Tài liệu hạn chế xem trước, để xem đầy đủ mời bạn chọn Tải xuống
1
/ 44 trang
THÔNG TIN TÀI LIỆU
Nội dung
Chapter 004 Long-Term Financial Planning and Growth Multiple Choice Questions The long-range time period, usually the next two to five years, over which the financial planning process focuses is known as the: A planning horizon b planning strategy c planning agenda d short-run e current financing period SECTION: 4.1 TOPIC: PLANNING HORIZON TYPE: DEFINITIONS 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: a separation B aggregation c conglomeration d appropriation e striation SECTION: 4.1 TOPIC: AGGREGATION TYPE: DEFINITIONS The financial planning method in which accounts vary depending on a firm's predicted sales level is called the _ approach A percentage of sales b sales dilution c sales reconciliation d common-size e time-trend SECTION: 4.3 TOPIC: PERCENTAGE OF SALES APPROACH TYPE: DEFINITIONS 4-1 Chapter 004 Long-Term Financial Planning and Growth The dividend payout ratio is calculated as: a net income minus additions to retained earnings b cash dividends divided by the change in retained earnings C cash dividends divided by net income d net income minus cash dividends e one plus the retention ratio SECTION: 4.3 TOPIC: DIVIDEND PAYOUT RATIO TYPE: DEFINITIONS The retention ratio is calculated as: a one plus the dividend payout ratio B the additions to retained earnings divided by net income c the additions to retained earnings divided by dividends paid d net income minus additions to retained earnings e net income minus cash dividends SECTION: 4.3 TOPIC: RETENTION RATIO TYPE: DEFINITIONS The capital intensity ratio is the: a ratio of fixed assets to current assets b ratio of total assets to total equity c amount of fixed assets required to generate $1 in sales D amount of total assets required to generate $1 in sales e the amount of sales generated from every $1 in total assets SECTION: 4.3 TOPIC: CAPITAL INTENSITY RATIO TYPE: DEFINITIONS 4-2 Chapter 004 Long-Term Financial Planning and Growth The internal growth rate of a firm is best described as the: a minimum growth rate achievable if the firm does not pay out any cash dividends b minimum growth rate achievable if the firm maintains a constant equity multiplier C maximum growth rate achievable without external financing of any kind d maximum growth rate achievable without using any external equity financing while maintaining a constant debt-equity ratio e maximum growth rate achievable without any limits on the level of debt financing SECTION: 4.4 TOPIC: INTERNAL GROWTH RATE TYPE: DEFINITIONS The sustainable growth rate of a firm is best described as the: a minimum growth rate achievable if the firm does not pay out any cash dividends b minimum growth rate achievable if the firm maintains a constant equity multiplier c maximum growth rate achievable without external financing of any kind D maximum growth rate achievable without using any external equity financing while maintaining a constant debt-equity ratio e maximum growth rate achievable without any limits on the level of debt financing SECTION: 4.4 TOPIC: SUSTAINABLE GROWTH RATE TYPE: DEFINITIONS Which of the following are basic components of a corporation's financial plan? I dividend policy II net working capital decision III capital budgeting decision IV capital structure policy a I and IV only b II and III only c I, III, and IV only d II, III, and IV only E I, II, III, and IV SECTION: INTRODUCTION TOPIC: FINANCIAL PLANNING ELEMENTS TYPE: CONCEPTS 4-3 Chapter 004 Long-Term Financial Planning and Growth 10 Financial planning: a focuses solely on the short-term outlook for a firm b forecasts the financial position of a firm on a divisional basis only C generally forecasts the financial position of a firm for the next two to five years d is a process that firms undergo once every five years e is limited to projecting the net income of a firm over the planning horizon SECTION: 4.1 TOPIC: FINANCIAL PLANNING TYPE: CONCEPTS 11 Financial planning: a encourages managers to separate their goals from their plans b is generally based on the best-case scenario c is beneficial to smaller firms but has limited value to larger firms D helps managers establish priorities e prevents firms from encountering surprise events SECTION: 4.1 TOPIC: FINANCIAL PLANNING TYPE: CONCEPTS 12 Managers of Today's World are currently in the process of updating their long-range financial plans and preparing revised pro forma statements During this process, the managers will most likely focus on the next: a to 12 months b to years c to years D to years e to 10 years SECTION: 4.1 TOPIC: PLANNING HORIZON TYPE: CONCEPTS 4-4 Chapter 004 Long-Term Financial Planning and Growth 13 One of the primary benefits of aggregation is gaining an understanding of the: a interactions of the net working capital B total investment needs of the firm c trade-offs between debt and equity d trade-offs between the dividend policy and the plowback ratio e total asset turnover ratio SECTION: 4.1 TOPIC: AGGREGATION TYPE: CONCEPTS 14 Which one of the following is a benefit of financial planning? a determining the amount of debt required over the planning horizon with absolute certainty b knowing with certainty the amount of sales that will be generated over the planning horizon c avoiding all surprises during the planning horizon d allowing growth to exceed the financing available for that growth E ascertaining the feasibility of a firm's goals SECTION: 4.1 TOPIC: FEASIBILITY TYPE: CONCEPTS 15 Pro forma financial statements are: I generally based on projected sales II guarantees of future performance III the output from a financial planning model IV projections of a firm's future financial position a IV only b I and III only c I and IV only d II and IV only E I, III, and IV only SECTION: 4.2 TOPIC: PRO FORMA STATEMENTS TYPE: CONCEPTS 4-5 Chapter 004 Long-Term Financial Planning and Growth 16 When utilizing the percentage of sales approach, managers: I determine the level of sales required based on the desired profit margin percentage II need to identify which expenses are variable and which are fixed III need to determine the capital intensity ratio IV can ignore any projected dividends a I and II only B II and III only c III and IV only d I, II, and IV only e I, III, and IV only SECTION: 4.3 TOPIC: PERCENTAGE OF SALES APPROACH TYPE: CONCEPTS 17 Sales forecasts are: I frequently based on macroeconomic projections II often influenced by industry forecasts III critical to the reliability of pro forma financial statements IV generally the basis for projecting future asset requirements a I and II only b III and IV only c II and III only d I, II, and III only E I, II, III, and IV SECTION: 4.2 TOPIC: SALES FORECASTS TYPE: CONCEPTS 4-6 Chapter 004 Long-Term Financial Planning and Growth 18 When constructing a pro forma statement, net working capital generally: a remains fixed b varies only when the firm is producing at full capacity c varies only if the firm maintains a fixed debt-equity ratio d varies only if the firm is producing at less than full capacity E varies proportionately with sales SECTION: 4.3 TOPIC: PRO FORMA STATEMENTS TYPE: CONCEPTS 4-7 Chapter 004 Long-Term Financial Planning and Growth 19 When fixed assets on a pro forma statement are projected to increase at a rate equivalent to the projected rate of sales growth, it can be assumed that the firm is: a projected to grow at the internal rate of growth b projected to grow at the sustainable rate of growth c creating excess capacity D currently operating at full capacity e retaining all of its projected net income SECTION: 4.3 TOPIC: PRO FORMA STATEMENTS TYPE: CONCEPTS 20 A firm is currently operating at full capacity Net working capital, costs, and all assets vary directly with sales The firm does not wish to obtain any additional equity financing The dividend payout ratio is constant at 40 percent If the firm has a positive EFN, that need will be met by: a accounts payable B long-term debt c fixed assets d retained earnings e common stock SECTION: 4.3 TOPIC: PRO FORMA STATEMENTS TYPE: CONCEPTS 21 The composition of the liability and equity sections of a pro forma statement depend most heavily on a firm's: a net working capital policies B financing and dividend policies c desired level of liquidity d capital budgeting and working capital policies e level of capacity utilization and net working capital policy SECTION: 4.3 TOPIC: PRO FORMA STATEMENTS TYPE: CONCEPTS 4-8 Chapter 004 Long-Term Financial Planning and Growth 22 You are comparing the current income statement of a firm along with a pro forma income statement for next year The pro forma is based on a five percent increase in sales The firm is currently operating at 82 percent of capacity Net working capital and all costs vary directly with sales The tax rate and the dividend payout ratio are fixed Given this,: a the net income shown on both statements is identical b the tax rate is assumed to increase at the same rate as the sales C the common size income statements for both years will be identical d next year's increase in retained earnings will equal this year's increase in retained earnings e total assets are required to also increase at a rate equal to the rate of sales growth SECTION: 4.3 TOPIC: PRO FORMA STATEMENTS TYPE: CONCEPTS 23 Which of the following statements concerning pro forma financials are correct? I The pro forma level of sales should consider macroeconomic forecasts II Pro forma statements should consider both the capital structure and the dividend policies of the firm III A pro forma balance sheet must always maintain a fixed debt-equity ratio IV A pro forma balance sheet must always consider the operating capacity level a I and II only b III and IV only c I, III, and IV only d I, II, and III only E I, II, and IV only SECTION: 4.3 TOPIC: PRO FORMA STATEMENTS TYPE: CONCEPTS 4-9 Chapter 004 Long-Term Financial Planning and Growth 24 Which one of the following is required to create pro forma financial statements? A current capacity level of operations must be known b debt-equity ratio must be constant c dividend amount must be constant d all expenses must vary directly with sales e firm must be projected to operate at full capacity SECTION: 4.3 TOPIC: PRO FORMA STATEMENTS TYPE: CONCEPTS 4-10 Chapter 004 Long-Term Financial Planning and Growth 62 Creative Analysis, Inc is currently operating at maximum capacity All costs, assets, and current liabilities vary directly with sales The tax rate and the dividend payout ratio will remain constant How much additional debt is required if no new equity is raised and sales are projected to increase by 12 percent? a $169.08 b $249.00 c $322.08 D $373.08 e $399.00 Projected total assets = $7,200 1.12 = $8,064 Projected accounts payable = $2,075 1.12 = $2,324 Current long-term debt = $425 Current common stock = $3,000 Projected retained earnings = $1,700 + ($216 1.12) = $1,941.92 Additional debt required = $8,064 $2,324 $425 $3,000 $1,941.92 = $373.08 AACSB TOPIC: ANALYTIC SECTION: 4.4 TOPIC: EXTERNAL FINANCING NEEDED AT MAXIMUM CAPACITY TYPE: PROBLEMS 4-30 Chapter 004 Long-Term Financial Planning and Growth 63 Creative Analysis, Inc is currently operating at 70 percent of capacity All costs and net working capital vary directly with sales The tax rate, the profit margin, and the dividend payout ratio will remain constant How much additional debt is required if no new equity is raised and sales are projected to increase by 10 percent? a $23.68 b $14.10 c $3.80 d $21.70 E $54.90 Projected current assets = $5,000 1.1 = $5,500 Projected fixed assets = $2,200 Projected accounts payable = $2,075 1.1 = $2,282.50 Current long-term debt = $425 Current common stock = $3,000 Projected retained earnings = $1,700 + ($216 1.1) = $1,937.60 Additional debt required = $5,500 + $2,200 $2,282.50 $425 $54.90 $3,000 $1,937.60 = AACSB TOPIC: ANALYTIC SECTION: 4.4 TOPIC: EXTERNAL FINANCING NEEDED AT LESS THAN MAXIMUM CAPACITY TYPE: PROBLEMS 64 Assume the profit margin and the dividend payout ratio of Creative Analysis, Inc are constant If sales increase by percent, what is the pro forma retained earnings? a $237.60 b $356.40 c $1,870.00 D $1,933.28 e $2,294.00 Projected retained earnings balance = $1,700 + (1.08 AACSB TOPIC: ANALYTIC SECTION: 4.3 TOPIC: RETAINED EARNINGS TYPE: PROBLEMS 4-31 $216) = $1,933.28 Chapter 004 Long-Term Financial Planning and Growth 65 Assume that Creative Analysis, Inc is currently operating at 90 percent of capacity and that sales are projected to increase to $10,000 What is the projected addition to fixed assets? a $122 b $100 C $129 d $246 e $388 Current maximum capacity = $8,500 / 90 = $9,444.44; Required addition to fixed assets = [($2,200 / $9,444.44) $10,000] $2,200 = $129.41 = $129 AACSB TOPIC: ANALYTIC SECTION: 4.3 TOPIC: INCREASE IN NET FIXED ASSETS TYPE: PROBLEMS 4-32 Chapter 004 Long-Term Financial Planning and Growth 66 All costs and net working capital vary directly with sales Sales are projected to decrease by percent What is the projected decrease in accounts receivable? A $25.20 b $39.90 c $199.50 d $252.00 e $399.00 Projected decrease in accounts receivable = 03 AACSB TOPIC: ANALYTIC SECTION: 4.3 TOPIC: PERCENTAGE OF SALES TYPE: PROBLEMS 4-33 $840 = $25.20 Chapter 004 Long-Term Financial Planning and Growth 67 The profit margin, the debt-equity ratio, and the dividend payout ratio are constant Sales are expected to increase by $525 next year What is the projected addition to retained earnings for next year? a $19.15 b $31.92 c $106.47 d $234.78 E $471.55 Projected change in retained earnings = [($12,400 + $525) /$12,400] $452.40 = $471.55 AACSB TOPIC: ANALYTIC SECTION: 4.3 TOPIC: RETAINED EARNINGS TYPE: PROBLEMS 68 Assume that Delalo, Inc is operating at full capacity Also assume that all costs, net working capital, and fixed assets vary directly with sales The debt-equity ratio and the dividend payout ratio are constant What is the projected increase in net fixed assets if sales are projected to increase by 11 percent? a $269.50 b $506.00 C $1,102.20 d $1,371.70 e $2,719.50 Projected increase in net fixed assets = 11 $10,020 = $1,102.20 AACSB TOPIC: ANALYTIC SECTION: 4.3 TOPIC: TOTAL ASSETS TYPE: PROBLEMS 4-34 Chapter 004 Long-Term Financial Planning and Growth 69 Assume that Delalo, Inc is operating at 80 percent of capacity All costs and net working capital vary directly with sales What is the amount of the pro forma net fixed assets if sales are projected to increase by 25 percent? a $9,616 B $10,020 c $12,040 d $15,025 e $18,781 A 25 percent increase in sales will bring the firm to full capacity No additional fixed assets are required Thus, fixed assets will remain at $10,020 AACSB TOPIC: ANALYTIC SECTION: 4.3 TOPIC: FULL CAPACITY SALES AND FIXED ASSETS TYPE: PROBLEMS 70 Assume that Delalo, Inc is operating at full capacity Also assume that assets, costs, and current liabilities vary directly with sales The dividend payout ratio is constant What is the external financing needed if sales increase by 10 percent? a $630.64 b $332.36 C $616.36 d $661.60 e $1,109.36 External financing needed = (1.10 $12,470) ($2,840 + ($452.40 1.10) = $616.36 (1.10 AACSB TOPIC: ANALYTIC SECTION: 4.4 TOPIC: EXTERNAL FINANCING NEED TYPE: PROBLEMS 4-35 $1,330) $3,700 $4,600 Chapter 004 Long-Term Financial Planning and Growth 71 Delalo, Inc is projecting sales to increase by percent next year and the profit margin to remain constant The firm wants to increase the dividend payout ratio by 12 percent What is the amount of the projected addition to retained earnings for next year? a $337.79 b $358.06 c $400.00 d $416.21 E $441.18 Projected dividend payout ratio = ($301.60 / $754) 1.12 = 448; Retention ratio = = 552; Projected retained earnings = $754 1.06 552 = $441.18 448 AACSB TOPIC: ANALYTIC SECTION: 4.3 TOPIC: ADDITION TO RETAINED EARNINGS TYPE: PROBLEMS 72 What is the internal growth rate of Delalo, Inc if the dividend payout ratio remains constant? a 1.45 percent b 2.48 percent C 3.76 percent d 4.62 percent e 6.47 percent Internal growth = {($754 / $12,470) / $754)]} = 03764 = 3.76 percent ($452.40 / $754)} / {1 AACSB TOPIC: ANALYTIC SECTION: 4.4 TOPIC: INTERNAL GROWTH RATE TYPE: PROBLEMS 4-36 [($754 / $12,470) ($452.40 Chapter 004 Long-Term Financial Planning and Growth 73 What is the pro forma retained earnings if Delalo, Inc grows at a rate of 3.76 percent and both the profit margin and the dividend payout ratio remain constant? a $2,946.90 b $3,023.75 C $3,309.41 d $3,321.67 e $3.416.33 Proforma retained earnings = $2,840 + ($452.40 1.0376) = $3,309.41 AACSB TOPIC: ANALYTIC SECTION: 4.4 TOPIC: INTERNAL GROWTH RATE AND RETAINED EARNINGS TYPE: PROBLEMS 74 Assume that all costs and assets of Delalo, Inc increase directly with sales Also assume that the tax rate and the dividend payout ratio are constant The firm is currently operating at full capacity What is the external financing needed if sales increase by percent? a $281.81 b $360.12 c $402.61 D $509.01 e $545.20 External financing need = (1.08 ($452.40 1.08)] = $509.01 $12,470) $1,330 AACSB TOPIC: ANALYTIC SECTION: 4.4 TOPIC: SUSTAINABLE GROWTH RATE TYPE: PROBLEMS 4-37 $3,700 $4,600 [$2,840 + Chapter 004 Long-Term Financial Planning and Growth 75 Consultants, Inc is currently operating at 80 percent of capacity What is the full-capacity level of sales? a $3,040.00 b $4,680.00 C $4,750.00 d $6,260.50 e $7,312.50 Full-capacity sales = $3,800 / 80 = $4,750 AACSB TOPIC: ANALYTIC SECTION: 4.3 TOPIC: FULL CAPACITY SALES TYPE: PROBLEMS 4-38 Chapter 004 Long-Term Financial Planning and Growth 76 Consultants, Inc is currently operating at 95 percent of capacity What is the total asset turnover ratio at full capacity? A .68 b .86 c .95 d 1.16 e 1.46 Full-capacity sales = $3,800 / 95 = $4,000; Total asset turnover at full-capacity = $4,000 / $5,850 = $.68 AACSB TOPIC: ANALYTIC SECTION: 4.3 TOPIC: TOTAL ASSET TURNOVER TYPE: PROBLEMS 77 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 percent next year What is the projected addition to retained earnings for next year? a $149.58 b $299.16 C $448.74 d $598.32 e $650.24 Projected addition to retained earnings = $415.50 AACSB TOPIC: ANALYTIC SECTION: 4.3 TOPIC: ADDITION TO RETAINED EARNINGS TYPE: PROBLEMS 4-39 (1 + 08) = $448.74 Chapter 004 Long-Term Financial Planning and Growth 78 Consultants, Inc is currently operating at full capacity The profit margin and the dividend payout ratio are constant Net working capital and fixed assets vary directly with sales Sales are projected to increase by percent What is the external financing needed? a $293.78 B $193.78 c $122.50 d $292.50 e $367.27 Projected total assets = $5,850 1.05 = $6,142.50 Projected accounts payable = $1,000 1.05 = $1,050 Projected retained earnings = $1,450 + ($415.50 1.05) = $1,886.28; External financing need = $6,142.50 $1,050 $1,886.28 $1,150 $2,250 = $193.78 AACSB TOPIC: ANALYTIC SECTION: 4.4 TOPIC: EXTERNAL FINANCING NEED TYPE: PROBLEMS 79 Consultants, Inc maintains a constant dividend payout ratio The firm is currently operating at full capacity What is the maximum rate at which the firm can grow without acquiring any additional external financing? a 2.42 percent b 3.89 percent C 7.65 percent d 9.45 percent e 12.65 percent Internal growth = {($554 / $5,850) $554)]} = 7.65 percent ($415.50 / $554)} / {1 AACSB TOPIC: ANALYTIC SECTION: 4.4 TOPIC: INTERNAL GROWTH RATE TYPE: PROBLEMS 4-40 [($554 / $5,850) ($415.50 / Chapter 004 Long-Term Financial Planning and Growth 80 Consultants, Inc is currently operating at 95 percent of capacity What is the required increase in fixed assets if sales are projected to increase by 10 percent? a $0 B $207 c $230 d $427 e $460 Full-capacity sales = $3,800 / 95 = $4,000; Required increase in fixed assets = ($4,600 / $4,000) ($3,800 1.10) $4,600 = $207 AACSB TOPIC: ANALYTIC SECTION: 4.3 TOPIC: CAPACITY UTILIZATION AND INCREASE IN FIXED ASSETS TYPE: PROBLEMS Essay Questions 81 Why financial managers need to understand the implications of both the internal and the sustainable rates of growth? Working capital, fixed assets, and external financing must coordinate with and be able to support a firm's sales growth If, for example, a projected increase in sales requires external financing when no such financing is available, then the firm cannot grow at the desired rate Understanding the implications of both the internal and the sustainable growth rates helps managers understand the need to limit growth so that the firm does not outgrow its resources AACSB TOPIC: REFLECTIVE THINKING SECTION: 4.4 TOPIC: SALES GROWTH 4-41 Chapter 004 Long-Term Financial Planning and Growth 82 Identify the four basic elements of a firm's financial policy and describe the purpose of each AACSB TOPIC: REFLECTIVE THINKING SECTION: 4.1 TOPIC: FINANCIAL PLANNING 83 State the assumptions that underlie the sustainable growth rate and interpret what the sustainable growth rate means The usual assumptions are: Costs and net working capital increase proportionately with sales Fixed assets also increase proportionately with sales once production reaches full capacity The dividend payout ratio is constant The current debt-equity ratio is optimal and no new equity sales are possible The sustainable growth rate is the maximum rate at which sales can increase with the restriction that no new equity sales are possible and long-term debt increases only in an amount that keeps the debt-equity ratio fixed AACSB TOPIC: REFLECTIVE THINKING SECTION: 4.4 TOPIC: SUSTAINABLE GROWTH 84 Suppose a firm calculates its external funding needs and finds that it is negative What are the firm's options in this case? With a negative external financing need, the firm has a surplus of funds that it can use to reduce current liabilities, reduce long-term debt, buy back common stock, or increase dividends If acceptable opportunities exist, firms might also use the extra funds to add assets AACSB TOPIC: REFLECTIVE THINKING SECTION: 4.4 TOPIC: NEGATIVE EFN 4-42 Chapter 004 Long-Term Financial Planning and Growth 4-43 Chapter 004 Long-Term Financial Planning and Growth 85 If a firm has the option of growing at a six percent rate versus a four percent rate, should the firm always opt for the higher rate of growth? Explain why or why not No The best rate of growth for a firm is determined by several factors One of the key factors is the availability of funding to support the desired level of growth The internal growth rate establishes a minimum desired rate of growth while the sustainable growth rate sets the maximum supportable level of growth AACSB TOPIC: REFLECTIVE THINKING SECTION: 4.4 TOPIC: INTERPRETING GROWTH 4-44