CONNECT PROBLEMS
1. If the Hunter Corp. has an ROE of 13 and a payout ratio of 15 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.)
2. The most recent financial statements for Williamson, Inc., are shown here (assuming no income taxes):
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Income Statement
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Balance Sheet
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Sales
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$ 8,300
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Assets
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$ 23,200
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Debt
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$ 9,000
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Costs
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5,490
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|
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Equity
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14,200
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Net income
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$ 2,810
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Total
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$ 23,200
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Total
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$ 23,200
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Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year's sales are projected to be $9,545.
What is the external financing needed? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
External financing needed $
3. * The external funds needed (EFN) equation projects the addition to retained earnings as:
PM × ? Sales.
PM ×? Sales × (1 - d).
PM × Projected sales × (1 - d).
Projected sales × (1 - d).
PM ×Projected sales.
4. The maximum rate at which a firm can grow while maintaining a constant debt-equity ratio is best defined by its:
rate of return on assets.
internal rate of growth.
average historical rate of growth.
rate of return on equity.
sustainable rate of growth.
5. The extended version of the percentage of sales method:
assumes that all net income will be paid out in dividends to stockholders.
assumes that all net income will be retained by the firm and offset by a reduction in debt.
is based on a capital intensity ratio of 1.0.
requires that all financial statement accounts change at the same rate.
separates accounts that vary with sales from those that do not vary with sales.
6. Which one of the following depicts a correct relationship?
Dividend payout ratio = 1 - Retention ratio
Total asset turnover = 1 + Capital intensity ratio
ROA = ROE × (1 + Debt-equity ratio)
ROE = 1 - ROA
Equity multiplier = 1 - Debt-equity ratio
7. The sustainable growth rate will be equivalent to the internal growth rate when, and only when,:
a firm has no debt.
the growth rate is positive.
the plowback ratio is positive but less than 1.
a firm has a debt-equity ratio equal to 1.
the retention ratio is equal to 1.
8. Financial planning, when properly executed:
ignores the normal restraints encountered by a firm.
is based on the internal rate of growth.
reduces the necessity of daily management oversight of the business operations.
ensures internal consistency among the firm?s various goals.
eliminates the need to plan more than one year in advance.
9. 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:
35 percent of the internal rate of growth.
65 percent of the internal rate of growth.
the internal rate of growth.
the sustainable rate of growth.
65 percent of the sustainable rate of growth.
10. One of the primary weaknesses of many financial planning models is that they:
rely too much on financial relationships and too little on accounting relationships.
are iterative in nature.
ignore the goals and objectives of senior management.
ignore cash payouts to stockholders.
ignore the size, risk, and timing of cash flows.
11. Award: 0 out of 2.00 points
The return on equity can be calculated as:
ROA × Equity multiplier.
Profit margin × ROA.
Profit margin × ROA × Total asset turnover.
ROA ×(Net income / Total assets).
ROA × Debt-equity ratio.
12. Projected future financial statements are called:
plug statements.
pro forma statements.
reconciled statements.
aggregated statements.
comparative statements.
13. 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.
an increase in the cash cycle.
a decrease in the operating cycle.
a decrease in the average accounts payable balance.
14. When credit is granted to another firm this gives rise to a(n):
accounts receivable and is called a consumer credit.
credit due and is called an installment note.
accounts receivable and is called trade credit.
trade receivable and is called an installment note.
trade receivable and is called a secured loan.
15. The most common means of financing a temporary cash deficit is a:
long-term secured bank loan.
short-term secured bank loan.
short-term issue of corporate bonds.
long-term unsecured bank loan.
short-term unsecured bank loan.
16. Selling goods and services on credit is:
an investment in a customer.
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.
17. The three components of credit policy are:
collection policy, credit analysis, and interest rate determination.
collection policy, credit analysis, and terms of the sale.
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.
18. Since the credit decision usually includes riskier customers, the decision should adjust for this by:
determining the probability that customers will not pay and reducing the expected cash flow.
discounting the net cash flows at a lower discount rate.
discounting the cash inflows at a higher discount rate.
increasing the variable cost per unit.
decreasing the variable cost per unit.
19. The cash cycle is defined as the time between:
the arrival of inventory and cash collected from receivables.
selling a product and paying the supplier of that product.
selling a product and collecting the accounts receivable.
cash disbursements and cash collection for an item.
the sale of inventory and cash collection.
20. On September 1, a firm grants credit with terms of 2/10 net 30. The creditor:
must pay a penalty of 2/10 of one percent when payment is made later than October 1.
must pay a penalty of 10 percent when payment is made later than 2 days after October 1.
receives a discount of 2 percent when payment is made at least 10 days prior to October 1.
receives a discount of 2 percent when payment is made on September 1and pays a penalty of 10 percent if payment is made after October 1.
receives a discount of 2 percent when payment is made within 10 days.
21. All of the following can provide credit information about a customer except:
the customer's financial statements.
credit reports.
the customer's current payment history with the seller.
the amount of goods the customer desires to purchase.
banks.
22. The operating cycle can be decreased by:
paying accounts payable faster.
discontinuing the discount given for early payment of an accounts receivable.
decreasing the inventory turnover rate.
collecting accounts receivable faster.
increasing the accounts payable turnover rate.
23. 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?
-1.4 days
5.4 days
33.6 days
40.4 days
41.6 days
24. 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?
68.4 days
73.4 days
63.3 days
57.9 days
70.9 days
25. 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.
28.3; 11.3
77.9; 60.9
28.3; 45.3
77.9; 94.9
54.2; 37.2
26. 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?
28.46 days
16.32 days
32.87 days
13.08 days
23.37 days