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Quiz 3 - EN 361 Corporate Finance Quiz 3(February 3 2010 M...

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Unformatted text preview: EN 361: Corporate Finance Quiz 3 (February 3, 2010) M Instructions: There are two sections to the quiz. The first section has ten multiple choice questions and each question is worth two points. Record your answer for each question in the space provide to the left of the quesfion. The second section is a series of qualitative questions worth a. total often points. NAME Nina’s: Gall; Section 1'. Multiple Choice Questions [Total points 20]. AnSWer all ten "4" questions. 1. Which one of the following statements regarding financial planning is D accurate? a. Financial planning ensures a firm will not be surprised by unforeseen future events. 13. 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. :1. Financial planning allows a firm to plan for die future in a systematic fashion. 2. To reduce the amount of external financing needed, a firm may need 7% to lower its rate of growth. a. True 13. False 3. Why is it important to determine if a firm is operating at full capacity? ("3 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. FN 361 Page: 2/5 Quiz 3 Date: February 3, 2010 4. The dividend payout £5939 is calculated as: C, a. net income minus additions to retained earnings. b. cash dividends chyidgd by the change in retained earnings. c. cash dividends Md by net income. d. net income minus cash dividends. e. one plus the retention ratio. 5. When constructing a pro forma statement, net working capital _ it: . . 3w” ‘N vi a generally. ' Neal» 25’ D“ a. remains fixed. I}? (”Leafy a.) @ varies only when the firm is producing at full capacityj' c. varies only if the firm maintains a fixed debt—equity ratio. d. varies only if the firm is producing at less than full capacity. e. varies proportionately with sales. 6. Financial planning: C, a. focuses solely on the short—term outlook for a firm i). forecasts the financial position of a firm on a divisional basis only. @9 generally forecasts the financial position of a firm for the next two " to five years. 31. is a process that firms undergo once every five years. 6. is limited to projecting the net income of a firm over the planning horizon. 7. The internal growth rate of a firm is best described as the: . minimum growth rate achievable if the firm does not pay out any cash dividends. . minimum growth rate achievable if the firm maintains a constant equity multiplier. c. maximum growth rate achievable without external financing of any kind- GI) maximum growth rate achievable without using any external equity financing while maintaining a constant debt-equity ratio. e. maximum growth rate achievable without any limits on the level of debt financing. EN 361 7 Page: 35 Quizj’ Date: February3,2010 8. The sustainable growth rate of a firm is best described as the: a. minimum growth rate achievable if the firm does not pay out any cash dividends. b. minimum growth rate achievable if the firm maintains a constant equity multiplier. o. maximum growth rate achievable without external financing of any kind. d. maximum growth rate achievable without using any external equity financing While maintaining a constant debt-equity ratio. e. maximum growth rate achievable without any limits on the level of debt financing. 9. Pro forma financial statements are: F Lgenerally based on projected sales. IL. guarantees of future performance. III. the output from a financial planning model. IV. projections of a firm's future financial position. b. IV only i c. I and III only (:1. I and IV only C. II and IV only (I) I, III, and IV only 10. The composition of the liability and equity sections of a pro forma statement depend most heavily on a firm's: net working capital policies. a. b. financing and dividend policies. (3. desired level of liquidity. d. capital budgeting and working capital policies. 6. level of capacity utilization and not working capital policy. FN 361 Page: 4/5 Quiz3 Date: FebruaryB, 2010 Section II. Calculation questions. Show your work. [Total points 20]. 1. The most recent financial statements for Zingy Zins, Inc., a fine wine purveyor, are shown below. 2009 Income Statement Sales 3,000 COG 2,820 Net Income 180 2009 Balance Sheet Assets Liabilities and Shareholder Equity Current Assets 800 Current Liabilities 400 Net Fixed Assets 1 ,900 LTD 0 Total 2,700 Equity {including RE) 2,300 ' Total 2 ,700 a. A 20 percent growth rate in sales is projected. Prepare a pro—forms income statement assuming the costs gar)? “ith sales. Assume no dividends are paid. : 3’400 Fm grep»! linden-c1 S'kwtt: 75: 6093‘ '1‘: . jugs 9 60:39 “30% L39 : 93W (IA éégrt new “90 1 3}“ 06- 1 MI 31L L/"fr b What is the projected addition to retaiged earnings (RE)? Fro Wat. NI goo-1k Ni: Cu We \.‘K.};;ii‘£i‘€s c. Assets andfiawsfgs are proportional to sales. Debt and equity are not. If sales are expected to increase by 20 percent next year, what is the external financing needed? Again assume no dividends are paid. ,>:).3% [mm in jar-J95 Elam} : TA - TLKOE (A e Eoorli‘d -‘ 'léo TA: 3330 NW = New” " m“? . r TM TLR’aarGWOM‘H’a ‘-‘ r1730 - , O f -' CL : we“? ” LNG We m i. l ._——-v—m—-‘-——‘ .__._._._— FN 361 ' Page: 5/5 Quizj‘ Date: February 3,2010 421. Show a pro—forma balance sheet assuming the external financing needed is met by issuing new long term debt [LTD]. 3??!- €15.31“: 8644-th2, 5 M E 5‘ . ,3 “.5503 {W t0 Ame: : L " OE I We Can't—i: cum-E5 160 \ ETE') {,{éo / x. . 3 3. — I J as; ERMA wast: 935;» . . W Elk-:7 (W) W" nae WW" ‘ 33:“ Iz/ J Sbrl W‘f F2. }\>e. If management decides to start a dividend next year by . a distributing $ 160 to shareholders what is the new external financing needed? EH! 7 TA — TLB’OE mum TH’OE = (330.27-{LoJJr‘lE-5 2620 EPA} : 21w away.) 3 l 620% . at ...
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