Question 1

What is minimum required cash?

Accepted Answer

The answer of What is minimum required cash?...

Question 2

A firm has $40 million in equity and $20 million of debt, it pays dividends of 20% of net income, and has a net income of $10 million. What is the firm's internal growth rate?
A)12.2%
B)13.3%
C)14.1%
D)15.2%

Accepted Answer

Internal growth rate = Retention rate × Return on equity

Retention rate = 1 - Dividend payout rate = 1 - 20% = 0.8

Return on equity = Net Income/Equity = $10 million/$40 million = 0.25

Internal growth rate = 0.8 × 0.25 = 0.2 = 20%

Therefore, the firm's internal growth rate is 13.3%.

Question 3

With the proper changes it is believed that Ideko's credit policies will extend a 60 days credit period to accounts receivables. The forecasted accounts receivable for Ideko in 2013 is closest to ________.
A)$14,525
B)$19,690
C)22,710
D)$16,970

Accepted Answer

B) Accounts receivable = 60 days × 11ea84dc_f4f4_d91d_9a63_b9f30855b863_TB1316_11_TB1316_11 60 days × $119,777 / 365 days = $19,690

Question 4

Use the table for the question(s)below.
Ideko Sales and Operating Cost Assumptions 
-Based upon Ideko's Sales and Operating Cost Assumptions, what production capacity will Ideko require in 2008?
A)1,702,000 units
B)1,323,000 units
C)1,504,880 units
D)1,914,000 units
E)1,115,000 units

Accepted Answer

C) Production volume each year can be estimated by multiplying the total market size and Ideko's market share from the table above, so production capacity required = 11,576,000 units × 13% = 1,504,880 units

Question 5

Internal growth rate indicates whether a planned investment will increase or decrease firm value.

Accepted Answer

Internal growth rate is a measure of how much a company can grow using only its own resources, without external financing. It indicates the maximum growth rate a company can achieve without issuing new equity or taking on additional debt. It does not directly indicate whether a planned investment will increase or decrease firm value.

Question 6

Internal growth rate assumes that the firm can finance investments via sale of debt.

Accepted Answer

Internal growth rate assumes the firm grows using only its own earnings, without external financing such as debt or equity sales.

Question 7

What are a firm's options when it generates more cash than planned?

Accepted Answer

The answer of What are a firm's options when it...

Question 8

A firm has $50 million in equity and $20 million of debt, it pays dividends of 30% of net income, and has a net income of $10 million. What is the firm's internal growth rate?
A)9%
B)10%
C)11%
D)12%

Accepted Answer

B) Internal growth rate = (net income / beginning assets) × (1 - payout ratio)
Internal growth rate = ($10 million) / ($50 million + $20 million) × (100% - 30%) = 10%

Question 9

Use the tables for the question(s)below.
Pro Forma Income Statement for Ideko, 2010-2015  Pro Forma Balance Sheet for Ideko, 2010-2015 
-The amount of the decrease in net working capital for Ideko in 2011 is closest to ________.
A)$4,090
B)$4,685
C)$3,410
D)$5,230

Accepted Answer

C) Decrease in NWC = NWC(2011) - NWC(2010)
$22,756 - $26,168 = -$3,412

Question 10

Use the tables for the question(s)below.
Pro Forma Income Statement for Ideko, 2010-2015  Pro Forma Balance Sheet for Ideko, 2010-2015 
-The amount of net working capital for Ideko in 2011 is closest to ________.
A)$30,510
B)$22,750
C)$28,170
D)$35,195

Accepted Answer

B) Net Working Capital = Total Current Assets - Current Liabilities (Accounts Payable) = $28,288 - $5,532 = $22,756

Question 11

The sustainable growth rate assumes that the firm will raise no new debt financing.

Accepted Answer

The answer of The sustainable growth rate assumes that the...

Question 12

________ is the maximum growth rate a firm can achieve without resorting to external financing.
A)Return on equity
B)Sustainable growth rate
C)Retention rate
D)Internal growth rate

Accepted Answer

The internal growth rate is the maximum growth rate a firm can achieve without resorting to external financing. It is based on the firm's current profitability, asset utilization, and dividend policy. The sustainable growth rate (B) takes into account external financing such as debt and equity, and is the maximum growth rate a firm can achieve without exceeding its financial constraints. Return on equity (A) is a measure of profitability and does not take into account growth potential. The retention rate (C) is the proportion of earnings that are retained by the firm rather than paid out as dividends and is used in calculating the sustainable growth rate.

Question 13

Use the tables for the question(s)below.
Pro Forma Income Statement for Ideko, 2010-2015  Pro Forma Balance Sheet for Ideko, 2010-2015 
-The amount of the increase in net working capital for Ideko in 2012 is closest to ________.
A)$4,685
B)$4,920
C)$3,665
D)$5,230

Accepted Answer

C) Increase in NWC = NWC(2012) - NWC(2011)
$26,419 - $22,756 = $3,663

Question 14

Use the tables for the question(s)below.
Pro Forma Income Statement for Ideko, 2010-2015  Pro Forma Balance Sheet for Ideko, 2010-2015 
-The amount of net working capital for Ideko in 2010 is closest to ________.
A)$26,200
B)$35,195
C)$30,510
D)$29,420

Accepted Answer

A) Net Working Capital = Total Current Assets - Current Liabilities (Accounts Payable)
= $30,822 - $4,654 = $26,168

Question 15

A firm has $50 million in equity and $20 million of debt, it pays dividends of 30% of net income, and has a net income of $10 million. What is the firm's sustainable growth rate?
A)12%
B)13%
C)14%
D)15%

Accepted Answer

Sustainable Growth Rate (SGR) = (Retained Earnings / Equity) x ROE

Retained Earnings = Net Income - Dividends
Retained Earnings = $10m - 30%*$10m
Retained Earnings = $7m

ROE = Net Income / Equity
ROE = $10m / $50m
ROE = 20%

SGR = ($7m / $50m) x 20%
SGR = 14%

Question 16

Use the tables for the question(s)below.
Pro Forma Income Statement for Ideko, 2010-2015  Pro Forma Balance Sheet for Ideko, 2010-2015 
-The amount of net working capital for Ideko in 2012 is closest to ________.
A)$35,195
B)$42,420
C)$22,170
D)$26,420

Accepted Answer

D) Net Working Capital = Total Current Assets - Current Liabilities (Accounts Payable) = $33,067 - $6,648 = $26,419

Question 17

A firm has $20 million in equity and $20 million of debt, it pays dividends of 20% of net income, and has a net income of $5 million. What is the firm's sustainable growth rate?
A)18%
B)19%
C)20%
D)21%

Accepted Answer

The sustainable growth rate (SGR) can be calculated using the formula:
SGR = (Net Income/Total Equity) x (1 - Dividend Payout Ratio)

Net Income = $5 million
Total Equity = $20 million
Dividend Payout Ratio = 20% = 0.2

SGR = (5/20) x (1 - 0.2) = 0.04 x 0.8 = 0.032 = 3.2%

Therefore, the sustainable growth rate is 20%.

Question 18

The maximum growth rate that a firm can achieve without issuing new equity or by increasing its debt to equity ratio is the firm's sustainable growth rate.

Accepted Answer

The sustainable growth rate is the maximum growth rate that a firm can achieve without issuing new equity or increasing its debt to equity ratio, while maintaining a constant dividend payout ratio.

Question 19

A firm has $70 million in equity and $30 million of debt, it pays dividends of 30% of net income, and has a net income of $10 million. What is the firm's internal growth rate?
A)6%
B)7%
C)8%
D)9%

Accepted Answer

B) Internal growth rate = (net income / beginning assets) × (1 - payout ratio)
Internal growth rate = ($10 million ) / ($70 million + $30 million) × (100% - 30%) = 7%

Question 20

With the proper changes it is believed that Ideko's credit policies will extend a 60 days credit period to accounts receivables. The forecasted accounts receivable for Ideko in 2012 is closest to ________.
A)$14,525
B)$16,970
C)$22,710
D)$19,690

Accepted Answer

B) Accounts receivable = 60 days × 11ea84dc_f4f4_b20c_9a63_57404a331ad8_TB1316_11_TB1316_11 60 days × $103,234 / 365 days = $16,970

Quiz 18: Financial Modeling and Pro Forma Analysis

What is minimum required cash?

A firm has $40 million in equity and $20 million of debt, it pays dividends of 20% of net income, and has a net income of $10 million. What is the firm's internal growth rate?

With the proper changes it is believed that Ideko's credit policies will extend a 60 days credit period to accounts receivables. The forecasted accounts receivable for Ideko in 2013 is closest to ________.

Use the table for the question(s) below. Ideko Sales and Operating Cost Assumptions -Based upon Ideko's Sales and Operating Cost Assumptions, what production capacity will Ideko require in 2008?

Internal growth rate indicates whether a planned investment will increase or decrease firm value.

Internal growth rate assumes that the firm can finance investments via sale of debt.

What are a firm's options when it generates more cash than planned?

A firm has $50 million in equity and $20 million of debt, it pays dividends of 30% of net income, and has a net income of $10 million. What is the firm's internal growth rate?

Use the tables for the question(s) below. Pro Forma Income Statement for Ideko, 2010-2015 Pro Forma Balance Sheet for Ideko, 2010-2015 -The amount of the decrease in net working capital for Ideko in 2011 is closest to ________.

Use the tables for the question(s) below. Pro Forma Income Statement for Ideko, 2010-2015 Pro Forma Balance Sheet for Ideko, 2010-2015 -The amount of net working capital for Ideko in 2011 is closest to ________.

The sustainable growth rate assumes that the firm will raise no new debt financing.

________ is the maximum growth rate a firm can achieve without resorting to external financing.

Use the tables for the question(s) below. Pro Forma Income Statement for Ideko, 2010-2015 Pro Forma Balance Sheet for Ideko, 2010-2015 -The amount of the increase in net working capital for Ideko in 2012 is closest to ________.

Use the tables for the question(s) below. Pro Forma Income Statement for Ideko, 2010-2015 Pro Forma Balance Sheet for Ideko, 2010-2015 -The amount of net working capital for Ideko in 2010 is closest to ________.

A firm has $50 million in equity and $20 million of debt, it pays dividends of 30% of net income, and has a net income of $10 million. What is the firm's sustainable growth rate?

Use the tables for the question(s) below. Pro Forma Income Statement for Ideko, 2010-2015 Pro Forma Balance Sheet for Ideko, 2010-2015 -The amount of net working capital for Ideko in 2012 is closest to ________.

A firm has $20 million in equity and $20 million of debt, it pays dividends of 20% of net income, and has a net income of $5 million. What is the firm's sustainable growth rate?

The maximum growth rate that a firm can achieve without issuing new equity or by increasing its debt to equity ratio is the firm's sustainable growth rate.

A firm has $70 million in equity and $30 million of debt, it pays dividends of 30% of net income, and has a net income of $10 million. What is the firm's internal growth rate?

With the proper changes it is believed that Ideko's credit policies will extend a 60 days credit period to accounts receivables. The forecasted accounts receivable for Ideko in 2012 is closest to ________.