FIN 357 CH4

In a financial plan using the percentage of sales approach, why is it assumed that assets increase with sales? Increased profits increase retained earnings thereby increasing equity Additional working capital and fixed assets are needed to support growth Additional profits are generated Funds must be borrowed to support sales

Additional working capital and fixed assets are needed to support growth

Which of the following are likely to be accomplished with financial planning? SELECT ALL THAT APPLY Outcome certainty Avoiding surprises Exploring options Perfect forecasts

Avoiding surprises Exploring options

Weston's financial planning model shows assets are projected to increase by $2.7 million while liabilities and equity increase by $1.5 million. What is the external financing need (EFN)? $1.2 million $2.2 million $1.5 million $4.2 million

$1.2 million Reason: $2.7m - 1.5m = $1.2m

A pro forma balance sheet indicates that total assets will increase by $300,000. If a debt-equity ratio of 0.5 is maintained, then debt must increase by: $300,000. $150,000. $200,000. $100,000.

$100,000. Reason: If D/E = 0.5, an increase of $300k in assets will be financed with $100k of debt and $200k of equity.

Assume Zoe Corporation's plant capacity will allow for sales of $250 million, and last year's sales were $180 million. Zoe's current gross plant and equipment total is $340 million. You project sales growth of 20% in the upcoming year. What total should you forecast for Zoe's plant and equipment on your pro forma balance sheet? $192 million $340 million $408 million $216 million

$340 million Reason: With $216 million in sales (180 × 1.2), Zoe is not at plant capacity, so it will not need to increase its plant and equipment amount to accommodate its new level of sales.

Dot's financial planning model shows assets are projected to increase by $800,000 but liabilities and equity increase by $395,000. What is the external financing need (EFN)? Multiple choice question. $305,000 $800,000 $405,000 $395,000 $1,195,000

$405,000 Reason: $800,000 - 395,000 = $405,000

Alpha Omega's percentage of sales model forecasts sales growth of 20 percent next year. If cost of good sold are proportionate at 80 percent of sales, then cost of good sold will increase by: Multiple choice question. 20 percent. 80 percent. 60 percent. 16 percent.

20 percent.

Galting Corporation is operating at 80% of capacity. This means that the current sales level is: 20% of the full capacity sales level less than the industry average maximized 80% of the full-capacity sales level

80% of the full-capacity sales level

Which of the following are often left out of most financial planning models? Multiple choice question. Cash flow size, risk, and timing Sales growth, asset growth, and equity growth Equity growth, cash flow, and financial leverage Profit margins, financial leverage, and turnover

Cash flow size, risk, and timing

Which of the following are common elements of a financial planning model? SELECT ALL THAT APPLY Sales forecast Economic assumptions Pro forma statements Elasticity of demand estimates Government approval

Sales forecast Economic assumptions Pro forma statements

The smaller investment proposals of each operational unit are added up, and the sum is treated as one big project, which is called _________

aggregation

One advantage to well-executed financial planning is that the firm can ______. be sure of final outcomes of investments get ahead of the competition avoid surprises correct past mistakes

avoid surprises

The alternative sustainable growth rate formula, where growth is equal to ROE times b, should only be applied when using total equity from the (end/beginning) of period balance sheet.

beginning

The alternative sustainable growth rate formula, growth equals ROE times b, is correct only when total equity is taken from the _________. Multiple choice question. beginning of period income statement beginning of period balance sheet end of period balance sheet end of period income statement

beginning of period balance sheet

A commonly cited reason for financial failure is a lack of _________. marketing savvy good relations with investors effective long-range planning tax relief

effective long-range planning

Financial planning addresses all the basic elements of firm value. true false

false

Given external financing needs in a financial plan, the firm must borrow both long- and short-term funds. True false

false

A lack of effective long-range planning is commonly cited as a reason for ______. financial distress inflation negative interest yields financial prosperity

financial distress

Pro _________ statements are one of the key elements of financial planning.

forma

A financial plan looks at what needs to be done in the __________. past future present

future

All else equal, when the rate of growth in sales or assets in a financial plan is higher, external financing needs will be the same. lower. unaffected. greater.

greater

Given an internal growth rate of 3 percent, a firm can: grow by 3 percent or less without any additional external financing. grow by more than 3 percent without any additional external financing. not grow. repay all of its outstanding debt.

grow by 3 percent or less without any additional external financing.

Given an internal growth rate of 3 percent, a firm can: Multiple choice question. grow by 3 percent or less without any additional external financing. not grow. grow by more than 3 percent without any additional external financing. repay all of its outstanding debt.

grow by 3 percent or less without any additional external financing.

All other things staying the same, a high growth firm will have a relatively Blank______ need for external financing than a low growth firm. higher lower indecisive

higher

It is typically assumed that total assets (increase/decrease) with increased sales because additional working capital and fixed assets are needed to support growth.

increase

The __________ growth rate tells us the maximum growth rate that can be achieved with no external financing of any kind.

internal

Across firms, the financial planning process _________. is different for each firm always follows the same steps is basically the same for each firm

is different for each firm

Growth, by itself, (is/isn't) a good financial goal.

isn't

Financial planning is a(n) ______ process. static inert iterative one-time

iterative

The aggregation process determines the total _________. planning horizon debt requirement needed investment sustainable growth

needed investment

Given a firm requires external financing, the firm has multiple options including short- and long-term borrowing, and Blank______. spontaneous dividends new equity depreciation capital regression

new equity

The percentage of ____________ approach is a financial planning method in which accounts are varied depending on a firm's predicted sales level.

sales

The percentage of sales approach separates accounts on the pro forma income statement and balance sheet into those that change directly with Blank______ and those that do not. sales assets increases in retained earnings expenses

sales

If a firm maintains a constant debt-equity ratio and does not use any new external equity financing, the firm can grow at a rate no greater than its _________. Multiple choice question. return on assets return on equity internal growth rate sustainable growth rate

sustainable growth rate