Chapter 12 (FIN441) Corporate Value and Financial Planning

If actual sales are $2000 and firm is operating a 50% capacity what are full capacity sales?

$4,000 ( from step one excess capacity, where actual sales /% capacity currently operating)

If the target FA to sales ratio is 0.40 and full capacity sales are $15,000, what are FA?

$6,000( this is 0.40 *15,000=6,000 of FA to support $15,000 in sales)

Plug with marketable securities when which occurs while forecasting financial statements

** None are correct

Which of the following is a spontaneous liability ?

Accounts Payable

Which of the following is true about economies of scale?

Declining ratio between asset and sales

An increase in spontaneous liabilities will _________ AFN, everything else held constant.

Decrease

How does an increase in profit margin impact AFN, everything else held constant?

Decrease

If a firm decreases its payout ratio (POR) what impact will this have on AFN, everything else held constant?

Decrease

If a firm's self-supporting growth rate is 3%, for example, which of the following is correct?

If sales grow > 3% then will need access to external capital if sales growth < 3% internal sources of capital adequate ** both are correct

An increase in assets will _________ AFN, everything else held constant.

Increase

If assets < liabilities and equity, then a firm may do what?

Pay a higher dividend Purchase marketable securities pay off debt ** All are correct

What are two assumptions when using AFN equation?

Ratios remain constant and operating at full capacity.

Fixed assets are part of operations?

True

If firms purchase assets in "lumpy" increments, there will be excess capacity initially

True

What are potential problems if sales forecast is too high?

Unsold inventory