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Fundamentals of Corporate Finance, 4/c/e

Fundamentals of Corporate Finance, 4/e

Stephen A. Ross, Massachusetts Institute of Technology
Randolph W. Westerfield, University of Southern California
Bradford D. Jordan, University of Kentucky
Gordon S. Roberts, York University

Long-Term Financial Planning and Corporate Growth

Quick Quiz 1

After taking this quiz, click 'Submit Answers' for graded results. You'll also have the option of emailing the results to your instructor and/or yourself.


1	For financial planning purposes, we generally define the "short run" as__________, and the "long run" as __________.
		A)	2 years; 3-5 years
		B)	1 year; 2-6 years
		C)	1 year; 2-4 years
		D)	2 years; 3-6 years
		E)	1 years; 2-5 years


2	The percentage of sales approach to financial planning
		A)	requires all assets and liabilities change at the same rate as sales.
		B)	requires the dividend policy remain unchanged from year to year.
		C)	requires the firm be operating at full capacity.
		D)	requires the firm's sales to increase each year.
		E)	requires separating accounts into those that vary with sales and those that do not.


3	Which of the following is NOT a determinant of the sustainable growth rate?
		A)	Debt-equity ratio
		B)	Profit margin
		C)	Inventory turnover
		D)	Total asset turnover
		E)	Dividend payout ratio


4	Assume a firm has sales of $4,750 on assets totaling $2,500, net income of $375, and dividends of $150. What is the sustainable growth rate if the equity has a value of $1,500?
		A)	17.6%
		B)	22.9%
		C)	13.0%
		D)	9.9%
		E)	11.1%


5	The determinants of growth include which of the following? I. Equity multiplier II. Profit margin III. Total asset turnover
		A)	I only
		B)	II only
		C)	II and III only
		D)	I, II and III
		E)	I and III


6	All else equal, an increase in a firm's dividend payout ratio will decrease its: I. Sustainable growth rate II. Internal growth rate III. External financing needed
		A)	I only
		B)	I and II only
		C)	II only
		D)	I and III only
		E)	II and III only


7	A firm earns net income of $25,000 in a given year and the firm's retained earnings increase $15,000 for that same year. The retention ratio is:
		A)	40%
		B)	25%
		C)	75%
		D)	60%
		E)	100%


8	Moore Money Inc has a profit margin of 11% and a retention ratio of 70%. Last year, the firm had sales of $500 and total assets of $1,000. What is the internal growth rate?
		A)	4.0%
		B)	2.6%
		C)	3.7%
		D)	1.7%
		E)	5.9%


9	All else equal, which of the following would likely be associated with a firm which has a high capital intensity ratio, relative to other firms in the same industry? I. Lower fixed asset turnover ratio II. Lower return on assets (ROA) ratio III. Greater depreciation expense
		A)	I and II only
		B)	I, II and III
		C)	I and III only
		D)	II and III only
		E)	II only


10	Assume a firm is currently operating at full capacity. Sales are forecast to increase by 20% next year. Management could do each of the following EXCEPT:
		A)	Attempt to restrain sales growth so that no new fixed assets are needed.
		B)	Increase the firm's investment in fixed assets to meet the added demand.
		C)	Subcontract with other manufacturers to produce the firm's products to meet the added demand.
		D)	Lease additional equipment to meet the added demand.
		E)	Acquire more current assets in order to meet the added demand.

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