11. A firm is using the DFN model to forecast the additional capital that they need to raise because of a sales increase. Which of the following factors are likely to increase the DFN?
a. The firm has a lot of excess capacity.
b. The firm has a high dividend payout ratio.
c. The firm has a lot of spontaneous liabilities that increase as sales increase.
d. The firm has a high profit margin.
Ans: b
12. The first step involved in predicting financing needs is:
a. project the firm's sales revenues and expenses over the planning period.
b. estimating the levels of investment in current and fixed assets that are necessary to support the projected sales.
c. determining the firm's financing needs throughout the planning period.
d. estimating the firm's DFN.
Ans: a
13. The Stuff Antique Store has current sales of $12 million and predicts next year's sales will grow to $16 million. Current assets are $3 million and fixed assets are $4 million. The firm's net profit margin is 6 percent after taxes. Presently, Stuff has $800,000 in accounts payable, $1.1 million in long-term debt, and $5 million (including $2.5 million in retained earnings) in common equity. Next year, Stuff projects that current assets and liabilities will rise in direct proportion to the forecasted sales, and that fixed assets will rise by $600,000. The Stuff Antique Store plans to pay dividends of $400,000 to common shareholders. What are Stuff's total financing needs and discretionary financing needs for the upcoming year?
A. $8.6 million and $.27 million.
B. $7.5 million and $.25 million.
C. $6.5 million and $.15 million.
D. $5.5 million and $.45 million.
Ans: a
14. To determine the amount of discretionary funds needed, you would subtract the expected increase in liabilities from the sum of the expected increases in retained earnings and assets.
a. True
b. False
Ans: b
15. Accounts payable represent a spontaneous form of financing for a firm.
A. True
B. False
Ans: a
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a. The firm has a lot of excess capacity.
b. The firm has a high dividend payout ratio.
c. The firm has a lot of spontaneous liabilities that increase as sales increase.
d. The firm has a high profit margin.
Ans: b
12. The first step involved in predicting financing needs is:
a. project the firm's sales revenues and expenses over the planning period.
b. estimating the levels of investment in current and fixed assets that are necessary to support the projected sales.
c. determining the firm's financing needs throughout the planning period.
d. estimating the firm's DFN.
Ans: a
13. The Stuff Antique Store has current sales of $12 million and predicts next year's sales will grow to $16 million. Current assets are $3 million and fixed assets are $4 million. The firm's net profit margin is 6 percent after taxes. Presently, Stuff has $800,000 in accounts payable, $1.1 million in long-term debt, and $5 million (including $2.5 million in retained earnings) in common equity. Next year, Stuff projects that current assets and liabilities will rise in direct proportion to the forecasted sales, and that fixed assets will rise by $600,000. The Stuff Antique Store plans to pay dividends of $400,000 to common shareholders. What are Stuff's total financing needs and discretionary financing needs for the upcoming year?
A. $8.6 million and $.27 million.
B. $7.5 million and $.25 million.
C. $6.5 million and $.15 million.
D. $5.5 million and $.45 million.
Ans: a
14. To determine the amount of discretionary funds needed, you would subtract the expected increase in liabilities from the sum of the expected increases in retained earnings and assets.
a. True
b. False
Ans: b
15. Accounts payable represent a spontaneous form of financing for a firm.
A. True
B. False
Ans: a
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