Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
21) LG Inc. has done a long-term forecast of its balance sheet. The projected total assets
for the next year are $300 million. The current liabilities are projected to be $170 million
and other long term liabilities are $70 million. How net new inancing is needed in the
following year?
A) $58 million
B) $60 million
C) $65 million
D) $70 million
AACSB Objective: Analytic Skills
Author: KB
Question Status: Previous Edition
22) LG Inc. has done a long-term forecast of its balance sheet. The projected total assets
for the next year are $100 million. The current liabilities are projected to be $40 million
and other long term liabilities are $30 million. How much net new inancing is needed in
the following year?
A) $18 million
B) $22 million
C) $25 million
D) $30 million
AACSB Objective: Analytic Skills
Author: KB
Question Status: Previous Edition
23) What is net new inancing?
AACSB Objective: Analytic Skills
Author: SS
Question Status: Previous Edition
11
24) How do we compute net new inancing?
AACSB Objective: Analytic Skills
Author: SS
Question Status: Previous Edition
25) What is common starting point for forecasting?
AACSB Objective: Analytic Skills
Author: SS
Question Status: Previous Edition
26) What is the implied assumption in percent of sales method?
AACSB Objective: Analytic Skills
Author: SS
Question Status: Previous Edition
18.3 Forecasting a Planned Expansion
1) One of the shortcomings of the percent of sales method is that it does not account for
the fact that capacity changes are lumpy and not incremental.
AACSB Objective: Analytic Skills
Author: KB
Question Status: Previous Edition
12
2) The percent of sales method relies on the idea that capacity increases are ________ ,even
though in practice such increases are ________.
A) incremental, lumpy
B) incremental, incremental
C) lumpy, incremental
D) lumpy, lumpy
AACSB Objective: Analytic Skills
Author: KB
Question Status: Previous Edition
3) The market size for Loppins is 60 million units. If SPI Inc. has a market share of 20% and
the average sales price is $3 per Loppin, what is the dollar amount of sales of SPI?
A) $32 million
B) $36 million
C) $38 million
D) $42 million
AACSB Objective: Analytic Skills
Author: KB
Question Status: Previous Edition
4) The market size for Loppins is 80 million units. If SPI Inc. has a market share of 30% and
the average sales price is $2 per Loppin, what is the dollar amount of sales of SPI?
A) $40 million
B) $42 million
C) $45 million
D) $48 million
AACSB Objective: Analytic Skills
Author: KB
Question Status: Previous Edition
13
5) The market size for Loppins is 40 million units. If SPI Inc. has a market share of 40% and
the average sales price is $3 per Loppin, what is the dollar amount of sales of SPI?
A) $32 million
B) $48 million
C) $58 million
D) $62 million
AACSB Objective: Analytic Skills
Author: KB
Question Status: Previous Edition
6) When the projected liabilities and equity are greater than the assets, the irm can plan to
________.
A) retain extra cash
B) pay dividends
C) retire debt
D) all of the above
AACSB Objective: Analytic Skills
Author: KB
Question Status: Previous Edition
14
Use the table for the question(s) below.
Ideko Sales and Operating Cost Assumptions
Year 2005 2006 2007 2008 2009 2010
Sales Data Growth/Year
1 Market Size (000
units) 5.0% 10,000 10,500 11,025 11,576 12,155 12,763
2 Market Share 1.0% 10.0% 11.0% 12.0% 13.0% 14.0% 15.0%
3 Average Sales Price
($/unit) 2.0% 75.00 76.50 78.03 79.59 81.18 82.81
Cost of Goods Data
4 Raw Materials ($/unit) 1.0% 16.00 16.16 16.32 16.48 16.65 16.82
5 Direct Labor Costs
($/unit) 4.0% 18.00 18.72 19.47 20.25 21.06 21.90
Operating Expense
and Tax Data
6 Sales and Marketing
(% sales) 15.0% 16.5% 18.0% 19.5% 20.0% 20.0%
7 Administrative (%
sales) 18.0% 15.0% 15.0% 14.0% 13.0% 13.0%
8 Tax Rate 35.0% 35.0% 35.0% 35.0% 35.0% 35.0%
7) Based upon Ideko's Sales and Operating Cost Assumptions, what production capacity
will Ideko require in 2009?
A) 1,505,000 units
B) 1,115,000 units
C) 1,323,000 units
D) 1,701,700 units
E) 1,914,000 units
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
15
8) Based upon Ideko's Sales and Operating Cost Assumptions, what production capacity
will Ideko require in 2007?
A) 1,505,000 units
B) 1,323,000 units
C) 1,914,000 units
D) 1,115,000 units
E) 1,702,000 units
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
9) Based upon Ideko's Sales and Operating Cost Assumptions, what production capacity
will Ideko require in 2008?
A) 1,702,000 units
B) 1,323,000 units
C) 1,504,880 units
D) 1,914,000 units
E) 1,115,000 units
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
16
Use the tables for the question(s) below.
Pro Forma Income Statement for Ideko, 2010-2015
Year 2010 2011 2012 2013 2014 2015
Income Statement ($ 000)
1 Sales 75,000 88,358 103,234 119,777 138,149 158,526
2 Cost of Goods Sold
3 Raw Materials
(16,000
) (18,665) (21,593) (24,808) (28,333) (32,193)
4 Direct Labor Costs
(18,000
) (21,622) (25,757) (30,471) (35,834) (41,925)
5 Gross Proit 41,000 48,071 55,883 64,498 73,982 84,407
6 Sales and Marketing
(11,250
) (14,579) (18,582) (23,356) (27,630) (31,705)
7 Administrative
(13,500
) (13,254) (15,485) (16,769) (17,959) (20,608)
8 EBITDA 16,250 20,238 21,816 24,373 28,393 32,094
9 Depreciation (5,500) (5,450) (5,405) (6,865) (7,678) (7,710)
10 EBIT 10,750 14,788 16,411 17,508 20,715 24,383
11 Interest Expense
(net) (75) (6,800) (6,800) (6,800) (7,820) (8,160)
12 Pretax Income 10,675 7,988 9,611 10,708 12,895 16,223
13 Income Tax (3,736) (2,796) (3,364) (3,748) (4,513) (5,678)
14 Net Income 6,939 5,193 6,247 6,960 8,382 10,545
Pro Forma Balance Sheet for Ideko, 2010-2015
Year 2010 2011 2012 2013 2014 2015
Balance Sheet ($ 000)
Assets
1 Cash and Cash Equivalents 6,164 7,262 8,485 9,845 11,355 13,030
2 Accounts Receivable 18,493 14,525 16,970 19,689 22,709 26,059
3 Inventories 6,165 6,501 7,613 8,854 10,240 11,784
4 Total Current Assets 30,822 28,288 33,067 38,388 44,304 50,872
5 Property, Plant, and
Equipment 49,500 49,050 48,645 61,781 69,102 69,392
6 Goodwill 72,332 72,332 72,332 72,332 72,332 72,332
7 Total Assets
152,65
4 149,670 154,044 172,501 185,738 192,597
Liabilities
8 Accounts Payable 4,654 5,532 6,648 7,879 9,110 10,448
9 Debt
100,00
0 100,000 100,000 115,000 120,000 120,000
10 Total Liabilities
104,65
4 105,532 106,648 122,879 129,110 130,448
Stockholders' Equity
11 Starting Stockholders'
Equity 48,000 44,138 47,396 49,621 56,628
12 Net Income 5,193 6,247 6,960 8,382 10,545
13 Dividends (2,000) (9,055) (2,989) (4,735) (1,375) (5,024)
14 Capital Contributions 50,000 --- --- --- --- ---
15 Stockholders' Equity 48,000 44,138 47,396 49,621 56,628 62,149
16 Total Liabilities and
Equity
152,65
4 149,670 154,044 172,501 185,738 192,597
17
10) The amount of net working capital for Ideko in 2010 is closest to ________.
A) $26,200
B) $35,195
C) $30,510
D) $29,420
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
11) The amount of net working capital for Ideko in 2011 is closest to ________.
A) $30,510
B) $22,750
C) $28,170
D) $35,195
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
12) The amount of net working capital for Ideko in 2012 is closest to ________.
A) $35,195
B) $42,420
C) $22,170
D) $26,420
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
18
13) The amount of the decrease in net working capital for Ideko in 2011 is closest to
________.
A) $4,090
B) $4,685
C) $3,410
D) $5,230
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
14) The amount of the increase in net working capital for Ideko in 2012 is closest to
________.
A) $4,685
B) $4,920
C) $3,665
D) $5,230
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
15) With the proper changes it is believed that Ideko's credit policies will extend a 60 days
credit period to accounts receivables. The forecasted accounts receivable for Ideko in 2012
is closest to ________.
A) $14,525
B) $16,970
C) $22,710
D) $19,690
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
19
16) With the proper changes it is believed that Ideko's credit policies will extend a 60 days
credit period to accounts receivables. The forecasted accounts receivable for Ideko in 2013
is closest to ________.
A) $14,525
B) $19,690
C) 22,710
D) $16,970
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
17) What is minimum required cash?
AACSB Objective: Analytic Skills
Author: SS
Question Status: Previous Edition
18) What are a irm's options when it generates more cash than planned?
AACSB Objective: Analytic Skills
Author: SS
Question Status: Previous Edition
18.4 Growth and Firm Value
1) The maximum growth rate that a irm can achieve without issuing new equity or by
increasing its debt to equity ratio is the irm's sustainable growth rate.
AACSB Objective: Analytic Skills
Author: KB
Question Status: Previous Edition
20
