Question 1

Kamath-Meier Corporation's CFO uses this equation,which was developed by regressing inventories on sales over the past 5 years,to forecast inventory requirements: Inventories = $22.0 + 0.125(Sales).The company expects sales of $275.0 million during the current year,and it expects sales to grow by 30% next year.What is the inventory forecast for next year? All dollars are in millions.

Accepted Answer

The answer of Kamath-Meier Corporation's CFO uses this equation,which was...

Question 2

Last year Wei Guan Inc.had $625 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

The answer of Last year Wei Guan Inc.had $625 million...

Question 3

Clayton Industries is planning its operations for next year.Ronnie Clayton,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? Dollars are in millions.  ​

Accepted Answer

The answer of Clayton Industries is planning its operations for...

Question 4

Which of the following statements is CORRECT?

Accepted Answer

Forecasting future sales is the first and most critical step in forecasting financial requirements because it drives the entire financial forecasting process, including forecasts for expenses, assets, liabilities, and equity. The other statements are incorrect - determining the breakdown of common equity is important but not the most important step in developing forecasted financial statements, forecasted financial statements are not primarily used for managerial compensation, the capital intensity ratio measures the firm's fixed assets relative to sales, and the AFN equation and forecasted financial statement method both have their strengths and weaknesses depending on the situation.

Question 5

Which of the following statements is CORRECT?

Accepted Answer

The answer of Which of the following statements is CORRECT?
...

Question 6

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

The answer of Chua Chang & Wu Inc.is planning its...

Question 7

Fairchild Garden Supply expects $700 million of sales this year,and it forecasts a 15% increase for next year.The CFO uses this equation to forecast inventory requirements at different levels of sales: Inventories = $30.2 + 0.25(Sales).All dollars are in millions.What is the projected inventory turnover ratio for the coming year?

Accepted Answer

The answer of Fairchild Garden Supply expects $700 million of...

Question 8

Which of the following statements is CORRECT?

Accepted Answer

The sustainable growth rate is the maximum growth rate at which the firm can grow without external financing, and it is determined by the firm's internal growth factors such as profitability, asset turnover, and dividend policy. At this growth rate, the firm's AFN is zero because it generates enough internal funds to finance its growth. Choice B is incorrect because it is possible for a firm to finance its asset growth through external funds, such as debt or equity, even if its retained earnings do not increase. Choice C is incorrect because an increase in dividend payout ratio will decrease the retained earnings, which will increase the AFN requirement if the actual sales and earnings are lower than expected. Choice D is incorrect because a zero dividend payout ratio does not necessarily mean that the AFN will be zero. The firm may still need external financing to support its asset growth, even if it does not pay dividends. Choice E is incorrect because dividend policy affects the retained earnings, which is a key factor in the AFN calculation. A higher dividend payout ratio means less retained earnings and more external financing.

Question 9

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 65% 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

The answer of Last year Emery Industries had $450 million...

Question 10

Last year Godinho Corp.had $420 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

The answer of Last year Godinho Corp.had $420 million of...

Question 11

Last year Handorf-Zhu Inc.had $850 million of sales,and it had $425 million of fixed assets that were used at only 85% of capacity.What is the maximum sales growth rate the company could achieve before it had to increase its fixed assets?

Accepted Answer

The answer of Last year Handorf-Zhu Inc.had $850 million of...

Question 12

Which of the following statements is CORRECT?

Accepted Answer

The answer of Which of the following statements is CORRECT?
...

Question 13

Which of the following statements is CORRECT?

Accepted Answer

The answer of Which of the following statements is CORRECT?
...

Question 14

Spontaneously generated funds are generally defined as follows:

Accepted Answer

Spontaneously generated funds refer to funds that arise out of normal business operations such as increases in accounts payable and accruals from suppliers, employees, and the government. Option A refers to asset turnover ratio, Option B refers to constant growth rate approach, Option C refers to external financing needs, and Option E refers to free cash flow.

Question 15

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

The answer of Last year Jain Technologies had $250 million...

Question 16

Howton & Howton Worldwide (HHW)is planning its operations for the coming year,and the CEO wants you to forecast the firm's additional funds needed (AFN).Data for use in the forecast are shown below.However,the CEO is concerned about the impact of a change in the payout ratio from the 10% that was used in the past to 50%,which the firm's investment bankers have recommended.Based on the AFN equation,by how much would the AFN for the coming year change if HHW increased the payout from 10% to the new and higher level? All dollars are in millions.  ​

Accepted Answer

The AFN equation is: AFN = (A*/S0)ΔS - (L*/S0)ΔS - PM(1 - d)ΔS - MS1(1 - b)

Where:
A* = total assets required to support projected sales
S0 = spontaneous liabilities as % of sales
ΔS = projected increase in sales
L* = spontaneous liabilities
PM = profit margin on sales
d = dividend payout ratio
MS1 = additional funds required of sales increase at constant payout
b = retention ratio

To calculate the change in AFN, we need to compare the AFN with the old and new payout ratio:
AFN_old = ($640/$4,000) x $400 - ($360/$4,000) x $400 - $40(1-0.1) x $400/$4,000 - $40(0.06) x $400/$4,000 = $28 million
AFN_new = ($640/$4,000) x $400 - ($360/$4,000) x $400 - $40(1-0.5) x $400/$4,000 - $40(0.06) x $400/$4,000 = $61.6 million
Change in AFN = AFN_new - AFN_old = $61.6 million - $28 million = $33.6 million.

Therefore, increasing the payout ratio from 10% to 50% would increase the additional funds needed by $33.6 million.

Question 17

Which of the following is NOT one of the steps taken in the financial planning process?

Accepted Answer

Consulting with key competitors about prices is not a typical step in the financial planning process, as it could be seen as collusion or anti-competitive behavior. The other four choices are all common steps in financial planning.

Question 18

A company expects sales to increase during the coming year,and it is using the AFN equation to forecast the additional capital that it must raise.Which of the following conditions would cause the AFN to increase?

Accepted Answer

The answer of A company expects sales to increase during...

Question 19

Which of the following statements is CORRECT?

Accepted Answer

Operating plans provide detailed implementation guidance for achieving the corporate objectives. The statement of corporate strategies sets forth broad approaches for achieving a firm's goals, not detailed plans. The corporate purpose is a statement of the company's overall philosophy and does not provide specific operational objectives. The mission statement defines the company's purpose and reason for existence, not its lines of business and geographic area of operations. The corporate scope refers to the range of markets and business areas in which the firm will compete, not a condensed version of strategic plans. Many companies use a 5-year horizon for their operating plans.

Quiz 16: Financial Planning and Forecasting

Last year Wei Guan Inc.had $625 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?

Clayton Industries is planning its operations for next year.Ronnie Clayton,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? Dollars are in millions.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

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?

Which of the following statements is CORRECT?

Last year Godinho Corp.had $420 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?

Last year Handorf-Zhu Inc.had $850 million of sales,and it had $425 million of fixed assets that were used at only 85% of capacity.What is the maximum sales growth rate the company could achieve before it had to increase its fixed assets?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Spontaneously generated funds are generally defined as follows:

Which of the following is NOT one of the steps taken in the financial planning process?

A company expects sales to increase during the coming year,and it is using the AFN equation to forecast the additional capital that it must raise.Which of the following conditions would cause the AFN to increase?

Which of the following statements is CORRECT?

Quiz 16: Financial Planning and Forecasting

Last year Wei Guan Inc.had $625 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?

Clayton Industries is planning its operations for next year.Ronnie Clayton,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? Dollars are in millions. ​

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

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? ​

Which of the following statements is CORRECT?

Last year Godinho Corp.had $420 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?

Last year Handorf-Zhu Inc.had $850 million of sales,and it had $425 million of fixed assets that were used at only 85% of capacity.What is the maximum sales growth rate the company could achieve before it had to increase its fixed assets?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Spontaneously generated funds are generally defined as follows:

Which of the following is NOT one of the steps taken in the financial planning process?

A company expects sales to increase during the coming year,and it is using the AFN equation to forecast the additional capital that it must raise.Which of the following conditions would cause the AFN to increase?

Which of the following statements is CORRECT?

Clayton Industries is planning its operations for next year.Ronnie Clayton,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? Dollars are in millions.

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?