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Exam 4: Long-Term Financial Planning and Corporate Growth

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Question 151

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The sustainable growth rate includes a constant debt-equity ratio.

A) True
B) False

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Question 152

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Calculate payout ratio given the following information: cash dividends paid = $6,000; sales = $100,000; cost of goods sold = $45,000; selling and administrative expenses = $25,000; interest expense = $6,000; tax rate = 30%.

A) 64.29%
B) 68.23%
C) 50%
D) 31.77%
E) 35.71%

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

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Question 153

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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 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:

Calculate the projected fixed assets needed given the following information: current sales = $25,000; current sales capacity = 80%; current fixed assets = $15,000; projected future sales = $40,000.

Assume the profit margin and the dividend payout ratio of Creative Analysis, Inc. are constant. If sales increase by 8 percent, what is the pro forma retained earnings?

Shirley's Pastries expects sales of $253,000 next year. The profit margin is 7% and the firm has a 20 percent dividend payout ratio. What is the projected increase in retained earnings?

All else the same, an increase in a firm's dividend payout ratio will decrease its external financing needed.

Net income = $150; Total assets = $1,000; Total liabilities = $400; Total asset turnover = 4.0 What is the capital intensity ratio assuming dividends paid total $100?

Calculate retention ratio given the following information: net income = $8,000; cash dividends paid = $4,400.

Guido's Garden Supplies has sales of $180,000, net income of $14,400, total assets of $280,000, total equity of $200,000, and paid $5,760 in dividends. The firm maintains a constant dividend payout ratio. The firm is currently operating at full capacity. All costs and assets vary directly with sales. The firm does not want to obtain any additional external equity. At the sustainable rate of growth, how much new total debt must the firm acquire?

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

The internal growth rate increases when the:

All else the same, an increase in a firm's dividend payout ratio will decrease its sustainable growth rate.

The two key dimensions of financial planning are:

Suppose that assets and costs maintain a constant ratio to sales. The firm retains 30% of earnings. If the firm is producing at full capacity, what is the maximum growth rate (assuming no equity sales) that will maintain a constant debt-equity ratio?

When estimating the fixed asset account value for a pro forma statement, you will need to consider which one of the following?

Consultants, Inc. is currently operating at 90 percent of capacity. The profit margin and the dividend payout ratio are projected to remain constant. Sales are projected to increase by 8% next year. What is the projected addition to retained earnings for next year?

The process by which smaller investment proposals of each of a firm's operational units are added up and treated as one big project is known as:

Any external financing need is generally covered by:

What is Stansfield Corporation's addition to retained earnings with a 10% increase in sales? Assume the dividend payout ratio and profit margin remain fixed.