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| 1 | |
Conventional wisdom holds that financial plans don't work, but financial planning does. |
| | A) | True |
| | B) | False |
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| 2 | |
All else equal, a firm that utilizes assets efficiently will have a higher sustainable growth rate than a firm that does not. |
| | A) | True |
| | B) | False |
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| 3 | |
To reduce the amount of external financing needed, a firm may need to lower its rate of growth. |
| | A) | True |
| | B) | False |
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| 4 | |
Actions that increase a firm's ability to generate funds internally decrease its ability to grow without obtaining external financing. |
| | A) | True |
| | B) | False |
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| 5 | |
A firm has a capital intensity ratio of 2.0. Total assets are expected to increase by the same percentage as sales. Given this, then:I. assets and sales must increase by identical dollar amounts.
II. there will be no need for external funding.
III. the firm is probably operating at full capacity.
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| | A) | I only |
| | B) | III only |
| | C) | I and III only |
| | D) | II and III only |
| | E) | I, II, and III |
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| 6 | |
When doing financial planning, the _____ of a firm provide a guide for changes in liabilities and equity. |
| | A) | sales growth expectations |
| | B) | financing and dividend policies |
| | C) | sustainable growth rate expectations |
| | D) | pro forma income statements |
| | E) | working capital policies |
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| 7 | |
Which of the following factors affect a firm's ability to grow at its maximum sustainable rate of growth?I. total asset turnover
II. financial policy
III. dividend policy
IV. profit margin
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| | A) | II and III only |
| | B) | I and II only |
| | C) | I, III, and IV only |
| | D) | I, II, and III only |
| | E) | I, II, III, and IV |
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| 8 | |
Why is it important to determine if a firm is operating at full capacity? |
| | A) | A firm that is operating at less than full capacity will not need any external financing. |
| | B) | If a firm is operating at less than full capacity, fixed assets will typically increase at the same percent as sales. |
| | C) | A firm with excess capacity has some room to expand sales without increasing the investment in fixed assets. |
| | D) | For a given increase in sales, firms operating at less than full capacity will experience more rapid asset growth than that experienced by firms that are operating at full capacity. |
| | E) | Only firms operating at full capacity can grow rapidly. |
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| 9 | |
Which one of the following statements regarding financial planning is accurate? |
| | A) | Financial planning ensures a firm will not be surprised by unforeseen future events. |
| | B) | By using financial planning, a firm can clearly identify its options for the coming 15 years. |
| | C) | The use of financial planning allows a firm to eliminate the interactions between its operating policies and its financing policies. |
| | D) | Financial planning allows a firm to plan for the future in a systematic fashion. |
| | E) | Financial planning takes the burden of managing the firm off of the financial manager and places it all on the operations manager. |
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| 10 | |
Suppose a firm is working at full capacity and that assets and costs are tied directly to the level of sales. Also assume the firm pays out all its earnings as dividends. The sales are expected to increase by 10 percent next period. The external funding needed to support this level of growth: |
| | A) | is zero since no liabilities are tied directly to the level of sales. |
| | B) | depends on the profit margin. |
| | C) | depends on the ratio of fixed assets to total sales. |
| | D) | depends on the current debt-equity ratio. |
| | E) | is equal to the growth rate times total assets. |
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