Question 1

What is the pro forma retained earnings if Delalo, Inc. grows at a rate of 3.76% and both the profit margin and the dividend payout ratio remain constant?

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Question 2

Given the following information: sales = $450; costs = $400; tax rate = 34%. Assuming costs run at a constant percentage of sales, if sales rise by 10% next year, what will net income be?

Accepted Answer

Net income is calculated as (Sales - Costs) * (1 - Tax Rate). With a 10% increase, sales become $495 ($450 * 1.10). Costs, being a constant percentage of sales, also increase by 10% to $440 ($400 * 1.10). Thus, net income = ($495 - $440) * (1 - 0.34) = $55 * 0.66 = $36.30.

Question 3

Assuming that a company has a policy of paying out a constant fraction of net income in the form of a cash dividends, calculate the addition to retained earnings given the following information: cash dividends = $88; net income = $264.

Accepted Answer

The addition to retained earnings is calculated as net income minus cash dividends. Therefore, $264 (net income) - $88 (cash dividends) = $176.

Question 4

Creative Analysis, 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 12%?

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Question 5

Assets, accounts payable and costs are proportional to sales. Debt and equity are not.
The sales of Douglass Enterprises are expected to increase by 10% next year. The debt-equity ratio and the dividend payout ratio are to be held constant. Currently the firm is producing at 88% of capacity. What is the required increase in net fixed assets?

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Question 6

Suppose the firm wishes to maintain a constant debt-equity ratio, retains 60% of net income, and raises no new equity. Assets and costs maintain a constant ratio to sales. What is the maximum increase in sales the firm can achieve?

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Question 7

Coffee Brewers expects sales of $1,500 next year. The profit margin is 5% and the firm has a 70 percent dividend payout ratio. What is the projected increase in retained earnings?

Accepted Answer

The projected profit is 5% of $1,500, which is $75. With a 70% dividend payout ratio, 30% of the profit is retained. Thus, the increase in retained earnings is 30% of $75, which is $22.50.

Question 8

A firm currently has sales of $550,000, a 6% profit margin and a 40% dividend payout ratio. What is the anticipated amount of dividends to be paid to shareholders if sales are expected to increase by 5%?

Accepted Answer

First, calculate the current profit: $550,000 * 6% = $33,000. With a 5% increase in sales, the new sales amount is $550,000 * 1.05 = $577,500. The new profit is $577,500 * 6% = $34,650. Finally, the anticipated dividends are $34,650 * 40% = $13,860.

Question 9

How much external financing is needed for a 20% increase in sales if the Corporation is currently operating at full capacity? Assume assets and costs vary directly with sales but no current liabilities increase with sales and that the dividend payout ratio remains fixed. ($ in millions)

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Question 10

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%?

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Question 11

Assuming a constant profit margin, what will Stansfield Corporation's net income be if sales increase by 10% ($ in millions)?

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Question 12

Rondolo, 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 4% ($ in millions)?

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Question 13

Assume Stansfield Corporation is utilizing its fixed assets at 90% capacity. Assume costs, current liabilities, and current assets vary directly with sales, and that the dividend payout ratio remains unchanged. If sales increase by 20%, what will total fixed assets be?

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Question 14

The following balance sheet and income statement should be used:   Assume that Taylor, Inc. is operating at full capacity. Also assume that all costs, net working capital, and fixed assets vary directly with sales. The debt-equity ratio and the dividend payout ratio are constant. What is the projected increase in total assets if sales are projected to increase by 25%?

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Question 15

Rondolo, Inc. is currently operating at 84% 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 12%?($ in millions)

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Question 16

Calculate the projected fixed assets needed given the following information: current sales = $25,000; current sales capacity = 80%; current fixed assets = $15,000; projected future sales = $40,000.

Accepted Answer

The current sales capacity utilization is 80%, meaning the full capacity sales could be $25,000 / 0.80 = $31,250. To support $40,000 in sales, the company needs fixed assets in the same proportion as current sales to full capacity sales. So, the projected fixed assets needed are $15,000 / $31,250 * $40,000 = $19,200.

Question 17

What is Stansfield Corporation's addition to total assets if they grow at the sustainable growth rate? (Assume the dividend payout ratio is fixed.)

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Question 18

Calculate total current assets given the following information. Cash $10,000; supplies $3,000; average collection period 54.75 days; days' sales in inventory 91.25 days; sales $80,000; COGS $60,000.

Accepted Answer

Total current assets include cash, supplies, accounts receivable, and inventory. Cash is $10,000 and supplies are $3,000. To find accounts receivable, use the average collection period formula: (Average Collection Period / 365) * Sales. This gives ($80,000 * 54.75) / 365 = $12,000. To find inventory, use the days' sales in inventory formula: (Days' Sales in Inventory / 365) * COGS. This gives ($60,000 * 91.25) / 365 = $15,000. Adding these together: $10,000 + $3,000 + $12,000 + $15,000 = $40,000.

Question 19

Consultants, Inc. is currently operating at 80 percent of capacity. What is the full-capacity level of sales?

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Question 20

Calculate the external financing needed given the following information: current sales = $25,000; current sales capacity = 80%; current fixed assets = $15,000; projected future sales = $40,000.

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Quiz 4: Long-Term Financial Planning and Corporate Growth