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You are comparing the current income statement of a firm to the pro forma income statement for next year.The pro forma is based on a four percent increase in sales.The firm is currently operating at 85 percent of capacity.Net working capital and all costs vary directly with sales.The tax rate and the dividend payout ratio are fixed.Given this information, which one of the following statements must be true?


A) The projected net income is equal to the current year's net income.
B) The tax rate will increase at the same rate as sales.
C) Retained earnings will increase by four percent over its current level.
D) Total assets will increase by less than four percent.
E) Total liabilities and owners' equity will increase by four percent.

F) D) and E)
G) C) and D)

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A firm wishes to maintain an internal growth rate of 11 percent and a dividend payout ratio of 24 percent.The current profit margin is 7 percent and the firm uses no external financing sources.What must the total asset turnover rate be?


A) 0.87 times
B) 0.90 times
C) 1.01 times
D) 1.15 times
E) 1.86 times

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

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Based on the following information, what is the sustainable growth rate of Hendrix Guitars, Inc.? Based on the following information, what is the sustainable growth rate of Hendrix Guitars, Inc.? A) 7.68 percent B) 9.52 percent C) 11.12 percent D) 13.49 percent E) 14.41 percent


A) 7.68 percent
B) 9.52 percent
C) 11.12 percent
D) 13.49 percent
E) 14.41 percent

F) A) and C)
G) None of the above

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A Procrustes approach to financial planning is based on:


A) a policy of producing a financial plan once every five years.
B) developing a plan around the goals of senior managers.
C) a proactive approach to the economic outlook.
D) a flexible capital budget.
E) a flexible capital structure.

F) C) and D)
G) B) and D)

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Which one of the following terms is applied to the financial planning method which uses the projected sales level as the basis for determining changes in balance sheet and income statement account values?


A) percentage of sales method
B) sales dilution method
C) sales reconciliation method
D) common-size method
E) trend method

F) A) and C)
G) B) and C)

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The Corner Store has $219,000 of sales and $193,000 of total assets.The firm is operating at 87 percent of capacity.What is the capital intensity ratio at full capacity?


A) 0.62
B) 0.68
C) 0.77
D) 1.35
E) 1.47

F) C) and E)
G) All of the above

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The Dog House has net income of $3,450 and total equity of $8,600.The debt-equity ratio is 0.60 and the payout ratio is 30 percent.What is the internal growth rate?


A) 14.47 percent
B) 17.78 percent
C) 21.29 percent
D) 29.40 percent
E) 33.33 percent

F) A) and C)
G) A) and E)

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What are the pro forma retained earnings for next year if Fake Stone, Inc.grows at a rate of 2.5 percent and both the profit margin and the dividend payout ratio remain constant? A) $4,946.90 B) $5,023.10 C) $5,592.20 D) $5,920.67 E) $6,293.30 What are the pro forma retained earnings for next year if Fake Stone, Inc.grows at a rate of 2.5 percent and both the profit margin and the dividend payout ratio remain constant? A) $4,946.90 B) $5,023.10 C) $5,592.20 D) $5,920.67 E) $6,293.30 What are the pro forma retained earnings for next year if Fake Stone, Inc.grows at a rate of 2.5 percent and both the profit margin and the dividend payout ratio remain constant?


A) $4,946.90
B) $5,023.10
C) $5,592.20
D) $5,920.67
E) $6,293.30

F) A) and B)
G) All of the above

Correct Answer

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The financial planning process tends to place the least emphasis on which one of the following?


A) growth limitations
B) capacity utilization
C) market value of a firm
D) capital structure of a firm
E) dividend policy

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

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All of Fake Stone's costs and net working capital vary directly with sales.Sales are projected to increase by 3.5 percent.What is the pro forma accounts receivable balance for next year? A) $1,659.80 B) $1,661.84 C) $1,780.20 D) $1,787.80 E) $1,800.46 All of Fake Stone's costs and net working capital vary directly with sales.Sales are projected to increase by 3.5 percent.What is the pro forma accounts receivable balance for next year? A) $1,659.80 B) $1,661.84 C) $1,780.20 D) $1,787.80 E) $1,800.46 All of Fake Stone's costs and net working capital vary directly with sales.Sales are projected to increase by 3.5 percent.What is the pro forma accounts receivable balance for next year?


A) $1,659.80
B) $1,661.84
C) $1,780.20
D) $1,787.80
E) $1,800.46

F) None of the above
G) C) and D)

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C

All else constant, which one of the following will increase the internal rate of growth?


A) decrease in the retention ratio
B) decrease in net income
C) increase in the dividend payout ratio
D) decrease in total assets
E) increase in costs of goods sold

F) C) and D)
G) A) and D)

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D

Atlas Industries combines the smaller investment proposals from each operational unit into a single project for planning purposes.This process is referred to as which one of the following?


A) conjoining
B) aggregation
C) conglomeration
D) appropriation
E) summation

F) None of the above
G) B) and C)

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If a firm equates its pro forma sales growth to the rate of sustainable growth, and has positive net income and excess capacity, then the:


A) maximum capacity level will have to increase at the same rate as sales growth.
B) total assets will have to increase at the same rate as sales growth.
C) debt-equity ratio will increase.
D) retained earnings will increase.
E) number of common shares outstanding will increase.

F) All of the above
G) None of the above

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Fresno Salads has current sales of $6,000 and a profit margin of 6.5 percent.The firm estimates that sales will increase by 4 percent next year and that all costs will vary in direct relationship to sales.What is the pro forma net income?


A) $303.33
B) $327.18
C) $405.60
D) $438.70
E) $441.10

F) A) and B)
G) A) and C)

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The Soccer Shoppe has a 9 percent return on assets and a 25 percent payout ratio.What is its internal growth rate?


A) 4.72 percent
B) 5.08 percent
C) 5.49 percent
D) 6.23 percent
E) 7.24 percent

F) A) and B)
G) B) and E)

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Blasco Industries is currently at full-capacity sales.Which one of the following is limiting sales to this level?


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

F) A) and B)
G) None of the above

Correct Answer

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When constructing a pro forma statement, net working capital generally:


A) remains fixed.
B) varies only if the firm is currently producing at full capacity.
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 proportionally with sales.

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

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Seaweed Mfg., Inc.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?


A) 17.23 percent
B) 17.47 percent
C) 18.03 percent
D) 18.87 percent
E) 19.05 percent

F) None of the above
G) B) and C)

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E

Consider the income statement for Heir Jordan Corporation: Consider the income statement for Heir Jordan Corporation: A 22 percent growth rate in sales is projected.What is the pro forma addition to retained earnings assuming all costs vary proportionately with sales? A) $6,299 B) $7,303 C) $7,890 D) $8,011 E) $8,164 A 22 percent growth rate in sales is projected.What is the pro forma addition to retained earnings assuming all costs vary proportionately with sales?


A) $6,299
B) $7,303
C) $7,890
D) $8,011
E) $8,164

F) None of the above
G) C) and D)

Correct Answer

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What is the internal growth rate of Fake Stone, Inc.assuming the payout ratio remains constant? A) 5.20 percent B) 5.55 percent C) 7.36 percent D) 7.49 percent E) 8.77 percent What is the internal growth rate of Fake Stone, Inc.assuming the payout ratio remains constant? A) 5.20 percent B) 5.55 percent C) 7.36 percent D) 7.49 percent E) 8.77 percent What is the internal growth rate of Fake Stone, Inc.assuming the payout ratio remains constant?


A) 5.20 percent
B) 5.55 percent
C) 7.36 percent
D) 7.49 percent
E) 8.77 percent

F) None of the above
G) A) and B)

Correct Answer

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