Ch-18 - Chapter 18Financial Planning MULTIPLE CHOICE 1. A...

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Chapter 18—Financial Planning MULTIPLE CHOICE 1. A sales forecast that relies heavily on macroeconomic and industry forecasts is called a a. top-down forceast b. bottom-up forecast c. plug figure d. none of the above ANS: A DIF: E REF: 18.2 Planning for Growth 2. The short-term financing strategy where a compnay relies heavily on short term borrowing to finance a portion of their long term growth is called a(n) a. conservative strategy b. aggressive strategy c. matching strategy d. growth strategy ANS: B DIF: E REF: 18.3 Planning and Control 3. The statement of the firm’s plannend inflows and outflows of cash is called a(n) a. income statement b. balance sheet c. cash budget d. none of the above ANS: C DIF: E REF: 18.3 Planning and Control 4. The growth rate at which a compnay can grow without issuing new shares of common stock while maintaining a constant total asset turnover and equity multiplier is called a(n) a. internal growth rate b. sustainable growth rate c. optimal growth rate d. maximal growth rate ANS: B DIF: E REF: 18.2 Planning for Growth 5. The method in which pro forma statements are constructed by assuring that all items grow in propor- tion to sales is called the a. percentage of sales method
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b. common size method c. sales dilution method d. sales receipt method ANS: A DIF: E REF: 18.2 Planning for Growth NARRBEGIN: EFN 1 Smith Enterprises Balance Sheet Current Assets $400 Accounts Payable $145 Fixed Assets 500 Long-term Debt 455 Equity 300 Total $900 Total 900 Income Statement for End of Year Sales $450 Costs 180 Taxable Inc. 270 Tax (at 34%) 92 Net Income 178 NARREND 6. Using the percentage of sales method what will be Smith’s net income if sales are expected to increase by 25%? a. $222.75 b. $562.50 c. $225.00 d. $337.50 ANS: A new sales = 562.50 new costs = 562.50(180/450) = 225 taxable income = 337.50 taxes = 114.75 new net income = 222.75 DIF: E REF: 18.2 Planning for Growth NAR: EFN 1 7. If Smith pays out 25% of their projected net income as dividends, what will be the company’s addition to retained earnings, if sales grow by 25% and all items on the income statement grow proportionally with sales? a. $222.75 b. $55.68 c. $167.07 d. $107.25
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ANS: C new net income: 222.75 add. to R/E = 222.75(1-.25) = 167.07 DIF: E REF: 18.2 Planning for Growth NAR: EFN 1 8. What is Smith’s sustainable growth rate if the company has a dividend payout ratio of 75%? a. 21.70% b. 25.00% c. 17.44% d. 13.58% ANS: C m = 178/450 = .396 g = [.396(1-.75)900/300]/[(900/450)-.396(1-.75)900/300] g = .1744 DIF: M REF: 18.2 Planning for Growth NAR: EFN 1 9. If Smith pays out 75% of net income as dividends and sales are expected to grow by 25%, what are the external funds required? a.
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This note was uploaded on 09/29/2011 for the course ACCOUNTING 3322 taught by Professor Sanchez during the Spring '11 term at Texas Pan American.

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Ch-18 - Chapter 18Financial Planning MULTIPLE CHOICE 1. A...

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