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Exam 4: Long-Term Financial Planning and Growth

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Question 81

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Your company wants a sustainable growth rate of 3.45% while maintaining a 30 percent dividend payout ratio and a 7% profit margin. The company has a capital intensity ratio of 1.5. What is the Equity multiplier that is required to achieve the company's desired rate of growth?

A) .45
B) .55
C) .78
D) .98
E) 1.02

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

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Question 82

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Asset requirements is a common element among financial planning models.

A) True
B) False

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Question 83

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Calculate net working capital turnover given the following data. Total fixed assets $200,000; long- term liabilities $55,000; total liabilities $80,000; total shareholders' equity $220,000; total sales $800,000.

When utilizing the percentage of sales approach, managers need to determine the level of sales required based on the desired profit margin percentage.

Two of the more important economic factors that must be considered when doing a financial plan for a firm are the:

Calculate the internal growth rate given the following information: total assets $600,000; net income $130,000; dividends paid $40,000.

There are no direct connections between the growth that a company can achieve and the financial policies undertaken by the financial managers.

Financial planning, when properly executed:

Fixed assets are often said to grow in a "stair-step" like manner. What does this mean? Why is this a better way to explain the growth of fixed assets as compared to saying that fixed assets grow proportionally with sales?

Delta Products utilizes the percentage of sales approach to financial planning. Which one of the following accounts will the firm have to estimate first under this approach?

If a firm wants to maintain its present ratio of debt to equity, its present dividend payout ratio, and does not want to sell any new equity, the firm's growth rate in sales and assets must be less than or Equal to its:

Big Mac's and Small Dog's are two firms that are equal in every way except for their retention ratios. Big Mac's has a 50 percent retention ratio. Small Dog's has a 60 percent retention ratio. Given this Difference,

Assume costs, assets, and accounts payable all increase at the same rate as sales. Also assume 80% of net income is paid out in dividends. If sales grow at 25%, compute external financing Needed.

Rondolo, Inc. maintains a constant dividend payout ratio. What is the retention ratio?

Guido's Garden Supplies has sales of $180,000, net income of $14,400, total assets of $280,000, total equity of $200,000, and paid $5,760 in dividends. The firm maintains a constant dividend Payout ratio. The firm is currently operating at full capacity. All costs and assets vary directly with Sales. The firm does not want to obtain any additional external equity. At the sustainable rate of Growth, how much new total debt must the firm acquire?

All else the same, greater depreciation expense would likely be associated with a firm which has a high capital intensity ratio, relative to other firms in the same industry.

Suppose the firm retains 28% of earnings, while assets and costs maintain a constant percentage of sales. If the firm is producing at full capacity, what is the internal growth rate?

The equity multiplier is a determinant of growth.

Financial planning helps investigate the linkages between goals and the different aspects of a firm's business.

Simply Red, Inc. has a return on equity of 14%, a dividend payout ratio of 20%, an equity multiplier of 1.4, and a profit margin of 1.2%. What is the sustainable growth rate?