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FIN5063-2W2Quizzes

 1. You are estimating your company’s external financing needs for the next year. Your first-pass pro forma financial statements showed a large financing deficit for next year. Which of the following changes to your company’s operating plan would reduce the financing deficit if incorporated in revised pro forma financial statements?

Sol: Reduce the collection period

2. To estimate H-32 Corporation’s external financing needs, the CFO needs to figure out how much equity her firm will have at the end of next year. At the end of the most recent fiscal year, H-32’s retained earnings were $158,000. The controller has estimated that over the next year, gross profits will be $360,700, earnings after tax will total $23,400, and H-32 will pay $10,400 in dividends. What are the estimated retained earnings at the end of next year?

Sol: $171,000

3. The most common approach to developing pro forma financial statements is called the

Sol: percent-of-sales method.

4. Which of the following are viable techniques to cope with the uncertainty inherent in realistic financial projections?

  1. Simulation
  2. Ad hoc adjustments
  3. Scenario analysis
  4. Sensitivity analysis

 

Sol: 1, 3, and 4 only

5. Which one of the following statements is correct concerning the cash balance of a firm?

Sol: A cumulative cash deficit on a cash budget indicates the need to acquire additional funds.

6. Assume each month has 30 days and AmDocs has a 60-day accounts receivable period. During the second calendar quarter of the year (April, May, and June), AmDocs will collect payment for the sales it made during which of the months listed below?

Sol: February, March, and April

7. The Limited collects 25% of sales in the month of sale, 60% of sales in the month following the month of sale, and 15% of sales in the second month following the month of sale. During the month of April, the firm will collect

Sol: 60% of March sales.

8. Steve has estimated the cash inflows and outflows for his sporting goods store for next year. The report that he has prepared summarizing these cash flows is called a

Sol: cash budget.

9. You are developing a financial plan for a corporation. Which of the following questions will be considered as you develop this plan?

 

1.        How much will our sales grow?

2.        Will additional fixed assets be required?

3.        Will dividends be paid to shareholders?

4.        How much new debt must be obtained?

Sol: 1, 2, 3, and 4

10. Ruff Wear expects sales of $560, $650, $670, and $610 for the months of May through August, respectively. The firm collects 20% of sales in the month of sale, 70% in the month following the month of sale, and 8% in the second month following the month of sale. The remaining 2% of sales is never collected. How much money does the firm expect to collect in the month of August?

Sol: $643

11. Which of these ratios are determinants of a firm’s sustainable growth rate?

  1. Assets-to-equity ratio
  2. Profit margin
  3. Retention ratio
  4. Asset turnover ratio

Sol: 1, 2, 3, and 4

12. The retention ratio is

Sol: the percentage of net income available to the firm to fund future growth.

13. Which of the following statements is true?

Sol: It is possible for fast-growing companies to run out of cash, even when they are profitable.

14. Which one of the following correctly defines the retention ratio?

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Sol: Additions to retained earnings divided by net income

15. Which one of the following policies most directly affects the projection of the retained earnings balance to be used on a pro forma statement?

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Sol: Dividend policy

16. Which of the following actions would help resolve the problem of having actual growth greater than sustainable growth?

1.        Increase financial leverage

2.        Sell additional equity

3.        Decrease prices

4.        Outsource production

Sol: 1, 2, and 4 only

17. The sustainable growth rate of a firm is best described as the

Sol: maximum growth rate achievable without raising new equity or increasing financial leverage.

18. The sustainable growth rate

Sol: Top of Form

assumes the debt-equity ratio remains constant.

19. Which of the following can affect a firm's sustainable rate of growth?

  1. Asset turnover
  2. Profit margin
  3. Dividend policy
  4. Financial leverage

Sol: 1, 2, 3, and 4

20. Gujarat Corporation doubled its shareholders’ equity during 2022. Gujarat did not issue any new equity, repurchase any equity, or pay out any dividends during the year. What is Gujarat’s sustainable growth rate for 2022?

Sol: 100

 

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