabilities will remain constant at this year's value. 
B) The maximum rate of sales increase is 4 percent. 
C) The firm cannot exceed its internal rate of growth. 
D) The projected owners' equity will equal this year's ending equity balance. 
E) Fixed assets must remain constant at the current level.

Question 4

When constructing a pro forma statement,net working capital generally:

Accepted Answer

A) remains fixed. 
B) varies only if the firm is currently producing at full capacity. 
C) varies only if the firm maintains a fixed debt-equity ratio. 
D) varies only if the firm is producing at less than full capacity. 
E) varies proportionally with sales. 
A) remains fixed. 
B) varies only if the firm is currently producing at full capacity. 
C) varies only if the firm maintains a fixed debt-equity ratio. 
D) varies only if the firm is producing at less than full capacity. 
E) varies proportionally with sales.

Question 5

A firm is currently operating at full capacity.Net working capital,costs,and all assets vary directly with sales.The firm does not wish to obtain any additional equity financing.The dividend payout ratio is constant at 40 percent.If the firm has a positive external financing need,that need will be met by:

Accepted Answer

A) accounts payable. 
B) long-term debt. 
C) fixed assets. 
D) retained earnings. 
E) common stock. 
A) accounts payable. 
B) long-term debt. 
C) fixed assets. 
D) retained earnings. 
E) common stock.

Question 6

If a firm equates its pro forma sales growth to the rate of sustainable growth,and has positive net income and excess capacity,then the:

Accepted Answer

A) maximum capacity level will have to increase at the same rate as sales growth. 
B) total assets will have to increase at the same rate as sales growth. 
C) debt-equity ratio will increase. 
D) retained earnings will increase. 
E) number of common shares outstanding will increase. 
A) maximum capacity level will have to increase at the same rate as sales growth. 
B) total assets will have to increase at the same rate as sales growth. 
C) debt-equity ratio will increase. 
D) retained earnings will increase. 
E) number of common shares outstanding will increase.

Question 7

The most recent financial statements for Heng Co.are shown here:   Assets and costs are proportional to sales.The company maintains a constant 45 percent dividend payout ratio and a constant debt-equity ratio.What is the maximum increase in sales that can be sustained next year assuming no new equity is issued?

Accepted Answer

A) $4,808.12 
B) $5,211.17 
C) $5,887.48 
D) $5,894.60 
E) $6,666.67 
A) $4,808.12 
B) $5,211.17 
C) $5,887.48 
D) $5,894.60 
E) $6,666.67

Question 8

Financial planning:

Accepted Answer

A) focuses solely on the short-term outlook for a firm. 
B) is a process that firms employ only when major changes to a firm's operations are anticipated. 
C) is a process that firms undergo once every five years. 
D) considers multiple options and scenarios for the next two to five years. 
E) provides minimal benefits for firms that are highly responsive to economic changes. 
A) focuses solely on the short-term outlook for a firm. 
B) is a process that firms employ only when major changes to a firm's operations are anticipated. 
C) is a process that firms undergo once every five years. 
D) considers multiple options and scenarios for the next two to five years. 
E) provides minimal benefits for firms that are highly responsive to economic changes.

Question 9

Wagner Industrial Motors,which is currently operating at full capacity,has sales of $29,000,current assets of $1,600,current liabilities of $1,200,net fixed assets of $27,500,and a 5 percent profit margin.The firm has no long-term debt and does not plan on acquiring any.The firm does not pay any dividends.Sales are expected to increase by 4.5 percent next year.If all assets,short-term liabilities,and costs vary directly with sales,how much additional equity financing is required for next year?

Accepted Answer

A) -$259.75 
B) -$201.19 
C) $967.30 
D) $1,099.08 
E) $1,515.25 
A) -$259.75 
B) -$201.19 
C) $967.30 
D) $1,099.08 
E) $1,515.25

Question 10

The Two Sisters has a 9 percent return on assets and a 75 percent retention ratio.What is the internal growth rate?

Accepted Answer

A) 6.50 percent 
B) 6.75 percent 
C) 6.97 percent 
D) 7.24 percent 
E) 7.38 percent 
A) 6.50 percent 
B) 6.75 percent 
C) 6.97 percent 
D) 7.24 percent 
E) 7.38 percent

Question 11

The financial planning process:
I.involves internal negotiations among divisions.
II.quantifies senior manager's goals.
III.considers only internal factors.
IV.reconciles company activities across divisions.

Accepted Answer

A) III and IV only 
B) II and III only 
C) I, II, and IV only 
D) II, III, and IV only 
E) I, II, III, and IV 
A) III and IV only 
B) II and III only 
C) I, II, and IV only 
D) II, III, and IV only 
E) I, II, III, and IV

Question 12

Miller Bros.Hardware is operating at full capacity with a sales level of $689,700 and fixed assets of $468,000.The profit margin is 7 percent.What is the required addition to fixed assets if sales are to increase by 10 percent?

Accepted Answer

A) $3,276 
B) $4,680 
C) $28,400 
D) $32,760 
E) $46,800 
A) $3,276 
B) $4,680 
C) $28,400 
D) $32,760 
E) $46,800

Question 13

The Cookie Shoppe expects sales of $437,500 next year.The profit margin is 5.3 percent and the firm has a 30 percent dividend payout ratio.What is the projected increase in retained earnings?

Accepted Answer

A) $16,231 
B) $17,500 
C) $18,300 
D) $20,600 
E) $21,000 
A) $16,231 
B) $17,500 
C) $18,300 
D) $20,600 
E) $21,000

Question 14

Which one of the following statements concerning financial planning for a firm is correct?

Accepted Answer

A) Financial planning for fixed assets is done on a segregated basis within each division. 
B) Financial plans often contain alternative options based on economic developments. 
C) Financial plans frequently contain conflicting goals. 
D) Financial plans assume that firms obtain no additional external financing. 
E) The financial planning process is based on a single set of economic assumptions. 
A) Financial planning for fixed assets is done on a segregated basis within each division. 
B) Financial plans often contain alternative options based on economic developments. 
C) Financial plans frequently contain conflicting goals. 
D) Financial plans assume that firms obtain no additional external financing. 
E) The financial planning process is based on a single set of economic assumptions.

Question 15

Seaweed Mfg.,Inc.is currently operating at only 84 percent of fixed asset capacity.Current sales are $550,000.What is the maximum rate at which sales can grow before any new fixed assets are needed?

Accepted Answer

A) 17.23 percent 
B) 17.47 percent 
C) 18.03 percent 
D) 18.87 percent 
E) 19.05 percent 
A) 17.23 percent 
B) 17.47 percent 
C) 18.03 percent 
D) 18.87 percent 
E) 19.05 percent

Question 16

Gladsden Refinishers currently has $21,900 in sales and is operating at 45 percent of the firm's capacity.What is the full capacity level of sales?

Accepted Answer

A) $31,755 
B) $36,250 
C) $48,667 
D) $51,333 
E) $54,500 
A) $31,755 
B) $36,250 
C) $48,667 
D) $51,333 
E) $54,500

Question 17

Which one of the following will cause the sustainable growth rate to equal to internal growth rate?

Accepted Answer

A) dividend payout ratio greater than 1.0 
B) debt-equity ratio of 1.0 
C) retention ratio between 0.0 and 1.0 
D) equity multiplier of 1.0 
E) zero dividend payments 
A) dividend payout ratio greater than 1.0 
B) debt-equity ratio of 1.0 
C) retention ratio between 0.0 and 1.0 
D) equity multiplier of 1.0 
E) zero dividend payments

Question 18

You are getting ready to prepare pro forma statements for your business.Which one of the following are you most apt to estimate first as you begin this process?

Accepted Answer

A) fixed assets 
B) current expenses 
C) sales forecast 
D) projected net income 
E) external financing need 
A) fixed assets 
B) current expenses 
C) sales forecast 
D) projected net income 
E) external financing need

Question 19

The most recent financial statements for Watchtower,Inc.are shown here (assuming no income taxes):   Assets and costs are proportional to sales.Debt and equity are not.No dividends are paid.Next year's sales are projected to be $4,750.What is the amount of the external financing needed?

Accepted Answer

A) $797 
B) $808 
C) $811 
D) $818 
E) $823 
A) $797 
B) $808 
C) $811 
D) $818 
E) $823

Question 20

The financial planning process tends to place the least emphasis on which one of the following?

Accepted Answer

A) growth limitations 
B) capacity utilization 
C) market value of a firm 
D) capital structure of a firm 
E) dividend policy 
A) growth limitations 
B) capacity utilization 
C) market value of a firm 
D) capital structure of a firm 
E) dividend policy

Exam 4: Long-Term Financial Planning and Growth

Which one of the following capital intensity ratios indicates the largest need for fixed assets per dollar of sales?

Stop and Go has a 4.5 percent profit margin and an 18 percent dividend payout ratio.The total asset turnover is 1.6 and the debt-equity ratio is 0.45.What is the sustainable rate of growth?

When constructing a pro forma statement,net working capital generally:

If a firm equates its pro forma sales growth to the rate of sustainable growth,and has positive net income and excess capacity,then the:

Financial planning:

The Two Sisters has a 9 percent return on assets and a 75 percent retention ratio.What is the internal growth rate?

The financial planning process: I.involves internal negotiations among divisions. II.quantifies senior manager's goals. III.considers only internal factors. IV.reconciles company activities across divisions.

Miller Bros.Hardware is operating at full capacity with a sales level of $689,700 and fixed assets of $468,000.The profit margin is 7 percent.What is the required addition to fixed assets if sales are to increase by 10 percent?

The Cookie Shoppe expects sales of $437,500 next year.The profit margin is 5.3 percent and the firm has a 30 percent dividend payout ratio.What is the projected increase in retained earnings?

Which one of the following statements concerning financial planning for a firm is correct?

Seaweed Mfg.,Inc.is currently operating at only 84 percent of fixed asset capacity.Current sales are $550,000.What is the maximum rate at which sales can grow before any new fixed assets are needed?

Gladsden Refinishers currently has $21,900 in sales and is operating at 45 percent of the firm's capacity.What is the full capacity level of sales?

Which one of the following will cause the sustainable growth rate to equal to internal growth rate?

You are getting ready to prepare pro forma statements for your business.Which one of the following are you most apt to estimate first as you begin this process?

The most recent financial statements for Watchtower,Inc.are shown here (assuming no income taxes): Assets and costs are proportional to sales.Debt and equity are not.No dividends are paid.Next year's sales are projected to be $4,750.What is the amount of the external financing needed?

The financial planning process tends to place the least emphasis on which one of the following?

Introduction to Corporate Finance

Financial Statements, Taxes, and Cash Flow

Working With Financial Statements

Introduction to Valuation: The Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons From Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short-Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Leasing

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