Question 1

If a firm wants to maintain its ratios at their existing levels,then if it has a positive sales growth rate of any amount,it will require some amount of external funding.

Accepted Answer

A) True 
 B)False

Question 2

The fact that long-term debt and common stock are raised infrequently and in large amounts lessens the need for the firm to forecast those accounts on a continual basis.

Accepted Answer

A) True 
 B)False  False

Question 3

Chua Chang & Wu Inc.is planning its operations for next year,and the CEO wants you to forecast the firm's additional funds needed (AFN) .Data for use in your forecast are shown below.Based on the AFN equation,what is the AFN for the coming year? ​

Accepted Answer

A)   -$5,400
B)   -$7,140
C)   -$6,000
D)   -$6,720
E)   -$6,360F) C) and D)
G) A) and D)

Question 4

Which of the following statements is CORRECT?

Accepted Answer

A)   Since accounts payable and accrued liabilities must eventually be paid off,as these accounts increase,AFN as calculated by the AFN equation must also increase.
B)   Suppose a firm is operating its fixed assets at below 100% of capacity,but it has no excess current assets.Based on the AFN equation,its AFN will be larger than if it had been operating with excess capacity in both fixed and current assets.
C)   If a firm retains all of its earnings,then it cannot require any additional funds to support sales growth.
D)   Additional funds needed (AFN) are typically raised using a combination of notes payable,long-term debt,and common stock.Such funds are non-spontaneous in the sense that they require explicit financing decisions to obtain them.
E)   If a firm has a positive free cash flow,then it must have either a zero or a negative AFN.F) B) and E)
G) C) and E)

Question 5

Last year Emery Industries had $450 million of sales and $225 million of fixed assets,so its Fixed Assets/Sales ratio was 50%.However,its fixed assets were used at only 85% of capacity.If the company had been able to sell off enough of its fixed assets at book value so that it was operating at full capacity,with sales held constant at $450 million,how much cash (in millions) would it have generated?

Accepted Answer

A)   $38.14
B)   $33.75
C)   $30.38
D)   $36.79
E)   $27.68F) B) and D)
G) C) and D)

Question 6

Which of the following statements is CORRECT?

Accepted Answer

A)   Once a firm has defined its purpose,scope,and objectives,it must develop a strategy or strategies for achieving its goals.The statement of corporate strategies sets forth detailed plans rather than broad approaches for achieving a firm's goals.
B)   A firm's corporate purpose states the general philosophy of the business and provides managers with specific operational objectives.
C)   Operating plans provide management with detailed implementation guidance,consistent with the corporate strategy,to help meet the corporate objectives.These operating plans can be developed for any time horizon,but many companies use a 5-year horizon.
D)   A firm's mission statement defines its lines of business and geographic area of operations.
E)   The corporate scope is a condensed version of the entire set of strategic plans.F) A) and B)
G) B) and E) C

Question 7

Last year Wei Guan Inc.had $275 million of sales,and it had $270 million of fixed assets that were used at 65% of capacity.In millions,by how much could Wei Guan's sales increase before it is required to increase its fixed assets?

Accepted Answer

A)   $137.71
B)   $159.92
C)   $115.50
D)   $155.48
E)   $148.08F) A) and D)
G) A) and C)

Question 8

Which of the following assumptions is embodied in the AFN equation?

Accepted Answer

A)   All balance sheet accounts are tied directly to sales.
B)   Accounts payable and accruals are tied directly to sales.
C)   Common stock and long-term debt are tied directly to sales.
D)   Fixed assets,but not current assets,are tied directly to sales.
E)   Last year's total assets were not optimal for last year's sales.F) A) and E)
G) C) and D)

Question 9

Two firms with identical capital intensity ratios are generating the same amount of sales.However,Firm A is operating at full capacity,while Firm B is operating below capacity.If the two firms expect the same growth in sales during the next period,then Firm A is likely to need more additional funds than Firm B,other things held constant.

Accepted Answer

A) True 
 B)False  True

Question 10

Last year Jain Technologies had $250 million of sales and $100 million of fixed assets,so its Fixed Assets/Sales ratio was 40%.However,its fixed assets were used at only 40% of capacity.Now the company is developing its financial forecast for the coming year.As part of that process,the company wants to set its target Fixed Assets/Sales ratio at the level,it would have had,had it been operating at full capacity.What target Fixed Assets/Sales ratio should the company set?

Accepted Answer

A)   13.3%
B)   14.1%
C)   16.0%
D)   18.2%
E)   18.4%F) A) and E)
G) None of the above

Question 11

Last year Godinho Corp.had $320 million of sales,and it had $75 million of fixed assets that were being operated at 80% of capacity.In millions,how large could sales have been if the company had operated at full capacity?

Accepted Answer

A)   $352.0
B)   $392.0
C)   $388.0
D)   $436.0
E)   $400.0F) None of the above
G) A) and E)

Question 12

Last year Handorf-Zhu Inc.had $850 million of sales,and it had $425 million of fixed assets that were used at only 90% of capacity.What is the maximum sales growth rate the company could achieve before it had to increase its fixed assets?

Accepted Answer

A)   9.00%
B)   13.00%
C)   12.00%
D)   10.33%
E)   11.11%F) C) and E)
G) None of the above

Question 13

The term "spontaneously generated funds" generally refers to increases in the cash account that result from growth in sales,assuming the firm is operating with a positive profit margin.

Accepted Answer

A) True 
 B)False

Question 14

To determine the amount of additional funds needed (AFN),you may subtract the expected increase in liabilities,which represents a source of funds,from the sum of the expected increases in retained earnings and assets,both of which are uses of funds.

Accepted Answer

A) True 
 B)False

Question 15

The first,and most critical,step in constructing a set of forecasted financial statements is the sales forecast.

Accepted Answer

A) True 
 B)False

Question 16

Jefferson City Computers has developed a forecasting model to estimate its AFN for the upcoming year.All else being equal,which of the following factors is most likely to lead to an increase of the additional funds needed (AFN) ?

Accepted Answer

A)   A sharp increase in its forecasted sales.
B)   A sharp reduction in its forecasted sales.
C)   The company reduces its dividend payout ratio.
D)   The company switches its materials purchases to a supplier that sells on terms of 1/5,net 90,from a supplier whose terms are 3/15,net 35.
E)   The company discovers that it has excess capacity in its fixed assets.F) None of the above
G) D) and E)

Question 17

If a firm's capital intensity ratio (A*/S0)decreases as sales increase,use of the AFN formula is likely to understate the amount of additional funds required,other things held constant.

Accepted Answer

A) True 
 B)False

Question 18

When developing forecasted financial statements there are some inputs that management controls such as the growth rate and operating costs/sales ratio,while other inputs such as the tax rate and interest rate are not under its control.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements is CORRECT?

Accepted Answer

A)   When we use the AFN equation,we assume that the ratios of assets and liabilities to sales (A0*/S0 and L0*/S0) vary from year to year in a stable,predictable manner.
B)   When fixed assets are added in large,discrete units as a company grows,the assumption of constant ratios is more appropriate than if assets are relatively small and can be added in small increments as sales grow.
C)   Firms whose fixed assets are "lumpy" frequently have excess capacity,and this should be accounted for in the financial forecasting process.
D)   For a firm that uses lumpy assets,it is impossible to have small increases in sales without expanding fixed assets.
E)   Regression techniques cannot be used in situations where excess capacity or economies of scale exist.F) A) and B)
G) D) and E)

Question 20

When we use the AFN equation to forecast the additional funds needed (AFN),we are implicitly assuming that all financial ratios are constant.If financial ratios are not constant,regression techniques can be used to improve the financial forecast.

Accepted Answer

A) True 
 B)False

Exam 17: Financial Planning and Forecasting

If a firm wants to maintain its ratios at their existing levels,then if it has a positive sales growth rate of any amount,it will require some amount of external funding.

Correct Answer
verified

The fact that long-term debt and common stock are raised infrequently and in large amounts lessens the need for the firm to forecast those accounts on a continual basis.

Correct Answer
verified
False

Chua Chang & Wu Inc.is planning its operations for next year,and the CEO wants you to forecast the firm's additional funds needed (AFN) .Data for use in your forecast are shown below.Based on the AFN equation,what is the AFN for the coming year?

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified
C

Last year Wei Guan Inc.had $275 million of sales,and it had $270 million of fixed assets that were used at 65% of capacity.In millions,by how much could Wei Guan's sales increase before it is required to increase its fixed assets?

Correct Answer
verified

Which of the following assumptions is embodied in the AFN equation?

Correct Answer
verified

Correct Answer
verified
True

Correct Answer
verified

Last year Godinho Corp.had $320 million of sales,and it had $75 million of fixed assets that were being operated at 80% of capacity.In millions,how large could sales have been if the company had operated at full capacity?

Correct Answer
verified

Last year Handorf-Zhu Inc.had $850 million of sales,and it had $425 million of fixed assets that were used at only 90% of capacity.What is the maximum sales growth rate the company could achieve before it had to increase its fixed assets?

Correct Answer
verified

The term "spontaneously generated funds" generally refers to increases in the cash account that result from growth in sales,assuming the firm is operating with a positive profit margin.

Correct Answer
verified

To determine the amount of additional funds needed (AFN),you may subtract the expected increase in liabilities,which represents a source of funds,from the sum of the expected increases in retained earnings and assets,both of which are uses of funds.

Correct Answer
verified

The first,and most critical,step in constructing a set of forecasted financial statements is the sales forecast.

Correct Answer
verified

Jefferson City Computers has developed a forecasting model to estimate its AFN for the upcoming year.All else being equal,which of the following factors is most likely to lead to an increase of the additional funds needed (AFN) ?

Correct Answer
verified

If a firm's capital intensity ratio (A^*/S₀)decreases as sales increase,use of the AFN formula is likely to understate the amount of additional funds required,other things held constant.

Correct Answer
verified

When developing forecasted financial statements there are some inputs that management controls such as the growth rate and operating costs/sales ratio,while other inputs such as the tax rate and interest rate are not under its control.

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

When we use the AFN equation to forecast the additional funds needed (AFN),we are implicitly assuming that all financial ratios are constant.If financial ratios are not constant,regression techniques can be used to improve the financial forecast.

Correct Answer
verified

Exam 17: Financial Planning and Forecasting

If a firm wants to maintain its ratios at their existing levels,then if it has a positive sales growth rate of any amount,it will require some amount of external funding.

Correct AnswerverifiedShow Answer

The fact that long-term debt and common stock are raised infrequently and in large amounts lessens the need for the firm to forecast those accounts on a continual basis.

Correct AnswerverifiedFalse

Chua Chang & Wu Inc.is planning its operations for next year,and the CEO wants you to forecast the firm's additional funds needed (AFN) .Data for use in your forecast are shown below.Based on the AFN equation,what is the AFN for the coming year? ​

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedC

Last year Wei Guan Inc.had $275 million of sales,and it had $270 million of fixed assets that were used at 65% of capacity.In millions,by how much could Wei Guan's sales increase before it is required to increase its fixed assets?

Correct AnswerverifiedShow Answer

Which of the following assumptions is embodied in the AFN equation?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedTrue

Correct AnswerverifiedShow Answer

Last year Godinho Corp.had $320 million of sales,and it had $75 million of fixed assets that were being operated at 80% of capacity.In millions,how large could sales have been if the company had operated at full capacity?

Correct AnswerverifiedShow Answer

Last year Handorf-Zhu Inc.had $850 million of sales,and it had $425 million of fixed assets that were used at only 90% of capacity.What is the maximum sales growth rate the company could achieve before it had to increase its fixed assets?

Correct AnswerverifiedShow Answer

The term "spontaneously generated funds" generally refers to increases in the cash account that result from growth in sales,assuming the firm is operating with a positive profit margin.

Correct AnswerverifiedShow Answer

To determine the amount of additional funds needed (AFN),you may subtract the expected increase in liabilities,which represents a source of funds,from the sum of the expected increases in retained earnings and assets,both of which are uses of funds.

Correct AnswerverifiedShow Answer

The first,and most critical,step in constructing a set of forecasted financial statements is the sales forecast.

Correct AnswerverifiedShow Answer

Jefferson City Computers has developed a forecasting model to estimate its AFN for the upcoming year.All else being equal,which of the following factors is most likely to lead to an increase of the additional funds needed (AFN) ?

Correct AnswerverifiedShow Answer

If a firm's capital intensity ratio (A*/S0)decreases as sales increase,use of the AFN formula is likely to understate the amount of additional funds required,other things held constant.

Correct AnswerverifiedShow Answer

When developing forecasted financial statements there are some inputs that management controls such as the growth rate and operating costs/sales ratio,while other inputs such as the tax rate and interest rate are not under its control.

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

When we use the AFN equation to forecast the additional funds needed (AFN),we are implicitly assuming that all financial ratios are constant.If financial ratios are not constant,regression techniques can be used to improve the financial forecast.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
False

Chua Chang & Wu Inc.is planning its operations for next year,and the CEO wants you to forecast the firm's additional funds needed (AFN) .Data for use in your forecast are shown below.Based on the AFN equation,what is the AFN for the coming year?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
C

Correct Answer
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Correct Answer
verified

Correct Answer
verified
True

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

If a firm's capital intensity ratio (A^*/S₀)decreases as sales increase,use of the AFN formula is likely to understate the amount of additional funds required,other things held constant.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified