1. Ribbon Industries reported sales of $3 million and net income of $400,000 for 2010. The retained earnings balance at the end of 2012 is $7 million. Ribbon Industries has a dividend payout ratio of 30%. If sales are expected to increase by 25% next year, what will be the projected balance in retained earnings using the percent of sales method?
a. $7,280,000
b. $6,720,000
c. $7,350,000
2. Fixed assets are often estimated incorrectly by the percent of sales method because
a. fixed assets remain constant and the percent of sales method assumes all assets increase proportionally with sales.
b. fixed assets are part of the capital budgeting process.
c. fixed assets are typically purchased in "lumps" and therefore do not increase proportionally with sales
3. A company calculates its discretionary financing needed and determines this amount of capital cannot be raised at a reasonable cost. Which of the following would reduce the amount of discretionary financing needed?
a. reduce the company's net profit margin
b. reduce the company's sales growth rate
c. increase the proportion of the company's sales that are made on credit