Question 1

The outputs of a financial planning model often include:

Accepted Answer

A) The firm's current financial statements 
B) A range of macroeconomic forecasts 
C) Cost projections for operating the planning models 
D) Projected financial statements of the firm

Question 2

A planner's percentage of sales model forecasts that sales will grow by 20% next year.If costs of goods sold are proportionate at 70% of sales, then costs of goods sold will:

Accepted Answer

A) Grow to 90% of sales 
B) Grow in dollars by 70% 
C) Not change in dollar amount 
D) Increase by 20% in dollar terms

Question 3

Financial plans will succeed only if the forecasts are perfect.

Accepted Answer

A) True 
 B)False

Question 4

When a firm is said to have 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 increase fixed assets to increase sales

Question 5

Calculate the rate at which the firm can grow without changing its leverage if its payout ratio is 70%, equity outstanding at the beginning of the year is $900,000, and its net income for the year is $150,000:

Accepted Answer

A) 5.00% 
B) 11.67% 
C) 14.00% 
D) 16.67%

Question 6

Which of the following statements is correct concerning the sustainable growth rate?

Accepted Answer

A) It increases as ROE decreases 
B) It increases as the payout ratio decreases 
C) It is maximized when the plowback ratio equals zero 
D) It is always less than the internal growth rate

Question 7

The following data has been collected for Xancho Corporation:
 $$\begin{array} { | l | r | } 
\hline \text { Data: } & \
\hline \text { Sales } & \mathbf { 2 0 0 , 0 0 0 } \
\hline \text { Net Incorne } & 18,000 \
\hline \text { Dividends } & 13,000 \
\hline \text { Total Debt } & 135,000 \
\hline \text { Total Equity } & 55,000 \
\hline
\end{array}$$ Given this information, calculate the following: (a) sustainable growth rate.(b) If the company does grow at this rate, determine the new borrowing that needs to occur.(c) What growth rate could be supported with no outside financing?

Accepted Answer

The answer of The following data has been collected for...

Question 8

A firm has set its target capital structure at 40% debt.Further, it intends to continue with a 30% dividend payout.Finally, it hopes to maintain a constant growth rate of 7%.If the profit margin and asset turnover are currently 8% and.9 respectively, do the constraints sound realistic? If not, what might you suggest?

Accepted Answer

The answer of A firm has set its target capital...

Question 9

Prove that "sustainable growth rate = plowback ratio x return on equity."

Accepted Answer

The answer of Prove that "sustainable growth rate = plowback...

Question 10

Financial planning is concerned with possible surprises as well as the most likely outcomes.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following might indicate the correct choice of a plug figure if a financial plan shows sources of funds to be $100,000 and uses of funds to be $90,000?

Accepted Answer

A) External debt must increase by $10,000 
B) Dividend payments must decrease by $10,000 
C) Cash balances must increase by $10,000 
D) The capital budget must decrease by $10,000

Question 12

What amount of debt should a firm include in its financing mix in order to achieve a sustainable growth rate of 9% while maintaining a 40% dividend payout, a 10% profit margin, and an asset turnover of 1.5?

Accepted Answer

A) 66.67% debt 
B) 60.00% debt 
C) 50.00% debt 
D) Zero debt

Question 13

A potential downfall of using dividends as the plug item is that:

Accepted Answer

A) It may give shareholders mixed signals 
B) Dividends are constant within a planning horizon 
C) The firm may have to borrow cash to pay dividends 
D) Shareholders may receive an excessive return

Question 14

Which of the following statements is correct concerning the internal growth rate?

Accepted Answer

A) It is maximized when the payout ratio equals zero 
B) It is maximized when the plowback ratio equals zero 
C) It cannot be less than the sustainable growth rate 
D) It decreases as total assets decrease

Question 15

A firm has a debt equity ratio of 1/3, and plans to grow at an annual rate of 10%.Its return on equity is 18%.What is the maximum payout ratio that a company can maintain without resorting to new equity issue?

Accepted Answer

A) Approximately 24% 
B) Approximately 25% 
C) Approximately 26% 
D) Approximately 27%

Question 16

The final variable to have its value determined in a financial plan is often referred to as the:

Accepted Answer

A) Net income 
B) Balancing item 
C) Retained earning plowback 
D) Growth forecast

Question 17

Dave's Wax Inc.'s financial planners have projected a growth rate of 8% for the coming year.Currently, it has assets of $5,000,000 and retained earnings of $120,000.Calculate the amount of external financing Dave will need:

Accepted Answer

A) $0 
B) $70,000 
C) $184,000 
D) $280,000

Question 18

Why is it important that financial plans incorporate adaptability?

Accepted Answer

The answer of Why is it important that financial plans...

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

List and briefly describe the components of a financial planning model.

Accepted Answer

The answer of List and briefly describe the components of...

Exam 19: Long-Term Financial Planning

The outputs of a financial planning model often include:

A planner's percentage of sales model forecasts that sales will grow by 20% next year.If costs of goods sold are proportionate at 70% of sales, then costs of goods sold will:

Financial plans will succeed only if the forecasts are perfect.

When a firm is said to have no spare capacity, it:

Calculate the rate at which the firm can grow without changing its leverage if its payout ratio is 70%, equity outstanding at the beginning of the year is $900,000, and its net income for the year is $150,000:

Which of the following statements is correct concerning the sustainable growth rate?

Prove that "sustainable growth rate = plowback ratio x return on equity."

Financial planning is concerned with possible surprises as well as the most likely outcomes.

Which of the following might indicate the correct choice of a plug figure if a financial plan shows sources of funds to be $100,000 and uses of funds to be $90,000?

What amount of debt should a firm include in its financing mix in order to achieve a sustainable growth rate of 9% while maintaining a 40% dividend payout, a 10% profit margin, and an asset turnover of 1.5?

A potential downfall of using dividends as the plug item is that:

Which of the following statements is correct concerning the internal growth rate?

A firm has a debt equity ratio of 1/3, and plans to grow at an annual rate of 10%.Its return on equity is 18%.What is the maximum payout ratio that a company can maintain without resorting to new equity issue?

The final variable to have its value determined in a financial plan is often referred to as the:

Dave's Wax Inc.'s financial planners have projected a growth rate of 8% for the coming year.Currently, it has assets of $5,000,000 and retained earnings of $120,000.Calculate the amount of external financing Dave will need:

Why is it important that financial plans incorporate adaptability?

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

List and briefly describe the components of a financial planning model.