Question 1

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 IVF) All of the above
G) C) and E)

Question 2

The Soccer Shoppe has a 7 percent return on assets and a 25 percent payout ratio. What is its internal growth rate?

Accepted Answer

A)  3.72 percent
B)  4.08 percent
C)  4.49 percent
D)  5.23 percent
E)  5.54 percentF) None of the above
G) B) and E)

Question 3

Which of the following questions are appropriate to address during the financial planning process?
I. Should the firm merge with a competitor?
II. Should additional shares of stock be sold?
III. Should a particular division be sold?
IV. Should a new product be introduced?

Accepted Answer

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

Question 4

Hungry Howie's is currently operating at 96 percent of capacity. The profit margin and the dividend payout ratio are projected to remain constant. Sales are projected to increase by 3 percent next year. What is the projected addition to retained earnings for next year?

Accepted Answer

A)  $1,309.19
B)  $1,421.40
C)  $1,884.90
D)  $2,667.78
E)  $3,001.40F) A) and B)
G) A) and D)

Question 5

Wagner Industrial Motors, which is currently operating at full capacity, has sales of $29,000, current assets of $1,600, current liabilities of $1,200, net fixed assets of $27,500, and a 5 percent profit margin. 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 4.5 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?

Accepted Answer

A)  -$259.75
B)  -$201.19
C)  $967.30
D)  $1,099.08
E)  $1,515.25F) C) and D)
G) D) and E)

Question 6

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 debtF) A) and B)
G) B) and E)

Question 7

Which one of the following terms is defined as dividends paid expressed as a percentage of net income?

Accepted Answer

A)  dividend retention ratio
B)  dividend yield
C)  dividend payout ratio
D)  dividend portion
E)  dividend sectionF) A) and B)
G) None of the above

Question 8

Assume that Fake Stone, Inc. is operating at 88 percent of capacity. All costs and net working capital vary directly with sales. What is the amount of the pro forma net fixed assets for next year if sales are projected to increase by 13 percent?

Accepted Answer

A)  $19,600
B)  $20,406
C)  $21,500
D)  $21,667
E)  $22,148F) A) and B)
G) D) and E)

Question 9

The financial planning process:
I. involves internal negotiations among divisions.
II. quantifies senior manager's goals.
III. considers only internal factors.
IV. reconciles company activities across divisions.

Accepted Answer

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

Question 10

Gladsden Refinishers currently has $21,900 in sales and is operating at 45 percent of the firm's capacity. What is the full capacity level of sales?

Accepted Answer

A)  $31,755
B)  $36,250
C)  $48,667
D)  $51,333
E)  $54,500F) B) and D)
G) C) and D)

Question 11

Assume that Major Manuscripts, Inc. is currently operating at 95 percent of capacity and that sales are projected to increase to $20,000. What is the projected addition to fixed assets?

Accepted Answer

A)  $0
B)  $1,493
C)  $1,529
D)  $1,546
E)  $1,588F) A) and C)
G) B) and D)

Question 12

A firm is currently operating at full capacity. Net working capital, costs, and all assets vary directly with sales. The firm does not wish to obtain any additional equity financing. The dividend payout ratio is constant at 40 percent. If the firm has a positive external financing need, that need will be met by:

Accepted Answer

A)  accounts payable.
B)  long-term debt.
C)  fixed assets.
D)  retained earnings.
E)  common stock.F) A) and B)
G) A) and C)

Question 13

You are comparing the current income statement of a firm to the pro forma income statement for next year. The pro forma is based on a four percent increase in sales. 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, which one of the following statements must be true?

Accepted Answer

A)  The projected net income is equal to the current year's net income.
B)  The tax rate will increase at the same rate as sales.
C)  Retained earnings will increase by four percent over its current level.
D)  Total assets will increase by less than four percent.
E)  Total liabilities and owners' equity will increase by four percent.F) B) and E)
G) B) and C)

Question 14

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 marginF) B) and E)
G) A) and D)

Question 15

What is the internal growth rate of Fake Stone, Inc. assuming the payout ratio remains constant?

Accepted Answer

A)  5.20 percent
B)  5.55 percent
C)  7.36 percent
D)  7.49 percent
E)  8.77 percentF) A) and B)
G) A) and C)

Question 16

A firm's external financing need is financed by which of the following?

Accepted Answer

A)  retained earnings
B)  net working capital and retained earnings
C)  net income and retained earnings
D)  debt or equity
E)  owners' equity, including retained earningsF) All of the above
G) C) and E)

Question 17

The most recent financial statements for Last in Line, Inc. are shown here:  Assets and costs are proportional to sales. Debt and equity are not. A dividend of $992 was paid, and the company wishes to maintain a constant payout ratio. Next year's sales are projected to be $21,830. What is the amount of the external financing need?

Accepted Answer

A)  $12,711
B)  $13,333
C)  $13,556
D)  $13,809
E)  $14,357F) A) and D)
G) A) and C)

Question 18

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 ratioF) A) and D)
G) D) and E)

Question 19

What is Major Manuscripts, Inc.'s retention ratio?

Accepted Answer

A)  33 percent
B)  40 percent
C)  50 percent
D)  60 percent
E)  67 percentF) All of the above
G) A) and B)

Question 20

The Parodies Corp. has a 22 percent return on equity and a 23 percent payout ratio. What is its sustainable growth rate?

Accepted Answer

A)  18.68 percent
B)  19.25 percent
C)  19.49 percent
D)  20.39 percent
E)  22.00 percentF) A) and B)
G) A) and C)

Exam 4: Long-Term Financial Planning and Growth

Correct Answer
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The Parodies Corp. has a 22 percent return on equity and a 23 percent payout ratio. What is its sustainable growth rate?

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

Correct Answer
verified

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

Correct Answer
verified

What is Major Manuscripts, Inc.'s retention ratio?

Correct Answer
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Correct Answer
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The Soccer Shoppe has a 7 percent return on assets and a 25 percent payout ratio. What is its internal growth rate?

Correct Answer
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Assume that Major Manuscripts, Inc. is currently operating at 95 percent of capacity and that sales are projected to increase to $20,000. What is the projected addition to fixed assets?

Correct Answer
verified

Correct Answer
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A firm's external financing need is financed by which of the following?

Correct Answer
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Hungry Howie's is currently operating at 96 percent of capacity. The profit margin and the dividend payout ratio are projected to remain constant. Sales are projected to increase by 3 percent next year. What is the projected addition to retained earnings for next year?

Correct Answer
verified

Correct Answer
verified

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?

Correct Answer
verified

Correct Answer
verified

Gladsden Refinishers currently has $21,900 in sales and is operating at 45 percent of the firm's capacity. What is the full capacity level of sales?

Correct Answer
verified

Which of the following questions are appropriate to address during the financial planning process? I. Should the firm merge with a competitor? II. Should additional shares of stock be sold? III. Should a particular division be sold? IV. Should a new product be introduced?

Correct Answer
verified

Assume that Fake Stone, Inc. is operating at 88 percent of capacity. All costs and net working capital vary directly with sales. What is the amount of the pro forma net fixed assets for next year if sales are projected to increase by 13 percent?

Correct Answer
verified

What is the internal growth rate of Fake Stone, Inc. assuming the payout ratio remains constant?

Correct Answer
verified

The financial planning process: I. involves internal negotiations among divisions. II. quantifies senior manager's goals. III. considers only internal factors. IV. reconciles company activities across divisions.

Correct Answer
verified

Which one of the following terms is defined as dividends paid expressed as a percentage of net income?

Correct Answer
verified

Exam 4: Long-Term Financial Planning and Growth

Correct AnswerverifiedShow Answer

The Parodies Corp. has a 22 percent return on equity and a 23 percent payout ratio. What is its sustainable growth rate?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What is Major Manuscripts, Inc.'s retention ratio?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Soccer Shoppe has a 7 percent return on assets and a 25 percent payout ratio. What is its internal growth rate?

Correct AnswerverifiedShow Answer

Assume that Major Manuscripts, Inc. is currently operating at 95 percent of capacity and that sales are projected to increase to $20,000. What is the projected addition to fixed assets?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A firm's external financing need is financed by which of the following?

Correct AnswerverifiedShow Answer

Hungry Howie's is currently operating at 96 percent of capacity. The profit margin and the dividend payout ratio are projected to remain constant. Sales are projected to increase by 3 percent next year. What is the projected addition to retained earnings for next year?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Gladsden Refinishers currently has $21,900 in sales and is operating at 45 percent of the firm's capacity. What is the full capacity level of sales?

Correct AnswerverifiedShow Answer

Which of the following questions are appropriate to address during the financial planning process? I. Should the firm merge with a competitor? II. Should additional shares of stock be sold? III. Should a particular division be sold? IV. Should a new product be introduced?

Correct AnswerverifiedShow Answer

Assume that Fake Stone, Inc. is operating at 88 percent of capacity. All costs and net working capital vary directly with sales. What is the amount of the pro forma net fixed assets for next year if sales are projected to increase by 13 percent?

Correct AnswerverifiedShow Answer

What is the internal growth rate of Fake Stone, Inc. assuming the payout ratio remains constant?

Correct AnswerverifiedShow Answer

The financial planning process: I. involves internal negotiations among divisions. II. quantifies senior manager's goals. III. considers only internal factors. IV. reconciles company activities across divisions.

Correct AnswerverifiedShow Answer

Which one of the following terms is defined as dividends paid expressed as a percentage of net income?

Correct AnswerverifiedShow Answer

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