Chapter 4

digital movement has a return on assets of 9 percent and a dividend payout ratio of 75 percent. what is the internal growth rate? A. 3.24% B. 4.05% C. 3.97% D. 2.30% E. 2.25%

D internal growth rate=[.09(1-.75)]/[1-.09(1-.75)] internal growth rate= 2.30%

the need for external financing: A. will limit growth if unfunded B. is unaffected by the dividend payout ratio C. must be funded by long-term debt D. ignores any changes in retained earnings E. considers only the required increase in fixed assets

A

Wilson's is currently operating at maximum capacity. the firm has a net income of $2,250, total assets of $24,600, long term debt of $9,800, accounts payable of $2,700, dividends of $900, and total equity of $12,100. 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 5 percent? A. -$323 B. -$467 C. $0 D. $108 E. $367

A projected total assets= 24,600(1.05) projected total assets= $25,830 projected accounts payable= 2,700(1.05) projected accounts payable= 2,835 projected retained earnings= 12,100 + [(2,250-900)(1.05)] projected retained earnings= $13,517.50 additional debt required= 25,830-2,835-9,800-13,517.50 additional debt required= -$323

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 external financing need, that need will be met by: A. accounts payable B. long-term debt C. fixed assets D. retained earnings E. common stock

B

eastside vintage has a net profit margin of 6.2 percent, a payout ratio of 30 percent, and ROA of 14.2 percent, and an ROE of 18.6 percent. the firm maintains a constant payout ratio and is currently operating at full capacity. what is the maximum rate at which the firm can grow without acquiring any additional external financing? A. 12.74% B. 11.04% C. 13.02% D. 14.97% E. 9.94%

B retention rate= 1-.30 retention rate= .70 internal growth rate=[.142(.70)]/{1-[.142(.70)]} internal growth rate= 11.04%

financial plans generally tend to ignore: A. dividend policy B. managers' goals and objectives C. risks associated with cash flows D. operating capacity levels E. capital structure policy

C

the financial planning process is least apt to: A. involve internal negotiations among divisions B. quantify senior manager's goals C. consider the development of future technologies D. reconcile a company's activities across divisions E. consider factors that currently provide a negative rate of growth

C

the financial planning process tends to place the least emphasis on a firm's: A. growth limitations B. capacity utilization C. market value D. capital structure E. dividend policy

C

the internal growth rate of a firm is best described as the ___ growth rate achievable ___ A. minimum; assuming a retention ratio of 100 percent B. minimum; if the firm maintains a constant equity multiplier C. maximum; excluding external financing of any kind D. maximum; excluding any external equity financing, while maintaining a constant debt-equity ratio E. maximum; with unlimited debt financing

C

the maximum rate of growth a corporation can achieve can be increased by: A. avoiding new external equity financing B. increasing the corporate tax rate C. increasing the retention ratio D. increasing the dividend payout ratio E. increasing the sales forecast

C

ramba trampolines has a net profit margin of 7.5 percent, a capital intensity ratio of .8, a debt-equity ratio of .6, net income of $31,000, and dividends paid of $15,810. what is the sustainable rate of growth? A. 4.94% B. 5.29% C. 7.93% D. 6.42% E. 3.58%

C ROE= .075(1/.8)(1.6) ROE= .15 retention ratio= 1-(15,810/31,000) retention ratio= .49 sustainable growth rate= [.15(.49)]/{1-[.15(.49)]} sustainable growth rate= 7.93%

yarratu signs has sales of $84,300, net income of $16,860, total assets of $421,500, and total debt of $168,600. assets and costs are proportional to sales. debt and equity are not. no dividends or taxes are paid. next year's sales are projected to be $90,201. what is the amount of the external financing needed? A. $29,505 B. $288,643 C. $11,465 D. $18,041 E. $180,402

C side growth rate= (90,201-84,300)/84,300 side growth rate= 7% projected assets= 421,500(1.07) projected assets= 451,005 projected equity=(421,500-168,600)+16,860(1.07) projected equity= 270,940 EFN= 451,005-168,600-270,940 EFN= $11,465

dance world has a net profit margin of 5 percent and a dividend payout ratio of 20 percent. the total asset turnover is 1.6 and the debt-equity ratio is .4. what is the sustainable growth rate? A. 11.20% B. 9.60% C. 10.89% D. 9.26% E. 9.84%

E ROE= .05(1.60)(1-.21) ROE= .112 sustainable growth rate= [.112(1-.2)]/[1-(1-.2)] sustainable growth rate= 9.84%

a firm wishes to maintain an internal growth rate of 11 percent and a dividend payout ratio of 24 percent. the current net profit margin is 7 percent and the firm uses no external financing sources. what is the total asset turnover (TAT)? A. .87 times B. .90 times C. 1.01 times D. 1.15 times E. 1.86 times

E retention ratio= 1-.24 retention ratio= .76 internal growth rate= .11-[.76(ROA)]/[1-.76(ROA)] ROA= 13.04% ROA= .1304 = .07(TAT) TAT= 1.86 times