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Christina's has a profit margin of 7.5 percent, a capital intensity ratio of .8, a debt-equity ratio of .6, net income of $31,000, and dividends paid of $15,810. What is the sustainable rate of growth?


A) 4.94 percent
B) 5.29 percent
C) 7.93 percent
D) 6.42 percent
E) 3.58 percent

F) B) and D)
G) A) and E)

Correct Answer

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Jamestowne Boats has a profit margin of 6.2 percent, a payout ratio of 30 percent, an ROA of 14.2 percent, and an ROE of 18.6 percent. This firm maintains a constant payout ratio and is currently operating at full capacity. What is the maximum rate at which the firm can grow without acquiring any additional external financing?


A) 12.74 percent
B) 11.04 percent
C) 13.02 percent
D) 14.97 percent
E) 9.94 percent

F) A) and E)
G) B) and D)

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Financial planning:


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.
E) provides minimal benefits for firms that are highly responsive to economic changes.

F) B) and D)
G) C) and D)

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The Mill Press is operating at 94 percent of its fixed asset capacity and has current sales of $611,000. How much can the firm grow before any new fixed assets are needed?


A) 4.99 percent
B) 5.78 percent
C) 6.02 percent
D) 6.38 percent
E) 6.79 percent

F) All of the above
G) A) and C)

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The maximum rate of growth a corporation can achieve can be increased by:


A) avoiding new external equity financing.
B) increasing the corporate tax rate.
C) increasing the retention ratio.
D) increasing the dividend payout ratio.
E) increasing the sales forecast.

F) B) and C)
G) A) and E)

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Muder's Market has sales of $28,400, net income of $2,250, and a retention ratio of 60 percent. Assume the profit margin and the payout ratio are constant and sales increase by 6 percent. What is the pro forma retained earnings if the current retained earnings balance is $4,100?


A) $5,450
B) $5,721
C) $5,531
D) $5,648
E) $5,028

F) B) and D)
G) B) and E)

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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 .64. What is the profit margin?


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

F) A) and E)
G) A) and B)

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All else constant, a(n) ________ will increase the internal rate of growth.


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 cost of goods sold

F) A) and D)
G) D) and E)

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Next year's pro forma statement is based on an annual increase in sales of four percent. The firm is currently operating at 85 percent of capacity. Net working capital and all costs vary directly with sales. The tax rate and the dividend payout ratio are fixed. Given this information, the:


A) projected dividends must equal the current dividends.
B) depreciation expense will decrease by four percent.
C) retained earnings will increase by 85 percent of projected net income.
D) total assets will increase by less than four percent.
E) total liabilities and owners' equity will increase by four percent.

F) A) and D)
G) All of the above

Correct Answer

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Nielsen's has annual sales of $352,400 and a profit margin of 5.2 percent. The firm has beginning owners' equity of $136,400 and ending owners' equity of $139,900. The firm neither sold nor repurchased shares during the year. What is the firm's retention ratio?


A) 26.87 percent
B) 40.00 percent
C) 36.67 percent
D) 19.10 percent
E) 23.33 percent

F) A) and B)
G) C) and D)

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Pro forma statements:


A) must assume that no new equity is issued.
B) are projections, not guarantees.
C) are limited to a balance sheet and income statement.
D) must assume that no dividends will be paid.
E) exclude net working capital needs.

F) A) and E)
G) All of the above

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The Dog House has net income of $3,450 and total equity of $8,600. The debt-equity ratio is .60 and the payout ratio is 30 percent. What is the internal growth rate?


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

F) A) and E)
G) C) and D)

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Assume a firm is currently operating at 98 percent of capacity with sales of $28,400. Next year, sales are projected to increase to $35,000. What is the projected addition to fixed assets if the firm currently has fixed assets of $16,900 and total assets of $24,600?


A) $0
B) $3,511
C) $2,629
D) $580
E) $1,688

F) C) and D)
G) B) and E)

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When utilizing the percentage of sales approach, managers:


A) estimate company sales based on a desired level of net income and the current profit margin.
B) consider only those assets that vary directly with sales.
C) consider the current production capacity level.
D) can project net income but not net cash flows.
E) assume all liability accounts will remain constant.

F) D) and E)
G) A) and E)

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Urban's, which is currently operating at full capacity, has sales of $47,000, current assets of $5,100, current liabilities of $6,200, net fixed assets of $51,500, and a profit margin of 5 percent. 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 3 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?


A) −$908.50
B) −$722.50
C) $967.30
D) $1,698.00
E) $1,512.00

F) D) and E)
G) B) and D)

Correct Answer

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When planning for the long run, the planning horizon is usually a period of:


A) 5 to 10 years.
B) 2 to 5 years.
C) 1 to 3 years.
D) 3 to 7 years.
E) 5 years or more.

F) A) and B)
G) A) and C)

Correct Answer

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When developing a financial plan for a corporation you should consider which of the following? 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?


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

F) B) and C)
G) A) and D)

Correct Answer

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Which one of the following are you most apt to estimate first as you begin the process of preparing pro forma statements?


A) Need for additional fixed assets
B) Current fixed costs
C) Projected sales
D) Desired net income
E) Desired dividend payments

F) A) and B)
G) A) and C)

Correct Answer

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Nu Tek has sales of $19,700, net income of $3,517, fixed assets of $18,282, current liabilities of $2,940, current assets of $3,018, long-term debt of $7,600, and equity of $10,760. Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 50 percent dividend payout ratio. Next year's sales are projected to increase by 7 percent. What is the amount of external financing needed if the firm is currently operating at full capacity?


A) −$596
B) −$141
C) $583
D) $912
E) −$482

F) B) and E)
G) A) and B)

Correct Answer

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Country Comfort, Inc. has equity of $168,500, total assets of $195,000, net income of $63,000, and dividends of $37,800. What is the sustainable growth rate?


A) 14.33 percent
B) 10.78 percent
C) 21.60 percent
D) 12.76 percent
E) 17.59 percent

F) None of the above
G) A) and B)

Correct Answer

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