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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 2

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1	The "plug" figure in a financial plan represents
		A)	the increase in assets necessary to support projected sales.
		B)	the level of new fixed assets contained in the financial plan.
		C)	the change in retained earnings attributable to projected sales.
		D)	the external financing needed to support the financial plan.
		E)	the level of dividends the firm has paid over recent years.


2	When a firm uses a financial plan to develop, analyze, and compare various scenarios in a consistent way, the firm benefits by better understanding
		A)	the linkages between different investment proposals.
		B)	the interactions of its operations and changes in interest rates.
		C)	the expected future state of the economy.
		D)	the feasibility of its past capital budgeting decisions.
		E)	the reliability of its employees and management.


3	If a firm believes its costs and assets grow at the same rate as sales, the dividend payout ratio is fixed, no new equity is possible, and the current debt-equity ratio is optimal, then which of the following is true? I. The sustainable growth rate gives the maximum rate at which sales can grow. II. External financing will be zero. III. Asset growth must completely come from increases in accounts payable and retained earnings. IV. If the firm pays out in dividends all of its net income, sales cannot grow.
		A)	I only
		B)	I and IV only
		C)	I, II, and III only
		D)	II, III, and IV only
		E)	I, II, III, and IV


4	Knudsen, Inc.'s firm's full-capacity sales level is $3,000,000. If the firm is currently operating at 80% of capacity, what is the current level of sales?
		A)	$600,000
		B)	$1,500,000
		C)	$1,750,000
		D)	$2,400,000
		E)	$3,750,000


5	Suppose a firm has net income of $100 and a profit margin equal to 14%. If the firm is working at 2/3 capacity, then full capacity sales are:
		A)	$476
		B)	$539
		C)	$1,071
		D)	$823
		E)	$714


6	Given the following information: sales = 450; costs = 400; tax rate = 34%. Assuming costs run at a constant percentage of sales, if sales rise by 10% next year, what will net income be?
		A)	$3.30
		B)	$33.00
		C)	$36.30
		D)	$146.00
		E)	$197.22


7	Given the following information: profit margin = 10%; sales = $100; retention ratio = 40%; assets = $200; equity multiplier = 2.0. If the firm maintains a constant debt-equity ratio and no new equity is used, what is the maximum growth rate? (Assume a constant profit margin.)
		A)	2.34%
		B)	2.04%
		C)	3.68%
		D)	5.93%
		E)	4.17%


8	Pickup Industries has a profit margin of 15% and a dividend payout of 40%. Last year's sales were $600 million and total assets were $400 million. None of the liabilities vary directly with sales, but assets and costs do. If the sales growth rate for Pickup is 20%, how much external financing is needed?
		A)	$15.2 million
		B)	$13.1 million
		C)	$5.2 million
		D)	$26.0 million
		E)	$21.3 million


9	Suppose a firm has net income of $50, dividends of $15, assets of $1,200 and a debt-equity ratio of 3.0. What is the sustainable growth rate?
		A)	1.5%
		B)	4.0%
		C)	9.6%
		D)	13.2%
		E)	18.1%


10	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)	1.7%
		B)	4.0%
		C)	3.7%
		D)	2.6%
		E)	5.9%

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