The financial planning process tends to place the least emphasis on which one of the following?
  • market value of a firm

Sal’s Pizza has a dividend payout ratio of 10 percent. The firm does not want to issue additional equity shares but does want to maintain its current debt-equity ratio and its current dividend policy. The firm is profitable. Which one of the following defines the maximum rate at which this firm can grow?

  • sustainable growth rate

If a firm equates its pro forma sales growth to the rate of sustainable growth, and has positive net income and excess capacity, then the:

  • retained earnings will increase.

Which one of the following will cause the sustainable growth rate to equal to internal growth rate?

  • equity multiplier of 1.0
Blasco Industries is currently at full-capacity sales. Which one of the following is limiting sales to this level?
  • fixed assets

Martin Aerospace is currently operating at full capacity based on its current level of assets. Sales are expected to increase by 4.5 percent next year, which is the firm’s internal rate of growth. Net working capital and operating costs are expected to increase directly with sales. The interest expense will remain constant at its current level. The tax rate and the dividend payout ratio will be held constant. Current and projected net income is positive. Which one of the following statements is correct regarding the pro forma statement for next year?

  • Total assets will increase at the same rate as sales.
Which one of the following will increase the maximum rate of growth a corporation can achieve?
  • decrease in the dividend payout ratio

A firm’s net working capital and all of its expenses vary directly with sales. The firm is operating currently at 96 percent of capacity. The firm wants no additional external financing of any kind. Which one of the following statements related to the firm’s pro forma statements for next year must be correct?

  • The firm cannot exceed its internal rate of growth.
Which one of the following capital intensity ratios indicates the largest need for fixed assets per dollar of sales?
  • 1.15

A firm is operating at 90 percent of capacity. This information is primarily needed to project which one of the following account values when compiling pro forma statements?

  • fixed assets

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

  • dividend policy

A firm is currently operating at full capacity. Net working capital, costs, and all assets vary directly with sales. The firm does not wish to obtain any additional equity financing. The dividend payout ratio is constant at 40 percent. If the firm has a positive external financing need, that need will be met by:

  • long-term debt.

A pro forma statement indicates that both sales and fixed assets are projected to increase by 7 percent over their current levels. Given this, you can safely assume that the firm:

  • is currently operating at full capacity.
Which one of the following is correct in relation to pro forma statements?
  • Inventory changes are directly proportional to sales changes.