Question 1

Seaweed Mfg.,Inc.is currently operating at only 84 percent of fixed asset capacity.Current sales are $550,000.What is the maximum rate at which sales can grow before any new fixed assets are needed?

Accepted Answer

A)  17.23 percent
B)  17.47 percent
C)  18.03 percent
D)  18.87 percent
E)  19.05 percentF) B) and C)
G) A) and B)

Question 2

Miller Bros.Hardware is operating at full capacity with a sales level of $689,700 and fixed assets of $468,000.The profit margin is 7 percent.What is the required addition to fixed assets if sales are to increase by 10 percent?

Accepted Answer

A)  $3,276
B)  $4,680
C)  $28,400
D)  $32,760
E)  $46,800F) C) and E)
G) B) and D)

Question 3

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

Question 4

A firm wishes to maintain a growth rate of 8 percent and a dividend payout ratio of 62 percent.The ratio of total assets to sales is constant at 1,and the profit margin is 10 percent.What must the debt-equity ratio be if the firm wishes to keep that ratio constant?

Accepted Answer

A)  0.05
B)  0.40
C)  0.55
D)  0.60
E)  0.95F) A) and B)
G) C) and D)

Question 5

A firm's net working capital and all of its expenses vary directly with sales.The firm is operating currently at 96 percent of capacity.The firm wants no additional external financing of any kind.Which one of the following statements related to the firm's pro forma statements for next year must be correct?

Accepted Answer

A)  Total liabilities will remain constant at this year's value.
B)  The maximum rate of sales increase is 4 percent.
C)  The firm cannot exceed its internal rate of growth.
D)  The projected owners' equity will equal this year's ending equity balance.
E)  Fixed assets must remain constant at the current level.F) B) and D)
G) C) and D)

Question 6

Which one of the following statements is correct?

Accepted Answer

A)  Pro forma statements must assume that no new equity is issued.
B)  Pro forma statements are projections, not guarantees.
C)  Pro forma statements are limited to a balance sheet and income statement.
D)  Pro forma financial statements must assume that no dividends will be paid.
E)  Net working capital needs are excluded from pro forma computations.F) C) and D)
G) A) and E)

Question 7

Which one of the following statements concerning financial planning for a firm is correct?

Accepted Answer

A)  Financial planning for fixed assets is done on a segregated basis within each division.
B)  Financial plans often contain alternative options based on economic developments.
C)  Financial plans frequently contain conflicting goals.
D)  Financial plans assume that firms obtain no additional external financing.
E)  The financial planning process is based on a single set of economic assumptions.F) B) and E)
G) D) and E)

Question 8

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

Question 9

The most recent financial statements for Watchtower,Inc.are shown here (assuming no income taxes) :  Assets and costs are proportional to sales.Debt and equity are not.No dividends are paid.Next year's sales are projected to be $4,750.What is the amount of the external financing needed?

Accepted Answer

A)  $797
B)  $808
C)  $811
D)  $818
E)  $823F) None of the above
G) B) and C)

Question 10

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 0.64.What is the profit margin?

Accepted Answer

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

Question 11

A firm wishes to maintain an internal growth rate of 11 percent and a dividend payout ratio of 24 percent.The current profit margin is 7 percent and the firm uses no external financing sources.What must the total asset turnover rate be?

Accepted Answer

A)  0.87 times
B)  0.90 times
C)  1.01 times
D)  1.15 times
E)  1.86 timesF) C) and D)
G) A) and B)

Question 12

Consider the income statement for Heir Jordan Corporation: 
 A 22 percent growth rate in sales is projected.What is the pro forma addition to retained earnings assuming all costs vary proportionately with sales?

Accepted Answer

A)  $6,299
B)  $7,303
C)  $7,890
D)  $8,011
E)  $8,164F) D) and E)
G) C) and E) E

Question 13

Consider the following information for Kaleb's Kickboxing:

What is the sustainable rate of growth?

Accepted Answer

A)  11.87 percent
B)  12.29 percent
C)  12.52 percent
D)  13.42 percent
E)  13.58 percentF) A) and E)
G) A) and B)

Question 14

Which one of the following capital intensity ratios indicates the largest need for fixed assets per dollar of sales?

Accepted Answer

A)  0.70
B)  0.86
C)  1.00
D)  1.06
E)  1.15F) A) and D)
G) All of the above

Question 15

The sustainable growth rate:

Accepted Answer

A)  assumes there is no external financing of any kind.
B)  assumes no additional long-term debt is available.
C)  assumes the debt-equity ratio is constant.
D)  assumes the debt-equity ratio is 1.0.
E)  assumes all income is retained by the firm.F) B) and E)
G) A) and C)

Question 16

Fresno Salads has current sales of $6,000 and a profit margin of 6.5 percent.The firm estimates that sales will increase by 4 percent next year and that all costs will vary in direct relationship to sales.What is the pro forma net income?

Accepted Answer

A)  $303.33
B)  $327.18
C)  $405.60
D)  $438.70
E)  $441.10F) A) and E)
G) None of the above C

Question 17

The plowback ratio is:

Accepted Answer

A)  equal to net income divided by the change in total equity.
B)  the percentage of net income available to the firm to fund future growth.
C)  equal to one minus the retention ratio.
D)  the change in retained earnings divided by the dividends paid.
E)  the dollar increase in net income divided by the dollar increase in sales.F) C) and D)
G) A) and B)

Question 18

When constructing a pro forma statement,net working capital generally:

Accepted Answer

A)  remains fixed.
B)  varies only if the firm is currently producing at full capacity.
C)  varies only if the firm maintains a fixed debt-equity ratio.
D)  varies only if the firm is producing at less than full capacity.
E)  varies proportionally with sales.F) C) and D)
G) A) and B)

Question 19

A)What are the assumptions that underlie the internal growth rate and B)what are the implications of this rate?

Accepted Answer

The basic assumptions are: Costs and net...

Question 20

Designer's Outlet has a capital intensity ratio of 0.92 at full capacity.Currently,total assets are $48,900 and current sales are $51,200.At what level of capacity is the firm currently operating?

Accepted Answer

A)  89.1 percent
B)  91.6 percent
C)  96.3 percent
D)  96.8 percent
E)  98.2 percentF) All of the above
G) B) and E) C

Exam 4: Long-Term Financial Planning and Growth

Seaweed Mfg.,Inc.is currently operating at only 84 percent of fixed asset capacity.Current sales are $550,000.What is the maximum rate at which sales can grow before any new fixed assets are needed?

Correct Answer
verified

Miller Bros.Hardware is operating at full capacity with a sales level of $689,700 and fixed assets of $468,000.The profit margin is 7 percent.What is the required addition to fixed assets if sales are to increase by 10 percent?

Correct Answer
verified

Correct Answer
verified

A firm wishes to maintain a growth rate of 8 percent and a dividend payout ratio of 62 percent.The ratio of total assets to sales is constant at 1,and the profit margin is 10 percent.What must the debt-equity ratio be if the firm wishes to keep that ratio constant?

Correct Answer
verified

Correct Answer
verified

Which one of the following statements is correct?

Correct Answer
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Which one of the following statements concerning financial planning for a firm is correct?

Correct Answer
verified

Correct Answer
verified

The most recent financial statements for Watchtower,Inc.are shown here (assuming no income taxes) : Assets and costs are proportional to sales.Debt and equity are not.No dividends are paid.Next year's sales are projected to be $4,750.What is the amount of the external financing needed?

Correct Answer
verified

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 0.64.What is the profit margin?

Correct Answer
verified

A firm wishes to maintain an internal growth rate of 11 percent and a dividend payout ratio of 24 percent.The current profit margin is 7 percent and the firm uses no external financing sources.What must the total asset turnover rate be?

Correct Answer
verified

Consider the income statement for Heir Jordan Corporation: A 22 percent growth rate in sales is projected.What is the pro forma addition to retained earnings assuming all costs vary proportionately with sales?

Correct Answer
verified
E

Consider the following information for Kaleb's Kickboxing: What is the sustainable rate of growth?

Correct Answer
verified

Which one of the following capital intensity ratios indicates the largest need for fixed assets per dollar of sales?

Correct Answer
verified

The sustainable growth rate:

Correct Answer
verified

Fresno Salads has current sales of $6,000 and a profit margin of 6.5 percent.The firm estimates that sales will increase by 4 percent next year and that all costs will vary in direct relationship to sales.What is the pro forma net income?

Correct Answer
verified
C

The plowback ratio is:

Correct Answer
verified

When constructing a pro forma statement,net working capital generally:

Correct Answer
verified

A)What are the assumptions that underlie the internal growth rate and B)what are the implications of this rate?

Correct Answer
verified
The basic assumptions are: Costs and net...
View Answer

Designer's Outlet has a capital intensity ratio of 0.92 at full capacity.Currently,total assets are $48,900 and current sales are $51,200.At what level of capacity is the firm currently operating?

Correct Answer
verified
C

Exam 4: Long-Term Financial Planning and Growth

Seaweed Mfg.,Inc.is currently operating at only 84 percent of fixed asset capacity.Current sales are $550,000.What is the maximum rate at which sales can grow before any new fixed assets are needed?

Correct AnswerverifiedShow Answer

Miller Bros.Hardware is operating at full capacity with a sales level of $689,700 and fixed assets of $468,000.The profit margin is 7 percent.What is the required addition to fixed assets if sales are to increase by 10 percent?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A firm wishes to maintain a growth rate of 8 percent and a dividend payout ratio of 62 percent.The ratio of total assets to sales is constant at 1,and the profit margin is 10 percent.What must the debt-equity ratio be if the firm wishes to keep that ratio constant?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Which one of the following statements concerning financial planning for a firm is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The most recent financial statements for Watchtower,Inc.are shown here (assuming no income taxes) : Assets and costs are proportional to sales.Debt and equity are not.No dividends are paid.Next year's sales are projected to be $4,750.What is the amount of the external financing needed?

Correct AnswerverifiedShow Answer

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 0.64.What is the profit margin?

Correct AnswerverifiedShow Answer

A firm wishes to maintain an internal growth rate of 11 percent and a dividend payout ratio of 24 percent.The current profit margin is 7 percent and the firm uses no external financing sources.What must the total asset turnover rate be?

Correct AnswerverifiedShow Answer

Consider the income statement for Heir Jordan Corporation: A 22 percent growth rate in sales is projected.What is the pro forma addition to retained earnings assuming all costs vary proportionately with sales?

Correct AnswerverifiedE

Consider the following information for Kaleb's Kickboxing: What is the sustainable rate of growth?

Correct AnswerverifiedShow Answer

Which one of the following capital intensity ratios indicates the largest need for fixed assets per dollar of sales?

Correct AnswerverifiedShow Answer

The sustainable growth rate:

Correct AnswerverifiedShow Answer

Fresno Salads has current sales of $6,000 and a profit margin of 6.5 percent.The firm estimates that sales will increase by 4 percent next year and that all costs will vary in direct relationship to sales.What is the pro forma net income?

Correct AnswerverifiedC

The plowback ratio is:

Correct AnswerverifiedShow Answer

When constructing a pro forma statement,net working capital generally:

Correct AnswerverifiedShow Answer

A)What are the assumptions that underlie the internal growth rate and B)what are the implications of this rate?

Correct AnswerverifiedThe basic assumptions are: Costs and net...View AnswerShow Answer

Designer's Outlet has a capital intensity ratio of 0.92 at full capacity.Currently,total assets are $48,900 and current sales are $51,200.At what level of capacity is the firm currently operating?

Correct AnswerverifiedC

Correct Answer
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Correct Answer
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Correct Answer
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E

Correct Answer
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Correct Answer
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C

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Correct Answer
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Correct Answer
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The basic assumptions are: Costs and net...
View Answer

Correct Answer
verified
C