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Chapter 4

FIN 3715 Chapter Notes - Chapter 4: Financial Plan, Retained Earnings, Net Income


Department
Finance
Course Code
FIN 3715
Professor
All
Chapter
4

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Chapter 04 - Long-Term Financial Planning and Growth
Chapter 04
Long-Term Financial Planning and Growth
Multiple Choice Questions
1. Phil is working on a financial plan for the next three years. This time period is referred to as
which one of the following?
A. financial range
B. planning horizon
C. planning agenda
D. short-run
E. current financing period
2. Atlas Industries combines the smaller investment proposals from each operational unit into
a single project for planning purposes. This process is referred to as which one of the
following?
A. conjoining
B. aggregation
C. conglomeration
D. appropriation
E. summation
3. Which one of the following terms is applied to the financial planning method which uses
the projected sales level as the basis for determining changes in balance sheet and income
statement account values?
A. percentage of sales method
B. sales dilution method
C. sales reconciliation method
D. common-size method
E. trend method
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Chapter 04 - Long-Term Financial Planning and Growth
4. Which one of the following terms is defined as dividends paid expressed as a percentage of
net income?
A. dividend retention ratio
B. dividend yield
C. dividend payout ratio
D. dividend portion
E. dividend section
5. Which one of the following correctly defines the retention ratio?
A. one plus the dividend payout ratio
B. addition to retained earnings divided by net income
C. addition to retained earnings divided by dividends paid
D. net income minus additions to retained earnings
E. net income minus cash dividends
6. Which one of the following ratios identifies the amount of assets a firm needs in order to
generate $1 in sales?
A. current ratio
B. equity multiplier
C. retention ratio
D. capital intensity ratio
E. payout ratio
7. The internal growth rate of a firm is best described as the:
A. minimum growth rate achievable assuming a 100 percent retention ratio.
B. minimum growth rate achievable if the firm maintains a constant equity multiplier.
C. maximum growth rate achievable excluding external financing of any kind.
D. maximum growth rate achievable excluding any external equity financing while
maintaining a constant debt-equity ratio.
E. maximum growth rate achievable with unlimited debt financing.
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Chapter 04 - Long-Term Financial Planning and Growth
8. The sustainable growth rate of a firm is best described as the:
A. minimum growth rate achievable assuming a 100 percent retention ratio.
B. minimum growth rate achievable if the firm maintains a constant equity multiplier.
C. maximum growth rate achievable excluding external financing of any kind.
D. maximum growth rate achievable excluding any external equity financing while
maintaining a constant debt-equity ratio.
E. maximum growth rate achievable with unlimited debt financing.
9. You are developing a financial plan for a corporation. Which of the following questions
will be considered as you develop this plan?
I. How much net working capital will be needed?
II. Will additional fixed assets be required?
III. Will dividends be paid to shareholders?
IV. How much new debt must be obtained?
A. I and IV only
B. II and III only
C. I, III, and IV only
D. II, III, and IV only
E. I, II, III, and IV
10. Financial planning:
A. focuses solely on the short-term outlook for a firm.
B. is a process that firms employ only when major changes to a firm's operations are
anticipated.
C. is a process that firms undergo once every five years.
D. considers multiple options and scenarios for the next two to five years.
E. provides minimal benefits for firms that are highly responsive to economic changes.
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