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Exam 4: Long-Term Financial Planning and Growth

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Question 121

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The sustainable growth rate excludes any kind of external financing.

A) True
B) False

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Question 122

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Moore Money Inc. has a profit margin of 11% and a retention ratio of 70%. Last year, the firm had sales of $500 and total assets of $1,000. The desired total debt ratio is 75%. What is the firm's Sustainable growth rate?

A) 2.5%
B) 4.0%
C) 7.1%
D) 11.3%
E) 18.2%

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

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Question 123

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The _________ is the amount of assets needed to generate $1 in sales.

Rosita's Bakery has sales of $236,000 and $168,500 of total assets. The firm is operating at 82% of capacity. What is the capital intensity ratio at full capacity?

The plowback ratio:

Assuming that a company has a policy of paying out a constant fraction of net income in the form of a cash dividends, calculate the addition to retained earnings given the following information: cash Dividends = $3,000; net income = $15,000.

Why is it just as important to project the statement of financial position as it is to project the statement of comprehensive income?

When utilizing the percentage of sales approach, managers need to determine the capital intensity ratio.

By developing a financial plan a firm benefits by being forced to think about and forecast the future.

Percy's has a plowback ratio of 75% and a sustainable growth rate of 6 percent. The capital intensity ratio is 1.4 and the debt-equity ratio is .6. What is the profit margin?

At the end of last year, a firm had a current ratio of 1.4, net fixed assets of $2,500, notes payable of $0, and total assets of $5,100. Based on pro forma sales, current liabilities will increase by $500 And current assets will increase by $900. By how much can notes payable increase on the pro Forma statement without changing the current ratio?

All else the same, sustainable growth will decrease with increases in _____________.

Based on the 2015 financial statement data, Marble's internal growth rate is ______. (Assume the dividend payout ratio is fixed.)

When a firm makes decisions regarding its investment in inventory and accounts receivable it is making a ________________ decision.

The following balance sheet and income statement should be used: What is the internal growth rate of Taylor, Inc. if the dividend payout ratio remains constant?

If a firm is at full-capacity sales, it means the firm is at the maximum level of production possible without increasing:

The maximum rate at which a firm can grow without acquiring any type of external financing is called the _____ growth rate.

It has been said that, "conventional business wisdom holds that financial plans don't work, but financial planning does." What is meant by this? Ignoring the accuracy of the numbers in a financial plan (which can only be determined after the fact anyway), what does the process of financial planning accomplish?

If total assets increase by the same percentage as sales increase the larger the increase in sales, the more likely there will be a need for external financing.

You are comparing the financial statements of General Motors (an automaker) and Sears (a department store). Provide four items that you should consider if you are attempting to compare the future growth prospects of both firms.