Question 1

Capital intensity ratio: Michael Holdings, Inc., has total assets of $1,480,072 and sales of $2,236,625. What is the firm's capital intensity ratio?

Accepted Answer

A)   66.2%
B)   53.7%
C)   151.1%
D)   None of the above.

Question 2

Firms that achieve higher growth rates without seeking external financing

Accepted Answer

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)   None of the above.

Question 3

Which one of the following is NOT true about the capital budgeting process?

Accepted Answer

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)   Senior management reviews the list.
C)   Once the list is made, no management review can change it.
D)   All of the above are true of the capital budgeting process.

Question 4

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

Accepted Answer

A)   all variable costs change directly with sales.
B)   working capital accounts like inventory, accounts receivables, and accounts payables vary directly with sales.
C)   fixed assets that do not always vary directly with sales.
D)   All of the above are true.

Question 5

Once capital investments are made, they are almost always impossible to reverse.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Internal growth rate: 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?

Accepted Answer

A)   8.3%
B)   3.6%
C)   6.4%
D)   4.8%

Question 8

The financial plan addresses the following issue(s) :

Accepted Answer

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)   All of the above.

Question 9

The investment plan addresses the issue of what capital resources the management needs to get to achieve their goals.

Accepted Answer

A) True 
 B)False

Question 10

Which one of the following statements is NOT true?

Accepted Answer

A)   The internal growth rate (IGR)  is defined as the maximum growth rate that a firm can achieve without external financing.
B)   The higher the retained earnings generated by a firm, the higher the growth possible without using external funding.
C)   Given the same level of retained earnings, a firm that has the higher amount of total assets, the higher the growth possible without using external funding.
D)   All of the above are true.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Since sales are often correlated to the regional or national economy, macroeconomic forecasts are incorporated into the model.

Accepted Answer

A) True 
 B)False

Question 13

External funding needed (EFN)  is

Accepted Answer

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)   None of the above are true.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

The financial plan focuses on

Accepted Answer

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)   none of the above.

Question 16

Sustainable growth rate: If Merton Corp. has a ROE of 23.4 percent, what is the plowback ratio needed to achieve a sustainable growth rate of 7 percent?

Accepted Answer

A)   34%
B)   30%
C)   24%
D)   28%

Question 17

Which one of the following statements is NOT true?

Accepted Answer

A)   Sales forecasts models are typically very basic and use no complicated analysis.
B)   are generated within the firm.
C)   utilize macroeconomic variables as input.
D)   All of the above are true.

Question 18

In using more sophisticated planning models, which one of the following statements is NOT true?

Accepted Answer

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)   All of the above are true

Question 19

Payout and retention ratio: Tradewinds Corp. has revenues of $9,651,220, costs 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.

Accepted Answer

A)   66%, 34%
B)   25%, 75%
C)   69%, 31%
D)   34%, 66%

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 19: Strategic Financial Planning and Forecasting

Payout and retention ratio: Tradewinds Corp. has revenues of $9,651,220, costs 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.

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The financial plan focuses on

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The investment plan addresses the issue of what capital resources the management needs to get to achieve their goals.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In using more sophisticated planning models, which one of the following statements is NOT true?

Correct AnswerverifiedShow Answer

External funding needed (EFN) is

Correct AnswerverifiedShow Answer

Which one of the following is NOT true about the capital budgeting process?

Correct AnswerverifiedShow Answer

Which one of the following statements is NOT true?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Once capital investments are made, they are almost always impossible to reverse.

Correct AnswerverifiedShow Answer

Firms that achieve higher growth rates without seeking external financing

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The financial plan addresses the following issue(s) :

Correct AnswerverifiedShow Answer

Capital intensity ratio: Michael Holdings, Inc., has total assets of $1,480,072 and sales of $2,236,625. What is the firm's capital intensity ratio?

Correct AnswerverifiedShow Answer

Since sales are often correlated to the regional or national economy, macroeconomic forecasts are incorporated into the model.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Sustainable growth rate: If Merton Corp. has a ROE of 23.4 percent, what is the plowback ratio needed to achieve a sustainable growth rate of 7 percent?

Correct AnswerverifiedShow Answer

Which one of the following statements is NOT true?

Correct AnswerverifiedShow Answer

Internal growth rate: 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?

Correct AnswerverifiedShow Answer

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