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finance homework mcq-The percentage of sales method is based on which of the following assumptions?

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Question;The percentage of sales method is based on which of the;following assumptions?;A. a. All balance;sheet accounts are tied directly to sales.;B. b. Most balance;sheet accounts are tied directly to sales.;C. c. The current;level of total assets is optimal for the current sales level.;D. d. Answers a and c;above.;E. e. Answers b and c;above.;Question 2 of 20;The percentage of sales method produces accurate results;unless which of the following conditions is (are) present?;A. a. Fixed assets;are "lumpy.;B. b. Strong;economies of scale are present.;C. c. Excess capacity;exists because of a temporary recession.;D. d. Answers a, b;and c all make the percentage of sales method inaccurate.;E. e. Answers a and c;make the percentage of sales method inaccurate, but, as the text explains, the;assumption of increasing economies of scale is built into the percentage of;sales method.;Question 3 of 20;Which of the following statements is correct?;A. a. One of the key;steps in the development of pro forma financial statements is to identify those;assets and liabilities which increase spontaneously with net income.;B. b. The first, and;most critical, step in constructing a set of pro forma financial statements is;establishing the sales forecast.;C. c. Pro forma;financial statements as discussed in the text are used primarily to assess a;firm's historical performance.;D. d. The capital;intensity ratio reflects how rapidly a firm turns over its assets and is the;reciprocal of the fixed assets turnover ratio.;E. e. The percentage;of sales method produces accurate results when fixed assets are lumpy and when;economies of scale are present;Question 4 of 20;Considering each action independently and holding other;things constant, which of the following actions would reduce a firm's need for;additional capital?;A. a. An increase in;the dividend payout ratio.;B. b. A decrease in;the profit margin.;C. c. A decrease in;the days sales outstanding.;D. d. An increase in;expected sales growth.;E. e. A decrease in;the accrual accounts (accrued wages and taxes).;Question 5 of 20;Which of the following statements is correct?;A. a. Since accounts;payable and accruals must eventually be paid, as these accounts increase, AFN;also increases.;B. b. Suppose a firm;is operating its fixed assets below 100 percent capacity but is at 100 percent;with respect to current assets. If sales grow, the firm can offset the needed;increase in current assets with its idle fixed assets capacity.;C. c. If a firm;retains all of its earnings, then it will not need any additional funds to;support sales growth.;D. d. Additional;funds needed are typically raised from some combination of notes payable;long-term bonds, and common stock. These accounts are nonspontaneous in that;they require an explicit financing decision to increase them.;E. e. All of the;statements above are false.;Question 6 of 20;Which of the following statements is correct?;A. a. Any forecast of;financial requirements involves determining how much money the firm will need;and is obtained by adding together increases in assets and spontaneous;liabilities and subtracting operating income.;B. b. The percentage;of sales method of forecasting financial needs requires only a forecast of the;firm's balance sheet. Although a forecasted income statement helps clarify the;need, it is not essential to the percentage of sales method.;C. c. Because;dividends are paid after taxes from retained earnings, dividends are not;included in the percentage of sales method of forecasting.;D. d. Financing;feedbacks describe the fact that interest must be paid on the debt used to help;finance AFN and dividends must be paid on the shares issued to raise the equity;part of the AFN. These payments would lower the net income and retained;earnings shown in the projected financial statements.;E. e. All of the;statements above are false.;Question 7 of 20;Which of the following statements is correct?;A. a. Inherent in the;AFN formula is the assumption that each asset item must increase in direct;proportion to sales increases and that spontaneous liability accounts also grow;at the same rate as sales.;B. b. If a firm has;positive growth in its assets, but has no increase in retained earnings, AFN;for the firm must be positive.;C. c. Using the AFN;formula, if a firm increases its dividend payout ratio in anticipation of;higher earnings, but sales actually decrease, the firm will automatically;experience an increase in additional funds needed.;D. d. Higher sales;usually require higher asset levels. Some of the increase in assets can be;supported by spontaneous increases in accounts payable and accruals, and by;increases in certain current asset accounts and retained earnings.;E. e. Dividend policy;does not affect requirements for external capital under the AFN formula method.;Question 8 of 20;Jill's Wigs Inc. had the following balance sheet last year;Cash 800 Accounts Payable 350;Accounts Receivable 450 Accrued Wages 150;Inventories 950 Notes Payable 2,000;Fixed Assets 34,000 Mortgage 26,500;Common;Stock 3,200;Retained;earnings 4,000;Total Assets 36,200 Total liabilites and equity 36,200;Jill has just invented a non-slip wig for men which she;expects will cause sales to double from $10,000 to $20,000, increasing net;income to $1,000. She feels that she can handle the increase without adding any;fixed assets. (1) Will Jill need any outside capital if she pays no dividends?;(2) If so, how much?;A. a. No, zero;B. b. Yes, $7,700;C. c. Yes, $1,700;D. d. Yes, $700;E. e. No, there will;be a $700 surplus.Quest 9 to 20Question 9 of 20 Brown & Sons recently reported sales of $100 million;and net income equal to $5 million. The company has $70 million in total;assets. Over the next year, the company is forecasting a 20 percent increase in;sales. Since the company is at full capacity, its assets must increase in;proportion to sales. The company also estimates that if sales increase 20;percent, spontaneous liabilities will increase by $2 million. If the company's;sales increase, its profit margin will remain at its current level. The company's;dividend payout ratio is 40 percent. Based on the AFN formula, how much;additional capital must the company raise in order to support the 20 percent;increase in sales? A. a. $ 2.0 million B. b. $ 6.0 million C. c. $ 8.4 million D. d. $ 9.6 million E. e. $14.0 millionQuestion 10 of 20 Splash Bottling's December 31st balance sheet is given;below:Cash 10 Accounts payable 15Accounts Receivable 25 Notes payable 20Inventories 40 Accrued wages and taxes 15Net fixed assets 75 Long-term debt 30 Common;equity 70Total assets 150 Total liabilities and equity 150Sales during the past year were $100, and they are expected;to rise by 50 percent to $150 during next year. Also, during last year fixed;assets were being utilized to only 85 percent of capacity, so Splash could have;supported $100 of sales with fixed assets that were only 85 percent of last;year's actual fixed assets. Assume that Splash's profit margin will remain;constant at 5 percent and that the company will continue to pay out 60 percent;of its earnings as dividends. To the nearest whole dollar, what amount of;nonspontaneous, additional funds (AFN) will be needed during the next year? A. a. $57 B. b. $51 C. c. $36 D. d. $40 E. e. $48Reset SelectionQuestion 11 of 20 Which of the following would reduce the additional funds;required if all other things are held constant? A. a. An increase in;the dividend payout ratio. B. b. A decrease in;the profit margin. C. c. An increase in;the capital intensity ratio. D. d. An increase in;the expected sales growth rate. E. e. A decrease in;the firm's tax rate.Question 12 of 20 Which of the following statements is correct? A. a. Suppose;economies of scale exist in a firm's use of assets. Under this condition, the;firm should use the regression method of forecasting asset requirements rather;than the percent of sales method. B. b. If a firm must;acquire assets in lumpy units, it can avoid errors in forecasts of its need for;funds by using the linear regression method of forecasting asset requirements;because all the points will lie on the regression line. C. c. If economies of;scale in the use of assets exist, then the AFN formula rather than the percent;of sales method should be used to forecast additional funds requirements. D. d. Notes payable;to banks are included in the AFN formula, along with a projection of retained;earnings. E. e. One problem;with the AFN formula is that it does not take account of the firm's dividend;policy.Question 13 of 20 Elvis Inc. has the following balance sheet:Current assets $5,000 Accounts payable $1,000 Notes;payable 1,000Net fixed assets 5,000 Long-term debt 4,000 Common;equity 4,000Total assets $10,000 Total liabilities and equity $10,000Business has been slow, therefore, fixed assets are vastly;underutilized. Management believes it can triple sales next year with the;introduction of a new product. No new fixed assets will be required, and;management expects that there will be no earnings retained next year. What is;next year's additional financing requirement? A. a. $3,500 B. b. $4,600 C. c. $5,900 D. d. $8,000 E. e. $10,000Question 14 of 20 The 2007 balance sheet for Laura Inc. is shown below (in;millions of dollars): Cash $;3.0 Accounts payable $ 2.0Accounts receivable 3.0 Notes payable 1.5Inventory 5.0 Current Assets $11.0 Current liabilities $ 3.5Fixed assets 3.0 Long-term debt 3.0 Common;equity 7.5Total assets $14.0 Total liabilities and;equity $14.0In 2007, sales were $60 million. In 2008, management;believes that sales will increase by 30 percent to a total of $78 million. The;profit margin is expected to be 6 percent, and the retention ratio is targeted;at 40 percent. No excess capacity exists. What is the additional financing;requirement (in millions) for 2008 using the formula method? A. a. $1.73 B. b. $6.67 C. c. $18.2 D. d. -$6.67 E. e. -$1.73Question 15 of 20 The 2007 balance sheet for Laura Inc. is shown below (in;millions of dollars): Cash $;3.0 Accounts payable $ 2.0Accounts receivable 3.0 Notes payable 1.5Inventory 5.0 Current Assets $11.0 Current liabilities $ 3.5Fixed assets 3.0 Long-term debt 3.0 Common;equity 7.5Total assets $14.0 Total liabilities and;equity $14.0In 2007, sales were $60 million. In 2008, management;believes that sales will increase by 30 percent to a total of $78 million. The;profit margin is expected to be 6 percent, and the retention ratio is targeted;at 40 percent. No excess capacity exists. How much can sales grow above the;2007 level of $60 million without requiring any additional funds? A. a. 10.34% B. b. 13.64% C. c. 14.83% D. d. 15.63% E. e. 19.17%Question 16 of 20 Smith Machines Inc. has a net income this year of $500 on;sales of $2,000 and is operating its fixed assets at full capacity. Management;expects sales to increase by 50 percent next year and is forecasting a dividend;payout ratio of 30 percent. The profit margin is not expected to change. If;spontaneous liabilities are $500 this year and no excess funds are expected;next year, what are Smith's total assets this year? A. a. $ 1,250 B. b. $1,550 C. c. $2,750 D. d. $3,425 E. e. $3,574Question 17 of 20 Bill Inc.'s 2007 financial statements are shown below:Bill Inc. Balance Sheet as of December 31, 2007 Cash $;90,000 Accounts;payable $;180,000Receivables 180,000 Notes payable 78,000Inventory 360,000 Accruals 90,000Total current assets $630,000 Total current;liabilities $ 348,000 Common;stock 900,000Net fixed assets 720,000 Retained earnings 102,000Total assets $1,350,000 Total liabilities and;equity $1,350,000Bill Inc. Income Statement for December 31, 2007Sales $1,800,000Operating costs 1,639,860EBIT $;160,140Interest 10,140EBT $;150,000Taxes (40%) 60,000Net income $90,000 Dividends (60%) $;54,000Addition to retained earnings $ 36,000Suppose that in 2008, sales increase by 20 percent over 2007;sales. Construct the pro forma financial statements using the percent of sales;method. Assume the firm operated at full capacity in 2007. How much additional;capital will be required? A. e. $263,921 B. b. $95,288 C. c. $100,251 D. d. $172,313 E. e. $263,921Question 18 of 20Bill Inc. Balance Sheet as of December 31, 2007 Cash $;90,000 Accounts;payable $;180,000Receivables 180,000 Notes payable 78,000Inventory 360,000 Accruals 90,000Total current assets $;630,000 Total;current liabilities $;348,000 Common;stock 900,000Net fixed assets 720,000 Retained earnings 102,000Total assets $1,350,000 Total liabilities and;equity $1,350,000Bill Inc. Income Statement for December 31, 2007 Sales $1,800,000Operating costs 1,639,860EBIT $;160,140Interest 10,140EBT $;150,000Taxes (40%) 60,000Net income $;90,000 Dividends (60%) $;54,000Addition to retained earnings $ 36,000Suppose that in 2008, sales increase by 20 percent over 2007;sales. Assume that fixed assets are only being operated at 95 percent of;capacity. Construct the proforma financial statements using the percent of;sales method. How much additional capital will be required? A. a. $73,218 B. b. $85,201 C. c. $91,873 D. d. $100,800E. e. $129,113Question 19 of 20 Your company's sales were $2,000 last year, and they are;forecasted to rise by 100 percent during the coming year. Here is the latest;balance sheet:Cash $;100 Accounts payable $200Receivables 300 Notes payable 200Inventory 800 Accruals 20Total current assets $1,200 Total current liabilities $420 Long-term;debt 780 Common;stock 400Net Fixed Assets 800 Retained earnings 400Total assets $2,000 Total liabilities and equity $2,000Fixed assets were used to only 80 percent of capacity last;year, and year-end inventory holdings were $100 greater than were needed to;support the $2,000 of sales. The other current assets (cash and receivables);were at their proper levels. All assets would be a constant percentage of sales;if excess capacity did not exist, that is, all assets would increase at the;same rate as sales if no excess capacity existed. The company's after-tax;profit margin will be 3 percent, and its payout ratio will be 80 percent. If;all additional funds needed (AFN) are raised as notes payable and financing;feedbacks are ignored, what will the current ratio be at the end of the coming;year? A. a. 1.17 B. b. 1.93 C. c. 2.19 D. d. 2.50 E. e. 2.73Question 20 of 20 The Bouchard Company's sales are forecasted to increase from;$500 in 2007 to $ 1,000 in 2008. Here is the December 31, 2007, balance sheet:Cash $;50 Accounts payable $25Receivables 100 Notes payable 75Inventory 100 Accruals 25Total current assets $250 Total current liabilities $125 Long-term;debt 200 Common;stock 50Net Fixed Assets 250 Retained earnings 125Total assets $500 Total liabilities and;equity $500Bouchard's fixed assets were used to only 50 percent of;capacity during 2007, but its current assets were at their proper levels. All;assets except fixed assets should be a constant percentage of sales, and fixed;assets would also increase at the same rate if the current excess capacity did;not exist. Bouchard's after-tax profit margin is forecasted to be 8 percent;and its payout ratio will be 40 percent. What is Bouchard's additional funds;needed (AFN) for the coming year? A. a. $102 B. b. $152 C. c. $197 D. d. $167 E. e. $183;="msonormal">

 

Paper#49867 | Written in 18-Jul-2015

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