If the Hunter Corp. has an ROE of 12 and a payout ratio of 29 percent, what is its sustainable growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
The most recent financial statements for Williamson, Inc., are shown here (assuming no income taxes):
Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year’s sales are projected to be $10,578. What is the external financing needed? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
In the financial planning model, the external financing needed (EFN) as shown on a pro forma balance sheet is equal to the changes in assets:
plus the changes in both liabilities and equity.
minus the change in retained earnings.
minus the changes in both liabilities and equity.
minus the changes in liabilities.
plus the changes in liabilities minus the changes in equity.
Which account is least apt to vary directly with sales?
cost of goods sold
The external funds needed (EFN) equation projects the addition to retained earnings as:
PM ×Δ Sales × (1 - d).
Projected sales × (1 - d).
PM × Projected sales × (1 - d).
PM × Δ Sales.
PM ×Projected sales.
The sustainable growth rate will be equivalent to the internal growth rate when, and only when,:
the plowback ratio is positive but less than 1.
a firm has a debt-equity ratio equal to 1.
a firm has no debt.
the growth rate is positive.
the retention ratio is equal to 1.
Marcie's Mercantile wants to maintain its current dividend policy, which is a payout ratio of 35 percent. The firm does not want to increase its equity financing but is willing to maintain its current debt-equity ratio. Given these requirements, the maximum rate at which Marcie's can grow is equal to:
65 percent of the internal rate of growth.
the internal rate of growth.
65 percent of the sustainable rate of growth.
35 percent of the internal rate of growth.
the sustainable rate of growth.
Financial planning, when properly executed:
eliminates the need to plan more than one year in advance.
is based on the internal rate of growth.
ensures internal consistency among the firm’s various goals.
ignores the normal restraints encountered by a firm.
reduces the necessity of daily management oversight of the business operations.
The maximum rate at which a firm can grow while maintaining a constant debt-equity ratio is best defined by its:
sustainable rate of growth.
internal rate of growth.
rate of return on assets.
average historical rate of growth.
rate of return on equity.
One of the primary weaknesses of many financial planning models is that they:
ignore the size, risk, and timing of cash flows.
ignore the goals and objectives of senior management.
ignore cash payouts to stockholders.
are iterative in nature.
rely too much on financial relationships and too little on accounting relationships.
The extended version of the percentage of sales method:
assumes that all net income will be retained by the firm and offset by a reduction in debt.
assumes that all net income will be paid out in dividends to stockholders.
is based on a capital intensity ratio of 1.0.
separates accounts that vary with sales from those that do not vary with sales.
requires that all financial statement accounts change at the same rate.
The return on equity can be calculated as:
ROA × Debt-equity ratio.
ROA ×(Net income / Total assets).
ROA × Equity multiplier.
Profit margin × ROA × Total asset turnover.
Profit margin × ROA.
When credit is granted to another firm this gives rise to a(n):
trade receivable and is called a secured loan.
trade receivable and is called an installment note.
accounts receivable and is called a consumer credit.
accounts receivable and is called trade credit.
credit due and is called an installment note.
The three components of credit policy are:
collection policy, credit analysis, and terms of the sale.
collection policy, credit analysis, and interest rate determination.
collection policy, interest rate determination, and repayment analysis.
credit analysis, repayment analysis, and terms of the sale.
interest rate determination, repayment analysis and terms of sale.
Since the credit decision usually includes riskier customers, the decision should adjust for this by:
increasing the variable cost per unit.
decreasing the variable cost per unit.
determining the probability that customers will not pay and reducing the expected cash flow.
discounting the cash inflows at a higher discount rate.
discounting the net cash flows at a lower discount rate.
The credit period begins on the:
order process date.
purchase order date.
shipping arrival date.
The operating cycle can be decreased by:
increasing the accounts payable turnover rate.
decreasing the inventory turnover rate.
discontinuing the discount given for early payment of an accounts receivable.
collecting accounts receivable faster.
paying accounts payable faster.
Selling goods and services on credit is:
never necessary unless customers cannot pay for the goods.
a decision independent of customers.
permissible only if your bank lends the money.
never a wise decision.
an investment in a customer.
The cash cycle is defined as the time between:
selling a product and paying the supplier of that product.
the arrival of inventory and cash collected from receivables.
cash disbursements and cash collection for an item.
selling a product and collecting the accounts receivable.
the sale of inventory and cash collection.
The minimum level of inventory that a firm wants to keep on hand at all times is referred to as:
the reorder point.
the base level.
the opportunity cost.
The most common means of financing a temporary cash deficit is a:
short-term secured bank loan.
long-term secured bank loan.
short-term unsecured bank loan.
short-term issue of corporate bonds.
long-term unsecured bank loan.
Given a fixed level of sales and a constant profit margin, an increase in the accounts payable period can result from:
an increase in the cost of goods sold account value.
an increase in the ending accounts payable balance.
a decrease in the operating cycle.
an increase in the cash cycle.
a decrease in the average accounts payable balance.
Jordan and Sons has an inventory period of 48.6 days, an accounts payable period of 36.2 days, and an accounts receivable period of 29.3 days. Management is considering offering a 5 percent discount if its credit customers pay for their purchases within 10 days. This discount is expected to reduce the receivables period by 17 days. If the discount is offered, the operating cycle will decrease from ___ days to ___ days.
A firm has an inventory turnover rate of 15.7, a receivables turnover rate of 20.2, and a payables turnover rate of 14.6. How long is the cash cycle?
Brown’s Market currently has an operating cycle of 76.8 days. It is planning some operational changes that are expected to decrease the accounts receivable period by 2.8 days and decrease the inventory period by 3.1 days. The accounts payable turnover rate is expected to increase from 9 to 11.5 times per year. If all of these changes are adopted, what will be the firm's new operating cycle?
On average, D & M sells its inventory in 37 days, collects on its receivables in 3.4 days, and takes 35 days to pay for its purchases. What is the length of the firm’s operating cycle?