Question 1

________ 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 maximum growth rate a firm can achieve with the use of only internal financing, i.e. reinvesting its earnings and profits, is known as the internal growth rate. This rate depends on the firm's profitability, dividend policy, and asset utilization rate. The formula for calculating the internal growth rate is: Internal Growth Rate = (ROA x Retention Rate) / (1 - ROA x Retention Rate), where ROA is the firm's return on assets and Retention Rate is the proportion of earnings retained by the firm.

Question 2

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 3

What is minimum required cash?

Accepted Answer

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

Question 4

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 5

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

C) Sustainable growth rate = (net income / beginning equity) × (1 - payout ratio)
Sustainable growth rate = ($10 million / $50 million) × (100% - 30%) = 14%

Question 6

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

This is true. Sustainable growth rate is the maximum growth rate that a firm can achieve using only its retained earnings without issuing new equity or increasing its debt to equity ratio.

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

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 × 11eaabab_c066_2bdc_b90e_932bad76fb9f_TB5536_11 60 days × $103,234 / 365 days = $16,970

Question 9

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 10

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 11

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

Accepted Answer

Internal growth rate (IGR) is a measure of the maximum rate at which a company can grow without issuing new equity or debt. It is calculated as the product of the company's return on assets (ROA) and its retention ratio (the proportion of earnings that are reinvested in the business), divided by one minus the product of these two factors.

IGR does not indicate whether a planned investment will increase or decrease firm value. Instead, it provides a benchmark for evaluating whether a company's current growth rate is sustainable given its profitability and reinvestment policy. To determine whether an investment will increase or decrease firm value, other measures such as net present value (NPV) or internal rate of return (IRR) must be used.

Question 12

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

B) Internal growth rate = (net income / beginning assets) × (1 - payout ratio)
Internal growth rate = ($10 million) / ($40 million + $20 million) × (100% - 20%) = 13.33%

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 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 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 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 15

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 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 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 17

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 18

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 19

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

C) Sustainable growth rate = (net income / beginning equity) × (1 - payout ratio)
Sustainable growth rate = ($5 million / $20 million) × (100% -20%) = 20%

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 2013 is closest to ________.
A) $14,525
B) $19,690
C) 22,710
D) $16,970

Accepted Answer

B) Accounts receivable = 60 days × 11eaabab_c066_52ed_b90e_457b696e36f2_TB5536_11 60 days × $119,777 / 365 days = $19,690

Quiz 18: Financial Modeling and Pro Forma Analysis

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

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?

What is minimum required cash?

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 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?

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.

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

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 ________.

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

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?

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

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?

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 ________.

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 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?

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 2012 is closest to ________.

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

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?

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 ________.