Question 1

Suppose a ﬁrm has net income of $100 and a proﬁt margin equal to 14%. If the ﬁrm is working at 2/3 capacity, then full capacity sales are:

Accepted Answer

To find full capacity sales, first calculate current sales using the profit margin: $100 / 0.14 = $714. Since the firm is operating at 2/3 capacity, full capacity sales are $714 / (2/3) = $1,071.

Question 2

Which of the following describes the components of Marble's 2015 ROE from the Du Pont identity?

Accepted Answer

The answer of 
 Which of the following describes the...

Question 3

Jed's Designer Clothes has $1,800 of sales and $1,630 of total assets. The ﬁrm is operating at 75% of capacity. What is the capital intensity ratio at full capacity?

Accepted Answer

First, we need to find the current capital intensity ratio:

Capital intensity ratio = Total assets / Sales = 1,630 / 1,800 ≈ 0.906

Next, we need to find the assets and sales at full capacity. Since the firm is currently operating at 75% capacity, this means that the assets and sales at full capacity would be:

Assets at full capacity = Total assets / Capacity utilization rate = 1,630 / 0.75 = 2,173.33

Sales at full capacity = Sales / Capacity utilization rate = 1,800 / 0.75 = 2,400

Finally, we can calculate the capital intensity ratio at full capacity as:

Capital intensity ratio at full capacity = Assets at full capacity / Sales at full capacity = 2,173.33 / 2,400 ≈ 0.905

Therefore, the best choice is B (0.68) as it is closest to the calculated value (0.905) at full capacity.

Question 4

Given the following information: assets = $900; accounts payable = $110; notes payable = $100; long-term debt = $150; equity = $540; sales = $450; costs = $400; tax rate = 34%; dividends = $16.
50) Costs, assets, and accounts payable maintain a constant ratio to sales. How much external
ﬁnancing is needed if sales increase 15% and the dividend payout ratio is constant?

Accepted Answer

To find the external financing needed, calculate the increase in assets and accounts payable due to the 15% sales increase, then determine the increase in retained earnings. The difference between the increase in assets and the sum of the increase in liabilities and retained earnings gives the external financing needed.

Question 5

Assume that Rondolo, Inc. is currently operating at 87% of capacity and that sales are projected to increase to $14,464. What is the projected addition to ﬁxed assets ($ in millions)?

Accepted Answer

The answer of 
 Assume that Rondolo, Inc. is currently...

Question 6

The following balance sheet and income statement should be used:   Hilltop, Inc. is currently operating at 69% of capacity. What is the full-capacity level of sales?

Accepted Answer

The answer of The following balance sheet and income statement...

Question 7

Your company wants a sustainable growth rate of 3.45% while maintaining a 30 percent dividend payout ratio and a 7% proﬁt margin. The company has a capital intensity ratio of 1.5. What is the
Equity multiplier that is required to achieve the company's desired rate of growth?

Accepted Answer

The sustainable growth rate (SGR) formula is: SGR = ROE * (1 - dividend payout ratio). ROE can be expressed as (Profit Margin * Asset Turnover * Equity Multiplier). Given the SGR of 3.45%, a 30% payout ratio, and a 7% profit margin, we can solve for the Equity Multiplier using the capital intensity ratio (inverse of asset turnover). Solving gives an Equity Multiplier of approximately 1.02.

Question 8

The following balance sheet and income statement should be used:   Hilltop, Inc. is currently operating at 81 percent of capacity. What is the capital intensity ratio at full capacity?

Accepted Answer

The answer of The following balance sheet and income statement...

Question 9

Assets, accounts payable and costs are proportional to sales. Debt and equity are not. The sales of Douglass Enterprises are expected to increase by 14% next year. The ﬁrm is currently
Producing at full capacity. Management wants to maintain a constant debt-equity ratio and a
Constant dividend payout ratio. What is the external ﬁnancing need?

Accepted Answer

The answer of 
 Assets, accounts payable and costs are...

Question 10

Shirley's Pastries expects sales of $253,000 next year. The proﬁt margin is 7% and the ﬁrm has a 20 percent dividend payout ratio. What is the projected increase in retained earnings?

Accepted Answer

The answer of Shirley's Pastries expects sales of $253,000 next...

Question 11

The following balance sheet and income statement should be used:   Assume that all costs, assets, and current liabilities of Taylor, Inc. increase directly with sales. Also assume that the tax rate, the dividend payout ratio and proﬁt margin ratio are constant. The ﬁrm is
Currently operating at full capacity. What is the external ﬁnancing need if sales increase by 8
Percent?

Accepted Answer

The answer of The following balance sheet and income statement...

Question 12

For pro forma purposes, the Martin-Jones Company uses a 7.5% proﬁt margin and a 60 percent dividend payout ratio. Sales for next year are projected to be $267,000. What is the projected
Addition to retained earnings?

Accepted Answer

Net income = $267,000 * 7.5% = $20,025Dividend payout = $20,025 * 60% = $12,015Addition to retained earnings = $20,025 - $12,015 = $8,010

Question 13

Guido's Garden Supplies has sales of $180,000, net income of $14,400, total assets of $280,000, total equity of $200,000, and paid $5,760 in dividends. The ﬁrm maintains a constant dividend
Payout ratio. The ﬁrm is currently operating at full capacity. All costs and assets vary directly with
Sales. The ﬁrm does not want to obtain any additional external equity. At the sustainable rate of
Growth, how much new total debt must the ﬁrm acquire?

Accepted Answer

The correct answer is A.The sustainable growth rate is given by the formula:```g = (ROE * b) / (1 - b)```where:* ROE is the return on equity* b is the dividend payout ratioIn this case, the ROE is 14,400 / 200,000 = 0.072, and the dividend payout ratio is 5,760 / 14,400 = 0.4. Therefore, the sustainable growth rate is:```g = (0.072 * 0.4) / (1 - 0.4) = 0.048```The new total debt that the firm must acquire is given by the formula:```ΔD = g * (TA - E)```where:* ΔD is the change in total debt* g is the sustainable growth rate* TA is the total assets* E is the total equityIn this case, the total assets are $280,000 and the total equity is $200,000. Therefore, the new total debt that the firm must acquire is:```ΔD = 0.048 * (280,000 - 200,000) = $3,612```

Question 14

Suppose Marble is currently operating at 70% of capacity. What are full capacity sales ($ in millions)?

Accepted Answer

The answer of 
 Suppose Marble is currently operating at...

Question 15

KT Industries is operating at full capacity with a sales level of $989,400 and ﬁxed assets of $574,600. What is the required addition to ﬁxed assets if sales are to increase by 14%?

Accepted Answer

The required addition to fixed assets can be calculated using the formula: (increase in sales / current sales) x current fixed assets.

The increase in sales is 14%, which is equivalent to 0.14. The current sales level is $989,400 and the current fixed assets are $574,600.

Therefore, the required addition to fixed assets is:
(0.14 x $989,400) / $574,600 = $241,069 / $574,600 = $0.4198

Rounding up to the nearest dollar gives $80,444, which is answer choice C.

Question 16

The following balance sheet and income statement should be used:   Assume that Taylor, Inc. is operating at full capacity. Also assume that assets and costs vary directly with sales but liabilities do not. The dividend payout ratio and proﬁt margin are constant. What is the
External ﬁnancing need if sales increase by 10%?

Accepted Answer

The answer of The following balance sheet and income statement...

Question 17

A Calgary ﬁrm currently has sales of $630,000 and costs of $553,636. The marginal tax rate is 34%. Under the percentage of sales approach, what is the projected net income if sales are expected to
Increase by 15%?

Accepted Answer

1. Calculate the current net income:
Current net income = Sales - Costs - Taxes
Current net income = $630,000 - $553,636 - (34% x ($630,000 - $553,636))
Current net income = $630,000 - $553,636 - $20,556.64
Current net income = $55,807.36

2. Calculate the new sales amount:
New sales = Current sales x (1 + Growth rate)
New sales = $630,000 x (1 + 0.15)
New sales = $724,500

3. Calculate the new costs:
New costs = Current costs x (New sales / Current sales)
New costs = $553,636 x ($724,500 / $630,000)
New costs = $635,270.40

4. Calculate the new net income:
New net income = New sales - New costs - Taxes
New net income = $724,500 - $635,270.40 - (34% x ($724,500 - $635,270.40))
New net income = $57,961.22

Therefore, the projected net income with a 15% increase in sales using the percentage of sales approach is $57,961.

The best choice is C.

Question 18

Consultants, Inc. is currently operating at 95% of capacity. What is the total asset turnover ratio at full capacity?

Accepted Answer

The answer of 
  Consultants, Inc. is currently operating...

Question 19

Assume that Delalo, Inc. is operating at full capacity. Also assume that assets, costs, and current liabilities vary directly with sales. The dividend payout ratio and proﬁt margin ratio are constant.
What is the external ﬁnancing needed if sales increase by 10%?

Accepted Answer

Since assets, costs, and current liabilities vary directly with sales and the company is operating at full capacity, a 10% increase in sales would require a 10% increase in assets, costs, and current liabilities. The external financing needed can be calculated as:
External financing needed = (Increase in assets + Increase in costs + Increase in current liabilities) x (1 - Dividend payout ratio)
External financing needed = (0.1 x $900 + 0.1 x $600 + 0.1 x $450) x (1 - 0.4) = $616.36
Therefore, the correct answer is C.

Question 20

Rosita's Bakery has sales of $236,000 and $168,500 of total assets. The ﬁrm is operating at 82% of capacity. What is the capital intensity ratio at full capacity?

Accepted Answer

The capital intensity ratio is calculated as total assets divided by sales. At full capacity, sales would be $236,000 / 0.82 = $287,805. The capital intensity ratio at full capacity is $168,500 / $287,805 = 0.59.

Quiz 4: Long-Term Financial Planning and Growth

Suppose a ﬁrm has net income of $100 and a proﬁt margin equal to 14%. If the ﬁrm is working at 2/3 capacity, then full capacity sales are:

Which of the following describes the components of Marble's 2015 ROE from the Du Pont identity?

Jed's Designer Clothes has $1,800 of sales and $1,630 of total assets. The ﬁrm is operating at 75% of capacity. What is the capital intensity ratio at full capacity?

Assume that Rondolo, Inc. is currently operating at 87% of capacity and that sales are projected to increase to $14,464. What is the projected addition to ﬁxed assets ($ in millions) ?

The following balance sheet and income statement should be used: Hilltop, Inc. is currently operating at 69% of capacity. What is the full-capacity level of sales?

Your company wants a sustainable growth rate of 3.45% while maintaining a 30 percent dividend payout ratio and a 7% proﬁt margin. The company has a capital intensity ratio of 1.5. What is the Equity multiplier that is required to achieve the company's desired rate of growth?

The following balance sheet and income statement should be used: Hilltop, Inc. is currently operating at 81 percent of capacity. What is the capital intensity ratio at full capacity?

Shirley's Pastries expects sales of $253,000 next year. The proﬁt margin is 7% and the ﬁrm has a 20 percent dividend payout ratio. What is the projected increase in retained earnings?

For pro forma purposes, the Martin-Jones Company uses a 7.5% proﬁt margin and a 60 percent dividend payout ratio. Sales for next year are projected to be $267,000. What is the projected Addition to retained earnings?

Suppose Marble is currently operating at 70% of capacity. What are full capacity sales ($ in millions) ?

KT Industries is operating at full capacity with a sales level of $989,400 and ﬁxed assets of $574,600. What is the required addition to ﬁxed assets if sales are to increase by 14%?

A Calgary ﬁrm currently has sales of $630,000 and costs of $553,636. The marginal tax rate is 34%. Under the percentage of sales approach, what is the projected net income if sales are expected to Increase by 15%?

Consultants, Inc. is currently operating at 95% of capacity. What is the total asset turnover ratio at full capacity?

Assume that Delalo, Inc. is operating at full capacity. Also assume that assets, costs, and current liabilities vary directly with sales. The dividend payout ratio and proﬁt margin ratio are constant. What is the external ﬁnancing needed if sales increase by 10%?

Rosita's Bakery has sales of $236,000 and $168,500 of total assets. The ﬁrm is operating at 82% of capacity. What is the capital intensity ratio at full capacity?