Question 1

Deep Hollow Mills has sales of $254,600 and a profit margin of 5.2 percent. The firm has retained earnings of $113,200 after paying its annual dividend of $7,500. What is the pro forma retained earnings for next year if this firm grows at a rate of 3.6 percent and both the profit margin and the dividend payout ratio remain constant?

Accepted Answer

A)   $117,704.74
B)   $123,771.10
C)   $113,592.08
D)   $105,921.22
E)   $119,145.81F) A) and C)
G) D) and E)

Question 2

RPJ Co. has net income of $2,937, a profit margin of 6.3 percent, a retention ratio of 45 percent, total assets of $52,800, and total debt of $24,300. Assets, current liabilities, and costs are proportional to sales. The company maintains a constant dividend payout ratio and debt-equity ratio and is operating at full capacity. What is the maximum dollar increase in sales that can be sustained next year assuming no new equity is issued?

Accepted Answer

A)   $2,151
B)   $1,211
C)   $2,804
D)   $2,267
E)   $1,667F) A) and B)
G) B) and E)

Question 3

Which capital intensity ratio indicates the smallest need for fixed assets per dollar of sales?

Accepted Answer

A)   0.07
B)   0.86
C)   0.39
D)   1.00
E)   1.15F) B) and C)
G) None of the above

Question 4

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

Question 5

Baked at Home Cookies expects sales of $672,500 next year. The profit margin is 4.6 percent and the firm has a dividend payout ratio of 15 percent. What is the projected increase in retained earnings?

Accepted Answer

A)   $26,294.75
B)   $17,500.50
C)   $4,640.25
D)   $20,640.25
E)   $30,935.00F) D) and E)
G) A) and B)

Question 6

Dexter's has annual sales of $53,800, current assets of $18,900, and net working capital of $2,800. Assume this firm is operating at full capacity and that all costs, net working capital, and fixed assets vary directly with sales. The debt-equity ratio and the dividend payout ratio are constant. What is the pro forma current liabilities value for next year if sales are projected to increase by 7.5 percent?

Accepted Answer

A)   $13,650
B)   $17,308
C)   $19,121
D)   $14,248
E)   $16,810F) B) and C)
G) D) and E)

Question 7

Flo's Flowers has annual sales of $61,888, depreciation of $8,100, interest paid of $970, cost of goods sold of $29,400, taxes of $4,918, and dividends paid of $4,810. The firm has total assets of $105,300 and total debt of $51,600. The firm does not want any additional external equity financing and also wants to maintain a constant debt-equity ratio. What rate of growth can this firm maintain?

Accepted Answer

A)   27.16 percent
B)   12.27 percent
C)   34.22 percent
D)   13.27 percent
E)   23.82 percentF) D) and E)
G) A) and B)

Question 8

SLG, Inc., has annual sales of $40,934, depreciation of $3,100, interest paid of $750, cost of goods sold of $22,400, taxes of $3,084, and dividends paid of $4,060. The firm has total assets of $55,300 and total debt of $32,600. The firm wants to maintain a constant payout ratio but does not want to incur any additional external financing. What is the firm's maximum rate of growth?

Accepted Answer

A)   15.79 percent
B)   16.18 percent
C)   11.49 percent
D)   9.03 percent
E)   13.97 percentF) C) and D)
G) A) and D)

Question 9

The Broom Maker currently has annual sales of $387,000 and is operating at 88 percent of capacity. The profit margin of 5.5 percent and the dividend payout ratio of 30 percent are projected to remain constant. What is the projected addition to retained earnings for next year based on a sales growth rate of 4.8 percent?

Accepted Answer

A)   $12,309
B)   $15,615
C)   $7,890
D)   $6,692
E)   $714F) A) and E)
G) A) and D)

Question 10

James Mfg. is currently operating at only 86 percent of fixed asset capacity. Fixed assets are $387,000. Current sales are $510,000 and are projected to grow to $664,000. What amount must be spent on new fixed assets to support this growth in sales?

Accepted Answer

A)   $0
B)   $22,654
C)   $46,319
D)   $79,408
E)   $93,608F) A) and E)
G) B) and D) C

Question 11

Parodies Corp. has a return on assets of 10.9 percent, a return on equity of 16.7 percent, and a retention ratio of 40 percent. What is its sustainable growth rate?

Accepted Answer

A)   8.68 percent
B)   9.25 percent
C)   7.49 percent
D)   7.16 percent
E)   8.87 percentF) A) and B)
G) C) and D) D

Question 12

Bill's has a profit margin of 5 percent and a dividend payout ratio of 20 percent. The total asset turnover is 1.6 and the debt-equity ratio is .4. What is the sustainable rate of growth?

Accepted Answer

A)   11.20 percent
B)   9.60 percent
C)   10.89 percent
D)   9.26 percent
E)   9.84 percentF) None of the above
G) A) and C)

Question 13

The external financing need:

Accepted Answer

A)   will limit growth if unfunded.
B)   is unaffected by the dividend payout ratio.
C)   must be funded by long-term debt.
D)   ignores any changes in retained earnings.
E)   considers only the required increase in fixed assets.F) A) and B)
G) None of the above

Question 14

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

Accepted Answer

A)   Fixed assets must increase if sales are projected to increase.
B)   Net working capital is affected only when a firm's sales are expected to exceed the firm's current production capacity.
C)   The addition to retained earnings is equal to net income less cash dividends.
D)   Long-term debt varies directly with sales when a firm is currently operating at maximum capacity.
E)   Inventory changes are not proportional to sales changes.F) A) and B)
G) None of the above

Question 15

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:

Accepted Answer

A)   maximum capacity level will have to increase at the same rate as sales growth.
B)   total assets will have to increase at the same rate as sales growth.
C)   debt-equity ratio will increase.
D)   retained earnings will increase.
E)   number of common shares outstanding will increaseF) B) and C)
G) A) and C)

Question 16

A pro forma statement indicates that both sales and fixed assets are projected to increase by 7 percent over their current levels. Given this, you can safely assume the firm:

Accepted Answer

A)   is projected to grow at the internal rate of growth.
B)   is projected to grow at the sustainable rate of growth.
C)   currently has excess capacity.
D)   is currently operating at full capacity.
E)   retains all of its net income.F) None of the above
G) C) and D)

Question 17

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 these ratios constant?

Accepted Answer

A)   0.05
B)   0.40
C)   0.55
D)   0.60
E)   0.95F) B) and D)
G) All of the above E

Question 18

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) B) and D)

Question 19

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

Question 20

Which ratio identifies the amount of total assets a firm needs in order to generate $1 in sales?

Accepted Answer

A)   Return on assets
B)   Equity multiplier
C)   Retention ratio
D)   Capital intensity ratio
E)   Current ratioF) D) and E)
G) B) and C)

Exam 4: Long-Term Financial Planning and Growth

Correct Answer
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Which capital intensity ratio indicates the smallest need for fixed assets per dollar of sales?

Correct Answer
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Baked at Home Cookies expects sales of $672,500 next year. The profit margin is 4.6 percent and the firm has a dividend payout ratio of 15 percent. What is the projected increase in retained earnings?

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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James Mfg. is currently operating at only 86 percent of fixed asset capacity. Fixed assets are $387,000. Current sales are $510,000 and are projected to grow to $664,000. What amount must be spent on new fixed assets to support this growth in sales?

Correct Answer
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C

Parodies Corp. has a return on assets of 10.9 percent, a return on equity of 16.7 percent, and a retention ratio of 40 percent. What is its sustainable growth rate?

Correct Answer
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D

Bill's has a profit margin of 5 percent and a dividend payout ratio of 20 percent. The total asset turnover is 1.6 and the debt-equity ratio is .4. What is the sustainable rate of growth?

Correct Answer
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The external financing need:

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

Correct Answer
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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:

Correct Answer
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A pro forma statement indicates that both sales and fixed assets are projected to increase by 7 percent over their current levels. Given this, you can safely assume the firm:

Correct Answer
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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 these ratios constant?

Correct Answer
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E

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

Correct Answer
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Which ratio identifies the amount of total assets a firm needs in order to generate $1 in sales?

Correct Answer
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Exam 4: Long-Term Financial Planning and Growth

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which capital intensity ratio indicates the smallest need for fixed assets per dollar of sales?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Baked at Home Cookies expects sales of $672,500 next year. The profit margin is 4.6 percent and the firm has a dividend payout ratio of 15 percent. What is the projected increase in retained earnings?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

James Mfg. is currently operating at only 86 percent of fixed asset capacity. Fixed assets are $387,000. Current sales are $510,000 and are projected to grow to $664,000. What amount must be spent on new fixed assets to support this growth in sales?

Correct AnswerverifiedC

Parodies Corp. has a return on assets of 10.9 percent, a return on equity of 16.7 percent, and a retention ratio of 40 percent. What is its sustainable growth rate?

Correct AnswerverifiedD

Bill's has a profit margin of 5 percent and a dividend payout ratio of 20 percent. The total asset turnover is 1.6 and the debt-equity ratio is .4. What is the sustainable rate of growth?

Correct AnswerverifiedShow Answer

The external financing need:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

A pro forma statement indicates that both sales and fixed assets are projected to increase by 7 percent over their current levels. Given this, you can safely assume the firm:

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 these ratios constant?

Correct AnswerverifiedE

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 AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which ratio identifies the amount of total assets a firm needs in order to generate $1 in sales?

Correct AnswerverifiedShow Answer

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C

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D

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E

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