Fundamentals of Corporate Finance 3e Test Bank
Chapter 19: Financial Planning and Managing Growth
1.
Financial planning deals with establishing sales forecasts for a time horizon set by a firm’s
management.
A)
True
B)
False
AICPA: Industry/Sector Perspective
2.
In putting together a financial plan, management addresses three main issues through their
strategic plan, investment plan, and financing plan.
A)
True
B)
False
AICPA: Industry/Sector Perspective
3.
The investment plan of a firm addresses the issue of what capital resources the management
needs to get to achieve its goals.
A)
True
B)
False
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
4.
The financing plan deals with how a firm is going to secure the funds needed to pay for the
capital resources required.
A)
True
B)
False
Ans:
A
AICPA: Industry/Sector Perspective
5.
The financing plan documents a firm’s long-term goals, the strategies that management will use
to achieve the goals, and the capabilities that the firm needs to sustain its competitive position.
A)
True
B)
False
Ans:
B
AICPA: Industry/Sector Perspective
6.
The strategic plan identifies major areas for investments in productive assets, and also identifies
mergers, alliances, and divestitures to strengthen a firm’s business portfolio.
A)
True
B)
False
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
7.
The strategic plan of a firm addresses the issue of what capital resources the management needs
to achieve its goals.
A)
True
B)
False
Ans:
B
AICPA: Industry/Sector Perspective
8.
Capital expenditures can be one-time investments or routine investments that allow a firm to
continue its operations.
A)
True
B)
False
Ans:
A
AICPA: Industry/Sector Perspective
9.
Once capital investments are made, they are almost impossible to be reversed.
A)
True
B)
False
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
AICPA: Industry/Sector Perspective
10.
In the financing plan of a firm, management states that the firm will seek to raise funds
externally even if sufficient internally generated funds are available to fund projects.
A)
True
B)
False
Ans:
B
AICPA: Industry/Sector Perspective
11.
The financial plan focuses only on strategic planning and investment planning.
A)
True
B)
False
Ans:
B
AICPA: Industry/Sector Perspective
12.
The cash budget identifying the time line for cash inflows and outflows included in divisional
business plans is a part of the financial plan.
A)
True
B)
False
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
AICPA: Industry/Sector Perspective
13.
Financial planning helps management to establish financial and operating goals for a firm and
to communicate those goals throughout the firm.
A)
True
B)
False
Ans:
A
AICPA: Industry/Sector Perspective
14.
Financial planning models are not considered an integral part of financial planning.
A)
True
B)
False
Ans:
B
AICPA: Industry/Sector Perspective
15.
Financial models provide management with the ability to prepare projected financial
statements.
A)
True
B)
False
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
16.
Sales are often correlated to the regional or national economy, and hence economic forecasts
are incorporated into the financial planning model.
A)
True
B)
False
Ans:
A
AICPA: Industry/Sector Perspective
17.
Financial statements and sales forecasts are considered major inputs in developing financial
planning models.
A)
True
B)
False
Ans:
A
AICPA: Industry/Sector Perspective
18.
Investment and financing policy decisions are not considered inputs in financial planning
models.
A)
True
B)
False
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
19.
The outputs of the financial planning model are a series of pro forma financial statements and
financial ratios based on these statements.
A)
True
B)
False
Ans:
A
AICPA: Industry/Sector Perspective
20.
Pro forma financial statements that result from financial planning models are always perfectly
balanced.
A)
True
B)
False
Ans:
B
AICPA: Industry/Sector Perspective
21.
Projected or pro forma statements can be used to analyze the investment alternatives but not to
estimate the amounts of external funding needed.
A)
True
B)
False
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
AICPA: Industry/Sector Perspective
22.
Sales are often correlated to the regional or national economy, so it is not necessary to
incorporate economic forecasts into the model.
A)
True
B)
False
Ans:
B
AICPA: Industry/Sector Perspective
23.
The percent of sales model is a complex financial planning model.
A)
True
B)
False
Ans:
B
AICPA: Industry/Sector Perspective
24.
In the percent of sales model, all income statement and balance sheet accounts vary directly
with sales.
A)
True
B)
False
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
25.
The capital intensity ratio measures the dollar amount of sales per dollar invested in assets.
A)
True
B)
False
Ans:
B
AICPA: Industry/Sector Perspective
26.
Fixed assets vary directly with sales when firms are operating at less than full capacity.
A)
True
B)
False
Ans:
B
27.
Firms that are not highly capital intensive tend to be more risky than similar firms that use less
fixed assets.
A)
True
B)
False
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
28.
In cases where fixed assets are added as large discrete units, and much of a firm’s capacity may
not be utilized for some period of time. These types of assets are called lumpy assets.
A)
True
B)
False
Ans:
A
AICPA: Industry/Sector Perspective
29.
When a firm maintains a constant dividend policy, the firm’s growth rate has no bearing on the
external financing needed.
A)
True
B)
False
Ans:
B
AICPA: Industry/Sector Perspective
30.
Holding the growth rate constant, the higher a firm’s dividend payout ratio, the larger the
amount of external debt or equity financing needed.
A)
True
B)
False
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
31.
The sustainable growth rate is the rate of growth that a firm can sustain without selling
additional debt.
A)
True
B)
False
Ans:
B
AICPA: Industry/Sector Perspective
32.
The sustainable growth rate is the rate of growth that a firm can sustain without selling
additional equity while maintaining the same capital structure.
A)
True
B)
False
Ans:
A
AICPA: Industry/Sector Perspective
33.
The higher a firm’s dividend payout ratio, the higher is the firm’s internal growth rate.
A)
True
B)
False
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
34.
The higher a firm’s plowback ratio, the higher is its sustainable growth rate.
A)
True
B)
False
Ans:
A
35.
The lower a firm’s ROE, the lower is the firm’s sustainable growth rate.
A)
True
B)
False
Ans:
A
36.
Which of the following components make up a financial plan?
A)
The strategic plan
B)
The investment plan
C)
The financing plan
D)
All of these
Ans:
D
Fundamentals of Corporate Finance 3e Test Bank
37.
Which of the following issues is addressed in a financial plan?
A)
Where is the company headed?
B)
What capital resources does the management need to get there?
C)
How is the firm going to pay for the resources needed?
D)
All of these
Ans:
D
38.
Which of the following issues is NOT addressed in a firm’s financial plan?
A)
What is the growth rate for the firm’s main competitor?
B)
Where is the firm headed?
C)
What capital resources does the management need to get there?
D)
How is the firm going to pay for the resources needed?
Ans:
A
39.
The strategic plan identifies
A)
the lines of business in which a firm will compete.
B)
major areas of investment in productive assets.
C)
capital expenditures, acquisitions, and new lines of business.
D)
All of these
Ans:
D
Fundamentals of Corporate Finance 3e Test Bank
40.
The strategic plan does NOT identify
A)
major areas of investment in productive assets.
B)
future mergers, alliances, and divestitures.
C)
working capital strategies.
D)
the lines of business a firm will compete.
Ans:
C
41.
A)
It is part of a firm’s investment plan.
B)
Once a capital investment is made, it is almost always impossible to be reversed.
C)
Capital expenditures can be one-time investments or routine investments that allow a
firm to continue its operations.
D)
All of these
Ans:
D
Fundamentals of Corporate Finance 3e Test Bank
42.
The financing plan of a firm will indicate
A)
the dollar amount of funds that has to be raised externally and the sources of funds
available to the firm, the desired capital structure for the firm, and the firm’s dividend
policy.
B)
the dollar amount of funds that has to be raised externally and the sources of funds
available to the firm, the desired capital structure for the firm, and the firm’s working
capital policy.
C)
the dollar amount of funds that has to be raised externally and the sources of funds
available to the firm, the firm’s dividend policy, and the firm’s working capital policy.
D)
the firm’s dividend policy, the desired capital structure for the firm, and the firm’s
working capital policy.
Ans:
A
AICPA: Industry/Sector Perspective
43.
Which of the following is a part of a financing plan?
A)
The dollar amount of funds that has to be raised externally and the sources of funds
available to a firm
B)
The desired capital structure for a firm
C)
A firm’s dividend policy
D)
All of these
Ans:
D
Fundamentals of Corporate Finance 3e Test Bank
44.
A financial plan includes
A)
the strategic plan, financing plan, and options plan.
B)
the strategic plan, investment plan, and financing plan.
C)
the financing plan, investment plan, and options plan.
D)
None of these
Ans:
B
45.
The financial planning model focuses on
A)
the inventory accounting method decision and the accounts payables decision.
B)
the current assets decision and the current liabilities decision.
C)
the investment decision and the financing decision.
D)
None of these
Ans:
C
46.
Financial planning models
A)
help management make investment decisions.
B)
help management make financing decisions.
C)
make the analysis faster and accurate.
D)
All of these
Ans:
D
Fundamentals of Corporate Finance 3e Test Bank
AICPA: Industry/Sector Perspective
47.
The sales forecasts used in financial planning
A)
are developed using a variety of techniques.
B)
are generated within the firm.
C)
utilize macroeconomic variables as input.
D)
All of these
Ans:
D
48.
Which of the following statements is NOT true?
A)
Sales forecasts models are typically very basic and use no complicated analysis.
B)
Sales forecasts are generated within a firm.
C)
Sales forecasts utilize economic variables as input.
D)
All of these
Ans:
A
49.
The inputs used in building financial planning models include
A)
financial statements, sales forecasts, and a firm’s investment and financial policy
decisions.
B)
pro forma statements, sales forecasts, and macroeconomic variables.
C)
pro forma statements, sales forecasts, and financing decisions.
D)
None of these
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
50.
Which of the following is NOT an input in financial planning models?
A)
Financial statements
B)
Pro forma financial statements
C)
Investment decisions
D)
Financing decisions
Ans:
B
51.
Which of the following statements is NOT true about financial planning models?
A)
Financial statements serve as the first major input and become the baseline to compare
the projected financial statements.
B)
Economic forecasts and their impact on the firm’s sales are also included in financial
planning models.
C)
Investment and financing decisions are not considered as inputs in financial planning
models.
D)
Changes in a firm’s balance sheet and income statement items as a result of the growth in
sales are also used in these models.
Ans:
C
Fundamentals of Corporate Finance 3e Test Bank
52.
Planning models that are more sophisticated than the percent of sales method have
A)
all variable costs change directly with sales.
B)
working capital accounts like inventory, accounts receivables, and accounts payables
vary directly with sales.
C)
fixed assets that do not always vary directly with sales.
D)
All of these
53.
Which of the following statements is NOT true about more sophisticated financial planning
model?
A)
Only fixed costs change directly with sales.
B)
Working capital accounts like inventory, accounts receivables, and accounts payables
vary directly with sales.
C)
Fixed assets do not always vary directly with sales.
D)
All of these
Ans:
A
AICPA: Industry/Sector Perspective
54.
As sales increase, a firm needs to _____ proportionately to support the _____.
A)
increase the level of fixed assets; increase the level of inventory
B)
increase the level of inventory; higher sales level
C)
increase the level of inventory; increase the level of fixed assets
D)
None of these
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
55.
Which of the following statements is NOT true for a firm that operates below full capacity?
A)
Fixed assets can vary directly with sales.
B)
Fixed assets will not vary directly with sales.
C)
Fixed assets per unit can be incrementally changed.
D)
All of these
56.
Which of the following statements is NOT true?
A)
The ratio of total assets to sales is called the capital intensity ratio.
B)
The ratio of sales to total equity is called the capital intensity ratio.
C)
The higher the capital intensity ratio, the more capital a firm needs to generate sales.
D)
Firms that have high capital intensive ratios are riskier than similar firms that use less
fixed assets.