Chapter 18 Quiz Flashcards
If a company retains all its earnings instead of paying out as dividends, how would the net new financing be affected?
A. Increase B. Decrease C. No changes D. None of the above Ans: B
What are the disadvantages of the percent of sales method?
A. Quickest way to develop forecast
B. Can yield high quality forecasts for those items that are closely
C. It ignores the real world “lumpy” investment in capacity
Ans: C
Under the sustainable growth rate, for a firm to grow faster, it must:
A. Reduce payout B. Raise new equity C. Increase leverage D. All of the above Ans: D
If sales fall, the percent of sales method may _ the profits if fixed costs do not decline by the same amount of the sales decline.
A. Overstate B. Understate C. Have no effect on D. Doubled up Ans: A
When net new financing figure is positive, it means that:
A. Total assets > Total liabilities and equity
B. Total assets = Total liabilities and equity
C. Total assets < Total liabilities and equity
Ans: A
If the forecast growth is greater than the internal growth rate, the company will need to:
A. Reduce the payout ratio B. Increase the plowback ratio C. Raise additional external financing D. All of the above Ans: D
Which of the following formulas to calculate the internal growth rate is incorrect?
A. Internal growth rate = (Net income / beginning asset) x (1 - payout ratio)
B. Internal growth rate = ROA x retention rate
C. Internal growth rate = ROA x plowback ratio
D. Internal growth rate = ROA x payout ratio
Ans: D
What is the retention ratio for firm ABC if the firm’s return on equity (ROE) is 12% and the firm’s dividend payout ratio is 45%?
A. 6.6% B. 5.4% C. 45% D. 55% Ans: D
The first step in forecasting long-term financial needs is to:
A. Construct a sales forecast B. Identify capacity needs and financing options C. Construct forecast future cash flows D. Construct pro forma income statements Ans: A
Company A has asset RM20 million and liabilities + shareholder equity RM9 million, how much financing the company needs?
A. RM 29million B. RM 180million C. RM 11million D. RM 2million Ans: C
Retention rate, which is (1 - Payout ratio) is also known as:
A. Payout ratio B. Pullout ratio C. Plowback ratio D. Pushback ratio Ans: C
