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A firm has a retention ratio of 45 percent and a sustainable growth rate of 6.2 percent.The capital intensity ratio is 1.2 and the debt-equity ratio is 0.64.What is the profit margin?


A) 6.28 percent
B) 7.67 percent
C) 9.49 percent
D) 12.38 percent
E) 14.63 percent

F) A) and C)
G) A) and B)

Correct Answer

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Miller Bros.Hardware is operating at full capacity with a sales level of $689,700 and fixed assets of $468,000.The profit margin is 7 percent.What is the required addition to fixed assets if sales are to increase by 10 percent?


A) $3,276
B) $4,680
C) $28,400
D) $32,760
E) $46,800

F) A) and D)
G) B) and E)

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Assume that net working capital and all of the costs of Fake Stone, Inc.increase directly with sales.Also assume that the tax rate and the dividend payout ratio are constant.The firm is currently operating at full capacity.What is the external financing need if sales increase by 4 percent? A) -$1,214.48 B) -$804.15 C) -$397.19 D) $201.16 E) $525.38 Assume that net working capital and all of the costs of Fake Stone, Inc.increase directly with sales.Also assume that the tax rate and the dividend payout ratio are constant.The firm is currently operating at full capacity.What is the external financing need if sales increase by 4 percent? A) -$1,214.48 B) -$804.15 C) -$397.19 D) $201.16 E) $525.38 Assume that net working capital and all of the costs of Fake Stone, Inc.increase directly with sales.Also assume that the tax rate and the dividend payout ratio are constant.The firm is currently operating at full capacity.What is the external financing need if sales increase by 4 percent?


A) -$1,214.48
B) -$804.15
C) -$397.19
D) $201.16
E) $525.38

F) A) and B)
G) A) and C)

Correct Answer

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A pro forma statement indicates that both sales and fixed assets are projected to increase by 7 percent over their current levels.Given this, you can safely assume that the firm:


A) is projected to grow at the internal rate of growth.
B) is projected to grow at the sustainable rate of growth.
C) currently has excess capacity.
D) is currently operating at full capacity.
E) retains all of its net income.

F) B) and C)
G) A) and C)

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Phil is working on a financial plan for the next three years.This time period is referred to as which one of the following?


A) financial range
B) planning horizon
C) planning agenda
D) short-run
E) current financing period

F) A) and D)
G) None of the above

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Which of the following questions are appropriate to address during the financial planning process? I.Should the firm merge with a competitor? II.Should additional shares of stock be sold? III.Should a particular division be sold? IV.Should a new product be introduced?


A) I, II, and III only
B) I, II, and IV only
C) I, III, and IV only
D) II, III, and IV only
E) I, II, III, and IV

F) D) and E)
G) A) and B)

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Gladsden Refinishers currently has $21,900 in sales and is operating at 45 percent of the firm's capacity.What is the full capacity level of sales?


A) $31,755
B) $36,250
C) $48,667
D) $51,333
E) $54,500

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

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Which one of the following statements concerning financial planning for a firm is correct?


A) Financial planning for fixed assets is done on a segregated basis within each division.
B) Financial plans often contain alternative options based on economic developments.
C) Financial plans frequently contain conflicting goals.
D) Financial plans assume that firms obtain no additional external financing.
E) The financial planning process is based on a single set of economic assumptions.

F) A) and E)
G) D) and E)

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The most recent financial statements for Moose Tours, Inc.follow.Sales for 2009 are projected to grow by 16 percent.Interest expense will remain constant; the tax rate and dividend payout rate will also remain constant.Costs, other expenses, current assets, and accounts payable increase spontaneously will sales.If the firm is operating at full capacity and no new debt or equity is issued, how much external financing is needed to support the 16 percent growth rate in sales? The most recent financial statements for Moose Tours, Inc.follow.Sales for 2009 are projected to grow by 16 percent.Interest expense will remain constant; the tax rate and dividend payout rate will also remain constant.Costs, other expenses, current assets, and accounts payable increase spontaneously will sales.If the firm is operating at full capacity and no new debt or equity is issued, how much external financing is needed to support the 16 percent growth rate in sales? A) $-10,246 B) -$8,122 C) -$6,708 D) $2,407 E) $3,309 The most recent financial statements for Moose Tours, Inc.follow.Sales for 2009 are projected to grow by 16 percent.Interest expense will remain constant; the tax rate and dividend payout rate will also remain constant.Costs, other expenses, current assets, and accounts payable increase spontaneously will sales.If the firm is operating at full capacity and no new debt or equity is issued, how much external financing is needed to support the 16 percent growth rate in sales? A) $-10,246 B) -$8,122 C) -$6,708 D) $2,407 E) $3,309


A) $-10,246
B) -$8,122
C) -$6,708
D) $2,407
E) $3,309

F) A) and B)
G) A) and E)

Correct Answer

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The profit margin, the debt-equity ratio, and the dividend payout ratio for Fake Stone, Inc.are constant.Sales are expected to increase by $1,062 next year.What is the projected addition to retained earnings for next year? A) $92.34 B) $188.55 C) $1,909.16 D) $2,144.34 E) $2,386.08 The profit margin, the debt-equity ratio, and the dividend payout ratio for Fake Stone, Inc.are constant.Sales are expected to increase by $1,062 next year.What is the projected addition to retained earnings for next year? A) $92.34 B) $188.55 C) $1,909.16 D) $2,144.34 E) $2,386.08 The profit margin, the debt-equity ratio, and the dividend payout ratio for Fake Stone, Inc.are constant.Sales are expected to increase by $1,062 next year.What is the projected addition to retained earnings for next year?


A) $92.34
B) $188.55
C) $1,909.16
D) $2,144.34
E) $2,386.08

F) A) and D)
G) A) and B)

Correct Answer

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Assume that Fake Stone, Inc.is operating at 88 percent of capacity.All costs and net working capital vary directly with sales.What is the amount of the pro forma net fixed assets for next year if sales are projected to increase by 13 percent? A) $19,600 B) $20,406 C) $21,500 D) $21,667 E) $22,148 Assume that Fake Stone, Inc.is operating at 88 percent of capacity.All costs and net working capital vary directly with sales.What is the amount of the pro forma net fixed assets for next year if sales are projected to increase by 13 percent? A) $19,600 B) $20,406 C) $21,500 D) $21,667 E) $22,148 Assume that Fake Stone, Inc.is operating at 88 percent of capacity.All costs and net working capital vary directly with sales.What is the amount of the pro forma net fixed assets for next year if sales are projected to increase by 13 percent?


A) $19,600
B) $20,406
C) $21,500
D) $21,667
E) $22,148

F) A) and C)
G) B) and E)

Correct Answer

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Fake Stone, Inc.is projecting sales to decrease by 4 percent next year while the profit margin remains constant.The firm wants to increase the dividend payout ratio by 2 percent.What is the projected increase in retained earnings for next year? A) $1,711.15 B) $1,898.67 C) $1,904.26 D) $1,969.92 E) $2,105.63 Fake Stone, Inc.is projecting sales to decrease by 4 percent next year while the profit margin remains constant.The firm wants to increase the dividend payout ratio by 2 percent.What is the projected increase in retained earnings for next year? A) $1,711.15 B) $1,898.67 C) $1,904.26 D) $1,969.92 E) $2,105.63 Fake Stone, Inc.is projecting sales to decrease by 4 percent next year while the profit margin remains constant.The firm wants to increase the dividend payout ratio by 2 percent.What is the projected increase in retained earnings for next year?


A) $1,711.15
B) $1,898.67
C) $1,904.26
D) $1,969.92
E) $2,105.63

F) None of the above
G) C) and D)

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Seaweed Mfg., Inc.is currently operating at only 86 percent of fixed asset capacity.Fixed assets are $387,000.Current sales are $510,000 and are projected to grow to $664,000.What amount must be spent on new fixed assets to support this growth in sales?


A) $0
B) $22,654
C) $46,319
D) $79,408
E) $93,608

F) A) and B)
G) D) and E)

Correct Answer

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A firm is operating at 90 percent of capacity.This information is primarily needed to project which one of the following account values when compiling pro forma statements?


A) sales
B) costs of goods sold
C) accounts receivable
D) fixed assets
E) long-term debt

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

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Which one of the following policies most directly affects the projection of the retained earnings balance to be used on a pro forma statement?


A) net working capital policy
B) capital structure policy
C) dividend policy
D) capital budgeting policy
E) capacity utilization policy

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

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Financial plans generally tend to ignore which one of the following?


A) dividend policy
B) manager's goals and objectives
C) risks associated with cash flows
D) operating capacity levels
E) capital structure policy

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

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Which one of the following ratios identifies the amount of assets a firm needs in order to generate $1 in sales?


A) current ratio
B) equity multiplier
C) retention ratio
D) capital intensity ratio
E) payout ratio

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

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Hungry Howie's is currently operating at 96 percent of capacity.What is the required increase in fixed assets if sales are projected to increase by 14 percent? A) $0 B) $811 C) $833 D) $908 E) $1,024 Hungry Howie's is currently operating at 96 percent of capacity.What is the required increase in fixed assets if sales are projected to increase by 14 percent? A) $0 B) $811 C) $833 D) $908 E) $1,024 Hungry Howie's is currently operating at 96 percent of capacity.What is the required increase in fixed assets if sales are projected to increase by 14 percent?


A) $0
B) $811
C) $833
D) $908
E) $1,024

F) D) and E)
G) A) and E)

Correct Answer

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The Parodies Corp.has a 22 percent return on equity and a 23 percent payout ratio.What is its sustainable growth rate?


A) 18.68 percent
B) 19.25 percent
C) 19.49 percent
D) 20.39 percent
E) 22.00 percent

F) A) and C)
G) A) and E)

Correct Answer

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Designer's Outlet has a capital intensity ratio of 0.92 at full capacity.Currently, total assets are $48,900 and current sales are $51,200.At what level of capacity is the firm currently operating?


A) 89.1 percent
B) 91.6 percent
C) 96.3 percent
D) 96.8 percent
E) 98.2 percent

F) C) and D)
G) A) and D)

Correct Answer

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