Question 1

Seaweed Mfg., Inc.is currently operating at only 86 percent of fixed asset capacity.Fixed assets are $387,000.Current sales are $510,000 and are projected to grow to $664,000.What amount must be spent on new fixed assets to support this growth in sales?
A)$0
B)$22,654
C)$46,319
D)$79,408
E)$93,608

Accepted Answer

Full capacity sales = $510,000/0.86 = $593,023.26Capital intensity ratio = $387,000/$593,023.26 = 0.652588231Fixed asset need = ($664,000 × 0.652588231) - $387,000 = $46,319

Question 2

The most recent financial statements for Benatar Co.are shown here:  Assets and costs are proportional to sales.Debt and equity are not.The company maintains a constant 40 percent dividend payout ratio.No external equity financing is possible.What is the internal growth rate?
A)2.91 percent
B)3.44 percent
C)3.87 percent
D)4.02 percent
E)4.14 percent

Accepted Answer

The answer of The most recent financial statements for Benatar...

Question 3

The most recent financial statements for Last in Line, Inc.are shown here:  Assets and costs are proportional to sales.Debt and equity are not.A dividend of $992 was paid, and the company wishes to maintain a constant payout ratio.Next year's sales are projected to be $21,830.What is the amount of the external financing need?
A)$12,711
B)$13,333
C)$13,556
D)$13,809
E)$14,357

Accepted Answer

The answer of The most recent financial statements for Last...

Question 4

Consider the following information for Kaleb's Kickboxing:  What is the sustainable rate of growth?
A)11.87 percent
B)12.29 percent
C)12.52 percent
D)13.42 percent
E)13.58 percent

Accepted Answer

The answer of Consider the following information for Kaleb's Kickboxing:...

Question 5

The most recent financial statements for Moose Tours, Inc.follow.Sales for 2009 are projected to grow by 16 percent.Interest expense will remain constant; the tax rate and dividend payout rate will also remain constant.Costs, other expenses, current assets, and accounts payable increase spontaneously will sales.If the firm is operating at full capacity and no new debt or equity is issued, how much external financing is needed to support the 16 percent growth rate in sales?  
A)$-10,246
B)-$8,122
C)-$6,708
D)$2,407
E)$3,309

Accepted Answer

The answer of The most recent financial statements for Moose...

Question 6

A) What are the assumptions that underlie the internal growth rate and B) what are the implications of this rate?

Accepted Answer

The answer of A) What are the assumptions that underlie...

Question 7

Country Comfort, Inc.had equity of $150,000 at the beginning of the year.At the end of the year, the company had total assets of $195,000.During the year, the company sold no new equity.Net income for the year was $63,000 and dividends were $44,640.What is the sustainable growth rate?
A)10.32 percent
B)10.79 percent
C)11.78 percent
D)12.01 percent
E)12.24 percent

Accepted Answer

Ending equity = $150,000 + ($63,000 - $44,640) = $168,360Return on equity = $63,000/$168,360 = 0.3742Retention ratio = ($63,000 - $44,640)/$63,000 = 0.2914Sustainable growth rate = (0.3742 × 0.2914)/[1 - (0.3742 × 0.2914)] = 12.24 percent

Question 8

The most recent financial statements for Heng Co.are shown here:  Assets and costs are proportional to sales.The company maintains a constant 45 percent dividend payout ratio and a constant debt-equity ratio.What is the maximum increase in sales that can be sustained next year assuming no new equity is issued?
A)$4,808.12
B)$5,211.17
C)$5,887.48
D)$5,894.60
E)$6,666.67

Accepted Answer

The answer of The most recent financial statements for Heng...

Question 9

Based on the following information, what is the sustainable growth rate of Hendrix Guitars, Inc.? 
A)7.68 percent
B)9.52 percent
C)11.12 percent
D)13.49 percent
E)14.41 percent

Accepted Answer

The answer of Based on the following information, what is...

Question 10

Seaweed Mfg., Inc.is currently operating at only 84 percent of fixed asset capacity.Current sales are $550,000.What is the maximum rate at which sales can grow before any new fixed assets are needed?
A)17.23 percent
B)17.47 percent
C)18.03 percent
D)18.87 percent
E)19.05 percent

Accepted Answer

Full capacity sales = $550,000/0.84 = $654,761.90Maximum sales growth = (654,761.90/$550,000) - 1 = 19.05 percent

Question 11

The Parodies Corp.has a 22 percent return on equity and a 23 percent payout ratio.What is its sustainable growth rate?
A)18.68 percent
B)19.25 percent
C)19.49 percent
D)20.39 percent
E)22.00 percent

Accepted Answer

Retention ratio = 1 - 0.23 = 0.77Sustainable growth rate = (0.22 × 0.77)/[1 - (0.22 × 0.77)] = 20.39 percent

Question 12

The most recent financial statements for 7 Seas, Inc.are shown here:  Assets, costs, and current liabilities are proportional to sales.Long-term debt and equity are not.The company maintains a constant 50 percent dividend payout ratio.Like every other firm in its industry, next year's sales are projected to increase by exactly 16 percent.What is the external financing need?
A)$1,317.16
B)$1,411.16
C)$1,583.09
D)$2,211.87
E)$2,349.98

Accepted Answer

The answer of The most recent financial statements for 7...

Question 13

Nelson's Landscaping Services just completed a pro forma statement using the percentage of sales approach.The pro forma has a projected external financing need of -$5,500.What are the firm's options in this case?

Accepted Answer

The answer of Nelson's Landscaping Services just completed a pro...

Question 14

A firm wishes to maintain a growth rate of 8 percent and a dividend payout ratio of 62 percent.The ratio of total assets to sales is constant at 1, and the profit margin is 10 percent.What must the debt-equity ratio be if the firm wishes to keep that ratio constant?
A)0.05
B)0.40
C)0.55
D)0.60
E)0.95

Accepted Answer

Retention ratio = 1 - 0.62 = 0.38Sustainable growth rate = 0.08 = (ROE × 0.38)/[1 - (ROE × 0.38)]; ROE = 0.1949Return on equity = 0.1949 = 0.10 × (1/1) × (1 + D/E); D/E = 0.95

Question 15

What is the sustainable growth rate assuming the following ratios are constant? 
A)10.30 percent
B)10.53 percent
C)10.67 percent
D)10.89 percent
E)11.01 percent

Accepted Answer

The answer of What is the sustainable growth rate assuming...

Question 16

Why do financial managers need to understand the implications of both the internal and the sustainable rates of growth?

Accepted Answer

The answer of Why do financial managers need to understand...

Question 17

Fixed Appliance Co.wishes to maintain a growth rate of 8 percent a year, a constant debt-equity ratio of 0.42, and a dividend payout ratio of 50 percent.The ratio of total assets to sales is constant at 1.3.What profit margin must the firm achieve?
A)12.92 percent
B)13.46 percent
C)13.56 percent
D)14.33 percent
E)14.74 percent

Accepted Answer

Retention ratio = 1 - 0.50 = 0.50Sustainable growth rate = 0.08 = (ROE × 0.50)/[1 - (ROE × 0.50)]; ROE = 0.14815Return on equity = 0.14815 = PM × (1/1.3) × (1 + 0.42); Profit margin = 13.56 percent

Question 18

A firm wishes to maintain an internal growth rate of 11 percent and a dividend payout ratio of 24 percent.The current profit margin is 7 percent and the firm uses no external financing sources.What must the total asset turnover rate be?
A)0.87 times
B)0.90 times
C)1.01 times
D)1.15 times
E)1.86 times

Accepted Answer

Retention ratio = 1 - 0.24 = 0.76Internal growth rate = 0.11 = (ROA × 0.76)/[1 - (ROA × 0.76)]; ROA = 0.1304Return on assets = 0.1304 = 0.07 × TAT; Total asset turnover = 1.86 times

Question 19

The Soccer Shoppe has a 9 percent return on assets and a 25 percent payout ratio.What is its internal growth rate?
A)4.72 percent
B)5.08 percent
C)5.49 percent
D)6.23 percent
E)7.24 percent

Accepted Answer

Retention ratio = 1 - 0.25 = 0.75Internal growth rate = (0.09 × 0.75)/[1 - (0.09 × 0.75)] = 7.24 percent

Question 20

Consider the income statement for Heir Jordan Corporation:  A 22 percent growth rate in sales is projected.What is the pro forma addition to retained earnings assuming all costs vary proportionately with sales?
A)$6,299
B)$7,303
C)$7,890
D)$8,011
E)$8,164

Accepted Answer

The answer of Consider the income statement for Heir Jordan...

Quiz 4: Introduction to Valuation: the Time Value of Money

Seaweed Mfg., Inc.is currently operating at only 86 percent of fixed asset capacity.Fixed assets are $387,000.Current sales are $510,000 and are projected to grow to $664,000.What amount must be spent on new fixed assets to support this growth in sales?

The most recent financial statements for Benatar Co.are shown here: Assets and costs are proportional to sales.Debt and equity are not.The company maintains a constant 40 percent dividend payout ratio.No external equity financing is possible.What is the internal growth rate?

Consider the following information for Kaleb's Kickboxing: What is the sustainable rate of growth?

A) What are the assumptions that underlie the internal growth rate and B) what are the implications of this rate?

Country Comfort, Inc.had equity of $150,000 at the beginning of the year.At the end of the year, the company had total assets of $195,000.During the year, the company sold no new equity.Net income for the year was $63,000 and dividends were $44,640.What is the sustainable growth rate?

Based on the following information, what is the sustainable growth rate of Hendrix Guitars, Inc.?

Seaweed Mfg., Inc.is currently operating at only 84 percent of fixed asset capacity.Current sales are $550,000.What is the maximum rate at which sales can grow before any new fixed assets are needed?

The Parodies Corp.has a 22 percent return on equity and a 23 percent payout ratio.What is its sustainable growth rate?

Nelson's Landscaping Services just completed a pro forma statement using the percentage of sales approach.The pro forma has a projected external financing need of -$5,500.What are the firm's options in this case?

A firm wishes to maintain a growth rate of 8 percent and a dividend payout ratio of 62 percent.The ratio of total assets to sales is constant at 1, and the profit margin is 10 percent.What must the debt-equity ratio be if the firm wishes to keep that ratio constant?

What is the sustainable growth rate assuming the following ratios are constant?

Why do financial managers need to understand the implications of both the internal and the sustainable rates of growth?

Fixed Appliance Co.wishes to maintain a growth rate of 8 percent a year, a constant debt-equity ratio of 0.42, and a dividend payout ratio of 50 percent.The ratio of total assets to sales is constant at 1.3.What profit margin must the firm achieve?

A firm wishes to maintain an internal growth rate of 11 percent and a dividend payout ratio of 24 percent.The current profit margin is 7 percent and the firm uses no external financing sources.What must the total asset turnover rate be?

The Soccer Shoppe has a 9 percent return on assets and a 25 percent payout ratio.What is its internal growth rate?

Consider the income statement for Heir Jordan Corporation: A 22 percent growth rate in sales is projected.What is the pro forma addition to retained earnings assuming all costs vary proportionately with sales?