Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
1. A planning horizon refers to the amount of time necessary to develop the financial plan.
2. A common, long-term corporate financial planning horizon would stretch for at least 15 to
20 years.
3. Financial plans will rarely succeed unless the forecasts are perfect.
4. Financial planning focuses on the big picture.
5. Financial planning may incorporate scenario analysis as part of the planning process.
6. The primary aim of financial planning is to obtain better forecasts of future cash flows and
earnings.
7. Financial planning is concerned with possible surprises as well as the most likely
outcomes.
8. Financial planning should attempt to minimize risk.
9. Financial planning is necessary because financing and investment decisions interact and
should not be made independently.
10. A typical horizon for long-term planning is 5 years.
11. Individual capital investment projects are not considered in a financial plan unless they
are very large.
12. Financial planning requires accurate and consistent forecasting.
13. Financial planning models must include as much detail as possible.
14. The sustainable growth rate is the rate at which the firm can grow without changing its
leverage ratio.
15. Financial planning just means formulating the company's response to the most likely
events.
16. Adaptability is not a desirable feature in financial plans.
17. Pro formas are projected or forecasted financial statements.
18. Percentage of sales models are planning models in which the sales forecasts are the
driving variables and most other variables are proportional to sales.
19. The balancing items in a financial planning model are variables that adjust to maintain the
consistency of a financial model. They are also known as plugs.
20. Debt can be used as a plug item in financial planning.
21. Financial models ensure consistency between growth assumptions and financing plans,
and they identify the best financing plan.
22. The decision to acquire fixed assets is unrelated to the current level of excess capacity.
23. Financial planning models routinely adjust for present value and risk.
24. If factories are operating below full capacity, sales can increase without investment in
fixed assets. However, beyond some sales level, new capacity must be added and additional
investment in fixed assets must be made.
25. A financial planning model will generally include all of the following
except the:
26. Planners often recommend entering a market for "strategic" reasons because the:
27. Which one of the following is
not
typically included among the three major components of
a financial planning model?
28. Which one of the following is
not
a reason for compiling financial plans?
29. Calculate the rate at which a firm can grow without changing its leverage if its payout
ratio is 70%, equity outstanding at the beginning of the year is $940,000, and its net income for
the year is $162,000.
30. The firm's current financial statements would be included in:
31. The implications of the forecasts from a financial plan are determined by the:
32.
Pro formas
refer to:
33. Outputs from a financial plan would include such items as:
34. When most of the elements of a financial plan are related to sales levels, the plan is:
35. A planner's percentage of sales model forecasts that sales will grow by 20% next year. If
costs of goods sold are proportionate at 70% of sales, then costs of goods sold will:
36. When a firm is said to have no spare capacity, it:
37. If the pro forma balance sheet shows that total assets must increase by $400,000 while
retaining a debt-equity ratio of 0.75 then:
38. If sales growth for XYZ Corporation exceeds 6%, XYZ will need to seek external financing.
This means that 6% is the:
39. If a firm's dividend payout ratio is determined after achieving a specific capital structure,
then:
40. A firm has $4 million in total assets and $2.2 million in equity. How much of its $500,000
capital budget should be debt-financed to retain the same debt-equity ratio?
41. If a firm uses external financing as a plug item, has a new capital budget of $2 million, a
net income of $3 million, and a plowback ratio of 40%, how much should be raised in external
funds?
42. A potential downfall of using dividends as the plug item is that:
43. A firm that wants to increase its sustainable growth rate can do so by __________ the
__________ ratio or by __________ the __________ or both.
44. Alternative "what if?" scenarios can be easily accommodated in financial planning by use
of:
45. A firm currently has sales of $382,000 and net working capital of $45,840. Assume net
working capital changes in direct proportion to sales. What will be the increase in net working
capital if sales increase by 8%?
46. The observation that additions to fixed assets are lumpier than additions to current
assets indicates that:
47. A firm can achieve a higher growth rate without raising external capital if it:
48. A firm has $1 million in current sales volume and an internal growth rate of 15%. If sales
are expected to increase by $100,000, then:
