FIN 571 Wk 6 – Practice: Wk 6 Questions

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FIN 571 Wk 6 - Practice: Wk 6 Questions
FIN 571 Wk 6 – Practice: Wk 6 Questions
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FIN 571 Wk 6 – Practice: Wk 6 Questions

Which one of the following is not a reason for compiling financial plans?

Multiple Choice

  • Considering options
  • Contingency planning
  • Calculating the optimal plan
  • Forcing consistency

 

 

Assume a firm wants to hold its current long-term debt-to-equity ratio constant at 0.55 and its payout ratio constant at 35%. The firm neither issues nor repurchases shares. If the firm generates $326,000 of net income, what is the maximum amount that the firm can increase its long-term debt?

Multiple Choice

  • $116,545
  • $95,355
  • $122,615
  • $0

 

 

Planners have determined that sales will increase by 20% next year, and the profit margin will remain at 10% of sales. Which one of the following statements is  if the payout ratio remains at 30%?

Multiple Choice

  • Net income will increase by 10% next year.
  • The addition to retained earnings will increase by 20% next year.
  • The dividend will increase by 6% next year.
  • The addition to retained earnings will equal 6% of the sales increase next year.

 

 

The sustainable growth rate is the maximum growth rate that the firm can achieve

Multiple Choice

  • without external financing.
  • while maintaining its debt ratio.
  • without investing in additional fixed assets.
  • without excessive strains on management.

 

 

What is the internal growth rate for a firm with an ROE of 20%, a dividend payout ratio of 40%, and an equity-to-debt ratio of 60%?

Multiple Choice

  • 4.50%
  • 5.39%
  • 8.00%
  • 12.00%

 

Before settling on a final short-term financial plan, the manager needs to ask several questions. Which question is the manager least likely to ask?

Multiple Choice

  • Does the plan yield satisfactory financial ratios?
  • Would the firm do better to arrange long-term financing to cover any cash shortage?
  • Has the firm estimated its EVA ly?
  • Does the company need a larger reserve of cash or marketable securities to cover emergencies?

 

 

Firms that continually invest in nontrivial amounts of marketable securities may be guilty of:

Multiple Choice

  • excessive short-term borrowing.
  • not matching their sources and uses of cash.
  • holding excessive current liabilities.
  • incurring extra taxes.

 

 

A firm starts the week with payables of $172,000. It pays $80,000 of outstanding bills, and purchases $44,000 of raw materials on one month’s credit. What is the level of payables at the end of the week?

Multiple Choice

  • $136,000.
  • $208,000.
  • $96,000.
  • $216,000.

 

The Boat Works started the month with $3.21 million in accounts receivable. Sales for the month were $7.84 million. The firm collects 18% of its sales in the month of sale with the remainder paid the following month. What is the accounts receivable balance at month end?

Multiple Choice

  • $4,621,200
  • $6,428,800
  • $9,061,000
  • $1,411,200

 

 

A firm has a need for cash in a specific quarter. Which of the following is least likely to be part of a short-term financial plan to raise cash?

Multiple Choice

Bank loan

New equity

Securities sold

Stretched payables

 

If a firm’s sales increase by 12%, and it has no spare capacity, it must increase fixed assets by at least:

Multiple Choice

0%.

6%.

9%.

12%.

 

All of the following are part of the financial planning process except:

Multiple Choice

deciding which risks are worth taking.

analyzing investment and financing options.

projecting the future.

minimizing risk.

 

 

Contingency planning is:

Multiple Choice

forecasting the most likely outcomes.

working through the implications of the most likely outcomes.

working through the consequences of the plan under different scenarios.

formulating responses to inevitable surprises.

 

A financial planning model will generally include all of the following except the:

Multiple Choice

listing of the firm’s goals.

required increase in fixed assets.

projected sales.

forecast increase in retained earnings.

 

A firm has current sales of $2.4 million and fixed assets of $1.65 million. The firm is currently operating at 88% of capacity. How high can the firm’s sales go without requiring any additional fixed assets?

Multiple Choice

$2.423 million

$2.509 million

$2.727 million

$2.836 million

 

A firm wants to limit its new debt issue to $10 mil and has no interest in adding new equity. Net income is forecasted at $30 mil and new assets of $22 mil will be needed to sustain the growth of the company. What dividend will the company pay to maintain its objectives?

Multiple Choice

$10 million

$14 million

$18 million

$24 million

 

A firm’s internal growth rate is all of the following except:

Multiple Choice

the rate below which external financing is needed.

 

the ratio of reinvested earnings to assets.

the maximum growth rate without requiring external sources of new capital.

the product of the plowback ratio, ROE, and the ratio of equity to assets.

 

Calculate the rate at which a firm can grow without changing its leverage if its payout ratio is 70%, equity outstanding at the beginning of the year is $940,000, and its net income for the year is $162,000.

Multiple Choice

5.17%

11.67%

14.00%

16.67%

 

What is the sustainable growth rate for a firm with $250,000 in net income, $100,000 in common stock dividends, and equity of $1 million?

Multiple Choice

8%

10%

15%

17%

 

If the projected growth rate is less than the firm’s sustainable growth rate:

Multiple Choice

it should increase its projected growth rate.

the firm will be required to decrease its plowback ratio.

its debt-equity ratio will decrease.

the firm will be required to increase borrowing.

 

Before settling on a final short-term financial plan, the manager needs to ask several questions. Which question is the manager least likely to ask?

Multiple Choice

Does the plan yield satisfactory financial ratios?

Would the firm do better to arrange long-term financing to cover any cash shortage?

Has the firm estimated its EVA ly?

Does the company need a larger reserve of cash or marketable securities to cover emergencies?

 

Which one of these is most associated with a disadvantage of the relaxed strategy of long- versus short-term financing?

Multiple Choice

Transaction costs are required to continually obtain financing.

Short-term investment income is often unattractive.

Investment opportunities must frequently be ignored.

Long-term financing has burdensome tax consequences.

 

Which of these assets is likely to be the least liquid?

Multiple Choice

receivables

marketable securities

inventories of work in progress

inventories of finished goods

 

For a recent period, a firm collected $38,200 on accounts receivable, paid $19,700 to suppliers on trade credit, paid $12,000 in cash expenses, purchased for cash a $42,000 piece of equipment that will be depreciated straight-line to zero over 4 years, and had $59,000 of sales of which 15% were cash sales. The firm also paid $13,500 in taxes and interest. The beginning cash balance was $11,300. How much did the firm need to borrow in order to maintain a minimum cash balance of $10,000?

Multiple Choice

$38,850

 

$37,550

$7,350

$30,000

 

A firm starts the week with payables of $172,000. It pays $80,000 of outstanding bills, and purchases $44,000 of raw materials on one month’s credit. What is the level of payables at the end of the week?

Multiple Choice

$136,000.

$208,000.

$96,000.

$216,000.

 

Managers are alerted to projected cash shortages by means of the:

Multiple Choice

statement of sources and uses of cash.

pro forma balance sheet.

cash budget.

monthly bank statements.

 

The Boat Works started the month with $1.28 million in accounts receivable. Sales for the month were $3.4 million. The firm collects 35% of its sales in the month of sale with the remainder paid the following month. What is the accounts receivable balance at month end?

Multiple Choice

$2.21 million

$1.19 million

$3.49 million

$2.71 million

 

A firm has a need for cash in a specific quarter. Which of the following is least likely to be part of a short-term financial plan to raise cash?

Multiple Choice

Bank loan

New equity

Securities sold

Stretched payables

 

Avatar Corp solves its cash shortage by paying its bills a week late but loses a 1% discount by doing so. This is equivalent to borrowing at an annual interest rate of:

Multiple Choice

52.0%.

12.8%.

68.6%.

1.0%.

 

A firm must decide between borrowing from a bank at 12% interest or stretching its payables for one quarter. If it stretches the payables it will forgo a 2% discount for timely payment. Based solely on cash flows, which is the cheaper solution?

Multiple Choice

Stretching saves the firm approximately 8% per year.

Use the bank loan; forgoing a cash discount is costly.

Stretch the payables and finance at a savings of approximately 3.75% annually.

Use the bank loan because it represents simple interest.