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Corporate Finance Study Set 2

Business

Quiz 12 :

Corporate Valuation and Financial Planning

Quiz 12 :

Corporate Valuation and Financial Planning

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A rapid build-up of inventories normally requires additional financing, unless the increase is matched by an equally large decrease in some other asset.
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True False
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Answer:

True

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Which of the following is NOT one of the steps taken in the financial planning process?
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Multiple Choice
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Answer:

D

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The capital intensity ratio is the amount of assets required per dollar of sales and it has a major impact on a firm's capital requirements.
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True False
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Answer:

True

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Judd Enterprises These are the simplified financial statements for Judd Enterprises. img -Refer to the Judd Enterprises financial statements.If Judd does not plan on issuing new stock or additional long-term debt, then what is the additional net financing needed for the projected year?
Multiple Choice
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Judd Enterprises These are the simplified financial statements for Judd Enterprises. img -Refer to the Judd Enterprises financial statements.What is Judd's projected retained earnings under this plan?
Multiple Choice
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To determine the amount of additional funds needed (AFN), you may subtract the expected increase in liabilities, which represents a source of funds, from the sum of the expected increases in retained earnings and assets, both of which are uses of funds.
True False
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Decker Enterprises Below are the simplified current and projected financial statements for Decker Enterprises. All of Decker's assets are operating assets. All of Decker's current liabilities are operating liabilities. img -Based on the projections, Decker will have
Multiple Choice
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The fact that long-term debt and common stock are raised infrequently and in large amounts lessens the need for the firm to forecast those accounts on a continual basis.
True False
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As a firm's sales grow, its current assets also tend to increase.For instance, as sales increase, the firm's inventories generally increase, and purchases of inventories result in more accounts payable.Thus, spontaneous liabilities that reduce AFN arise from transactions brought on by sales increases.
True False
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If a firm with a positive net worth is operating its fixed assets at full capacity, if its dividend payout ratio is 100%, and if it wants to hold all financial ratios constant, then for any positive growth rate in sales, it will require external financing.
True False
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One of the necessary steps in the financial planning process is a forecast of financial statements under each alternative version of the operating plan in order to analyze the effects of different operating procedures on projected profits and financial ratios.
True False
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Operating plans sketch out broad approaches for realization of the firm's strategic vision.These plans usually are developed for a period no longer than a 1-year time horizon because detail is "lost" by extending out the time horizon by more than 1 year.
True False
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A firm's AFN must come from external sources.Typical sources include short-term bank loans, long-term bonds, preferred stock, and common stock.
True False
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Below are the simplified current and projected financial statements for Decker Enterprises. All of Decker's assets are operating assets. All of Decker's current liabilities are operating liabilities. img -If Decker had a financing deficit, it could remedy the situation by
Multiple Choice
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A firm will use spontaneous funds to the extent possible; however, due to credit terms, contracts with workers, and tax laws there is little flexibility in their usage.
True False
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If a firm wants to maintain its ratios at their existing levels, then if it has a positive sales growth rate of any amount, it will require some amount of external funding.
True False
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One of the first steps in arriving at a firm's forecasted financial statements is a review of industry-average operating ratios relative to these same ratios for the firm to determine whether changes to the ratios need to be made.
True False
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Firms pay a low interest rate on spontaneous liabilities so these funds are its cheapest source of capital.Consequently, the firm should make arrangements with its suppliers to use as much of this credit as possible.
True False
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As long as a firm does not pay out 100% of its earnings, the firm's annual profit that is retained in the business (i.e., the addition to retained earnings) is another source of funds for a firm's expansion.
True False
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Below are the simplified current and projected financial statements for Decker Enterprises. All of Decker's assets are operating assets. All of Decker's current liabilities are operating liabilities. img -If Decker had a financing surplus, it could remedy the situation by
Multiple Choice
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