Question 1

Consultants, Inc. is currently operating at 95% of capacity. What is the required increase in fixed assets if sales are projected to increase by 10%?

Accepted Answer

A)   $0
B)   $207
C)   $230
D)   $427
E)   $460F) D) and E)
G) B) and D)

Question 2

Which one of the following statements is true concerning the construction of pro forma statements using the percentage of sales approach?

Accepted Answer

A)   The profit margin tends to vary considerably.
B)   The dividend dollar amount is held constant.
C)   Long-term debt is held as a constant percentage of sales.
D)   Retained earnings vary directly with sales.
E)   Inventory generally varies directly with sales.F) All of the above
G) A) and B) E

Question 3

Financial planning generally:

Accepted Answer

A)   Outlines the investment options a firm desires but does not address the funding of those options.
B)   Includes the development of contingency plans.
C)   Includes only those assumptions and actions which are most likely to occur.
D)   Is limited to forecasting the revenues and expenses of a firm given an assumed economic environment.
E)   Outlines the investment opportunities available to a firm without establishing a list of priorities.F) C) and E)
G) A) and B)

Question 4

The composition of the liability and equity sections of a pro forma statement depend most heavily on a firm's:

Accepted Answer

A)   Net working capital policies.
B)   Financing and dividend policies.
C)   Desired level of liquidity.
D)   Capital budgeting and working capital policies.
E)   Level of capacity utilization and net working capital policy.F) All of the above
G) D) and E)

Question 5

When utilizing the percentage of sales approach, managers can ignore any projected dividends.

Accepted Answer

A) True 
 B)False

Question 6

Financial planning generally considers:

Accepted Answer

A)   Two to five proposals over the short-term.
B)   A two to five year time frame while aggregating smaller proposals.
C)   The details of each individual project over the long-term.
D)   Three alternative scenarios over the short-term.
E)   An aggregation of projects over the next twenty-four months.F) A) and B)
G) B) and C) B

Question 7

A firm has a payout ratio of 40 percent and a sustainable growth rate of 8.5%. The capital intensity ratio is 1.1 and the debt-equity ratio is.5. What is the profit margin?

Accepted Answer

A)   5.4%
B)   7.9%
C)   9.6 %
D)   11.9%
E)   14.4%F) A) and B)
G) A) and C)

Question 8

The following balance sheet and income statement should be used:   Hilltop, Inc. is currently operating at 69% of capacity. What is the full-capacity level of sales?

Accepted Answer

A)   $50,959.00
B)   $51,376.81
C)   $52,493.82
D)   $55,418.07
E)   $56,376.81F) B) and E)
G) A) and B)

Question 9

Calculate the external financing needed given the following information: current sales = $1,000; current sales capacity = 90%; current fixed assets = $1,800; projected future sales = $1,250.

Accepted Answer

A)   $225
B)   $2025
C)   450
D)   $4050
E)   $675F) D) and E)
G) A) and C)

Question 10

Which one of the following statements is correct concerning the external financing need (EFN)  and the dividend payout ratio? Assume EFN is a positive number.

Accepted Answer

A)   The dividend payout ratio has no effect on the EFN.
B)   An increase in the dividend payout ratio will decrease the EFN.
C)   An increase in the dividend payout ratio will increase the EFN.
D)   The effect on EFN caused by an increase in the dividend payout ratio cannot be predicted.
E)   An increase in EFN causes the dividend payout ratio to decrease.F) A) and C)
G) A) and B)

Question 11

When fixed assets on a pro forma statement are projected to increase at a rate equivalent to the projected rate of sales growth, it can be assumed that the firm is:

Accepted Answer

A)   Projected to grow at the internal rate of growth.
B)   Projected to grow at the sustainable rate of growth.
C)   Creating excess capacity.
D)   Currently operating at full capacity.
E)   Retaining all of its projected net income.F) B) and C)
G) A) and E)

Question 12

Calculate retention ratio given the following information: EBIT $100,000; tax rate 30%; dividends paid $24,500.

Accepted Answer

A)   35%
B)   65%
C)   40%
D)   50%
E)   70%F) All of the above
G) B) and D)

Question 13

The sustainable growth rate:

Accepted Answer

A)   Assumes there is no external financing of any kind.
B)   Is normally higher than the internal growth rate.
C)   Assumes the debt-equity ratio is variable.
D)   Is based on receiving additional external debt and equity financing.
E)   Assumes that 100 percent of all income is retained by the firm.F) C) and E)
G) A) and D)

Question 14

Net income = $150; Total assets = $1,000; Total liabilities = $400; Total asset turnover = 4.0

What is the sustainable growth rate assuming dividends paid total $50?

Accepted Answer

A)   2.5%
B)   5.3%
C)   8.3%
D)   9.1%
E)   20%F) C) and E)
G) C) and D)

Question 15

The external financing need tends to ______ as the projected growth rate in sales increases.

Accepted Answer

A)   decrease
B)   increase
C)   remain constant
D)   vary in an unpredictable manner
E)   increase and then decreaseF) All of the above
G) C) and D)

Question 16

Calculate payout ratio given the following information: cash dividends paid = $19,950; sales = $250,000; cost of goods sold = $100,000; selling and administrative expenses = $50,000; interest expense = $5,000; tax rate = 30%.

Accepted Answer

A)   70%
B)   30%
C)   50%
D)   35%
E)   65%F) D) and E)
G) B) and E)

Question 17

The sustainable growth rate rises as the _______ declines.

Accepted Answer

A)   Profit margin.
B)   Retention ratio.
C)   Debt-equity ratio.
D)   Dividend payout ratio.
E)   Total asset turnover.F) A) and B)
G) B) and D) D

Question 18

All else the same, lower return on assets (ROA) ratio would likely be associated with a firm which has a high capital intensity ratio, relative to other firms in the same industry.

Accepted Answer

A) True 
 B)False

Question 19

Moore Money Inc. has a profit margin of 11% and a retention ratio of 70%. Last year, the firm had sales of $500 and total assets of $1,000. What is the internal growth rate?

Accepted Answer

A)   1.7%
B)   2.6%
C)   3.7%
D)   4.0%
E)   5.9%F) C) and D)
G) A) and C)

Question 20

Consultants, Inc. maintains a constant dividend payout ratio. The firm is currently operating at full capacity. What is the maximum rate at which the firm can grow without acquiring any additional external financing?

Accepted Answer

A)   2.42%
B)   3.89%
C)   7.65%
D)   9.45%
E)   12.65%F) None of the above
G) B) and D)

Exam 4: Long-Term Financial Planning and Corporate Growth

Consultants, Inc. is currently operating at 95% of capacity. What is the required increase in fixed assets if sales are projected to increase by 10%?

Correct AnswerverifiedShow Answer

Which one of the following statements is true concerning the construction of pro forma statements using the percentage of sales approach?

Correct AnswerverifiedE

Financial planning generally:

Correct AnswerverifiedShow Answer

The composition of the liability and equity sections of a pro forma statement depend most heavily on a firm's:

Correct AnswerverifiedShow Answer

When utilizing the percentage of sales approach, managers can ignore any projected dividends.

Correct AnswerverifiedShow Answer

Financial planning generally considers:

Correct AnswerverifiedB

A firm has a payout ratio of 40 percent and a sustainable growth rate of 8.5%. The capital intensity ratio is 1.1 and the debt-equity ratio is.5. What is the profit margin?

Correct AnswerverifiedShow Answer

The following balance sheet and income statement should be used: Hilltop, Inc. is currently operating at 69% of capacity. What is the full-capacity level of sales?

Correct AnswerverifiedShow Answer

Calculate the external financing needed given the following information: current sales = $1,000; current sales capacity = 90%; current fixed assets = $1,800; projected future sales = $1,250.

Correct AnswerverifiedShow Answer

Which one of the following statements is correct concerning the external financing need (EFN) and the dividend payout ratio? Assume EFN is a positive number.

Correct AnswerverifiedShow Answer

When fixed assets on a pro forma statement are projected to increase at a rate equivalent to the projected rate of sales growth, it can be assumed that the firm is:

Correct AnswerverifiedShow Answer

Calculate retention ratio given the following information: EBIT $100,000; tax rate 30%; dividends paid $24,500.

Correct AnswerverifiedShow Answer

The sustainable growth rate:

Correct AnswerverifiedShow Answer

Net income = $150; Total assets = $1,000; Total liabilities = $400; Total asset turnover = 4.0 What is the sustainable growth rate assuming dividends paid total $50?

Correct AnswerverifiedShow Answer

The external financing need tends to ______ as the projected growth rate in sales increases.

Correct AnswerverifiedShow Answer

Calculate payout ratio given the following information: cash dividends paid = $19,950; sales = $250,000; cost of goods sold = $100,000; selling and administrative expenses = $50,000; interest expense = $5,000; tax rate = 30%.

Correct AnswerverifiedShow Answer

The sustainable growth rate rises as the _______ declines.

Correct AnswerverifiedD

All else the same, lower return on assets (ROA) ratio would likely be associated with a firm which has a high capital intensity ratio, relative to other firms in the same industry.

Correct AnswerverifiedShow Answer

Moore Money Inc. has a profit margin of 11% and a retention ratio of 70%. Last year, the firm had sales of $500 and total assets of $1,000. What is the internal growth rate?

Correct AnswerverifiedShow Answer

Consultants, Inc. maintains a constant dividend payout ratio. The firm is currently operating at full capacity. What is the maximum rate at which the firm can grow without acquiring any additional external financing?

Correct AnswerverifiedShow Answer

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B

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D

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