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FIN 571 Week 3 Connect Problems

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FIN 571 Week 3 Connect Problems -

  1. If the Hunter Corp. has an ROE of 13 and a payout ratio of 30 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.)

Sustainable growth rate                      ____%

 

  1. The most recent financial statements for Williamson, Inc., are shown here (assuming no income taxes):

Income Statement                                                      Balance Sheet

Sales                      $ 6,700                        Assets              $22,050           Debt    $ 8,050

Costs                     3,850                                                               Equity 14,000

Net income           $ 2,850                        Total               $22,050           Total   $22,050

Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year’s sales are projected to be $7,906.

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      $_____

 

  1. Projected future financial statements are called:
  • plug statements.
  • pro forma statements.
  • reconciled statements.
  • aggregated statements.
  • comparative statements.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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 liabilities minus the changes in equity.
  • minus the changes in both liabilities and equity.
  • minus the changes in liabilities.
  • plus the changes in both liabilities and equity.
  • minus the change in retained earnings.

 

  1. 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.

 

  1. 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.

 

  1. 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

 

  1. 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.

 

  1. 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.

 

  1. The minimum level of inventory that a firm wants to keep on hand at all times is referred to as:
  • the base level.
  • safety stock.
  • the opportunity cost.
  • the reorder point.
  • keiretsu.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. The credit period begins on the:
  • shipping date.
  • purchase order date.
  • shipping arrival date.
  • order process date.
  • invoice date.

 

  1. 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.

 

  1. 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?

rev: 05_12_2016_QC_CS-51572

  • 28.46 days
  • 16.32 days
  • 32.87 days
  • 13.08 days
  • 23.37 days

 

  1. 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

 

  1. 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

 

  1. 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

 

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