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Exam 4: Long-Term Financial Planning and Corporate Growth

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Question 41

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The dividend payout financial ratio is calculated as:

A) Net income minus additions to retained earnings.
B) Cash dividends divided by shares outstanding.
C) Cash dividends divided by net income.
D) Net income minus cash dividends.
E) One plus the retention ratio.

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

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Question 42

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Ernie's Electrical has a capital intensity ratio of 1.20 at full capacity. Currently, total assets are $2,880 and current sales are $2,300. At what level of capacity is the firm currently operating?

A) 63%
B) 67 %
C) 69%
D) 83%
E) 96 %

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

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Question 43

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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. When the firm compiles a pro forma statement, the plug variable is most likely going to be:

Calculate retention ratio given the following information: net income = $90,000; cash dividends paid = $76,500.

Financial planning helps investigate the linkages between goals and the different aspects of a firm's business.

Consider that you are a finance manager, and one of your junior staff wanted an explanation of the term percentage of sales approach. Provide a definition that conveys what the term means from a finance perspective.

If your firm is currently operating at full capacity and you expect strong sales growth over the next few years, you should most likely:

Percy's has a plowback ratio of 75% and a sustainable growth rate of 6 percent. The capital intensity ratio is 1.4 and the debt-equity ratio is.6. What is the profit margin?

Assets, accounts payable and costs are proportional to sales. Debt and equity are not. What is the internal rate of growth for Douglass Enterprises?

All else equal, an increase in a firm's capital intensity ratio will increase its external financing needed.

Consider that you are a finance manager, and one of your junior staff wanted an explanation of the term sustainable growth rate (SGR). Provide a definition that conveys what the term means from a finance perspective.

A Calgary firm currently has sales of $630,000 and costs of $553,636. The marginal tax rate is 34%. Under the percentage of sales approach, what is the projected net income if sales are expected to increase by 15%?

ABC, Inc. is operating at full capacity with a sales level of $1,400 and fixed assets of $700. What is the required addition to fixed assets if sales are to increase by 10%?

Tasty Ice Cream has a capital intensity ratio of 1.25 at full capacity. Currently, total assets are $1,900 and current sales are $1,400. At what level of capacity is the firm currently operating?

What are the basic assumptions underlying the internal and the sustainable growth rates?

Suppose the firm retains 28% of earnings, while assets and costs maintain a constant percentage of sales. If the firm is producing at full capacity, what is the internal growth rate?

The sales forecast for most financial plans is:

A firm currently has sales of $1.32 million and $964,500 in fixed assets. Currently operations are at 84% of capacity. By how much can sales increase without requiring the firm to purchase any additional fixed assets?(Enter values in dollars)

What do you think will happen to a growing business whose owner can forecast sales quite accurately but has no idea what impact sales growth will have on assets?

For financial planning purposes, we generally define the short run as ___________, and the long run as ____________.