Test Bank Chapter 19 Financial Planning And Managing Growth

Fundamentals of Corporate Finance, 5e (Parrino)

Chapter 19 Financial Planning and Managing Growth

1) Financial planning deals with establishing sales forecasts for a time horizon set by a firm's management.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

2) In putting together a financial plan, management uses key information through their strategic plan, investment plan, financing plan, and their cash budget.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

3) The investment plan of a firm addresses the issue of what capital assets management needs to obtain to achieve its goals.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

4) The financing plan deals with how a firm is going to secure the funds needed to pay for the capital resources required.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

5) The financing plan documents a firm's long-term goals, the strategies that management will use to achieve the goals, and the capabilities that the firm needs to sustain its competitive position.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

6) The strategic plan identifies major areas for investments in productive assets, and also identifies mergers, alliances, and divestitures to strengthen a firm's business portfolio.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

7) The strategic plan of a firm addresses the issue of what capital resources the management needs to achieve its goals.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

8) Capital expenditures can be one-time investments or routine investments that allow a firm to continue its operations.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

9) Once capital investments are made, they are almost impossible to be reversed.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

10) In the financing plan of a firm, management states that the firm will seek to raise funds externally even if sufficient internally generated funds are available to fund projects.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

11) The financial plan focuses only on strategic planning and investment planning.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

12) The financial plan includes the cash budget, which identifies the time line for cash inflows and outflows included in divisional business plans.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

13) Financial planning helps management establish financial and operating goals for a firm and to communicate those goals throughout the firm.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

14) Financial planning models are not considered an integral part of financial planning.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

15) Financial models provide management with the ability to prepare projected financial statements.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

16) Since sales are often correlated with the regional or national economy, economic forecasts are incorporated into the financial planning model.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

17) Financial statements and sales forecasts are considered major inputs in financial planning models.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

18) Investment and financing policy decisions are not considered inputs in financial planning models.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

19) The outputs of the financial planning model are a series of pro forma financial statements and financial ratios based on these statements.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

20) Pro forma financial statements that result from financial planning models are always perfectly balanced.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Budget Preparation

AICPA: Industry/Sector Perspective

21) Projected or pro forma statements can be used to analyze the investment alternatives, but are not used to estimate the amounts of external funding needed.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Budget Preparation

AICPA: Industry/Sector Perspective

22) Sales are often correlated with the regional or national economy, so it is not necessary to incorporate economic forecasts into the model.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

23) The percent of sales model is a complex financial planning model.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

24) In the percent of sales model, all income statement and balance sheet accounts vary directly with sales.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

25) The capital intensity ratio measures the dollar amount of sales per dollar invested in assets.

Learning Objective: LO 3

Bloomcode: Comprehension

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

26) Fixed assets vary directly with sales when firms are operating at less than full capacity.

Learning Objective: LO 3

Bloomcode: Comprehension

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

27) Firms that are not highly capital intensive tend to be riskier than similar firms that use more fixed assets.

Learning Objective: LO 3

Bloomcode: Comprehension

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

28) Lumpy assets are added as large discrete units and initially may not be used to full capacity.

Learning Objective: LO 4

Bloomcode: Comprehension

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

29) When a firm maintains a constant dividend policy, the firm's growth rate has no bearing on the external financing needed.

Learning Objective: LO 5

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

30) Holding the growth rate constant, the higher a firm's dividend payout ratio, the larger the amount of external debt or equity financing needed.

Learning Objective: LO 5

Bloomcode: Comprehension

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

31) The sustainable growth rate is the rate of growth that a firm can sustain without issuing additional debt.

Learning Objective: LO 5

Bloomcode: Knowledge

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

32) The sustainable growth rate is the rate of growth that a firm can sustain without issuing additional equity while maintaining the same capital structure.

Learning Objective: LO 5

Bloomcode: Knowledge

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

33) The higher a firm's dividend payout ratio, the higher the firm's internal growth rate.

Learning Objective: LO 5

Bloomcode: Comprehension

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

34) Increasing a firm's plowback ratio, will result in increasing its sustainable growth rate.

Learning Objective: LO 5

Bloomcode: Comprehension

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

35) The lower a firm's ROE, the lower is the firm's sustainable growth rate.

Learning Objective: LO 5

Bloomcode: Comprehension

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

36) Which of the following components is NOT in a financial plan?

A) The strategic plan

B) The investment plan

C) The financing plan

D) Competitor's budgets

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

37) Which of the following questions is NOT addressed in a financial plan?

A) Where is the company headed?

B) What capital resources does the management need to get there?

C) How is the firm going to pay for the resources needed?

D) How is an auditing firm is to be selected?

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

38) Which of the following questions is NOT addressed in a firm's financial plan?

A) What is the growth rate for the firm's main competitor?

B) Where is the firm headed?

C) What capital resources does the management need to get there?

D) How is the firm going to pay for the resources needed?

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

39) The strategic plan identifies:

A) the sales and marketing budget.

B) the business plans for operating units.

C) the capital budget.

D) major areas of investment in productive assets.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

40) The strategic plan does NOT identify:

A) major areas of investment in productive assets.

B) future mergers, alliances, and divestitures.

C) working capital strategies.

D) the lines of business a firm will compete.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

41) Which of the following is true of capital expenditures?

A) They are part of a firm's strategic plan.

B) Once a capital investment is made, it is generally easy to reverse it.

C) Capital expenditures are exclusively for one-time investments.

D) Capital expenditures can be one-time investments or routine investments that allow a firm to continue its operations.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

42) The financing plan of a firm will indicate:

A) the dollar amount of funds that must be raised externally and the sources of funds available to the firm, the desired capital structure for the firm, and the firm's dividend policy.

B) the dollar amount of funds that must be raised externally and the sources of funds available to the firm, the desired capital structure for the firm, and the firm's working capital policy.

C) the dollar amount of funds that must be raised externally and the sources of funds available to the firm, the firm's dividend policy, and the firm's working capital policy.

D) the firm's dividend policy, the desired capital structure for the firm, and the firm's working capital policy.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

43) Which of the following is NOT a part of a financing plan?

A) The dollar amount of funds that must be raised externally and the sources of funds available to a firm.

B) The desired capital structure for a firm.

C) A firm's dividend policy.

D) Internal control policies.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

44) A financial plan includes:

A) the strategic plan, financing plan, and options plan.

B) the strategic plan, investment plan, and financing plan.

C) the financing plan, investment plan, and options plan.

D) the strategic plan, investment plan, and options plan.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

45) The financial planning model focuses on:

A) the inventory accounting method decision and the accounts payables decision.

B) the current assets decision and the current liabilities decision.

C) the investment decision and the financing decision.

D) the equity decision and the debt decision.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

46) Financial planning models:

A) help management make investment decisions, but cannot determine external funding needs.

B) help management make financing decisions, but not investment decisions.

C) are not based on pro forma analysis.

D) forecast future financial statements to aid in making investment and financing decisions.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

47) The sales forecasts used in financial planning models:

A) follow one specific technique.

B) must be generated outside the firm due to conflicts of interest.

C) utilize microeconomic productivity variables from firms in other industries as inputs.

D) utilize macroeconomic variables as inputs.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

48) Which of the following statements is NOT true?

A) Sales forecasts models are typically very basic and use no complicated analysis.

B) Sales forecasts are generated within a firm.

C) Sales forecasts utilize economic variables as input.

D) Sales forecasts are mainly used internally.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

49) The inputs used in building financial planning models include:

A) financial statements, sales forecasts, and a firm's investment and financial policy decisions.

B) pro forma statements, sales forecasts, and macroeconomic variables.

C) pro forma statements, sales forecasts, and financing decisions.

D) financial statements, macroeconomic variables, and financing decisions.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

50) Which of the following is NOT an input in financial planning models?

A) Financial statements

B) Pro forma financial statements

C) Investment decisions

D) Financing decisions

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

51) Which of the following statements is NOT true about financial planning models?

A) Financial statements serve as the first major input and become the baseline to compare the projected financial statements.

B) Economic forecasts and their impact on the firm's sales are also included in financial planning models.

C) Investment and financing decisions are not considered as inputs in financial planning models.

D) Changes in a firm's balance sheet and income statement items as a result of the growth in sales are also used in these models.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

52) Planning models that are more sophisticated than the percent of sales method have:

A) all variable costs change independently of sales.

B) current asset accounts vary directly with sales, however, current liability accounts vary independent of sales.

C) fixed assets always vary directly with sales.

D) working capital accounts vary directly with sales.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

53) Which of the following statements is NOT true about more sophisticated financial planning model?

A) Only fixed costs change directly with sales.

B) Working capital accounts like inventory, accounts receivables, and accounts payables vary directly with sales.

C) Fixed assets do not always vary directly with sales.

D) Variable costs change directly with sales.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

54) As sales increase, a firm needs to ________ proportionately to support the ________.

A) increase the level of fixed assets; increase the level of inventory

B) increase the level of inventory; higher sales level

C) increase the level of inventory; increase the level of fixed assets

D) increase the level of fixed assets; higher sales level.

Learning Objective: LO 3

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

55) Which of the following statements is NOT true for a firm that operates below full capacity?

A) Fixed assets can vary directly with sales.

B) Fixed assets will not vary directly with sales.

C) Fixed assets per unit can be incrementally changed.

D) Fixed assets will vary inversely with sales.

Learning Objective: LO 3

Bloomcode: Comprehension

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

56) Which of the following statements is NOT true?

A) The ratio of total assets to sales is called the capital intensity ratio.

B) The ratio of sales to total equity is called the capital intensity ratio.

C) The higher the capital intensity ratio, the more capital a firm needs to generate sales.

D) Firms that have high capital intensive ratios are riskier than similar firms that use less fixed assets.

Learning Objective: LO 3

Bloomcode: Comprehension

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

57) A firm paid out $163,961.60 as dividends on net income of $298,112. What is the firm's retention ratio?

A) 55%

B) 45%

C) 50%

D) 40%

Learning Objective: LO 3

Bloomcode: Application

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

58) Drekker, Inc. has revenues of $312,766, costs of goods sold of $220,222, interest payment of $31,477, and a tax rate of 34 percent. It paid dividends of $34,125 to shareholders. Find the firm's dividend payout ratio and retention ratio. (Round your percentage answers to nearest whole number.)

A) 85%, 15%

B) 45%, 55%

C) 55%, 45%

D) 15%, 85%

Learning Objective: LO 3

Bloomcode: Application

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

59) Comacho Traders has total assets of $513,480 and sales of $723,062. What is the firm's capital intensity ratio? (Round to two decimal places.)

A) 1.41

B) 0.71

C) 1.23

D) 0.50

Learning Objective: LO 3

Bloomcode: Application

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

60) Michael Holdings, Inc. has total assets of $1,480,072 and sales of $2,236,625. What is the firm's capital intensity ratio? (Round to two decimal places.)

A) 66.17%

B) 53.73%

C) 151.14%

D) 124.12%

Learning Objective: LO 3

Bloomcode: Application

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

61) Dennis Compton, Inc. has total assets of $5,335,901 and a capital intensity of 53.9%. What is the firm's sales? (Round to nearest whole dollar.)

A) $5,335,901

B) $2,828,028

C) $9,899,631

D) $6,945,641

Learning Objective: LO 3

Bloomcode: Application

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

62) Which of the following statements about using more sophisticated planning models is NOT true?

A) Current liabilities are likely to vary directly with sales.

B) Long-term liabilities and equity accounts change as a direct result of managerial decisions.

C) Retained earnings will vary directly as sales changes.

D) Current assets are likely to vary directly with sales.

Learning Objective: LO 4

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

63) Which of the following statements about using more sophisticated planning models is true?

A) Current liabilities change as a direct result of managerial decisions with long-term debt.

B) Long-term liabilities and equity accounts are likely to vary directly with sales.

C) Retained earnings will vary directly with sales.

D) Fixed assets will not always vary directly with sales.

Learning Objective: LO 4

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

64) Which of the following is not a weakness of financial planning models?

A) Determining interest expense accurately.

B) Determining cash accurately.

C) Determining inventory needs accurately.

D) Ability to use macroeconomic information.

Learning Objective: LO 4

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

65) Which of the following statements about accounting for changes in fixed assets is NOT true?

A) When a firm is not operating at full capacity, sales may be increased without adding any new fixed assets.

B) Since it requires time to get new assets operational, they are added in small discrete quantities.

C) Fixed assets are added in large discrete units called lumpy assets.

D) Adding new fixed assets may increase sales.

Learning Objective: LO 4

Bloomcode: Comprehension

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

66) Which of the following statements about accounting for changes in fixed assets is NOT true?

A) When a firm is not operating at full capacity, sales may be decreased without adding any new fixed assets.

B) Since it requires time to get new assets operational, they are added as the firm nears full capacity.

C) Fixed assets are added in large discrete units called lumpy assets.

D) Adding new fixed assets may increase sales.

Learning Objective: LO 4

Bloomcode: Comprehension

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

67) Which of the following statements is true about the capital budgeting process?

A) Management identifies a list of potential projects that are consistent with the business strategy and ranks them according to the value they would create for all stakeholders.

B) Rapid growth is considered to be an undesirable outcome from capital budgeting decisions.

C) The budget should grow based on cost of the desired projects even if the budget is initially too small.

D) Management identifies a list of potential projects that are consistent with the business strategy and ranks them according to the value they would create for the shareholders.

Learning Objective: LO 5

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

68) Which of the following statements is NOT true about the capital budgeting process?

A) Management identifies a list of potential projects that are consistent with the business strategy and ranks them according to the value they would create for the shareholders.

B) Rapid growth is considered a desirable achievement in capital budgeting decisions.

C) Once the list is made, no management review can change it.

D) The capital budgeting process usually involves an outflow of large amount of cash.

Learning Objective: LO 5

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

69) External funding needed (EFN) is defined as:

A) the additional debt or equity a firm needs to issue so that it can purchase additional assets to support an increase in sales.

B) the additional funds raised by a firm to pay off existing short-term debt.

C) the additional funds raised by a firm to pay off existing long-term debt.

D) the additional equity a firm needs to pay off debt.

Learning Objective: LO 5

Bloomcode: Knowledge

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

70) Which of the following statements is NOT true?

A) The internal growth rate (IGR) is defined as the maximum growth rate that a firm can achieve without external funding.

B) The higher the retained earnings generated by a firm, the higher the growth without using external funding.

C) Given the same level of retained earnings, a firm that has the higher amount of total assets has a higher growth possibility without using external funding.

D) Having a low debt-to-equity ratio may allow firms to achieve higher growth rates without seeking external funding.

Learning Objective: LO 5

Bloomcode: Comprehension

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

71) Firms that achieve higher growth rates without requiring external financing:

A) have a low plowback ratio.

B) have a low ROE.

C) are highly leveraged.

D) have a low dividend payout ratio that allows more earnings to go back into the firm.

Learning Objective: LO 5

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

72) Firms that achieve higher growth rates without seeking external financing:

A) have a low plowback ratio.

B) have less equity and/or are able to generate high net income leading to a high ROE.

C) are highly leveraged.

D) are more risky.

Learning Objective: LO 5

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

73) The sustainable growth rate (SGR):

A) is determined from market forces external to the firm.

B) is the rate of growth that a firm can sustain by selling additional shares of equity.

C) is unrelated to the firm's current level of equity.

D) is a function of the plowback ratio and the ROE.

Learning Objective: LO 5

Bloomcode: Comprehension

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

74) Which of the following statements about the sustainable growth rate (SGR) is NOT true?

A) The SGR is a function of the plowback ratio and the ROE.

B) The SGR determines the rate of growth that a firm can sustain without selling additional shares of equity.

C) The SGR helps management to determine whether they can avoid issuing new debt.

D) The SGR is calculated by multiplying the plowback ratio with the ROE.

Learning Objective: LO 5

Bloomcode: Comprehension

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

75) Which of the following statements about the sustainable growth rate (SGR) is true?

A) The lower a firm's ROE, the higher the SGR.

B) The higher the plowback ratio, the lower the proportion of net income retained in the firm.

C) The higher the plowback ratio, the higher the SGR.

D) The lower the ROE and plowback ratio, the higher the SGR.

Learning Objective: LO 5

Bloomcode: Comprehension

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

76) Hilton Corp. has revenues of $1,214,800, costs of goods sold of $816,355, and pays a tax rate of 32 percent. If the firm pays out 50 percent of its earnings as dividends every year, what is the amount of retained earnings?

A) $135,471.30

B) $270,942.60

C) $413,032.00

D) $450,613.00

Learning Objective: LO 3, 5

Bloomcode: Application

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

77) Tangent Inc. has revenues of $4,375,233, costs of goods sold of $2,467,321, and pays a tax rate of 34 percent. If the firm pays out 60 percent of its earnings as dividends every year, what is the amount of retained earnings? (Round final answer to two decimal places.)

A) $171,254.18

B) $755,533.15

C) $503,688.77

D) $632,476.98.

Learning Objective: LO 3, 5

Bloomcode: Application

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

78) Tradewinds Corp. has revenues of $9,651,220, costs of goods sold of $6,080,412, interest payment of $511,233, and a tax rate of 34 percent. It paid dividends of $1,384,125 to shareholders. Find the firm's dividend payout ratio and retention ratio. (Round the percentage answer to nearest whole number.)

A) 66%, 34%

B) 25%, 75%

C) 69%, 31%

D) 34%, 66%

Learning Objective: LO 3, 5

Bloomcode: Application

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

79) Swan Supply Company has net income of $1,212,335 on assets of $12,522,788 and retains 70 percent of its income every year. What is the company's internal growth rate? (Round your final answer to one decimal place.)

A) 7.6%

B) 6.8%

C) 8.6%

D) 9.3%

Learning Objective: LO 5

Bloomcode: Application

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

80) Mercantile Co. has net income of $3,413,500 on assets of $16,109,445 and retains 55 percent of its income every year. What is the company's internal growth rate? (Round your final answer to two decimal places.)

A) 21.21%

B) 8.62%

C) 11.65%

D) 9.43%

Learning Objective: LO 5

Bloomcode: Application

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

81) Mandolin Bottlers Co. has net income of $4,272,335 and retains 65 percent of its income every year. If the company's internal growth rate is 8.6 percent, what are total assets? (Round your answer to the nearest dollar.)

A) $32,290,904

B) $238,824

C) $30,388,235

D) $29,682,421.

Learning Objective: LO 5

Bloomcode: Application

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

82) Meredith Inc. has a return on equity of 21.5 percent, an equity ratio of 55 percent, and a dividend payout ratio of 70 percent. What is the company's internal growth rate? (Round to two decimal places.)

A) 8.32%

B) 3.55%

C) 6.43%

D) 4.84%

Learning Objective: LO 5

Bloomcode: Application

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

83) Sterling Resorts Co. has total assets worth $13,442,975. It is expecting to grow its revenue at a rate of 25 percent next year. For next year, it expects a net income of $3,475,321 and will pay out 45 percent as dividends. What is the external financing required by the firm to meet its growth expectations?

A) $1,796,849.30

B) $1,449,317.20

C) No external funding is needed.

D) $1,558,329.44

Learning Objective: LO 5

Bloomcode: Application

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

84) Nederland Finance Company has total assets worth $9,751,223. It is expecting to grow its revenue at a rate of 20 percent next year and will have a net income of $2,213,564 next year. The firm pays out 65 percent of its net income as dividends. What is the external financing required by this firm to meet its growth expectations?

A) $1,175,497.20

B) $511,428.00

C) No external funding is needed.

D) $745,321.98.

Learning Objective: LO 5

Bloomcode: Application

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

85) Triumph Company has total assets worth $6,413,228. Next year it expects a net income of $3,145,778 and will pay out 70 percent as dividends. If the firm wants to limit its external financing to $1 million, what is the growth rate it can support? (Round your final answer to one decimal place.)

A) 32.9%

B) 6.4%

C) 30.3%

D) 26.5%

Learning Objective: LO 5

Bloomcode: Application

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

86) Jockey Company has total assets worth $4,417,665. At year-end, it will have net income of $2,771,342 and pay out 60 percent as dividends. If the firm wants no external financing, what is the growth rate it can support? (Round your final answer to one decimal place)

A) 32.9%

B) 25.1%

C) 30.3%

D) 27.3%

Learning Objective: LO 5

Bloomcode: Application

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

87) If Newell Corp. has a ROE of 18.6 percent and a dividend payout ratio of 60 percent, what is its sustainable growth rate?

A) 7.44%

B) 2.15%

C) 0.47%

D) 8.2%

Learning Objective: LO 5

Bloomcode: Application

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

88) If Merton Corp. has a ROE of 23.4 percent, what is the plowback ratio required to achieve a sustainable growth rate of 7 percent? (Round to nearest whole number.)

A) 34%

B) 30%

C) 24%

D) 28%

Learning Objective: LO 5

Bloomcode: Application

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

89) Sterling Inc. currently has sales of $4,512,644 and net income of $736,253. It has a debt ratio of 47 percent and a dividend payout ratio of 65 percent. The company has total assets of $3,812,832. What is the company's sustainable growth rate? (In your interim computations, round your ROE percentage to one decimal place.)

A) 12.74%

B) 23.72%

C) 18.96%

D) 20.10%

Learning Objective: LO 5

Bloomcode: Application

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

90) Courtney Bike, Co. has a net profit margin of 7.8 percent, a debt ratio of 45 percent, total assets of $2,112,370, and sales of $4,276,990. If the company has a dividend payout ratio of 60 percent, what is the company's sustainable growth rate? (Round final answer to one decimal place.)

A) 17.2%

B) 15.6%

C) 11.5%

D) 18.9%

Learning Objective: LO 5

Bloomcode: Application

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

91) Explain how the strategic plan, investment plan, and financing plan integrate to help management do financial planning.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Industry/Sector Perspective

92) Discuss the implications of the internal growth rate.

Learning Objective: LO 5

Bloomcode: Comprehension

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

93) Explain the sustainable growth rate and discuss what it means to a firm's management.

Learning Objective: LO 5

Bloomcode: Comprehension

AACSB: Analytic

IMA: FSA

AICPA: Industry/Sector Perspective

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