Question 1

If a firm's dividend payout ratio is determined after achieving a specific capital structure,then:

Accepted Answer

A)   dividends are an input to the financial plan.
B)   the capital budget should be revised.
C)   dividends are being used as a plug item.
D)   dividend forecasts become crucial to planning.E) B) and C)
F) A) and D)

Question 2

The implications of the forecasts from a financial plan are determined by the:

Accepted Answer

A)   plan inputs.
B)   balancing item.
C)   planning model.
D)   plowback ratio.E) B) and C)
F) All of the above

Question 3

First-stage pro forma balance sheets do not determine:

Accepted Answer

A)   whether external financing is required.
B)   the need for additional fixed assets.
C)   the amount of the balancing item.
D)   the financing mix for external funding.E) A) and B)
F) All of the above

Question 4

Comebaq Computers is aiming to increase its market share by slashing the price of its new range of personal computers.Are costs and assets likely to increase or decrease as a proportion of sales? Explain.

Accepted Answer

If the firm reduces prices,sales revenue...

Question 5

If the pro forma balance sheet shows that total assets must increase by $400,000 while retaining a debt-equity ratio of .75 then:

Accepted Answer

A)   debt must increase by $300,000.
B)   equity must increase by the full $400,000.
C)   debt must increase by $171,429.
D)   equity must increase by $100,000.E) None of the above
F) B) and C)

Question 6

If factories are operating below full capacity,sales can increase without investment in fixed assets.However,beyond some sales level,new capacity must be added (and additional investment in fixed assets must be made).

Accepted Answer

A) True 
 B)False

Question 7

Increases in sales are typically accompanied by:

Accepted Answer

A)   more than proportionate increases in fixed assets.
B)   less than proportionate decreases in debt.
C)   more than proportionate decreases in dividends.
D)   less than proportionate increases in working capital.E) None of the above
F) B) and C)

Question 8

Which of the following might indicate the correct choice of a plug figure if a financial plan shows sources of funds to be $100,000 and uses of funds to be $90,000?

Accepted Answer

A)   External debt must increase by $10,000.
B)   Dividend payments must decrease by $10,000.
C)   Cash balances must increase by $10,000.
D)   The capital budget must decrease by $10,000.E) A) and B)
F) C) and D)

Question 9

The balancing items in a financial planning model are variables that adjust to maintain the consistency of a financial model.They are also known as plugs.

Accepted Answer

A) True 
 B)False  True

Question 10

When a firm is said to have no spare capacity,it:

Accepted Answer

A)   has no need for new employees.
B)   currently has no inventory available for sale.
C)   must issue new equity to grow.
D)   must increase fixed assets to increase sales.E) A) and C)
F) All of the above

Question 11

How are financial planning models constructed?

Accepted Answer

There is no theory or model that leads s...

Question 12

All of the following are part of the financial planning process except:

Accepted Answer

A)   deciding which risks are worth taking.
B)   analyzing investment and financing options.
C)   projecting the future.
D)   minimizing risk.E) A) and D)
F) None of the above D

Question 13

Discuss the percentage of sales model and its potential pitfalls in the financial planning process.

Accepted Answer

The percentage of sales model is commonl...

Question 14

A firm has $4 million in total assets and $2.2 million in equity.How much of its $500,000 capital budget should be debt-financed to retain the same debt-equity ratio?

Accepted Answer

A)   $50,000
B)   $225,000
C)   $275,000
D)   $450,000E) A) and D)
F) A) and C)

Question 15

The final variable to have its value determined in a financial plan is often referred to as the:

Accepted Answer

A)   net income.
B)   balancing item.
C)   retained earnings plowback.
D)   growth forecast.E) None of the above
F) B) and C)

Question 16

Managers sometimes state a target growth rate for sales or earnings per share.Do you think that either makes sense as a corporate goal? If not,why do you think that managers focus on them?

Accepted Answer

Neither the growth rate of earnings nor ...

Question 17

In a financial planning model:

Accepted Answer

A)   inputs are used to create the model.
B)   financial ratios are used to create the model.
C)   financial ratios are used to develop forecasts.
D)   equations are used to develop financial statements.E) All of the above
F) A) and B)

Question 18

If the projected growth rate is smaller than the firm's sustainable growth rate:

Accepted Answer

A)   it should increase its projected growth rate.
B)   the firm will be required to decrease its plowback ratio.
C)   its debt-equity ratio will decrease.
D)   the firm will be required to increase borrowing.E) A) and B)
F) A) and C) C

Question 19

Which of the following statements is not true regarding financial planning models?

Accepted Answer

A)   They should include as much detail as possible.
B)   The results of a model are pro forma financial statements.
C)   The plug variable maintains consistency.
D)   Financial analysis is not used in financial planning.E) B) and C)
F) None of the above

Question 20

Which of the following would be included as inputs to a firm's financial plan?

Accepted Answer

A)   Capital, plant, and labor resources
B)   The firm's current product line
C)   The current balance of retained earnings
D)   Sales and economic forecastsE) All of the above
F) B) and D)

Exam 18: Long-Term Financial Planning

If a firm's dividend payout ratio is determined after achieving a specific capital structure,then:

Correct AnswerverifiedShow Answer

The implications of the forecasts from a financial plan are determined by the:

Correct AnswerverifiedShow Answer

First-stage pro forma balance sheets do not determine:

Correct AnswerverifiedShow Answer

Comebaq Computers is aiming to increase its market share by slashing the price of its new range of personal computers.Are costs and assets likely to increase or decrease as a proportion of sales? Explain.

Correct AnswerverifiedIf the firm reduces prices,sales revenue...View AnswerShow Answer

If the pro forma balance sheet shows that total assets must increase by $400,000 while retaining a debt-equity ratio of .75 then:

Correct AnswerverifiedShow Answer

If factories are operating below full capacity,sales can increase without investment in fixed assets.However,beyond some sales level,new capacity must be added (and additional investment in fixed assets must be made).

Correct AnswerverifiedShow Answer

Increases in sales are typically accompanied by:

Correct AnswerverifiedShow Answer

Which of the following might indicate the correct choice of a plug figure if a financial plan shows sources of funds to be $100,000 and uses of funds to be $90,000?

Correct AnswerverifiedShow Answer

The balancing items in a financial planning model are variables that adjust to maintain the consistency of a financial model.They are also known as plugs.

Correct AnswerverifiedTrue

When a firm is said to have no spare capacity,it:

Correct AnswerverifiedShow Answer

How are financial planning models constructed?

Correct AnswerverifiedThere is no theory or model that leads s...View AnswerShow Answer

All of the following are part of the financial planning process except:

Correct AnswerverifiedD

Discuss the percentage of sales model and its potential pitfalls in the financial planning process.

Correct AnswerverifiedThe percentage of sales model is commonl...View AnswerShow Answer

A firm has $4 million in total assets and $2.2 million in equity.How much of its $500,000 capital budget should be debt-financed to retain the same debt-equity ratio?

Correct AnswerverifiedShow Answer

The final variable to have its value determined in a financial plan is often referred to as the:

Correct AnswerverifiedShow Answer

Managers sometimes state a target growth rate for sales or earnings per share.Do you think that either makes sense as a corporate goal? If not,why do you think that managers focus on them?

Correct AnswerverifiedNeither the growth rate of earnings nor ...View AnswerShow Answer

In a financial planning model:

Correct AnswerverifiedShow Answer

If the projected growth rate is smaller than the firm's sustainable growth rate:

Correct AnswerverifiedC

Which of the following statements is not true regarding financial planning models?

Correct AnswerverifiedShow Answer

Which of the following would be included as inputs to a firm's financial plan?

Correct AnswerverifiedShow Answer

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If the firm reduces prices,sales revenue...
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True

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There is no theory or model that leads s...
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D

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The percentage of sales model is commonl...
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Neither the growth rate of earnings nor ...
View Answer

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C

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