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Exam 4: Long-Term Financial Planning and Growth

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Question 31

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Leon's has a total asset turnover of 1.46 percent, a profit margin of 8 percent, an equity multiplier of 1.2, and a dividend payout ratio of 32 percent. What is the sustainable growth rate?

A) 10.30 percent
B) 10.53 percent
C) 10.67 percent
D) 10.89 percent
E) 11.01 percent

F) D) and E)
G) A) and D)

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Question 32

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Worthington Industries is currently operating at full-capacity sales. Thus, sales are currently being limited by the firm's:

A) net working capital.
B) long-term debt.
C) inventory.
D) fixed assets.
E) debt-equity ratio.

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

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Question 33

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Buster's Market earns a profit and has a dividend payout ratio of 30 percent. The firm does not want to issue additional equity shares nor increase its long-term debt at this time. Which one of the following defines the maximum rate at which this firm can currently grow?

A firm is operating at 90 percent of capacity. This information is primarily needed to project which one of the following account values when compiling pro forma statements?

The portion of net income that a firm reinvests in itself is called the:

The sustainable growth rate of a firm is best described as the ________ growth rate achievable ________.

Fix-It Co. wishes to maintain a growth rate of 9.89 percent a year, a constant debt-equity ratio of .42, and a dividend payout ratio of 40 percent. The ratio of total assets to sales is constant at 1.3. What profit margin must the firm achieve?

Seaweed Mfg. is currently operating at only 84 percent of fixed asset capacity. Current sales are $550,000. What is the maximum rate at which sales can grow before any new fixed assets are needed?

The retention ratio can be computed as:

Wood Products is operating at 87 percent capacity and earning a substantial profit. A sales increase is least apt to increase the firm's:

Basic Motors has a profit margin of 5.6 percent, a total asset turnover of 1.76, a total debt ratio of .2, and a dividend payout ratio of .7. What is the sustainable growth rate?

The Steel Mill is currently operating at 84 percent of capacity. Annual sales are $28,400 and net income is $2,250. The firm has current liabilities of $2,700, long-term debt of $9,800, net fixed assets of $16,900, net working capital of $5,000, and owners' equity of $12,100. All costs and net working capital vary directly with sales. The tax rate and profit margin will remain constant. The dividend payout ratio is constant at 40 percent. How much additional debt is required if no new equity is raised and sales are projected to increase by 12 percent?

Marco's has current annual sales of $52,600, net fixed assets of $38,900, and total assets of $56,300. The firm is currently operating at 79 percent of capacity. What is the capital intensity ratio at full capacity?

Which of the following questions are appropriate to address during the financial planning process? I. Should the firm merge with a competitor? II. Should additional shares of stock be sold? III. Should a particular division be sold? IV. Should a new product be introduced?

BJ Company's net working capital and all of its expenses vary directly with sales. The firm is currently operating at 86 percent of capacity. The firm wants no additional external financing of any kind. The tax rate is 21 percent and the dividend payout ratio is fixed at 25 percent. Which statement related to next year's pro forma statements must be correct?

A firm's external financing need is met by:

The internal growth rate of a firm is best described as the ________ growth rate achievable ________.

Financial planning includes the: I. determination of asset requirements. II. development of contingency plans. III. establishment of priorities. IV. analysis of funding options.

Rural Markets has $878,000 of sales and $913,000 of total assets. The firm is operating at 93 percent of capacity. What is the capital intensity ratio at full capacity?

Hench's has annual sales of $56,900 is currently operating at 86 percent of capacity. What is the full-capacity level of sales?