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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?


A) sales
B) costs of goods sold
C) accounts receivable
D) fixed assets
E) long-term debt

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

Correct Answer

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Based on the following information,what is the sustainable growth rate of Hendrix Guitars,Inc.? Based on the following information,what is the sustainable growth rate of Hendrix Guitars,Inc.? A) 7.68 percent B) 9.52 percent C) 11.12 percent D) 13.49 percent E) 14.41 percent


A) 7.68 percent
B) 9.52 percent
C) 11.12 percent
D) 13.49 percent
E) 14.41 percent

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

Correct Answer

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The external financing need:


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

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Sal's Pizza has a dividend payout ratio of 10 percent.The firm does not want to issue additional equity shares but does want to maintain its current debt-equity ratio and its current dividend policy.The firm is profitable.Which one of the following defines the maximum rate at which this firm can grow?


A) internal growth rate × (1 - 0.10)
B) sustainable growth rate × (1 - 0.10)
C) internal growth rate
D) sustainable growth rate
E) zero percent

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

Correct Answer

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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?


A) The pro forma profit margin is equal to the current profit margin.
B) Retained earnings will increase at the same rate as sales.
C) Total assets will increase at the same rate as sales.
D) Long-term debt will increase in direct relation to sales.
E) Owners' equity will remain constant.

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

Correct Answer

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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 E)
G) B) and C)

Correct Answer

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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?


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

Correct Answer

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The financial planning process tends to place the least emphasis on which one of the following?


A) growth limitations
B) capacity utilization
C) market value of a firm
D) capital structure of a firm
E) dividend policy

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

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?


A) net working capital
B) long-term debt
C) inventory
D) fixed assets
E) debt-equity ratio

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

Correct Answer

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Country Comfort,Inc.had equity of $150,000 at the beginning of the year.At the end of the year,the company had total assets of $195,000.During the year,the company sold no new equity.Net income for the year was $63,000 and dividends were $44,640.What is the sustainable growth rate?


A) 10.32 percent
B) 10.79 percent
C) 11.78 percent
D) 12.01 percent
E) 12.24 percent

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

Correct Answer

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The plowback ratio is:


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)

Correct Answer

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The Two Sisters has a 9 percent return on assets and a 75 percent retention ratio.What is the internal growth rate?


A) 6.50 percent
B) 6.75 percent
C) 6.97 percent
D) 7.24 percent
E) 7.38 percent

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

Correct Answer

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


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 earnings

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

Correct Answer

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Atlas Industries combines the smaller investment proposals from each operational unit into a single project for planning purposes.This process is referred to as which one of the following?


A) conjoining
B) aggregation
C) conglomeration
D) appropriation
E) summation

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

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?


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

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

Correct Answer

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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.


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 IV

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

Correct Answer

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


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

Correct Answer

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Smith & Daughters is getting ready to compile pro forma statements for the next few years.How can the managers establish a reasonable range of growth rates that they should consider during this planning process?

Correct Answer

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The internal growth rate establishes the...

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Phil is working on a financial plan for the next three years.This time period is referred to as which one of the following?


A) financial range
B) planning horizon
C) planning agenda
D) short-run
E) current financing period

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

Correct Answer

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Which one of the following terms is applied to the financial planning method which uses the projected sales level as the basis for determining changes in balance sheet and income statement account values?


A) percentage of sales method
B) sales dilution method
C) sales reconciliation method
D) common-size method
E) trend method

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

Correct Answer

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