Exam 17: Financial Planning and Forecasting

Errors in the sales forecast can be offset by similar errors in costs and income forecasts.Thus,as long as the errors are not large,sales forecast accuracy is not critical to the firm.

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(True/False)

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Question 1

Correct Answer:

Verified

False

A firm's profit margin is 5%,its debt ratio is 56%,and its dividend payout ratio is 40%.If the firm is operating at less than full capacity,then sales could increase to some extent without the need for external funds,but if it is operating at full capacity with respect to all assets,including fixed assets,then any positive growth in sales will require some external financing.

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(True/False)

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Question 2

Correct Answer:

Verified

False

If a firm with a positive net worth is operating its fixed assets at full capacity,if its dividend payout ratio is 100%,and if it wants to hold all financial ratios constant,then for any positive growth rate in sales,it will require external financing.

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(True/False)

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Question 3

Correct Answer:

Verified

True

To determine the amount of additional funds needed (AFN),you may subtract the expected increase in liabilities,which represents a source of funds,from the sum of the expected increases in retained earnings and assets,both of which are uses of funds.

(True/False)

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Question 4

The first,and most critical,step in constructing a set of forecasted financial statements is the sales forecast.

(True/False)

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Question 5

Which of the following statements is CORRECT?

(Multiple Choice)

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Question 6

Howton & Howton Worldwide (HHW)is planning its operations for the coming year,and the CEO wants you to forecast the firm's additional funds needed (AFN).Data for use in the forecast are shown below.However,the CEO is concerned about the impact of a change in the payout ratio from the 10% that was used in the past to 50%,which the firm's investment bankers have recommended.Based on the AFN equation,by how much would the AFN for the coming year change if HHW increased the payout from 10% to the new and higher level? All dollars are in millions.

(Multiple Choice)

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Question 7

Clayton Industries is planning its operations for next year.Ronnie Clayton,the CEO,wants you to forecast the firm's additional funds needed (AFN).Data for use in your forecast are shown below.Based on the AFN equation,what is the AFN for the coming year? Dollars are in millions.

(Multiple Choice)

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Question 8

Last year Handorf-Zhu Inc.had $850 million of sales,and it had $425 million of fixed assets that were used at only 60% of capacity.What is the maximum sales growth rate the company could achieve before it had to increase its fixed assets?

(Multiple Choice)

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Question 9

A rapid build-up of inventories normally requires additional financing,unless the increase is matched by an equally large decrease in some other asset.

(True/False)

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Question 10

Last year Godinho Corp.had $250 million of sales,and it had $75 million of fixed assets that were being operated at 80% of capacity.In millions,how large could sales have been if the company had operated at full capacity?

(Multiple Choice)

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Question 11

Chua Chang & Wu Inc.is planning its operations for next year,and the CEO wants you to forecast the firm's additional funds needed (AFN).Data for use in your forecast are shown below.Based on the AFN equation,what is the AFN for the coming year?

(Multiple Choice)

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Question 12

The capital intensity ratio is generally defined as follows:

(Multiple Choice)

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Question 13

Jefferson City Computers has developed a forecasting model to estimate its AFN for the upcoming year.All else being equal,which of the following factors is most likely to lead to an increase of the additional funds needed (AFN)?

(Multiple Choice)

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Question 14

A typical sales forecast,though concerned with future events,will usually be based on recent historical trends and events as well as on forecasts of economic prospects.

(True/False)

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Question 15

Which of the following assumptions is embodied in the AFN equation?

(Multiple Choice)

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Question 16

Last year Wei Guan Inc.had $350 million of sales,and it had $270 million of fixed assets that were used at 65% of capacity.In millions,by how much could Wei Guan's sales increase before it is required to increase its fixed assets?

(Multiple Choice)

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Question 17

When we use the AFN equation to forecast the additional funds needed (AFN),we are implicitly assuming that all financial ratios are constant.If financial ratios are not constant,regression techniques can be used to improve the financial forecast.

(True/False)

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Question 18

The term "additional funds needed (AFN)" is generally defined as follows:

(Multiple Choice)

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Question 19

Which of the following statements is CORRECT?

(Multiple Choice)

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Question 20

Showing 1 - 20 of 39

Exam 17: Financial Planning and Forecasting

Errors in the sales forecast can be offset by similar errors in costs and income forecasts.Thus,as long as the errors are not large,sales forecast accuracy is not critical to the firm.

If a firm with a positive net worth is operating its fixed assets at full capacity,if its dividend payout ratio is 100%,and if it wants to hold all financial ratios constant,then for any positive growth rate in sales,it will require external financing.

To determine the amount of additional funds needed (AFN),you may subtract the expected increase in liabilities,which represents a source of funds,from the sum of the expected increases in retained earnings and assets,both of which are uses of funds.

The first,and most critical,step in constructing a set of forecasted financial statements is the sales forecast.

Which of the following statements is CORRECT?

Clayton Industries is planning its operations for next year.Ronnie Clayton,the CEO,wants you to forecast the firm's additional funds needed (AFN).Data for use in your forecast are shown below.Based on the AFN equation,what is the AFN for the coming year? Dollars are in millions. ​

Last year Handorf-Zhu Inc.had $850 million of sales,and it had $425 million of fixed assets that were used at only 60% of capacity.What is the maximum sales growth rate the company could achieve before it had to increase its fixed assets?

A rapid build-up of inventories normally requires additional financing,unless the increase is matched by an equally large decrease in some other asset.

Last year Godinho Corp.had $250 million of sales,and it had $75 million of fixed assets that were being operated at 80% of capacity.In millions,how large could sales have been if the company had operated at full capacity?

Chua Chang & Wu Inc.is planning its operations for next year,and the CEO wants you to forecast the firm's additional funds needed (AFN).Data for use in your forecast are shown below.Based on the AFN equation,what is the AFN for the coming year?

The capital intensity ratio is generally defined as follows:

Jefferson City Computers has developed a forecasting model to estimate its AFN for the upcoming year.All else being equal,which of the following factors is most likely to lead to an increase of the additional funds needed (AFN)?

A typical sales forecast,though concerned with future events,will usually be based on recent historical trends and events as well as on forecasts of economic prospects.

Which of the following assumptions is embodied in the AFN equation?

Last year Wei Guan Inc.had $350 million of sales,and it had $270 million of fixed assets that were used at 65% of capacity.In millions,by how much could Wei Guan's sales increase before it is required to increase its fixed assets?

When we use the AFN equation to forecast the additional funds needed (AFN),we are implicitly assuming that all financial ratios are constant.If financial ratios are not constant,regression techniques can be used to improve the financial forecast.

The term "additional funds needed (AFN)" is generally defined as follows:

Which of the following statements is CORRECT?

An Overview of Financial Management

Financial Markets and Institutions

Financial Statements, cash Flow, and Taxes

Analysis of Financial Statements

Time Value of Money

Interest Rates

Bonds and Their Valuation

Risk and Rates of Return

Stocks and Their Valuation

The Cost of Capital

The Basics of Capital Budgeting

Cash Flow Estimation and Risk Analysis

Real Options and Other Topics in Capital Budgeting

Capital Structure and Leverage

Distributions to Shareholders: Dividends and Share Repurchases

Working Capital Management

Derivatives and Risk Management

Multinational Financial Management

Hybrid Financing: Preferred Stock, leasing, warrants, and Convertibles

Mergers and Acquisitions

Continuous Compounding and Discounting

Zero Coupon Bonds

Bankruptcy and Reorganization

Calculating Beta Coefficients

Using the Capm to Estimate the Risk-Adjusted Cost of Capital

Techniques for Measuring Beta Risk

Degree of Leverage

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Clayton Industries is planning its operations for next year.Ronnie Clayton,the CEO,wants you to forecast the firm's additional funds needed (AFN).Data for use in your forecast are shown below.Based on the AFN equation,what is the AFN for the coming year? Dollars are in millions.