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Consider that you are a finance manager, and one of your junior staff wanted an explanation of the term external financing needed (EFN). Provide a definition that conveys what the term means from a finance perspective.

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The term can best be defined a...

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The sustainable growth rate is dependent on profit margin.

A) True
B) False

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Suppose a firm is working at full capacity and that assets, costs, and all liabilities are tied directly to the level of sales. In addition, the firm pays out all its earnings as dividends, and sales are expected to increase by 10% next period. The firm is financed half with equity and half with debt. The external financing needed to support this growth:


A) Is zero since all liabilities are tied directly to the level of sales?
B) Depends on the profit margin.
C) Is equal to half the dollar increase in assets.
D) Is equal to twice the dollar increase in liabilities.
E) Is equal to the growth rate times total assets.

F) A) and E)
G) D) and E)

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The retention ratio is equal to:


A) (net income - dividends paid) /sales.
B) The change in retained earnings/sales.
C) 1 - dividend payout ratio.
D) Net income * (1 + dividend payout ratio) .
E) 1 - plowback ratio.

F) A) and B)
G) None of the above

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When utilizing the percentage of sales approach, managers need to identify which expenses are variable and which are fixed.

A) True
B) False

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The profit margin, the debt-equity ratio, and the dividend payout ratio are constant. Sales are expected to increase by $525 next year. What is the projected addition to retained earnings for next year? A) $19.15 B) $31.92 C) $106.47 D) $234.78 E) $471.55 The profit margin, the debt-equity ratio, and the dividend payout ratio are constant. Sales are expected to increase by $525 next year. What is the projected addition to retained earnings for next year? A) $19.15 B) $31.92 C) $106.47 D) $234.78 E) $471.55 The profit margin, the debt-equity ratio, and the dividend payout ratio are constant. Sales are expected to increase by $525 next year. What is the projected addition to retained earnings for next year? A) $19.15 B) $31.92 C) $106.47 D) $234.78 E) $471.55 The profit margin, the debt-equity ratio, and the dividend payout ratio are constant. Sales are expected to increase by $525 next year. What is the projected addition to retained earnings for next year?


A) $19.15
B) $31.92
C) $106.47
D) $234.78
E) $471.55

F) B) and D)
G) A) and C)

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By developing a financial plan, a firm benefits by being forced to think about and forecast the future.

A) True
B) False

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Calculate retention ratio given the following information: EBIT $150,000; interest expense $16,000; tax rate 30%; dividends paid $40,000.


A) 35.55%
B) 36.43%
C) 57.36%
D) 65.45%
E) 68.23%

F) A) and B)
G) C) and D)

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One of the primary benefits of aggregation is gaining an understanding of the:


A) Interactions of the net working capital.
B) Total investment needs of the firm.
C) Trade-offs between debt and equity.
D) Trade-offs between the dividend policy and the plowback ratio.
E) Total asset turnover ratio.

F) All of the above
G) A) and E)

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By developing a financial plan, a firm benefits by being forced to focus on best case scenarios.

A) True
B) False

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The following balance sheet and income statement should be used: The following balance sheet and income statement should be used: Hilltop, Inc. is currently operating at 89% of capacity. The profit margin and the dividend payout ratio are projected to remain constant. Sales are projected to increase by 10% next year. What is the projected addition to retained earnings for next year? A) $1,527 B) $1,692 C) $1,716 D) $1,804 E) $1,856 The following balance sheet and income statement should be used: Hilltop, Inc. is currently operating at 89% of capacity. The profit margin and the dividend payout ratio are projected to remain constant. Sales are projected to increase by 10% next year. What is the projected addition to retained earnings for next year? A) $1,527 B) $1,692 C) $1,716 D) $1,804 E) $1,856 Hilltop, Inc. is currently operating at 89% of capacity. The profit margin and the dividend payout ratio are projected to remain constant. Sales are projected to increase by 10% next year. What is the projected addition to retained earnings for next year?


A) $1,527
B) $1,692
C) $1,716
D) $1,804
E) $1,856

F) B) and E)
G) A) and B)

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The percentage of net income that is added to retained earnings is called the:


A) Payout ratio.
B) Profit margin.
C) Retention ratio.
D) Internal growth rate.
E) Intensity ratio.

F) C) and E)
G) A) and E)

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Creative Analysis, Inc. is currently operating at 70 percent of capacity. All costs and net working capital vary directly with sales. The tax rate, the profit margin, 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%? A) -$23.68 B) -$14.10 C) $3.80 D) $21.70 E) $54.90 Creative Analysis, Inc. is currently operating at 70 percent of capacity. All costs and net working capital vary directly with sales. The tax rate, the profit margin, 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%? A) -$23.68 B) -$14.10 C) $3.80 D) $21.70 E) $54.90 Creative Analysis, Inc. is currently operating at 70 percent of capacity. All costs and net working capital vary directly with sales. The tax rate, the profit margin, 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%? A) -$23.68 B) -$14.10 C) $3.80 D) $21.70 E) $54.90 Creative Analysis, Inc. is currently operating at 70 percent of capacity. All costs and net working capital vary directly with sales. The tax rate, the profit margin, 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%?


A) -$23.68
B) -$14.10
C) $3.80
D) $21.70
E) $54.90

F) A) and E)
G) A) and D)

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All else the same, the level of external financing needed (EFN) increases with increases in the:


A) Profit margin.
B) Retention ratio.
C) Accounts receivable turnover ratio.
D) Capital intensity ratio.
E) Fixed asset utilization ratio.

F) B) and D)
G) A) and C)

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An Ottawa firm earns net income of $25,000 in a given year and the firm's retained earnings increase $15,000 for that same year. The retention ratio is:


A) 25%
B) 40%
C) 60%
D) 75%
E) 100%

F) A) and E)
G) A) and D)

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Asset requirements is a common element among financial planning models.

A) True
B) False

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Consider that you are a finance manager, and one of your junior staff wanted an explanation of the term planning horizon. Provide a definition that conveys what the term means from a finance perspective.

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The term can best be defined a...

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Assume Marble is projecting a 20% increase in sales for the coming year, and that assets, all costs, and current liabilities are proportional to sales. Long-term debt is not proportional to sales. Assume the firm's tax rate remains unchanged and the dividend payout is 40%. What is the external financing needed (EFN) for 2018 ($ in millions) ? A) $64.1 B) $110.9 C) $132.3 D) $146.7 E) $152.9 Assume Marble is projecting a 20% increase in sales for the coming year, and that assets, all costs, and current liabilities are proportional to sales. Long-term debt is not proportional to sales. Assume the firm's tax rate remains unchanged and the dividend payout is 40%. What is the external financing needed (EFN) for 2018 ($ in millions) ? A) $64.1 B) $110.9 C) $132.3 D) $146.7 E) $152.9 Assume Marble is projecting a 20% increase in sales for the coming year, and that assets, all costs, and current liabilities are proportional to sales. Long-term debt is not proportional to sales. Assume the firm's tax rate remains unchanged and the dividend payout is 40%. What is the external financing needed (EFN) for 2018 ($ in millions) ?


A) $64.1
B) $110.9
C) $132.3
D) $146.7
E) $152.9

F) A) and E)
G) All of the above

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The sustainable growth rate will be equivalent to the internal growth rate when:


A) A firm has no debt.
B) The growth rate is positive.
C) The plowback ratio is positive but less than 1.
D) A firm has a debt-equity ratio exactly equal to 1.
E) Net income is greater than zero.

F) All of the above
G) A) and E)

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Assuming a constant profit margin, what will Stansfield Corporation's net income be if sales increase by 10% ($ in millions) ? A) $33.0 million B) $34.5 million C) $36.3 million D) $39.6 million E) $60.0 million Assuming a constant profit margin, what will Stansfield Corporation's net income be if sales increase by 10% ($ in millions) ? A) $33.0 million B) $34.5 million C) $36.3 million D) $39.6 million E) $60.0 million Assuming a constant profit margin, what will Stansfield Corporation's net income be if sales increase by 10% ($ in millions) ?


A) $33.0 million
B) $34.5 million
C) $36.3 million
D) $39.6 million
E) $60.0 million

F) A) and B)
G) A) and D)

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