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9/16/13

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1.

aw ard:

10.00 points
The Cookie Shoppe expects sales of $2,700 next year. The profit margin is 5 percent and the firm has a 49 percent dividend payout ratio. What is the projected increase in retained earnings? $66.15

$68.85 $33.75 $135.00 $101.25

Change in retained earnings = $2,700 .05 (1 .49) = $68.85 Multiple Choice Difficulty: Basic Learning Objective: 04-1 Section: 4.3

2.

aw ard:

10.00 points
Gladsden Refinishers currently has $2,310 in sales and is operating at 66 percent of the firm's capacity. What is the full capacity level of sales? $2,511.57

$3,500.00 $2,108.43 $2,893.83 $1,524.60

Full-capacity sales = $2,310/.66 = $3,500.00 Multiple Choice Difficulty: Basic Learning Objective: 04-1 Section: 4.3

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10.00 points Major Manuscripts, Inc. 2012 Income Statement Net sales Cost of goods sold Depreciation Earnings before interest and taxes Interest paid Taxable Income Taxes Net income Dividends $ 7,800 6,765 220 815 30 785 285 500 100

$ $ $ $

Cash Accounts rec. Inventory Total Net fixed assets Total assets

$ $

Major Manuscripts, Inc. 2012 Balance Sheet 2012 2,170 Accounts payable $ 880 Long-term debt 2,700 Common stock $ 5,750 Retained earnings 3,230 8,980 Total liabilities & equity $

2012 1,570 280 2,900 4,230 8,980

If Major Manuscripts, Inc., decides to maintain a constant debt-equity ratio, what rate of growth can it maintain assuming that no additional external equity financing is available? 5.31 percent 9.33 percent 10.44 percent

5.94 percent 4.66 percent

Retention ratio = ($500 100)/$500 = .80 Sustainable growth rate = {[$500 / ($2,900 + 4,230)] .80} / {{1 {[$500 / ($2,900 + 4,230)] .80}} = 5.94 percent Multiple Choice Difficulty: Basic Learning Objective: 04-3 Section: 4.4

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aw ard:

10.00 points Major Manuscripts, Inc. 2012 Income Statement Net sales Cost of goods sold Depreciation Earnings before interest and taxes Interest paid Taxable Income Taxes Net income Dividends $ 9,500 7,715 380 1,405 50 1,355 508 847 198

$ $ $ $

Cash Accounts rec. Inventory Total Net fixed assets Total assets

$ $

Major Manuscripts, Inc. 2012 Balance Sheet 2012 4,100 Accounts payable $ 1,050 Long-term debt 4,400 Common stock $ 9,550 Retained earnings 5,100 14,650 Total liabilities & equity $

2012 3,790 230 4,500 6,130 14,650

Major Manuscripts, Inc., is currently operating at maximum capacity. All costs, assets, and current liabilities vary directly with sales. The tax rate and the dividend payout ratio will remain constant. How much additional debt is required if no new equity is raised and sales are projected to increase by 10 percent? $142 $602 $32

$372 $714

Projected total assets = $14,650 1.1 = $16,115 Projected accounts payable = $3,790 1.1 = $4,169 Current long-term debt = $230 Current common stock = $4,500 Projected retained earnings = $6,130 + [($847 198) 1.1] = $6,844 Additional debt required = $16,115 4,169 230 4,500 6,844 = $372
Multiple Choice Difficulty: Intermediate Learning Objective: 04-2 Section: 4.3

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aw ard:

10.00 points Major Manuscripts, Inc. 2012 Income Statement Net sales Cost of goods sold Depreciation Earnings before interest and taxes Interest paid Taxable Income Taxes Net income Dividends $ 9,100 7,415 340 1,345 25 1,320 449 871 252

$ $ $ $

Cash Accounts rec. Inventory Total Net fixed assets Total assets

$ $

Major Manuscripts, Inc. 2012 Balance Sheet 2012 2,290 Accounts payable $ 980 Long-term debt 3,900 Common stock $ 7,170 Retained earnings 3,930 11,100 Total liabilities & equity $

2012 2,750 250 2,500 5,600 11,100

Major Manuscripts, Inc., does not want to incur any additional external financing. The dividend payout ratio is constant. What is the firm's maximum rate of growth?

5.91 percent 6.09 percent 5.28 percent 8.95 percent 18.70 percent

Retention ratio = ($871 252)/$871 = .71 Internal growth rate = [($871/$11,100) .71]/{1 [($871/$11,100) .71]} = 5.91 percent Multiple Choice Difficulty: Basic Learning Objective: 04-3 Section: 4.4

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aw ard:

10.00 points The most recent financial statements for Zoso, Inc., are shown here (assuming no income taxes): Income Statement Sales $4,200 Costs 3,430 $770 Net income Assets Total Balance Sheet $15,300 Debt Equity $15,300 Total $10,700 4,600 $15,300

Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year's sales are projected to be $5,959. Required: What is the external financing needed? (Do not round your intermediate calculations.)
rev: 09_17_2012 $5,185 $5,440 $5,595

$5,315 $5,065

An increase of sales to $5,959 is an increase of: Sales increase = ($5,959 4,200) / $4,200 Sales increase = 0.4188 or 41.88% Assuming costs and assets increase proportionally, the pro forma financial statements will look like this: Pro forma income statement Sales $5,959 Assets Costs 4,867 $1,092 Net income Total Pro forma balance sheet $21,708 Debt Equity $21,708 Total $10,700 5,692 $16,392

If no dividends are paid, the equity account will increase by the net income, so: Equity = $4,600 + 1,092 Equity = $5,692 So the EFN is: EFN = Total assets Total liabilities and equity EFN = $21,708 16,392 = $5,315
Learning Objective: 04-02 How to compute the external financing needed to fund a firms growth.

Multiple Choice

Difficulty: Basic

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7.

aw ard:

10.00 points
The Two Sisters has a 11 percent return on assets and a 25 percent retention ratio. What is the internal growth rate? rev: 09_22_2012

2.83 percent 13.83 percent 8.02 percent 2.67 percent 8.25 percent

Internal growth rate = (.11 .25) / [1 (.11 .25)] = 2.83 percent


Multiple Choice Difficulty: Basic Learning Objective: 04-3 Section: 4.4

8.

aw ard:

10.00 points
Wagner Industrial Motors, which is currently operating at full capacity, has sales of $2,370, current assets of $710, current liabilities of $400, net fixed assets of $1,560, and a 5 percent profit margin. The firm has no long-term debt and does not plan on acquiring any. The firm does not pay any dividends. Sales are expected to increase by 10 percent next year. If all assets, short-term liabilities, and costs vary directly with sales, how much additional equity financing is required for next year?

$56.65 $175.15 $237.00 $248.85 $11.85

Projected assets = ($710 + 1,560) 1.10 = $2,497 Projected liabilities = $400 1.10 = $440 Current equity = $710 + 1,560 400 = $1,870 Projected increase in retained earnings = $2,370 .05 1.10 = $130.35 Equity funding need = $2,497 440 1,870 130.35 = $56.65
Multiple Choice Difficulty: Basic Learning Objective: 04-2 Section: 4.2

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aw ard:

10.00 points Hungry Kids 2012 Income Statement Net sales Cost of goods sold Depreciation Earnings before interest and taxes Interest paid Taxable Income Taxes Net income Dividends Addition to retained earnings $ 5,100 3,550 705 845 190 655 210 445 74 371

$ $ $ $ $

Cash Accounts rec. Inventory Total Net fixed assets Total assets

$ $

Hungry Kids 2012 Balance Sheet 2012 90 Accounts payable $ 510 Long-term debt 1,000 Common stock $ 1,600 Retained earnings 7,100 8,700 Total liabilities & equity $

2012 1,200 1,610 2,100 3,790 8,700

Hungry Kids is currently operating at full capacity. The profit margin and the dividend payout ratio are held constant. Net working capital and fixed assets vary directly with sales. Sales are projected to increase by 6 percent. What is the external financing need? $89

$57 $56 $87 $88

Projected total assets = $8,700 1.06 = $9,222.00 Projected accounts payable = $1,200 1.06 = $1,272.00 Projected retained earnings = $3,790 + ($371 1.06) = $4,183.26 External financing need = $9,222.00 1,272.00 1,610 2,100 4,183.26 = $57
Multiple Choice Difficulty: Basic Learning Objective: 04-2 Section: 4.4

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10.

aw ard:

10.00 points
Stop and Go has a 6 percent profit margin and a 42 percent dividend payout ratio. The total asset turnover is 1.75 and the debt-equity ratio is .56. What is the sustainable rate of growth? 7.71 percent 8.68 percent

10.50 percent 6.74 percent 12.32 percent

Return on equity = .06 1.75 (1 + .56) = .1638 Sustainable growth = [.1638 (1 .42)]/{1 [.1638 (1 .42)]} = 10.50 percent Multiple Choice Difficulty: Basic Learning Objective: 04-3 Section: 4.4

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