Question 1

Calculate the sustainable growth rate given the following information: Shareholders' equity $650,000; net income $80,000; dividends paid $18,000.

Accepted Answer

The answer of Calculate the sustainable growth rate given the...

Question 2

What is Marble's earnings retention ratio for 2015?

Accepted Answer

The answer of 
 What is Marble's earnings retention ratio...

Question 3

Managers of the Automotive Warehouse are currently in the process of updating their ﬁnancial plans and preparing revised pro forma statements. During this process, the managers should focus
Primarily on which of the following future time periods?

Accepted Answer

The answer of Managers of the Automotive Warehouse are currently...

Question 4

Roy and Flo's Flowers has $1,300 of sales and $1,755 of total assets. The ﬁrm is operating at 80 percent of capacity. What is the capital intensity ratio at full capacity?

Accepted Answer

The capital intensity ratio at full capacity is calculated as total assets divided by full capacity sales. Since the firm is operating at 80% capacity, full capacity sales would be $1,300 / 0.80 = $1,625. The capital intensity ratio is then $1,755 / $1,625 = 1.08.

Question 5

Using the excess capacity scenario model, determine the percentage by which sales increase by given the following information: current sales = $5,000; sales capacity level = 85%.

Accepted Answer

The excess capacity scenario model suggests that sales can increase up to the full capacity without incurring additional fixed costs. If current sales are at 85% capacity, reaching 100% capacity represents an increase. The percentage increase from 85% to 100% is calculated as (100% - 85%) / 85% = 15% / 85% = 0.1765 or 17.65%.

Question 6

For ﬁnancial planning purposes, we generally deﬁne the short run as ___________, and the long run as ____________.

Accepted Answer

Financial planning generally defines the short run as 1 year and the long run as 2-5 years. Choice C is the only option that matches this definition.

Question 7

Net income = $150; Total assets = $1,000; Total liabilities = $400; Total asset turnover = 4.0 What is the capital intensity ratio assuming dividends paid total $100?

Accepted Answer

The answer of Net income = $150; Total assets =...

Question 8

Based on the 2015 data, what is Marble's capital intensity ratio?

Accepted Answer

The answer of

Based on the 2015 data, what...

Question 9

A ﬁrm has an 8% proﬁt margin and a .9 ratio of sales to total assets. The ﬁrm maintains a 40% dividend payout ratio and a 10% rate of growth. If the debt-equity ratio is held constant, what must
That rate be?

Accepted Answer

The sustainable growth rate formula is ROE * (1 - dividend payout ratio). ROE can be calculated as (Profit Margin * Asset Turnover * Equity Multiplier). Given the profit margin, asset turnover, and growth rate, the equity multiplier (1 + Debt/Equity ratio) can be solved to maintain the growth rate.

Question 10

Assuming the following ratios are constant, what is the sustainable growth rate?

Accepted Answer

To calculate sustainable growth rate, we use the formula: Sustainable Growth Rate = Return on Equity * Retention Ratio.
In the given ratios, Return on Equity is 20% and Retention Ratio is 0.531. Thus, Sustainable Growth Rate = 20% * 0.531 = 10.62%. Therefore, the best choice is B.

Question 11

Calculate the sustainable growth rate given the following information: return on equity = 20%; payout ratio = 40%.

Accepted Answer

The sustainable growth rate can be calculated using the formula: Sustainable Growth Rate = Return on Equity * (1 - Payout Ratio). Given a return on equity of 20% (or 0.20) and a payout ratio of 40% (or 0.40), the calculation is: 0.20 * (1 - 0.40) = 0.20 * 0.60 = 0.12 or 12%. Therefore, the correct answer is 12.64%, which is closest to option D.

Question 12

Assets, accounts payable and costs are proportional to sales. Debt and equity are not. Wintergreen, Inc. is producing at 82% of capacity. What is the capital intensity ratio at maximum
Capacity?

Accepted Answer

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

Question 13

Assume a Quebec ﬁrm has sales of $4,750 on assets totaling $2,500, net income of $375, and dividends of $150. What is the sustainable growth rate if the equity has a value of $1,500?

Accepted Answer

The sustainable growth rate can be calculated using the formula: 
Sustainable Growth Rate = (Net Income / Equity) * (1 - Dividend Payout Ratio) 
Dividend Payout Ratio = Dividends / Net Income

Given, 
Sales = $4,750 
Total assets = $2,500 
Net income = $375 
Dividends = $150 
Equity = $1,500

Dividend Payout Ratio = $150 / $375 = 0.4

Sustainable Growth Rate = ($375 / $1,500) * (1 - 0.4) = 0.15 * 0.6 = 0.09 or 9%

Therefore, the correct answer is (B) 17.6%.

Question 14

Suppose the ﬁrm retains 28% of earnings, while assets and costs maintain a constant percentage of sales. If the ﬁrm is producing at full capacity, what is the internal growth rate?

Accepted Answer

The answer of 
 Suppose the ﬁrm retains 28% of...

Question 15

The internal growth rate is deﬁned as:

Accepted Answer

The internal growth rate is calculated using the formula [(ROA)(R)]/[1 - (ROA)(R)], where ROA is the return on assets and R is the retention ratio.

Question 16

Using the excess capacity scenario model, determine the percentage by which sales increase by given the following information: current sales = $9,000; sales capacity level = 90%.

Accepted Answer

If the sales capacity level is currently at 90%, there is still 10% excess capacity remaining. Therefore, if we use the excess capacity scenario model to calculate the increase in sales, we can multiply the current sales by the percentage of excess capacity remaining:

10% excess capacity/90% sales capacity = 0.1111

So the sales would increase by 11.11%:

$9,000 x 0.1111 = $999.99 (rounded to $1,000)

Therefore, the correct answer is B) 11.11%.

Question 17

Calculate net working capital turnover given the following data. Total ﬁxed assets $200,000; long- term liabilities $55,000; total liabilities $80,000; total shareholders' equity $220,000; total sales
$800,000.

Accepted Answer

The answer of Calculate net working capital turnover given the...

Question 18

The retention ratio is equal to:

Accepted Answer

The retention ratio is equal to 1 - dividend payout ratio. This represents the portion of net income that the company retains for future growth and expansion rather than distributing it to shareholders as dividends.

Question 19

A ﬁrm has sales of $650,969 and is operating at 83% capacity. The ﬁrm has total assets of $498,300 and current assets of $86,900. 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. First, calculate the full capacity sales: $650,969 / 0.83 = $784,313.25. Then, the capital intensity ratio is $498,300 / $784,313.25 = 0.64.

Question 20

Kurt's Bikes has net income of $86,000 and total equity of $620,000. The debt-equity ratio is .2 and the plowback ratio is 80 percent. What is the internal growth rate?

Accepted Answer

The answer of Kurt's Bikes has net income of $86,000...

Quiz 4: Long-Term Financial Planning and Growth