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Exam 4: Long-Term Financial Planning and Growth

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Question 51

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Miller's Hardware has current sales of $42,700, EBIT of $9,700, net income of $6,600, interest expense of $1,360, and dividends paid of $1,925. Assume the profit margin, debt-equity ratio, and dividend payout ratio are held constant. Sales are expected to increase by $8,000 next year. What is the projected change to retained earnings for next year?

A) $5,575
B) $4,994
C) $4,909
D) $5,551
E) $5,386

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

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Question 52

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Porter's Corner has sales of $4,650 net income of $490, total assets of $5,820, and total debt of $2,760. Assets and costs are proportional to sales. Debt and equity are not. No dividends or taxes are paid. Next year's sales are projected to be $5,487. What is the amount of the external financing needed?

A) −$28
B) $469
C) $611
D) $1,048
E) $823

F) B) and E)
G) B) and D)

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Question 53

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Wilson's is currently operating at maximum capacity. The firm has a net income of $2,250, total assets of $24,600, long-term debt of $9,800, accounts payable of $2,700, dividends of $900, and total equity of $12,100. All costs, assets, and current liabilities vary directly with sales. The tax rate and the dividend payout ratio will remain constant. How much additional debt is required if no new equity is raised and sales are projected to increase by 5 percent?

When compiling a pro forma statement, which policy most directly affects the projection of the retained earnings account balance?

A Procrustes approach to financial planning is based on:

LM Products has total assets of $48,900, total debt of $21,750, long-term debt of $18,100, owners' equity of $27,150, dividends paid of $1,925, and net income of $5,500. Assume net working capital and all company costs increase directly with sales. Also assume the tax rate and the dividend payout ratio are constant and the company is currently operating at full capacity. What is the external financing need if sales increase by 4 percent?

The financial planning process is least apt to:

Financial plans generally tend to ignore:

Black Top Express has $1,320 of cash, inventory of $10,200, net fixed assets of $33,600, accounts payable of $3,650, accounts receivable of $3,780, and long-term debt of $18,100. All costs, net working capital, and fixed assets vary directly with sales. Sales are projected to increase by 4.8 percent annually. What is the pro forma net working capital for next year?

Cold Ice has a profit margin of 8.3 percent and a payout ratio of 42 percent. The firm has annual sales of $386,400, current liabilities of $37,200, long-term debt of $123,800, and net working capital of $16,700, and net fixed assets of $391,500. No external equity financing is possible. What is the internal growth rate?

Wood Refinishers currently has $298,900 in sales and is operating at 86 percent of the firm's capacity. The dividend payout ratio is 40 percent and cost of goods sold is $211,300. What is the full capacity level of sales?

M&M Tools is currently operating at 88 percent of capacity. All costs and net working capital vary directly with sales. What is the amount of the pro forma net fixed assets for next year if sales are projected to increase by 13 percent and the firm currently has $33,600 of net fixed assets?

Ausel's Cabinets has $27,600 in net fixed assets and is operating at 96 percent of capacity. Sales are $36,200 currently. What is the required increase in fixed assets if sales are projected to increase by 14 percent?

Which one of the following has the least effect on a firm's sustainable rate of growth?

BK Metals is currently operating at full capacity. The profit margin and the dividend payout ratio are held constant. Net working capital and fixed assets vary directly with sales. The company currently has current liabilities of $3,950, long-term debt of $14,700, net working capital of $7,850, net fixed assets of $27,600, owners' equity of $20,750, net income of $2,900, and dividends paid of $870. What is the external financing need if sales increase by 11 percent?