FIN 357 SB CH 4

Assume Zoe Corp.'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?TO CALCULATE:With $216 million in sales ($180 million x 1.2), Zoe is not at plant capacity.

$340 million

BC Corporation had net income of $3.5 million and paid out 700,000 in cash dividends to stockholders. Their plowback ratio is ___%.

80%

In a financial plan using the percentage of sales approach, why is it assumed that assets increase with sales?

Additional working capital and fixed assets are needed to support growth

A commonly cited reason for financial failure is a lack of

Effective long-range planning

True or False: The financial planning process will not change from firm to firm

False

True or false: Financial planning addresses all the basic elements of firm value

False

Which of the following is true about the sustainable growth rate?

It is the maximum rate of growth a firm can maintain without increasing its financial leverage.

When constructing a pro forma income statement, the first step is to supply

a sales figure

If a firm increases its debt-equity ratio it will ________ its sustainable rate of growth

increase

The degree of financial ___________ the firm chooses determines the amount of borrowing of the firm

leverage

Growth, by itself, is:

not an appropriate goal

Swenson's return on assets is 14% and its retention ratio is 40%. What is the internal rate of growth?

5.93

Turner's return on equity is 12% and its retention ratio is 60%. What is its sustainable growth rate?

7.76% (.12 x .60)/1-(.12x.60)

The percentage of sales approach separates accounts on the pro forma income statement and balance sheet into those change directly with ___________ and those that do not

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)?

$405,000

Which of the following are common elements of a financial planning model?

1. Sales Forecast 2. Economic Assumptions 3. Pro Forma Statements

Alpha Omega's percentage of sales model forecasts sales growth of 20% next year. If cost of good sold are proportionate at 80% of sales, then cost of good sold will increase by

20%

Alpha Star's net income is $300 on $2000 of sales. The company has $5000 in assets and equity of $3000. The firm paid out $125 in cash dividends. What is the dividend payout ratio?

41.67%

Based on ROE and the sustainable growth rate, which of the following factors affect a firm's ability to sustain growth

Dividend policy Profit margin Financial policy

Which of the following can be accomplished with financial planning

Avoiding surprises Exploring options

The aggregation process determines the total

Needed investment

What does it mean if a company's capital intensity ratio is 2.4?

The firm requires $2.40 in assets to generate $1 in sales.

The text quotes conventional business wisdom as saying that financial plans don't work, but financial planning does. What does that mean?

because financial plans are forecasts, they seldom happen as foreseen, but they allow managers to examine goals and prioritize.

The alternative sustainable growth rate formula, g = ROE X b, is correct ONLY when total equity is taken from the

beginning of period balance sheet

The main advantage of the percentage of sales approach to producing pro forma statements is:

ease and practicality

A financial plan looks at what needs to be done in the

future

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

greater