Question 1

Lola is in the process of forecasting the sales growth rate for an early-stage venture specializing in the production of durable running shoes.Lola predicts a .2 probability of an 80% growth in sales,a .3 probability of a 60% growth in sales,a .4 probability of a 40% growth in sales,and a .1 probability of a 10% decrease in sales.What is the expected sales growth rate of the venture?

Accepted Answer

To calculate the expected sales growth rate, we need to find the weighted average of the growth rates based on their probabilities. 
Expected Sales Growth Rate = (0.2 x 80%) + (0.3 x 60%) + (0.4 x 40%) + (0.1 x -10%)
Expected Sales Growth Rate = 16% + 18% + 16% - 1%
Expected Sales Growth Rate = 49% 
Therefore, the best choice is B.

Question 2

Which one of the following ratios is not part of the "standard" return on equity (ROE)model?

Accepted Answer

The standard ROE model includes three components: net profit margin, asset turnover, and equity multiplier. The retention rate is not a part of this model, although it can be used to calculate the sustainable growth rate, which is related to ROE.

Question 3

If a venture has a return on assets (ROA)= 10%,an equity multiplier based on beginning equity =4.0 times,and a dividend payout ratio of 60%,the sustainable growth rate would be:

Accepted Answer

Sustainable growth rate = ROA x (1 - dividend payout ratio) x equity multiplier

Substituting the given values, we get:

Sustainable growth rate = 10% x (1 - 0.6) x 4.0 
= 16%

Therefore, the sustainable growth rate is 16%. Option B is the correct answer.

Question 4

If a venture has a return on assets (ROA)= 12%,an equity multiplier based on beginning equity =3.0 times,and a sustainable growth rate of 18%,the retention rate would be:

Accepted Answer

The answer of If a venture has a return on...

Question 5

Determine a firm's "financial policy" multiplier based on the following information:sustainable growth rate = 20%;net profit margin = 10%;and asset turnover = 2 times.

Accepted Answer

The answer of Determine a firm's "financial policy" multiplier based...

Question 6

The financial funds needed to acquire assets necessary to support a firm's sales growth is called:

Accepted Answer

The financial funds needed to acquire assets necessary to support a firm's sales growth is referred to as financial capital needed. Spontaneously generated funds refer to funds generated through operations without the need for external funds, additional funds needed refers to funds needed from external sources, and addition in retained earnings refers to the portion of net income retained by the company instead of being paid out as dividends.

Question 7

Internally generated funds which are available for distribution to owners of for reinvestment back into the business to support future growth can be characterized by which of the following?

Accepted Answer

The answer of Internally generated funds which are available for...

Question 8

If a venture has a return on assets (ROA)= 10%,an equity multiplier based on beginning equity =3.5 times,and a retention rate = 50%,the sustainable growth rate would be:

Accepted Answer

The answer of If a venture has a return on...

Question 9

A firm projects net income to be $500,000,intends to pay out $125,000 in dividends,and had $2 million of equity at the beginning of the year.The firm's sustainable growth rate is:

Accepted Answer

Sustainable Growth Rate = (Net Income - Dividends) ÷ Equity 
Sustainable Growth Rate = ($500,000 - $125,000) ÷ $2,000,000 
Sustainable Growth Rate = $375,000 ÷ $2,000,000 
Sustainable Growth Rate = 0.1875 or 18.75%

Question 10

A venture's common equity was $50,000 at the end of last year.If the venture's common equity at the end of this year was $60,000,what was its sustainable sales growth rate?

Accepted Answer

We can use the sustainable growth rate formula: 
Sustainable Growth Rate = Return on Equity (ROE) x (1 - Dividend Payout Ratio)

Since the question only gives us information about the common equity, we can assume that the net income and dividend payout ratio remains constant. Therefore, we can simplify the formula to:

Sustainable Growth Rate = (Net Income / Common Equity) x (1 - Dividend Payout Ratio)

Let's assume that the net income was $5,000 and the dividend payout ratio was 0%.

Sustainable Growth Rate = ($5,000 / $50,000) x (1 - 0%) = 10%

Therefore, the sustainable sales growth rate is 10%.

Question 11

If beginning of period common equity is $200,000 and end of period common equity is $300,000,the sustainable growth rate is:

Accepted Answer

Sustainable growth rate = (ROE x retention ratio) / (1 - ROE x retention ratio)

ROE = (Net Income / Beginning Common Equity) = (x / 200,000)
Retention ratio = (End Common Equity - Dividends) / End Common Equity = ((300,000 - y) / 300,000)

Substitute the values and solve for x and y:

Sustainable growth rate = (x / 200,000) x ((300,000 - y) / 300,000 - x) = 0.5

Solving for y, we get:

y = 150,000

Substituting y and solving for x, we get:

x = 100,000

Therefore, the sustainable growth rate is (100,000 / 200,000) x ((300,000 - 150,000) / 300,000 - 100,000) = 50%.

So, the best answer choice is C.

Question 12

A firm has net income of $320,000 on sales of $3,200,000.Its assets total $2,000,000;the equity at the beginning of the year was $1,600,000 and dividends paid were $80,000.What is the sustainable growth rate?

Accepted Answer

The answer of A firm has net income of $320,000...

Question 13

A venture's common equity account increased by $100,000 the past year and ended the year at $500,000.What was its sustainable sales growth rate?

Accepted Answer

The answer of A venture's common equity account increased by...

Question 14

A sales growth rate based on the retention of profits is referred to as the:

Accepted Answer

The sustainable sales growth rate is based on a company's ability to retain profits and reinvest them into the business, rather than relying on external financing. This growth rate is "sustainable" because it reflects a company's ability to grow over the long-term without taking on excessive debt or diluting ownership through equity issuances.

Question 15

Which one of the following life cycle stages would generally be associated with the second lowest sales forecasting accuracy?

Accepted Answer

The start-up stage typically has the second lowest sales forecasting accuracy due to high uncertainty and variability in market acceptance and growth potential.

Question 16

Determine a firm's "return on assets" percentage based on the following information:sustainable growth rate = 20%;total assets $500,000;beginning of year common equity $200,000;and dividend payout percentage = 60%.

Accepted Answer

The answer of Determine a firm's "return on assets" percentage...

Question 17

Determine a venture's sustainable growth rate based on the following information:sales = $1,000,000;net income = $100,000;common equity at the beginning of the year = $500,000;and the retention rate = 50%.

Accepted Answer

The answer of Determine a venture's sustainable growth rate based...

Question 18

Use the following information to estimate a venture's sustainable growth rate: Net income = $200,000;Total assets = $1,000,000;equity multiple based on beginning common equity =2.0 times;and Retention rate = 25%.

Accepted Answer

The answer of Use the following information to estimate a...

Question 19

Determine a venture's sustainable growth rate based on the following information:sales = $1,000,000;net income = $150,000;common equity at the end of last year = $520,000;and the dividend payout percentage = 20%.

Accepted Answer

The answer of Determine a venture's sustainable growth rate based...

Question 20

Which of the following is not part of the financial forecasting process used to project financial statements?

Accepted Answer

Tax rates are typically set by the government and cannot be forecasted by a company. The other options are all part of the financial forecasting process used to project financial statements.

Quiz 6: Financial Planning:short Term and Long Term

Which one of the following ratios is not part of the "standard" return on equity (ROE) model?

If a venture has a return on assets (ROA) = 10%,an equity multiplier based on beginning equity =4.0 times,and a dividend payout ratio of 60%,the sustainable growth rate would be:

If a venture has a return on assets (ROA) = 12%,an equity multiplier based on beginning equity =3.0 times,and a sustainable growth rate of 18%,the retention rate would be: