Question 1

The external financing need:

Accepted Answer

A) will limit growth if unfunded. 
B) is unaffected by the dividend payout ratio. 
C) must be funded by long-term debt. 
D) ignores any changes in retained earnings. 
E) considers only the required increase in fixed assets. 
A) will limit growth if unfunded. 
B) is unaffected by the dividend payout ratio. 
C) must be funded by long-term debt. 
D) ignores any changes in retained earnings. 
E) considers only the required increase in fixed assets.

Question 2

Consider the following information for Kaleb's Kickboxing:   What is the sustainable rate of growth?

Accepted Answer

A) 11.87 percent 
B) 12.29 percent 
C) 12.52 percent 
D) 13.42 percent 
E) 13.58 percent 
A) 11.87 percent 
B) 12.29 percent 
C) 12.52 percent 
D) 13.42 percent 
E) 13.58 percent

Question 3

A firm has a retention ratio of 45 percent and a sustainable growth rate of 6.2 percent.The capital intensity ratio is 1.2 and the debt-equity ratio is 0.64.What is the profit margin?

Accepted Answer

A) 6.28 percent 
B) 7.67 percent 
C) 9.49 percent 
D) 12.38 percent 
E) 14.63 percent 
A) 6.28 percent 
B) 7.67 percent 
C) 9.49 percent 
D) 12.38 percent 
E) 14.63 percent

Question 4

Designer's Outlet has a capital intensity ratio of 0.92 at full capacity.Currently,total assets are $48,900 and current sales are $51,200.At what level of capacity is the firm currently operating?

Accepted Answer

A) 89.1 percent 
B) 91.6 percent 
C) 96.3 percent 
D) 96.8 percent 
E) 98.2 percent 
A) 89.1 percent 
B) 91.6 percent 
C) 96.3 percent 
D) 96.8 percent 
E) 98.2 percent

Question 5

All else constant,which one of the following will increase the internal rate of growth?

Accepted Answer

A) decrease in the retention ratio 
B) decrease in net income 
C) increase in the dividend payout ratio 
D) decrease in total assets 
E) increase in costs of goods sold 
A) decrease in the retention ratio 
B) decrease in net income 
C) increase in the dividend payout ratio 
D) decrease in total assets 
E) increase in costs of goods sold

Question 6

Cross Town Express has sales of $137,000,net income of $14,000,total assets of $98,000,and total equity of $45,000.The firm paid $7,560 in dividends and maintains a constant dividend payout ratio.Currently,the firm is operating at full capacity.All costs and assets vary directly with sales.The firm does not want to obtain any additional external equity.At the sustainable rate of growth,how much new total debt must the firm acquire?

Accepted Answer

A) $0 
B) $6,311 
C) $6,989 
D) $7,207 
E) $8,852 
A) $0 
B) $6,311 
C) $6,989 
D) $7,207 
E) $8,852

Question 7

Which one of the following correctly defines the retention ratio?

Accepted Answer

A) one plus the dividend payout ratio 
B) addition to retained earnings divided by net income 
C) addition to retained earnings divided by dividends paid 
D) net income minus additions to retained earnings 
E) net income minus cash dividends 
A) one plus the dividend payout ratio 
B) addition to retained earnings divided by net income 
C) addition to retained earnings divided by dividends paid 
D) net income minus additions to retained earnings 
E) net income minus cash dividends

Question 8

A firm is operating at 90 percent of capacity.This information is primarily needed to project which one of the following account values when compiling pro forma statements?

Accepted Answer

A) sales 
B) costs of goods sold 
C) accounts receivable 
D) fixed assets 
E) long-term debt 
A) sales 
B) costs of goods sold 
C) accounts receivable 
D) fixed assets 
E) long-term debt

Question 9

Fresno Salads has current sales of $6,000 and a profit margin of 6.5 percent.The firm estimates that sales will increase by 4 percent next year and that all costs will vary in direct relationship to sales.What is the pro forma net income?

Accepted Answer

A) $303.33 
B) $327.18 
C) $405.60 
D) $438.70 
E) $441.10 
A) $303.33 
B) $327.18 
C) $405.60 
D) $438.70 
E) $441.10

Question 10

Blasco Industries is currently at full-capacity sales.Which one of the following is limiting sales to this level?

Accepted Answer

A) net working capital 
B) long-term debt 
C) inventory 
D) fixed assets 
E) debt-equity ratio 
A) net working capital 
B) long-term debt 
C) inventory 
D) fixed assets 
E) debt-equity ratio

Question 11

Seaweed Mfg.,Inc.is currently operating at only 86 percent of fixed asset capacity.Fixed assets are $387,000.Current sales are $510,000 and are projected to grow to $664,000.What amount must be spent on new fixed assets to support this growth in sales?

Accepted Answer

A) $0 
B) $22,654 
C) $46,319 
D) $79,408 
E) $93,608 
A) $0 
B) $22,654 
C) $46,319 
D) $79,408 
E) $93,608

Question 12

You are developing a financial plan for a corporation.Which of the following questions will be considered as you develop this plan?
I.How much net working capital will be needed?
II.Will additional fixed assets be required?
III.Will dividends be paid to shareholders?
IV.How much new debt must be obtained?

Accepted Answer

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

Question 13

Which of the following are needed to determine the amount of fixed assets required to support each dollar of sales?
I.current amount of fixed assets
II.current sales
III.current level of operating capacity
IV.projected growth rate of sales

Accepted Answer

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

Question 14

A firm wishes to maintain a growth rate of 8 percent and a dividend payout ratio of 62 percent.The ratio of total assets to sales is constant at 1,and the profit margin is 10 percent.What must the debt-equity ratio be if the firm wishes to keep that ratio constant?

Accepted Answer

A) 0.05 
B) 0.40 
C) 0.55 
D) 0.60 
E) 0.95 
A) 0.05 
B) 0.40 
C) 0.55 
D) 0.60 
E) 0.95

Question 15

The most recent financial statements for Moose Tours,Inc.follow.Sales for 2009 are projected to grow by 16 percent.Interest expense will remain constant; the tax rate and dividend payout rate will also remain constant.Costs,other expenses,current assets,and accounts payable increase spontaneously will sales.If the firm is operating at full capacity and no new debt or equity is issued,how much external financing is needed to support the 16 percent growth rate in sales?

Accepted Answer

A) $-10,246 
B) -$8,122 
C) -$6,708 
D) $2,407 
E) $3,309 
A) $-10,246 
B) -$8,122 
C) -$6,708 
D) $2,407 
E) $3,309

Question 16

The Dog House has net income of $3,450 and total equity of $8,600.The debt-equity ratio is 0.60 and the payout ratio is 30 percent.What is the internal growth rate?

Accepted Answer

A) 14.47 percent 
B) 17.78 percent 
C) 21.29 percent 
D) 29.40 percent 
E) 33.33 percent 
A) 14.47 percent 
B) 17.78 percent 
C) 21.29 percent 
D) 29.40 percent 
E) 33.33 percent

Question 17

Which one of the following statements is correct?

Accepted Answer

A) Pro forma statements must assume that no new equity is issued. 
B) Pro forma statements are projections, not guarantees. 
C) Pro forma statements are limited to a balance sheet and income statement. 
D) Pro forma financial statements must assume that no dividends will be paid. 
E) Net working capital needs are excluded from pro forma computations. 
A) Pro forma statements must assume that no new equity is issued. 
B) Pro forma statements are projections, not guarantees. 
C) Pro forma statements are limited to a balance sheet and income statement. 
D) Pro forma financial statements must assume that no dividends will be paid. 
E) Net working capital needs are excluded from pro forma computations.

Question 18

Consider the income statement for Heir Jordan Corporation:   A 22 percent growth rate in sales is projected.What is the pro forma addition to retained earnings assuming all costs vary proportionately with sales?

Accepted Answer

A) $6,299 
B) $7,303 
C) $7,890 
D) $8,011 
E) $8,164 
A) $6,299 
B) $7,303 
C) $7,890 
D) $8,011 
E) $8,164

Question 19

Financial planning accomplishes which of the following for a firm?
I.determination of asset requirements
II.development of plans to contend with unexpected events
III.establishment of priorities
IV.analysis of funding options

Accepted Answer

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

Question 20

Which one of the following will increase the maximum rate of growth a corporation can achieve?

Accepted Answer

A) avoidance of external equity financing 
B) increase in corporate tax rates 
C) reduction in the retention ratio 
D) decrease in the dividend payout ratio 
E) decrease in sales given a positive profit margin 
A) avoidance of external equity financing 
B) increase in corporate tax rates 
C) reduction in the retention ratio 
D) decrease in the dividend payout ratio 
E) decrease in sales given a positive profit margin

Exam 4: Long-Term Financial Planning and Growth

The external financing need:

Consider the following information for Kaleb's Kickboxing: What is the sustainable rate of growth?

A firm has a retention ratio of 45 percent and a sustainable growth rate of 6.2 percent.The capital intensity ratio is 1.2 and the debt-equity ratio is 0.64.What is the profit margin?

Designer's Outlet has a capital intensity ratio of 0.92 at full capacity.Currently,total assets are $48,900 and current sales are $51,200.At what level of capacity is the firm currently operating?

All else constant,which one of the following will increase the internal rate of growth?

Which one of the following correctly defines the retention ratio?

A firm is operating at 90 percent of capacity.This information is primarily needed to project which one of the following account values when compiling pro forma statements?

Fresno Salads has current sales of $6,000 and a profit margin of 6.5 percent.The firm estimates that sales will increase by 4 percent next year and that all costs will vary in direct relationship to sales.What is the pro forma net income?

Blasco Industries is currently at full-capacity sales.Which one of the following is limiting sales to this level?

Seaweed Mfg.,Inc.is currently operating at only 86 percent of fixed asset capacity.Fixed assets are $387,000.Current sales are $510,000 and are projected to grow to $664,000.What amount must be spent on new fixed assets to support this growth in sales?

Which of the following are needed to determine the amount of fixed assets required to support each dollar of sales? I.current amount of fixed assets II.current sales III.current level of operating capacity IV.projected growth rate of sales

A firm wishes to maintain a growth rate of 8 percent and a dividend payout ratio of 62 percent.The ratio of total assets to sales is constant at 1,and the profit margin is 10 percent.What must the debt-equity ratio be if the firm wishes to keep that ratio constant?

The Dog House has net income of $3,450 and total equity of $8,600.The debt-equity ratio is 0.60 and the payout ratio is 30 percent.What is the internal growth rate?

Which one of the following statements is correct?

Consider the income statement for Heir Jordan Corporation: A 22 percent growth rate in sales is projected.What is the pro forma addition to retained earnings assuming all costs vary proportionately with sales?

Financial planning accomplishes which of the following for a firm? I.determination of asset requirements II.development of plans to contend with unexpected events III.establishment of priorities IV.analysis of funding options

Which one of the following will increase the maximum rate of growth a corporation can achieve?

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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