Questions in [New Questions]
1) When a firm makes decisions regarding its investment in inventory and accounts
receivable it is making a:
[A] capital budgeting decision.
[B] capital structure decision.
[C] financing decision.
[D] working capital decision.
[E] dividend policy decision.
2) Which of the following statements about financial planning are correct?
I. Financial planning provides the opportunity for a firm to develop, analyze, and compare
many different scenarios in a consistent way.
II. A financial plan makes explicit the consistency between planned growth and stated
financial policies.
III. One of the purposes of financial planning is to help avoid surprises and develop
contingency plans.
IV. Growth is the primary financial planning goal for any financial manager.
[A] I and III only
[B] II and III only
[C] I, II, and III only
[D] I, III, and IV only
[E] I, II, III, and IV
3) The _________ portion of a firm's financial plan contains the firm's dividend and debt
policies.
[A] sales forecast
[B] asset requirement
[C] financial requirements
[D] capital budgeting
[E] liquidity needs
4) A firm has current assets of $200, net fixed assets of $400, accounts payable of $150,
long-term debt of $150, equity of $300, sales of $2,000, costs of $1,500, and a tax rate of
34 percent. Assume costs and assets increase at the same rate as sales. Also assume that
40 percent of net income is retained. The current debt-equity ratio is considered optimal
and no new equity sales are possible. What is the maximum rate of growth given this
information?
[A] 17.5 percent
[B] 19.4 percent
[C] 21.4 percent
[D] 25.8 percent
[E] 46.8 percent
5) Actions that increase a firm's ability to generate funds internally decrease its ability to
grow without obtaining external financing.
[A] True
[B] False
6) If your firm is currently operating at full capacity and you expect strong sales growth over
the next few years, you should:
[A] expect your assets to remain at their current levels.
[B] lower your dividend payout to accommodate the growth.
[C] put off any further financial planning until sales growth moderates.
[D] forecast the external financing needed for the period.
[E] expect the growth in retained earnings to outpace the growth in sales.
7) Which one of the following statements regarding financial planning is accurate?
[A] Financial planning insures a firm will not be surprised by unforeseen future events.
[B] By using financial planning, a firm can clearly identify its options for the coming fifteen
years.
[C] The use of financial planning allows a firm to eliminate the interactions between its
operating policies and its financing policies.
[D] Financial planning allows a firm to plan for the future in a systematic fashion.
[E] Financial planning takes the burden of managing the firm off of the financial manager
and places it all on the operations manager.
8) When a firm determines it has too little liquidity due to over investment in inventory, it is
making a _____ decision.
[A] capital budgeting
[B] capital structure
[C] financing
[D] working capital
[E] dividend policy
9) Pickup Industries has a profit margin of 15 percent and a dividend payout ratio of 40
percent. Last year's sales were $600 million and total assets were $400 million. None of the
liabilities vary directly with sales, but assets and costs do. If the growth rate for Pickup is 20
percent, how much external financing is needed?
[A] $5.2 million
[B] $13.1 million
[C] $15.2 million
[D] $21.3 million
[E] $26.0 million
10) Sales growth:
[A] will typically lead to growth in current assets.
[B] will automatically lead to increases in long term debt.
[C] is the least important item to forecast in the financial planning process.
[D] will always require additions to net fixed assets for firms operating at less than full
capacity.
[E] of less than 10 percent will make the external funds needed negative, creating a
surplus.
11) To reduce the amount of external financing needed, a firm may need to lower its rate of
growth.
[A] True
[B] False
12) A firm has net income of $150, total assets of $1,000 and total liabilities of $400. The
total asset turnover is 4.0.What is the firm's capital intensity ratio?
[A] 0.00
[B] 0.25
[C] 0.50
[D] 2.00
[E] 4.00
13) All else equal, the level of external financing need (EFN) increases with increases in
the:
[A] profit margin.
[B] retention ratio.
[C] accounts receivable turnover ratio.
[D] capital intensity ratio.
[E] fixed asset utilization ratio.
14) Which of the following are basic policy elements of financial planning?
I. the firm's needed investment in new fixed assets
II. the degree of financial leverage a firm chooses to employ
III. the amount of cash the firm thinks is necessary and appropriate to pay shareholders
IV. the amount of liquidity and working capital the firm needs on an ongoing basis
[A] I, III, and IV only
[B] I, II, and III only
[C] II, III, and IV only
[D] I, II, and IV only
[E] I, II, III, and IV
15) Which of the following are basic policy elements of financial planning?
I. capital budgeting decisions
II. dividend policy
III. net working capital decisions
IV. capital structure policy
[A] I and IV only
[B] II and III only
[C] I and II only
[D] I, II, and III only
[E] I, II, III, and IV
16) A firm has sales of $450 and costs of $400. Costs are a constant percentage of sales.
The tax rate is 34 percent. What will the net income be if sales increase by 10 percent?
[A] $3.30
[B] $33.00
[C] $36.30
[D] $146.00
[E] $197.22
17) Financial planning is important because the only way a firm can prosper is for it to grow
substantially.
[A] True
[B] False
18) Moore Money, Inc. has a profit margin of 11 percent and a retention ratio of 70 percent.
Last year the firm had sales of $500 and total assets of $1,000. The desired debt to asset
ratio is 75 percent. What is the firm's sustainable growth rate?
[A] 2.5 percent
[B] 4.0 percent
[C] 7.1 percent
[D] 11.3 percent
[E] 18.2 percent
19) All else equal, a firm's capital intensity ratio will increase if:
[A] accounts payable decrease.
[B] net income increases.
[C] sales decrease.
[D] assets decrease.
[E] cost of goods sold increase.
20) When a firm chooses to buy new fixed assets it is making a:
[A] capital budgeting decision.
[B] capital structure decision.
[C] financing decision.
[D] working capital decision.
[E] dividend policy decision.
21) Which one of the following is most directly related to the computation of the sustainable
growth rate?
[A] current ratio
[B] profit margin
[C] inventory turnover
[D] cash ratio
[E] cash coverage ratio
22) A firm is currently operating at full capacity. Sales are forecasted to increase by 20
percent next year. If management is committed to the sales forecast then they should
consider doing which of the following?
I. reviewing the investment policy to ensure it is in line with the projected needs
II. reviewing the financing policy to ensure ample funds are available
III. subcontracting work to other manufacturers
IV. leasing additional equipment
[A] I and II only
[B] I and IV only
[C] III and IV only
[D] I, II, and IV only
[E] I, II, III, and IV
23) Assume a firm is currently operating at less than full capacity. Which one of the
following would be LEAST likely to vary directly with sales?
[A] notes payable
[B] accounts receivable
[C] accounts payable
[D] inventory
[E] cash
24) The percentage of sales approach to financial planning requires:
[A] all assets and liabilities to change at the same rate as sales.
[B] the dividend policy to remain unchanged from year to year.
[C] the firm to be operating at full capacity.
[D] separating accounts into those that vary with sales and those that do not.
[E] a firm to have projected sales increases each year.
25) By developing a financial plan a firm benefits by being forced to:
I. think about and forecast the future.
II. focus solely on best case scenarios.
III. set goals and establish priorities.
[A] I only
[B] I and II only
[C] I and III only
[D] II and III only
[E] I, II and III
26) A financial plan can be a means of reconciling the planned activities of different groups
within a firm.
[A] True
[B] False
27) Which one the following firms would most likely be interested in knowing their
sustainable growth rate?
[A] a firm that believes its equity multiplier is at its optimal level
[B] a firm that has no capacity to raise new debt
[C] a firm in a mature industry that expects limited sales growth in the future
[D] a firm that pays no dividends
[E] a firm that has a low level of investment in fixed assets
28) A firm has net income of $200, total assets of $1,200, and total liabilities of $400. The
total asset turnover ratio is 3. What is the sustainable growth rate assuming dividends paid
total $60?
[A] 8.1 percent
[B] 13.8 percent
[C] 11.5 percent
[D] 16.2 percent
[E] 21.2 percent
29) Based on your current financial plan, it is unlikely that your production level will be able
to meet your sales demands over the planning horizon. This suggests a need to make
changes in your:
[A] capital structure policy.
[B] dividend policy.
[C] net working capital decisions.
[D] capital budgeting policy.
[E] wage policy decisions.
30) Aggregation refers to the process by which a firm first projects its aggregate investment
requirement, then breaks that total up and allocates it to the individual investment proposals
of each operational unit within the firm.
[A] True
[B] False
31) Conventional wisdom holds that financial plans don't work, but financial planning does.
[A] True
[B] False
32) Simply Red, Inc. has a return on equity of 14 percent, a dividend payout ratio of 20
percent, an equity multiplier of 1.4, and a profit margin of 1.2 percent. What is the
sustainable growth rate?
[A] 2.0 percent
[B] 2.9 percent
[C] 5.3 percent
[D] 8.7 percent
[E] 12.6 percent
33) A firm earns net income of $25,000 in a given year while the retained earnings increase
$15,000 for that same year. The retention ratio is:
[A] 25 percent.
[B] 40 percent.
[C] 60 percent.
[D] 75 percent.
[E] 100 percent.
34) A firm has current assets of $100, net fixed assets of $200, accounts payable of $50,
long-term debt of $100, equity of $150, sales of $1,000, costs of $800, and a tax rate of 34
percent. Assume costs and assets increase at the same rate as sales. Also assume 40
percent of net income is paid out in dividends. What is the maximum growth rate
achievable assuming no external debt or equity is available?
[A] 21.4 percent
[B] 26.4 percent
[C] 28.2 percent
[D] 35.9 percent
[E] 51.6 percent
35) Which of the following are common elements among financial planning models?
I. asset requirements
II. pro forma statements
III. sales forecasts
IV. financial requirements
[A] I and IV only
[B] II and III only
[C] I and II only
[D] I, III, and IV only
[E] I, II, III, and IV
36) A firm has current sales of $450, costs of $350, a tax rate of 34 percent, and a retention
ratio of 30 percent. Costs of the firm vary directly with sales. If the firm is producing at 95
percent of capacity, what is the expected addition to retained earnings that results from a
10 percent increase in sales?
[A] $1.98
[B] $11.22
[C] $19.80
[D] $21.78
[E] $50.82
37) Choices by a firm regarding the level of investment in fixed assets are _____ decisions.
[A] capital budgeting
[B] capital structure
[C] financing
[D] working capital
[E] dividend policy
38) The internal growth rate is the maximum rate of growth a firm can achieve without
obtaining external financing.
[A] True
[B] False
39) Which of the following factors affect a firm’s ability to grow at its maximum sustainable
rate of growth?
I. total asset turnover
II. financial policy
III. dividend policy
IV. profit margin
[A] II and III only
[B] I and II only
[C] I, III, and IV only
[D] I, II, and III only
[E] I, II, III, and IV
40) Suppose a firm has net income of $100 and a profit margin of 14 percent. If the firm is
working at two-thirds of its capacity, then full capacity sales are:
[A] $476.
[B] $539.
[C] $714.
[D] $823.
[E] $1,071.
41) If you expect strong sales growth over the next few years, you should most likely:
[A] expect that assets will also grow.
[B] plan on how to invest all of the extra cash that will become available.
[C] put off any further financial planning until sales growth moderates.
[D] plan on a decreased profit margin.
[E] expect the growth in retained earnings to outpace the growth in sales.
42) Which one of the following sets of components is needed to compute the sustainable
growth rate?
[A] total assets, net income, and the retention ratio
[B] total assets, the retention ratio, and total equity
[C] net income, total equity, and the dividend payout ratio
[D] interest paid, total equity, and total assets
[E] net income, total equity, and total assets
43) With good financial planning, managers can be less vigilant in their day to day
management of the firm.
[A] True
[B] False
44) The determinants of growth include which of the following?
I. equity multiplier
II. profit margin
III. total asset turnover
[A] I only
[B] II only
[C] II and III only
[D] I and III only
[E] I, II, and III
45) The sustainable growth rate depends on which of the following?
I. a firm's ability to turn sales into income
II. a firm's projections of expected dividend payouts
III. the level of new assets required as sales grow
IV. a firm's ratio of accounts receivable to inventory
[A] I and II only
[B] II and III only
[C] I, II, and III only
[D] II, III, and IV only
[E] I, II, III, and IV
46) A firm has a profit margin of 11 percent and a retention ratio of 70 percent. Last year,
the firm had sales of $500 and total assets of $1,000. What is the internal growth rate?
[A] 1.7 percent
[B] 2.6 percent
[C] 3.9 percent
[D] 4.0 percent
[E] 5.5 percent
47) When doing financial planning, the _____ of a firm provide a guide for changes in
liabilities and equity.
[A] sales growth expectations
[B] financing and dividend policies
[C] sustainable growth rate expectations
[D] pro forma income statements
[E] working capital policies
48) If we assume for forecasting purposes that a firm's fixed assets will increase directly
with sales, we are effectively assuming the firm:
[A] has no unused capacity in its fixed assets.
[B] is currently utilizing its current assets at 100 percent.
[C] is producing more goods than it sells.
[D] has no excess working capital.
[E] can increase production without any external financing needed.
49) The "plug" figure in a financial plan represents:
[A] the increase in assets necessary to support projected sales.
[B] the external financing needed to support the financial plan.
[C] the change in retained earnings attributable to projected sales.
[D] the level of new fixed assets contained in the financial plan.
[E] the level of dividends the firm has paid over recent years.
50) An increase in a firm's capital intensity ratio implies a decrease in how efficiently it uses
its assets to generate sales.
[A] True
[B] False
51) There are no direct connections between the growth that a company can achieve and
the financial policies undertaken by the financial managers.
[A] True
[B] False
52) A firm has a capital intensity ratio of 2.0. Total assets are expected to increase by the
same percentage as sales. Given this, then:
I. assets and sales must increase by identical dollar amounts.
II. there will be no need for external funding.
III. the firm is probably operating at full capacity.
[A] I only
[B] III only
[C] I and III only
[D] II and III only
[E] I, II, and III
53) Which one of the following sets of components is needed to compute the internal
growth rate?
[A] total assets, net income, and the retention ratio
[B] current assets, dividend payout ratio, and stockholders' equity
[C] net income, total equity, and the dividend payout ratio
[D] total assets, total sales, and net income
[E] net income, total equity, and total assets
54) The benefits of financial planning include which of the following?
I. making clear the linkages between investment proposals and financing needs
II. avoiding surprises and developing contingency plans
III. eliminating internal consistency of goals across firm divisions
IV. providing for the exploration of various investment and financing options
[A] I and II only
[B] III and IV only
[C] I, II, and IV only
[D] II, III and IV only
[E] I, II, III, and IV
55) An increase in which of the following will cause a firm's sustainable growth rate to
increase, all else equal?
I. profit margin
II. total asset turnover
III. debt
IV. retention ratio
[A] I and II only
[B] II and III only
[C] II, III, and IV only
[D] I, II, and III only
[E] I, II, III, and IV
56) A firm has current assets of $100, net fixed assets of $200, accounts payable of $50,
long-term debt of $100, equity of $150, sales of $1,000, costs of $800, and a tax rate of 34
percent. Assume costs, assets, and accounts payable all increase at the same rate as
sales. Also assume 80 percent of net income is paid out in dividends. What is the external
financing need if sales grow by 25 percent?
[A] $0.00
[B] $4.50
[C] $29.50
[D] $42.00
[E] $62.50
57) The internal growth rate assumes that external financing equals zero.
[A] True
[B] False
58) The sustainable growth rate assumes a firm maintains a constant debt-equity ratio.
[A] True
[B] False
59) When creating pro forma statements, if you assume that costs, assets, and short-term
debt vary directly with changes in sales, that the payout ratio is fixed, and that the change in
long-term debt only results from payments made as required on the debt contracts; then the
"plug" required for the balance sheet to balance will probably be _____:
[A] dividends.
[B] total debt.
[C] long-term debt.
[D] new equity sales.
[E] retained earnings.
60) Suppose a firm is working at full capacity and that assets and costs are tied directly to
the level of sales. Also assume the firm pays out all its earnings as dividends. The sales are
expected to increase by 10 percent next period. The external funding needed to support
this level of growth:
[A] is zero since no liabilities are tied directly to the level of sales.
[B] depends on the profit margin.
[C] depends on the ratio of fixed assets to total sales.
[D] depends on the current debt-equity ratio.
[E] is equal to the growth rate times total assets.
61) All else equal, an increase in a firm's capital intensity ratio will increase its external
financing need.
[A] True
[B] False
62) Which one of the following is the most complete definition of the "best" financial plan for
a firm?
[A] the plan that produces the lowest level of external financing need
[B] the plan that incorporates the firm's long range policies while maintaining sales growth
at or below the sustainable growth rate
[C] the plan which addresses the firm's long range policies and focuses on increasing
shareholder wealth
[D] the plan that results in the largest sales growth each year while maintaining an
external financing need of zero
[E] the plan that is the simplest to use yet is complex enough to cover every possible
state of nature that might occur
63) In most industries, financial planning for more than one year in the future is not very
useful.
[A] True
[B] False
64) Xman Corp. has just decided to lower its amount of debt outstanding, replacing it with
the proceeds from a new equity issue. This adjustment is a(n):
[A] capital budgeting decision.
[B] capital structure decision.
[C] investment decision.
[D] working capital decision.
[E] dividend policy decision.
65) When a firm uses a financial plan to develop, analyze, and compare various scenarios
in a consistent way, the firm benefits by better understanding:
[A] the interactions of its operations with changes in intangible assets.
[B] the linkages between different investment proposals.
[C] what the future state of the economy will be.
[D] the feasibility of its past capital budgeting decisions.
[E] the reliability of its employees and management.
66) If total assets and costs increase by the same percentage as sales, it is most likely that:
I. the profit margin will remain constant.
II. there will be no external funding need.
III. the firm is currently operating at less than full capacity.
[A] I only
[B] II only
[C] III only
[D] I and III only
[E] I, II, and III
67) A firm wants to maintain both its current debt-equity ratio and its dividend payout ratio of
50 percent. The firm does not want to sell any new equity. Given this, the firm's maximum
rate of growth is equal to the:
[A] dividend payout ratio.
[B] retention ratio.
[C] sustainable growth rate.
[D] internal growth rate.
[E] projected sales growth rate.
68) Which one of the following can be computed from a pro forma balance sheet?
[A] cash flow statement
[B] profitability ratios
[C] timing of cash flows
[D] changes in net working capital
[E] changes in asset turnover ratios
69) A firm has current assets of $100, net fixed assets of $200, accounts payable of $50,
long-term debt of $100, equity of $150, sales of $1,000, costs of $800, and a tax rate of 34
percent. Assume costs, accounts payable, and current assets all increase at the same rate
as sales. Also assume 80 percent of net income is paid out in dividends and that the firm is
currently operating at 90 percent of capacity. If sales grow at 25 percent, compute the
external financing need.
[A] $0.00
[B] $4.50
[C] $17.00
[D] $29.50
[E] $37.50
70) All else equal, which of the following could be associated with a firm that has a high
capital intensity ratio relative to other firms in the same industry?
I. lower fixed asset turnover ratio
II. lower return on assets ratio
III. lower accounts receivable turnover ratio
[A] I and II only
[B] II only
[C] I and III only
[D] II and III only
[E] I, II, and III
71) Financial planning helps investigate the linkages between goals and the different
aspects of a firm's business.
[A] True
[B] False
72) A firm currently has sales of $400,000. This represents 80 percent of their production
capacity. What is their full-capacity level of sales?
[A] $320,000
[B] $400,000
[C] $480,000
[D] $500,000
[E] $540,000
73) All else equal, sustainable growth will decrease with increases in:
[A] earnings retention.
[B] net income.
[C] total asset turnover.
[D] profit margin.
[E] total equity.
74) A firm has net income of $150, total assets of $1,000 and total liabilities of $400. The
total asset turnover is 4.0. What is the internal growth rate assuming dividends paid total
$100?
[A] 1.1 percent
[B] 2.5 percent
[C] 5.3 percent
[D] 8.3 percent
[E] 9.1 percent
75) A firm has current assets of $400, fixed assets of $500, accounts payable of $100,
notes payable of $45, long-term debt of $455, equity of $300, sales of $450, and costs of
$400. The tax rate is 34 percent. The retention ratio is 100 percent. Current assets, costs,
and accounts payable maintain a constant ratio to sales. The firm is currently operating at
80 percent capacity. What is the total external financing need if sales increase by 25
percent?
[A] $33.75
[B] $66.25
[C] $143.75
[D] $158.75
[E] $172.25
76) The Limberger Institute is currently operating at full capacity. Which balance sheet
items would most likely vary directly with sales?
I. fixed assets
II. long-term debt
III. accounts receivable
[A] I only
[B] II only
[C] I and III only
[D] II and III only
[E] I, II, and III
77) All else equal, a firm that utilizes assets efficiently will have a higher sustainable growth
rate than a firm that does not.
[A] True
[B] False
78) A firm is currently working at full capacity. Assets, costs, and all liabilities vary directly
with sales. The dividend payout ratio is 100 percent. The firm maintains a constant debtequity ratio of 1.0. Sales are expected to increase by 10 percent next year. The external
equity financing needed to support this growth is:
[A] zero since all liabilities are tied directly to the level of sales.
[B] dependent upon the profit margin.
[C] equal to half of the dollar increase in assets.
[D] equal to twice the dollar increase in liabilities.
[E] equal to the growth rate times total assets.
79) Which one of the following is generally considered as the first dimension of the financial
planning process?
[A] establish a planning horizon
[B] establish a dividend policy
[C] add up the smaller investment proposals of each of a firm's operational units and treat
them as one big project
[D] create alternative sets of assumptions about important variables
[E] construct pro forma financial statements
80) One of the first things needed when constructing a financial plan is a sales forecast.
[A] True
[B] False
81) Which of the following are frequently used in the computation of the sustainable growth
rate?
I. profit margin
II. dividend payout ratio
III. cash ratio
IV. total asset turnover
[A] I and IV only
[B] II and IV only
[C] I and II only
[D] II, III, and IV only
[E] I, II, and IV only
82) A firm has a profit margin of 10 percent, sales of $100, a retention ratio of 40 percent,
assets of $200, and an equity multiplier of 2.0. What is the sustainable growth rate?
[A] 2.04 percent
[B] 2.34 percent
[C] 3.68 percent
[D] 4.17 percent
[E] 5.93 percent
83) When a firm chooses its target debt to equity ratio, it is making a(n) _____ decision.
[A] capital budgeting
[B] capital structure
[C] liquidity
[D] working capital
[E] dividend policy
84) In financial planning, the "plug" figure can best be defined as:
[A] dividends.
[B] the sources of external financing needed to make the balance sheet balance.
[C] the change in retained earnings.
[D] the change in retained earnings plus dividends paid.
[E] sales.
85) Assume a firm has sales of $4,750 on assets totaling $2,500, net income of $375, and
dividends of $150. What is the sustainable growth rate if the equity has a value of $1,500?
[A] 9.9 percent
[B] 11.1 percent
[C] 13.0 percent
[D] 17.6 percent
[E] 22.9 percent
86) Which of the following statements regarding pro forma statements are correct?
I. Pro-forma balance sheets reflect the proposed capital budget of the firm.
II. A firm’s dividend policy is reflected in the pro forma statements.
III. Every set of pro forma statements has at least one plug variable.
IV. Expectations concerning future interest rates are reflected in pro forma statements.
[A] I and III only
[B] II and III only
[C] I, II, and IV only
[D] I, III, and IV only
[E] I, II, III, and IV
87) The retention ratio is:
I. equal to one plus the dividend payout ratio.
II. also known as the plowback ratio.
III. a measure of a firm's willingness to provide internal funds for future growth.
[A] I only
[B] III only
[C] I and II only
[D] II and III only
[E] I, II, and III
88) Which one of the following statements is true if costs are a constant percentage of
sales?
[A] The profit margin will increase with an increase in sales.
[B] The tax rate will increase in direct relation to an increase in sales.
[C] The dividend payout ratio will increase in direct relation to an increase in sales.
[D] The common-size ratio of each cost account will increase in direct proportion to an
increase in sales.
[E] The profit margin will remain constant.
89) Long-term forecasting generally starts with projecting:
[A] total assets.
[B] the amount of new equity needed.
[C] fixed asset purchases.
[D] sales.
[E] costs.
90) All else equal, an increase in a firm's dividend payout ratio will decrease its _____:
I. sustainable growth rate.
II. internal growth rate.
III. external financing need.
[A] I only
[B] II only
[C] I and II only
[D] I and III only
[E] II and III only
91) A firm's assets grow by $900, current liabilities grow by $300 and retained earnings
grow by $200. In this case, the external financing need is $400.
[A] True
[B] False
92) A firm believes that its costs and assets will continue to grow at the same rate as sales.
The dividend payout ratio is fixed at 30 percent and the current debt-equity ratio is
considered optimal. If no new equity is possible, then:
I. the sustainable growth rate provides the maximum rate at which sales can grow.
II. external financing will be zero.
III. any growth in assets must be funded completely by increases in accounts payable and
retained earnings.
IV. sales cannot grow.
[A] I only
[B] I, II, and III only
[C] I and IV only
[D] II, III, and IV only
[E] I, II, III, and IV
93) Your job is to determine a firm's capital intensity ratio from its accounting statements.
To do so, you divide:
[A] current assets by net income.
[B] total assets by net income.
[C] current assets by sales.
[D] total assets by sales.
[E] total assets by fixed assets.
94) A firm has assets of $900, accounts payable of $110, notes payable of $100, long-term
debt of $150, equity of $540, sales of $450 and costs of $400. The tax rate is 34 percent.
The dividend payout ratio is 50 percent. Costs, assets, and accounts payable maintain a
constant ratio to sales. How much external financing is needed if sales increase by 15
percent?
[A] $81
[B] $94
[C] $100
[D] $106
[E] $122
95) A firm's investment and financing decisions are unrelated.
[A] True
[B] False
96) You would expect the capital intensity ratio of an auto manufacturing firm to be lower
than that of a software development firm.
[A] True
[B] False
97) A firm has net income of $50, dividends of $15, assets of $1,200, and a debt-equity
ratio of 3.0. What is the sustainable growth rate?
[A] 1.5 percent
[B] 4.0 percent
[C] 9.6 percent
[D] 13.2 percent
[E] 18.1 percent
98) Which one of the following reveals the amount of assets needed to generate $1 in
sales?
[A] capital intensity ratio
[B] fixed-asset utilization ratio
[C] internal growth rate
[D] plowback ratio
[E] capital structure
99) Why is it important to determine if a firm is operating at full capacity?
[A] A firm that is operating at less than full capacity will not need any external financing.
[B] If a firm is operating at less than full capacity, fixed assets will typically increase at the
same percent as sales.
[C] A firm with excess capacity has some room to expand sales without increasing the
investment in fixed assets.
[D] For a given increase in sales, firms operating at less than full capacity will experience
more rapid asset growth than that experienced by firms that are operating at full capacity.
[E] Only firms operating at full capacity can grow rapidly.
100) In creating pro forma statements, if we assume that costs, assets, and short-term debt
vary directly with changes in sales, that the payout ratio is fixed, and that the change in
equity results only from changes in retained earnings; then the "plug" required for the
balance sheet to balance will probably be:
[A] dividends.
[B] total debt.
[C] long-term debt.
[D] new equity sales.
[E] retained earnings.
101) For financial planning purposes, we generally define the "short run" as _____, and the
"long run" as _____
[A] 2 years; 3-5 years.
[B] 1 year; 2-6 years.
[C] 1 year; 2-5 years.
[D] 2 years; 3-6 years.
[E] 1 year; 2-4 years.
Solutions
1)
[A] :Are fixed assets involved here? Review the introduction to chapter 4.
[B] :Is financial leverage involved here? Review the introduction to chapter 4.
[C] :Is financial leverage involved here? Review the introduction to chapter 4.
[D] :You are correct!
[E] :Are dividends involved here? Review the introduction to chapter 4.
2)
[A] :There is at least one more statement that is also correct. Review section 4.1.
[B] :There is at least one more statement that is also correct. Review section 4.1.
[C] :You are correct!
[D] :Review section 4.1 and the goal of a financial manager in chapter 1.
[E] :Review section 4.1 and the goal of a financial manager in chapter 1.
3)
[A] :This drives that plan, but doesn't contain assumptions about dividends and debt.
Review section 4.2.
[B] :This part doesn't concern itself with assumptions regarding debt and dividends. Review
section 4.2.
[C] :You are correct!
[D] :This part doesn't concern itself with assumptions regarding debt and dividends. Review
section 4.2.
[E] :This part doesn't concern itself with assumptions regarding debt and dividends. Review
section 4.2.
4)
[A] :What is the sustainable growth rate? Review section 4.4.
[B] :What is the sustainable growth rate? Review section 4.4.
[C] :You are correct!
[D] :What is the sustainable growth rate? Review section 4.4.
[E] :What is the sustainable growth rate? Review section 4.4.
5)
[A] :Won’t the additional funds enable the firm to grow faster? Review section 4.4.
[B] :You are correct!
6)
[A] :Wouldn't assets have to increase if the firm is already operating at full capacity?
Review section 4.3.
[B] :This is one way to deal with sales growth, but how do you know you will need to cut
dividends without first figuring out the financing need? Review section 4.3.
[C] :A part of the planning process is dealing with sales growth. Review section 4.3.
[D] :You are correct!
[E] :You have no basis for this conclusion given the information in the question. Review
section 4.3.
7)
[A] :There is no guarantee a plan will allow a firm to foresee all future problems. Review
section 4.1.
[B] :Generally, financial plans are limited to no more than five years. Review section 4.1.
[C] :Planning allows for investigation of these interactions, not elimination of them. Review
section 4.1.
[D] :You are correct!
[E] :The simple action of planning does not in any way shift the burden of managing the
firm. Review section 4.1.
8)
[A] :Inventory is not a part of fixed assets. Review section 4.1.
[B] :Inventory is not a part of the capital structure. Review section 4.1.
[C] :Inventory is not a part of the capital structure. Review section 4.1.
[D] :You are correct!
[E] :Inventory is not a part of the dividend decision. Review section 4.1.
9)
[A] :Did you get the addition to retained earnings of $64.8 million? Review sections 4.2 and
4.3.
[B] :Did you get projected total assets of $480 million? Review sections 4.2 and 4.3.
[C] :You are correct!
[D] :How do you find the projected liabilities and equity excluding the external funding
need? Review sections 4.2 and 4.3.
[E] :It appears you did not incorporate the 20 percent growth into your income statement.
Review sections 4.2 and 4.3.
10)
[A] :You are correct!
[B] :Increasing long-term debt is a financing decision. Review section 4.1.
[C] :Sales growth is normally the first item that is forecast in the planning process. Review
sections 4.1 and 4.3.
[D] :These firms have some room to grow without adding fixed assets. Review section 4.3.
[E] :Suppose this firm has a sustainable growth rate of 4 percent and grows at 8 percent.
Growth is still less than 10 percent as required, but is external funds needed negative in this
case? Review section 4.4.
11)
[A] :You are correct!
[B] :What is the relationship between growth and asset needs? Review section 4.4.
12)
[A] :Remember, the capital intensity ratio is very closely related to the total asset turnover.
Review section 4.3.
[B] :You are correct!
[C] :Remember, the capital intensity ratio is very closely related to the total asset turnover.
Review section 4.3.
[D] :Remember, the capital intensity ratio is very closely related to the total asset turnover.
Review section 4.3.
[E] :Remember, the capital intensity ratio is very closely related to the total asset turnover.
Review section 4.3.
13)
[A] :An increase in profitability will increase earnings retained, decreasing EFN. Review
section 4.3.
[B] :An increase in the retention ratio will increase earnings retained, decreasing EFN.
Review section 4.3.
[C] :An increase in the accounts receivable turnover decreases the investment in
receivables relative to sales, decreasing EFN. Review section 4.3.
[D] :You are correct!
[E] :An increase in fixed asset utilization decreases the investment in fixed assets relative
to sales, decreasing EFN. Review section 4.3.
14)
[A] :You need to include the fourth element. Review the introduction to chapter 4.
[B] :You need to include the fourth element. Review the introduction to chapter 4.
[C] :You need to include the fourth element. Review the introduction to chapter 4.
[D] :You need to include the fourth element. Review the introduction to chapter 4.
[E] :You are correct!
15)
[A] :Correct, but there is at least one more element listed. Review the introduction to
chapter 4.
[B] :Correct, but there is at least one more element listed. Review the introduction to
chapter 4.
[C] :Correct, but there is at least one more element listed. Review the introduction to
chapter 4.
[D] :Correct, but there is at least one more element listed. Review the introduction to
chapter 4.
[E] :You are correct!
16)
[A] :You need to review how to do this computation in section 4.2.
[B] :You have not factored in any growth in sales. Review section 4.2.
[C] :You are correct!
[D] :You need to review how to do this computation in section 4.2.
[E] :You need to review how to do this computation in section 4.2.
17)
[A] :Some firms are quite prosperous even though their rate of growth is low. Review
section 4.4.
[B] :You are correct!
18)
[A] :Did you get a return on equity of 22 percent? Review section 4.4.
[B] :Did you get a return on equity of 22 percent? Review section 4.4.
[C] :Did you get a return on equity of 22 percent? Review section 4.4.
[D] :Did you get a return on equity of 22 percent? Review section 4.4.
[E] :You are correct!
19)
[A] :This is not one of the components of the capital intensity ratio. Review section 4.3.
[B] :This is not one of the components of the capital intensity ratio. Review section 4.3.
[C] :You are correct!
[D] :This will decrease the capital intensity ratio. Review section 4.3.
[E] :This is not one of the components of the capital intensity ratio. Review section 4.3.
20)
[A] :You are correct!
[B] :Is financial leverage involved here? Review the introduction to chapter 4.
[C] :Is financial leverage involved here? Review the introduction to chapter 4.
[D] :Are current assets or current liabilities involved here? Review the introduction to
chapter 4.
[E] :Are dividends involved here? Review the introduction to chapter 4.
21)
[A] :What are the three components of ROE? Review section 4.4.
[B] :You are correct!
[C] :What are the three components of ROE? Review section 4.4.
[D] :What are the three components of ROE? Review section 4.4.
[E] :What are the three components of ROE? Review section 4.4.
22)
[A] :These are only part of the options management should consider. Review the main
themes of chapter 4.
[B] :These are only part of the options management should consider. Review the main
themes of chapter 4.
[C] :These are only part of the options management should consider. Review the main
themes of chapter 4.
[D] :These are only part of the options management should consider. Review the main
themes of chapter 4.
[E] :You are correct!
23)
[A] :You are correct!
[B] :Receivables generally increase directly with sales. Review section 4.3.
[C] :Payables generally increase directly with sales. Review section 4.3.
[D] :Inventory generally increases directly with sales. Review section 4.3.
[E] :Cash generally increases directly with sales. Review section 4.3.
24)
[A] :This is too restrictive. Review section 4.3.
[B] :This is not true of the percentage of sales approach. Review section 4.3.
[C] :You can incorporate operating at less than full capacity into this approach. Review
section 4.3.
[D] :You are correct!
[E] :No, sales don't have to increase each year in this approach. Review section 4.3.
25)
[A] :Correct, but you need to add at least one more option. Review section 4.1.
[B] :At least one of these choices is incorrect. Review section 4.1.
[C] :You are correct!
[D] :At least one of these choices is incorrect. Review section 4.1.
[E] :At least one of these choices is incorrect. Review section 4.1.
26)
[A] :You are correct!
[B] :This is a function of financial planning. Review section 4.5.
27)
[A] :You are correct!
[B] :This firm would be more interested in the internal growth rate. Review section 4.4.
[C] :With a limited sales growth expectation, the maximum sales growth rate is probably
not a concern. Review section 4.4.
[D] :There is a better choice. Review section 4.4.
[E] :There is a better choice. Review section 4.4.
28)
[A] :Did you confuse the dividend payout ratio and the plowback ratio? Review section 4.4.
[B] :You need to review section 4.4.
[C] :You need to review section 4.4.
[D] :You need to review section 4.4.
[E] :You are correct!
29)
[A] :Can you produce more goods by simply altering your capital structure? Review the
introduction to chapter 4.
[B] :Can you produce more goods by simply altering your dividend policy? Review the
introduction to chapter 4.
[C] :Can you produce more goods by simply altering your net working capital? Review the
introduction to chapter 4.
[D] :You are correct!
[E] :Can you produce more goods by simply altering your wage policy? Review the
introduction to chapter 4.
30)
[A] :Aggregation works in the opposite direction, moving from the individual units to the
aggregate. Review section 4.1.
[B] :You are correct!
31)
[A] :You are correct!
[B] :Regardless of how good or bad a plan is, the planner is forced to consider the future in
a systematic manner. Review section 4.1.
32)
[A] :You need to review this computation in section 4.4.
[B] :What is the relationship between the dividend payout ratio and the plowback ratio?
Review section 4.4.
[C] :You need to review this computation in section 4.4.
[D] :You need to review this computation in section 4.4.
[E] :You are correct!
33)
[A] :You need to review this computation in section 4.3.
[B] :Are you confusing the dividend payout ratio and the retention ratio? Review section
4.3.
[C] :You are correct!
[D] :You need to review this computation in section 4.3.
[E] :You need to review this computation in section 4.3.
34)
[A] :Did you get a plowback ratio of 60 percent? Review section 4.4.
[B] :Did you compute the internal growth rate properly? Review section 4.4.
[C] :Did you get a return on assets of 44 percent? Review section 4.4.
[D] :You are correct!
[E] :Did you get a return on assets of 44 percent? Review section 4.4.
35)
[A] :You need to add at least one more element. Review section 4.2.
[B] :You need to add at least one more element. Review section 4.2.
[C] :You need to add at least one more element. Review section 4.2.
[D] :You need to add the last option. Review section 4.2.
[E] :You are correct!
36)
[A] :You need to review this computation in sections 4.2 and 4.3.
[B] :You need to review this computation in sections 4.2 and 4.3.
[C] :You have set growth at 0 percent. Sales are to grow by 10 percent. Review sections
4.2 and 4.3.
[D] :You are correct!
[E] :You need to review this computation in sections 4.2 and 4.3.
37)
[A] :You are correct!
[B] :Fixed assets are not a part of the capital structure. Review section 4.1.
[C] :Fixed assets are not a part of the capital structure. Review section 4.1.
[D] :Fixed assets are not a part of working capital. Review section 4.1.
[E] :Fixed assets are not a part of dividends. Review section 4.1.
38)
[A] :You are correct!
[B] :The internal growth rate relies solely on internal financing. Review section 4.4.
39)
[A] :Correct, but there are additional factors. Review section 4.4.
[B] :Correct, but there are additional factors. Review section 4.4.
[C] :You need to add the fourth factor. Review section 4.4.
[D] :You need to add the fourth factor. Review section 4.4.
[E] :You are correct!
40)
[A] :Did you get current sales of $714.29? Review section 4.3.
[B] :Did you use the profit margin to compute the current level of sales? Review section
4.3.
[C] :Did you get current sales of $714.29? Review section 4.3.
[D] :Did you use the profit margin to compute the current level of sales? Review section
4.3.
[E] :You are correct!
41)
[A] :You are correct!
[B] :With strong growth, there is a high likelihood that you will need external funding rather
than having excess cash. Review section 4.1.
[C] :If anything, this is all the more reason to continually update your financial plans.
Review section 4.1.
[D] :Growth in sales does not necessarily lead to decreased profits. Review section 4.1.
[E] :There is no reason to conclude this, especially with strong sales growth. Review
section 4.1.
42)
[A] :Can you determine the return on equity from these numbers? Review section 4.4.
[B] :Can you determine the return on equity from these numbers? Review section 4.4.
[C] :You are correct!
[D] :Can you determine the return on equity from these numbers? Review section 4.4.
[E] :Can you determine the retention ratio from these numbers? Review section 4.4.
43)
[A] :Things do not always work as planned. The company must still be managed on a daily
basis. Review section 4.1.
[B] :You are correct!
44)
[A] :Correct, but there is at least one additional correct option. Review section 4.4.
[B] :Correct, but there is at least one additional correct option. Review section 4.4.
[C] :Correct, but growth also depends on the financial policy. Review section 4.4.
[D] :Correct, but growth also depends on operating efficiency. Review section 4.4.
[E] :You are correct!
45)
[A] :You need to add at least one more option. Review section 4.4.
[B] :You need to add at least one more option. Review section 4.4.
[C] :You are correct!
[D] :At least one of these is incorrect. Review section 4.4.
[E] :At least one of these is incorrect. Review section 4.4.
46)
[A] :You need to review this computation in section 4.4.
[B] :You need to review this computation in section 4.4.
[C] :You need to review this computation in section 4.4.
[D] :You are correct!
[E] :You need to review this computation in section 4.4.
47)
[A] :Sales expectations affect liabilities and equity but do not provide guidance for them.
Review sections 4.2 and 4.3.
[B] :You are correct!
[C] :The sustainable growth rate restricts the growth in liabilities and equity, but it does not
provide a guide for their changes given alternative growth rates. Review sections 4.2 and
4.3.
[D] :This deals with the income statement, not liabilities and equity. Review sections 4.2
and 4.3.
[E] :Working capital deals with short-term liabilities, but what about long-term liabilities and
equity? Review sections 4.2 and 4.3.
48)
[A] :You are correct!
[B] :Are fixed assets and current assets the same? Review section 4.3.
[C] :This conclusion cannot be inferred from the question as it is stated. Review section
4.3.
[D] :This conclusion cannot be inferred from the question as it is stated. Review section
4.3.
[E] :This conclusion cannot be inferred from the question as it is stated. Review section
4.3.
49)
[A] :This is usually determined by the assumptions in the plan. Review sections 4.2 and
4.3.
[B] :You are correct!
[C] :This is usually determined by the assumptions in the plan. Review sections 4.2 and
4.3.
[D] :This is usually determined by the assumptions in the plan. Review sections 4.2 and
4.3.
[E] :Past dividend payments are not one of the outputs of financial planning. Review
sections 4.2 and 4.3.
50)
[A] :You are correct!
[B] :The capital intensity ratio is the reciprocal of the total asset turnover. Review section
4.3.
51)
[A] :You are missing the interrelatedness of financial planning. Review section 4.1.
[B] :You are correct!
52)
[A] :Is a 10 percent of $100 increase equal to a 10 percent of $200 increase? Review
section 4.3.
[B] :You are correct!
[C] :Is a 10 percent of $100 increase equal to a 10 percent of $200 increase? Review
section 4.3.
[D] :At least one of these choices is incorrect. Review section 4.3.
[E] :At least one of these choices is incorrect. Review section 4.3.
53)
[A] :You are correct!
[B] :Can you determine the return on assets from these numbers? Review section 4.4.
[C] :Can you determine the return on assets from these numbers? Review section 4.4.
[D] :Can you determine the retention ratio from these numbers? Review section 4.4.
[E] :Can you determine the retention ratio from these numbers? Review section 4.4.
54)
[A] :Correct, but there is one additional correct option. Review section 4.1.
[B] :At least one of these is incorrect. Review section 4.1.
[C] :You are correct!
[D] :At least one of these is incorrect. Review section 4.1.
[E] :At least one of these is incorrect. Review section 4.1.
55)
[A] :There is at least one more option that is correct. Review section 4.4.
[B] :There is at least one more option that is correct. Review section 4.4
[C] :Why doesn't an increase in the profit margin increase the sustainable growth rate?
Review section 4.4.
[D] :Why doesn’t an increase in the retention ratio increase the sustainable growth rate?
Review section 4.4.
[E] :You are correct!
56)
[A] :Did you get projected assets of $375? Review sections 4.2 and 4.3.
[B] :Did you get projected liabilities and equity, before the external financing need, of
$345.50? Review sections 4.2 and 4.3.
[C] :You are correct!
[D] :Did you get a projected accounts payable of $62.50? Review sections 4.2 and 4.3.
[E] :Did you get additions to retained earnings of $33? Review sections 4.2 and 4.3.
57)
[A] :You are correct!
[B] :This is the base assumption of the internal growth rate. Review section 4.4.
58)
[A] :You are correct!
[B] :This is the base assumption of the sustainable growth rate. Review section 4.4.
59)
[A] :What is the payout ratio? Review section 4.2.
[B] :What debt is there other than long-term debt and short-term debt? Review section 4.2.
[C] :Isn't the policy for long-term debt specifically stated? Review section 4.2.
[D] :You are correct!
[E] :Isn't retained earnings directly related to the income statement and payout ratio?
Review section 4.2.
60)
[A] :Note that assets grow but debt and equity do not. Review sections 4.2 and 4.3.
[B] :Note that assets grow but debt and equity do not. Review sections 4.2 and 4.3.
[C] :Note that assets grow but debt and equity do not. Review sections 4.2 and 4.3.
[D] :Note that assets grow but debt and equity do not. Review sections 4.2 and 4.3.
[E] :You are correct!
61)
[A] :You are correct!
[B] :What is the relationship between the capital intensity ratio and the total asset turnover?
How are the total asset turnover and the internal and sustainable growth rates related? How
is growth related to the external financing need? Review sections 4.3 and 4.4.
62)
[A] :Minimizing the external financing need is not the primary goal of financial planning.
Review section 4.1.
[B] :Minimizing the external financing need is not the primary goal of financial planning.
Review section 4.1.
[C] :You are correct!
[D] :Minimizing the external financing need is not the primary goal of financial planning.
Review section 4.1.
[E] :It is not possible to anticipate every state of nature. Review section 4.1.
63)
[A] :Do you think managers never think more than one year in advance? Review section
4.1.
[B] :You are correct!
64)
[A] :Are fixed assets involved here? Review the introduction to chapter 4.
[B] :You are correct!
[C] :Are fixed assets involved here? Review the introduction to chapter 4.
[D] :Are current assets or liabilities involved here? Review the introduction to chapter 4.
[E] :Are dividends involved here? Review the introduction to chapter 4.
65)
[A] :Is this one of the listed outcomes of financial planning? Review section 4.1.
[B] :You are correct!
[C] :This is one of the input variables, not an output. Review section 4.1.
[D] :When planning, we are generally interested in future, not past, decisions. Review
section 4.1.
[E] :Is this one of the listed outcomes of financial planning? Review section 4.1.
66)
[A] :You are correct!
[B] :Will all of the money from the sales be available to pay for new assets? Review
sections 4.2 and 4.3.
[C] :Why will assets have to increase at the same rate as sales if excess capacity currently
exists? Review sections 4.2 and 4.3.
[D] :Why will assets have to increase at the same rate as sales if excess capacity currently
exists? Review sections 4.2 and 4.3.
[E] :Only one of these is correct. Review sections 4.2 and 4.3.
67)
[A] :Try again! Review section 4.4.
[B] :Try again! Review section 4.4.
[C] :You are correct!
[D] :Given a constant debt-equity ratio, the firm can increase debt as earnings are retained.
Review section 4.4.
[E] :The maximum growth rate detailed in the question has a special name. Review section
4.4.
68)
[A] :This cannot be computed without an income statement. Review section 4.2.
[B] :These cannot be computed without an income statement. Review section 4.2.
[C] :These cannot be computed using pro forma statements. Review section 4.2.
[D] :You are correct!
[E] :These cannot be computed without an income statement. Review section 4.2.
69)
[A] :Did you get projected current assets of $125? Review section 4.3.
[B] :You are correct!
[C] :Did you get projected accounts payable of $62.50? Review section 4.3.
[D] :Did you get projected total assets of $350? Review section 4.3.
[E] :Did you get an addition to retained earnings of $33? Review section 4.3.
70)
[A] :Correct, but a lower accounts receivable turnover ratio could also apply. Review
section 4.3.
[B] :Correct, but at least one other option also applies. Review section 4.3.
[C] :Correct, but a lower return on assets ratio could also apply. Review section 4.3.
[D] :Correct, but a lower fixed asset turnover ratio could also apply. Review section 4.3.
[E] :You are correct!
71)
[A] :You are correct!
[B] :What can financial planning accomplish? Review section 4.1.
72)
[A] :You are interpreting the problem incorrectly. Review section 4.3.
[B] :This is the 80 percent level of capacity. Review section 4.3.
[C] :This is incorrect. Review section 4.3.
[D] :You are correct!
[E] :This is incorrect. Review section 4.3.
73)
[A] :Increasing the retention ratio increases the funds available internally which increases
sustainable growth. Review section 4.4.
[B] :As income grows, so does the sustainable growth rate. Review section 4.4.
[C] :As a firm increases its ability to generate sales with its assets, its ability to grow
increases. Review section 4.4.
[D] :As a firm increases its ability to turn sales into income, its ability to grow increases.
Review section 4.4.
[E] :You are correct!
74)
[A] :Did you get a dividend payout ratio of 66.67 percent? Review section 4.4.
[B] :Did you get a plowback ratio of 33.33 percent? Review section 4.4.
[C] :You are correct!
[D] :Did you get a return on assets of 15 percent? Review section 4.4.
[E] :Did you get a plowback ratio of 33.33 percent? Review section 4.4.
75)
[A] :You are correct!
[B] :You need to review these computations in section 4.3.
[C] :You need to review these computations in section 4.3.
[D] :Did you increase fixed assets before sales reached the full capacity level of $562.50?
Review section 4.3.
[E] :You need to review these computations in section 4.3.
76)
[A] :Correct, but at least one other choice is correct as well. Review section 4.3.
[B] :The level of long-term debt is a financing choice and is generally not tied directly to
increases in sales. Review section 4.3.
[C] :You are correct!
[D] :At least one of these choices is incorrect. Review section 4.3.
[E] :At least one of these choices is incorrect. Review section 4.3.
77)
[A] :You are correct!
[B] :How is the total asset turnover rate related to the return on equity? Review section 4.4.
78)
[A] :What is the increase in total assets, in retained earnings, and in debt? Review section
4.2.
[B] :What is the increase in total assets, in retained earnings, and in debt? Review section
4.2.
[C] :You are correct!
[D] :What is the increase in total assets, in retained earnings, and in debt? Review section
4.2.
[E] :What is the increase in total assets, in retained earnings, and in debt? Review section
4.2.
79)
[A] :You are correct!
[B] :This is not the first dimension. Review section 4.1.
[C] :This is not the first dimension. Review section 4.1.
[D] :This is not the first dimension. Review section 4.1.
[E] :This is not the first dimension. Review section 4.1.
80)
[A] :You are correct!
[B] :What is the base variable upon which the percentage of sales forecasting depends?
Review section 4.3.
81)
[A] :Don’t you use the dividend payout ratio to find the retention ratio? Review section 4.4.
[B] :Don’t you often use the Du Pont identity to compute the return on equity? Review
section 4.4.
[C] :Don’t you often use the Du Pont identity to compute the return on equity? Review
section 4.4.
[D] :One of these is incorrect. Review section 4.4
[E] :You are correct!
82)
[A] :Did you get a return on equity of 10 percent? Review section 4.4.
[B] :Did you get total equity of $100 using the equity multiplier? Review section 4.4.
[C] :Did you get a return on equity of 10 percent? Review section 4.4.
[D] :You are correct!
[E] :Did you get total equity of $100 using the equity multiplier? Review section 4.4.
83)
[A] :Debt and equity are not a part of fixed assets. Review section 4.1.
[B] :You are correct!
[C] :Long-term debt and equity are not a part of current assets or current liabilities. Review
section 4.1.
[D] :Debt and equity are not a part of working capital. Review section 4.1.
[E] :Debt and equity are not a part of the dividend policy. Review section 4.1.
84)
[A] :Try again! Review section 4.2.
[B] :You are correct!
[C] :This is incorrect. Review sections 4.2 and 4.3.
[D] :This is incorrect. Review sections 4.2 and 4.3.
[E] :Sales is usually the driver of a financial plan. Review section 4.2.
85)
[A] :Did you get a dividend payout ratio of 40 percent? Review section 4.4.
[B] :Did you get a retention ratio of 60 percent? Review section 4.4.
[C] :Did you get a return on equity of 25 percent? Review section 4.4.
[D] :You are correct!
[E] :Did you get a plowback ratio of 60 percent? Review section 4.4.
86)
[A] :Correct, but at least one more statement is also correct. Review section 4.2.
[B] :Correct, but at least one more statement is also correct. Review section 4.2.
[C] :Almost, but the remaining statement is also correct. Review section 4.2.
[D] :Almost, but the remaining statement is also correct. Review section 4.2.
[E] :You are correct!
87)
[A] :The retention ratio can not exceed 100 percent. Review section 4.3.
[B] :Correct, but there is another correct option also. Review section 4.3.
[C] :At least one of these choices is not correct. Review section 4.3.
[D] :You are correct!
[E] :At least one of these choices is not correct. Review section 4.3.
88)
[A] :Will the profit as a percentage of sales increase or will the dollar amount of profit
increase? Review section 4.3.
[B] :Do tax rates vary directly with the sales of a firm? Review section 4.3.
[C] :This depends on the dividend policy. Review section 4.3.
[D] :Won’t the common-size ratios remain constant? Review section 4.3.
[E] :You are correct!
89)
[A] :How do you know the amount of assets you will need without knowing the expected
level of sales? Review section 4.2.
[B] :How do you know the amount of equity you will need without knowing the expected
level of sales? Review section 4.2.
[C] :How do you know the amount of assets you will need without knowing the expected
level of sales? Review section 4.2.
[D] :You are correct!
[E] :How can you estimate your costs without knowing the expected level of sales? Review
section 4.2.
90)
[A] :There is at least one more correct option. Review section 4.4.
[B] :There is at least one more correct option. Review section 4.4.
[C] :You are correct!
[D] :At least one of these is incorrect. Review section 4.4.
[E] :At least one of these is incorrect. Review section 4.4.
91)
[A] :You are correct!
[B] :You need to review this computation in section 4.3.
92)
[A] :You are correct!
[B] :At least one of these is incorrect. Review section 4.4.
[C] :At least one of these is incorrect. Review section 4.4.
[D] :At least one of these is incorrect. Review section 4.4.
[E] :At least one of these is incorrect. Review section 4.4.
93)
[A] :Remember, the capital intensity ratio is closely related to the total asset turnover.
Review section 4.2.
[B] :Remember, the capital intensity ratio is closely related to the total asset turnover.
Review section 4.2.
[C] :Remember, the capital intensity ratio is closely related to the total asset turnover.
Review section 4.2.
[D] :You are correct!
[E] :Remember, the capital intensity ratio is closely related to the total asset turnover.
Review section 4.2.
94)
[A] :Did you get projected total assets of $1,035? Review sections 4.2 and 4.3.
[B] :Did you get an addition to retained earnings of $18.98, or $19 rounded? Review
sections 4.2 and 4.3.
[C] :You are correct!
[D] :Did you get a projected accounts payable of $126.50? Review sections 4.2 and 4.3.
[E] :Will notes payable change automatically with sales? Review sections 4.2 and 4.3.
95)
[A] :You are missing one of the key lessons from chapter 4. Review section 4.1.
[B] :You are correct!
96)
[A] :Which firm do you think requires the larger investment in assets for each dollar of sales
generated? Review section 4.3.
[B] :You are correct!
97)
[A] :Did you get a plowback ratio of 70 percent? Review section 4.4.
[B] :Did you get total equity of $300 by using the debt-equity ratio? Review section 4.4.
[C] :Did you get a plowback ratio of 70 percent? Review section 4.4.
[D] :You are correct!
[E] :Did you get total equity of $300 by using the debt-equity ratio? Review section 4.4.
98)
[A] :You are correct!
[B] :This ratio includes only part of the assets. Review section 4.3.
[C] :This relates to the growth rate of the firm. Review sections 4.3 and 4.4.
[D] :This ratio relates to net income and retained earnings. Review section 4.3.
[E] :This refers to the level of debt and equity. Review section 4.3.
99)
[A] :It is possible that firms operating at less than full capacity will need external funds as
they grow. Review section 4.3.
[B] :A firm that is operating at less than full capacity has some room to grow sales without
adding fixed assets. Review section 4.3.
[C] :You are correct!
[D] :Actually, the reverse of this statement is true. Review section 4.3.
[E] :This is not a correct statement. Review section 4.3.
100)
[A] :Dividends are a part of the payout ratio, which is fixed in this problem. Review section
4.2.
[B] :Short-term debt is a part of total debt. Review section 4.2.
[C] :You are correct!
[D] :New equity sales are not allowed according to problem. Review section 4.2.
[E] :The stated assumptions will lead to a forecasted level of retained earnings. Review
section 4.2.
101)
[A] :The short run is generally one year or less. Review section 4.1.
[B] :The long run is usually restricted to no more than five years. Review section 4.1.
[C] :You are correct!
[D] :The short run is generally one year or less and the long run is usually restricted to no
more than five years. Review section 4.1.
[E] :The long run usually incorporates up to the next five years. Review section 4.1.