1 - University of Texas at Dallas
d 1. Pro forma financial statements are:
a. statements recapping the performance of a firm for the past five years.
b. accounting statements filed with the Securities and Exchange Commission.
c. accounting statements filed with the Internal Revenue Service.
d. projected accounting statements based on a sales forecast.
e. the most-recently compiled accounting statements of a firm.
e 2. The designated source of external financing required to make a pro forma balance sheet balance is called the:
a. retained earnings account.
b. common stock account.
c. debt-equity ratio.
d. cash flow variable.
e. plug variable.
d 3. Marcie’s Mercantile wants to maintain their current dividend policy, which is a payout ratio of 40 percent. The firm does not want to increase their equity financing but are willing to maintain their current debt-equity ratio. Given these requirements, the
maximum rate at which Marcie’s can grow is equal to:
a. 40 percent of the internal rate of growth.
b. 60 percent of the internal rate of growth.
c. the internal rate of growth.
d. the sustainable rate of growth.
e. 60 percent of the sustainable rate of growth.
b 4. A firm, which is currently operating at full capacity, has sales of $2,000, current assets of $600, current liabilities of $300, net fixed assets of $1,500, 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, liabilities and costs vary directly with sales, how much additional equity financing is required for next year?
a. $10
b. $70
c. $170
d. $200
e. $210
c 5. The Green Giant has a 5 percent profit margin and a 40 percent dividend payout ratio. The total asset turnover is 1.40 and the equity multiplier is 1.50. What is the sustainable rate of growth?
a. 6.30 percent
b. 6.53 percent
c. 6.72 percent
d. 6.80 percent
e. 6.83 percent
c 6. A firm wants to maintain a growth rate of 8 percent without incurring any additional equity financing. The firm maintains a constant debt-equity ratio of .5, a total asset turnover ratio of .83, and a profit margin of 8 percent. What must the retention ratio be?
a. 71.8 percent
b. 72.7 percent
c. 74.4 percent
d. 75.1 percent
e. 76.3 percent
c 7. Neal’s Nails has an 11 percent return on assets and a 30 percent dividend payout ratio. What is the internal growth rate?
a. 7.11 percent
b. 7.70 percent
c. 8.34 percent
d. 8.46 percent
e. 11.99 percent
a 8. Katelyn’s Kites has net income of $240 and total equity of $2,000. The debt-equity
ratio is 1.0 and the plowback ratio is 40 percent. What is the internal growth rate?
a. 2.46 percent
b. 3.00 percent
c. 4.92 percent
d. 5.88 percent
e. 6.00 percent
b 9. The process of accumulating interest on an investment over time to earn more interest is called:
a. growth.
b. compounding.
c. aggregation.
d. accumulation.
e. discounting.
b 10. What is the present value of $13,450 to be received four years from today if the discount rate is 5.25 percent?
a. $10,854.20
b. $10,960.59
c. $10,974.21
d. $10,982.18
e. $11,003.14
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