Question 1

Companies with relatively high assets-to-sales ratios require a relatively large amount of new assets for any given increase in sales; hence, they have a greater need for external financing.There are currently no alternatives for these types of firms to lower their asset requirements.

Accepted Answer

A) True 
 B)False

Question 2

year Godinho Corp.had $250 million of sales, and it had $75 million of fixed assets that were being operated at 80% of capacity.In millions, how large could sales have been if the company had operated at full capacity?

Accepted Answer

A)  $312.5
B)  $328.1
C)  $344.5
D)  $361.8
E)  $379.8F) B) and E)
G) B) and C)

Question 3

firms with identical capital intensity ratios are generating the same amount of sales.However, Firm A is operating at full capacity, while Firm B is operating below capacity.If the two firms expect the same growth in sales during the next period, then Firm A is likely to need more additional funds than Firm B, other things held constant.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following assumptions is embodied in the AFN equation?

Accepted Answer

A)  None of the firm's ratios will change.
B)  Accounts payable and accruals are tied directly to sales.
C)  Common stock and long-term debt are tied directly to sales.
D)  Fixed assets, but not current assets, are tied directly to sales.
E)  Last year's total assets were not optimal for last year's sales.F) B) and D)
G) B) and C)

Question 5

company expects sales to increase during the coming year, and it is using the AFN equation to forecast the additional capital that it must raise.Which of the following conditions would cause the AFN to increase?

Accepted Answer

A)  The company previously thought its fixed assets were being operated at full capacity, but now it learns that it actually has excess capacity.
B)  The company increases its dividend payout ratio.
C)  The company begins to pay employees monthly rather than weekly.
D)  The company's profit margin increases.
E)  The company decides to stop taking discounts on purchased materials.F) B) and E)
G) B) and C)

Question 6

Which of the following statements is CORRECT?

Accepted Answer

A)  Once a firm has defined its purpose, scope, and objectives, it must develop a strategy or strategies for achieving its goals.The statement of corporate strategies sets forth detailed plans rather than broad approaches for achieving a firm's goals.
B)  A firm's corporate purpose states the general philosophy of the business and provides managers with specific operational objectives.
C)  Operating plans provide management with detailed implementation guidance, consistent with the corporate strategy, to help meet the corporate objectives.These operating plans can be developed for any time horizon, but many companies use a 5-year horizon.
D)  A firm's mission statement defines its lines of business and geographic area of operations.
E)  The corporate scope is a condensed version of the entire set of strategic plans.F) B) and D)
G) None of the above

Question 7

typical sales forecast, though concerned with future events, will usually be based on recent historical trends and events as well as on forecasts of economic prospects.

Accepted Answer

A) True 
 B)False  True

Question 8

fact that long-term debt and common stock are raised infrequently and in large amounts lessens the need for the firm to forecast those accounts on a continual basis.

Accepted Answer

A) True 
 B)False

Question 9

AFN equation assumes that the ratios of assets and liabilities to sales remain constant over time.However, this assumption can be relaxed when we use the forecasted financial statement method.Three conditions where constant ratios cannot be assumed are economies of scale, lumpy assets, and excess capacity.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is NOT a key element in strategic planning as it is described in the text?

Accepted Answer

A)  The mission statement.
B)  The statement of the corporation's scope.
C)  The statement of cash flows.
D)  The statement of corporate objectives.
E)  The corporation's strategies.F) B) and E)
G) None of the above

Question 11

long as a firm does not pay out 100% of its earnings, the firm's annual profit that is retained in the business (i.e., the addition to retained earnings) is another source of funds for a firm's expansion.

Accepted Answer

A) True 
 B)False

Question 12

of the necessary steps in the financial planning process is a forecast of financial statements under each alternative version of the operating plan in order to analyze the effects of different operating procedures on projected profits and financial ratios.

Accepted Answer

A) True 
 B)False  True

Question 13

capital intensity ratio is the amount of assets required per dollar of sales and it has a major impact on a firm's capital requirements.

Accepted Answer

A) True 
 B)False

Question 14

minimum growth rate that a firm can achieve with no access to external capital is called the firm's sustainable growth rate.It can be calculated by using the AFN equation with AFN equal to zero and solving for

Accepted Answer

A) True 
 B)False

Question 15

Spontaneous funds are generally defined as follows:

Accepted Answer

A)  Assets required per dollar of sales.
B)  A forecasting approach in which the forecasted percentage of sales for each item is held constant.
C)  Funds that a firm must raise externally through short-term or long-term borrowing and/or by selling new common or preferred stock.
D)  Funds that arise out of normal business operations from its suppliers, employees, and the government, and they include immediate increases in accounts payable, accrued wages, and accrued taxes.
E)  The amount of cash raised in a given year minus the amount of cash needed to finance the additional capital expenditures and working capital needed to support the firm's growth.F) C) and E)
G) B) and D) D

Question 16

first, and most critical, step in constructing a set of forecasted financial statements is the sales forecast.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is NOT one of the steps taken in the financial planning process?

Accepted Answer

A)  Forecast the funds that will be generated internally.If internal funds are insufficient to cover the required new investment, then identify sources from which the required external capital can be raised.
B)  Monitor operations after implementing the plan to spot any deviations and then take corrective actions.
C)  Determine the amount of capital that will be needed to support the plan.
D)  Develop a set of forecasted financial statements under alternative versions of the operating plan in order to analyze the effects of different operating procedures on projected profits and financial ratios.
E)  Consult with key competitors about the optimal set of prices to charge, i.e., the prices that will maximize profits for our firm and its competitors.F) A) and B)
G) A) and C)

Question 18

of the first steps in arriving at a firm's forecasted financial statements is a review of industry-average operating ratios relative to these same ratios for the firm to determine whether changes to the ratios need to be made.

Accepted Answer

A) True 
 B)False

Question 19

mission statement is a statement of the firm's overall purpose.

Accepted Answer

A) True 
 B)False

Question 20

Firms with high capital intensity ratios have found ways to lower this ratio permitting them to achieve a given level of growth with fewer assets and consequently less external capital.For example, just-in-time inventory systems, multiple shifts for labor, and outsourcing production are all feasible ways for firms to reduce their capital intensity ratios.

Accepted Answer

A) True 
 B)False

Exam 12: Forecasting

Companies with relatively high assets-to-sales ratios require a relatively large amount of new assets for any given increase in sales; hence, they have a greater need for external financing.There are currently no alternatives for these types of firms to lower their asset requirements.

Correct Answer
verified

year Godinho Corp.had $250 million of sales, and it had $75 million of fixed assets that were being operated at 80% of capacity.In millions, how large could sales have been if the company had operated at full capacity?

Correct Answer
verified

Correct Answer
verified

Which of the following assumptions is embodied in the AFN equation?

Correct Answer
verified

company expects sales to increase during the coming year, and it is using the AFN equation to forecast the additional capital that it must raise.Which of the following conditions would cause the AFN to increase?

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

typical sales forecast, though concerned with future events, will usually be based on recent historical trends and events as well as on forecasts of economic prospects.

Correct Answer
verified
True

fact that long-term debt and common stock are raised infrequently and in large amounts lessens the need for the firm to forecast those accounts on a continual basis.

Correct Answer
verified

Correct Answer
verified

Which of the following is NOT a key element in strategic planning as it is described in the text?

Correct Answer
verified

long as a firm does not pay out 100% of its earnings, the firm's annual profit that is retained in the business (i.e., the addition to retained earnings) is another source of funds for a firm's expansion.

Correct Answer
verified

of the necessary steps in the financial planning process is a forecast of financial statements under each alternative version of the operating plan in order to analyze the effects of different operating procedures on projected profits and financial ratios.

Correct Answer
verified
True

capital intensity ratio is the amount of assets required per dollar of sales and it has a major impact on a firm's capital requirements.

Correct Answer
verified

minimum growth rate that a firm can achieve with no access to external capital is called the firm's sustainable growth rate.It can be calculated by using the AFN equation with AFN equal to zero and solving for

Correct Answer
verified

Spontaneous funds are generally defined as follows:

Correct Answer
verified
D

first, and most critical, step in constructing a set of forecasted financial statements is the sales forecast.

Correct Answer
verified

Which of the following is NOT one of the steps taken in the financial planning process?

Correct Answer
verified

of the first steps in arriving at a firm's forecasted financial statements is a review of industry-average operating ratios relative to these same ratios for the firm to determine whether changes to the ratios need to be made.

Correct Answer
verified

mission statement is a statement of the firm's overall purpose.

Correct Answer
verified

Correct Answer
verified

Exam 12: Forecasting

Companies with relatively high assets-to-sales ratios require a relatively large amount of new assets for any given increase in sales; hence, they have a greater need for external financing.There are currently no alternatives for these types of firms to lower their asset requirements.

Correct AnswerverifiedShow Answer

year Godinho Corp.had $250 million of sales, and it had $75 million of fixed assets that were being operated at 80% of capacity.In millions, how large could sales have been if the company had operated at full capacity?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following assumptions is embodied in the AFN equation?

Correct AnswerverifiedShow Answer

company expects sales to increase during the coming year, and it is using the AFN equation to forecast the additional capital that it must raise.Which of the following conditions would cause the AFN to increase?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

typical sales forecast, though concerned with future events, will usually be based on recent historical trends and events as well as on forecasts of economic prospects.

Correct AnswerverifiedTrue

fact that long-term debt and common stock are raised infrequently and in large amounts lessens the need for the firm to forecast those accounts on a continual basis.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is NOT a key element in strategic planning as it is described in the text?

Correct AnswerverifiedShow Answer

long as a firm does not pay out 100% of its earnings, the firm's annual profit that is retained in the business (i.e., the addition to retained earnings) is another source of funds for a firm's expansion.

Correct AnswerverifiedShow Answer

of the necessary steps in the financial planning process is a forecast of financial statements under each alternative version of the operating plan in order to analyze the effects of different operating procedures on projected profits and financial ratios.

Correct AnswerverifiedTrue

capital intensity ratio is the amount of assets required per dollar of sales and it has a major impact on a firm's capital requirements.

Correct AnswerverifiedShow Answer

minimum growth rate that a firm can achieve with no access to external capital is called the firm's sustainable growth rate.It can be calculated by using the AFN equation with AFN equal to zero and solving for

Correct AnswerverifiedShow Answer

Spontaneous funds are generally defined as follows:

Correct AnswerverifiedD

first, and most critical, step in constructing a set of forecasted financial statements is the sales forecast.

Correct AnswerverifiedShow Answer

Which of the following is NOT one of the steps taken in the financial planning process?

Correct AnswerverifiedShow Answer

of the first steps in arriving at a firm's forecasted financial statements is a review of industry-average operating ratios relative to these same ratios for the firm to determine whether changes to the ratios need to be made.

Correct AnswerverifiedShow Answer

mission statement is a statement of the firm's overall purpose.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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True

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Correct Answer
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True

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D

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