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Exam 4: Long-Term Financial Planning and Growth

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Question 41

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The most recent financial statements for 7 Seas,Inc.are shown here: 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.Like every other firm in its industry,next year's sales are projected to increase by exactly 16 percent.What is the external financing need?

A) $1,317.16
B) $1,411.16
C) $1,583.09
D) $2,211.87
E) $2,349.98

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

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Question 42

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All else constant,which one of the following 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 costs of goods sold

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

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Question 43

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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?

You are getting ready to prepare pro forma statements for your business.Which one of the following are you most apt to estimate first as you begin this process?

Fixed Appliance Co.wishes to maintain a growth rate of 8 percent a year,a constant debt-equity ratio of 0.42,and a dividend payout ratio of 50 percent.The ratio of total assets to sales is constant at 1.3.What profit margin must the firm achieve?

Martin Aerospace is currently operating at full capacity based on its current level of assets.Sales are expected to increase by 4.5 percent next year,which is the firm's internal rate of growth.Net working capital and operating costs are expected to increase directly with sales.The interest expense will remain constant at its current level.The tax rate and the dividend payout ratio will be held constant.Current and projected net income is positive.Which one of the following statements is correct regarding the pro forma statement for next year?

Based on the following information,what is the sustainable growth rate of Hendrix Guitars,Inc.? $\begin{array} { l l } \text { Profit margin } & 5.60 \text { percent } \\\text { Total asset turnover } & 1.76 \\\text { Total debt ratio } & 0.66 \\\text { Payout ratio } & 70 \text { percent }\end{array}$

The Dog House has net income of $3,450 and total equity of $8,600.The debt-equity ratio is 0.60 and the payout ratio is 30 percent.What is the internal growth rate?

A Procrustes approach to financial planning is based on:

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.

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

The Cookie Shoppe expects sales of $437,500 next year.The profit margin is 5.3 percent and the firm has a 30 percent dividend payout ratio.What is the projected increase in retained earnings?

Identify the four primary determinants of a firm's growth and explain how each factor could either add to or limit the growth potential of a firm.

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?

Which one of the following is correct in relation to pro forma statements?

If a firm equates its pro forma sales growth to the rate of sustainable growth,and has positive net income and excess capacity,then the:

Monika's Dinor 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 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:

Which one of the following policies most directly affects the projection of the retained earnings balance to be used on a pro forma statement?

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?