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.