1. A firm has projected current assets to be $32 million, fixed assets to be $55 million, total liabilities to be $49 million, and owner’s equity to be $7 million. Given this information, what is the discretionary financing need?

1. A firm has projected current assets to be $32 million, fixed assets to be $55 million, total liabilities to be $49 million, and owner’s equity to be $7 million. Given this information, what is the discretionary financing need?

$6 million

$27 million

$31 million

$45 million

$7 million

2.

A firm has projected current assets to be $205 million, fixed assets to be $605 million, current liabilities to be $188 million, long-term debt to be $461 million, and owner’s equity to be $106 million. Given this information, what is the discretionary financing need?

$38 million

$9 million

$94 million

$17 million

$55 million

3.

A company currently has $50 million in sales, $23 million in current assets, $39 million in fixed assets, $15 million in accounts payable. The fixed assets are currently operated with fully capacity and will change proportionally with the sales growth. If sales are projected to $70 million, then current assets are projected to be ________, fixed assets are projected to be ________, and accounts payable are projected to be ________.

$40.1 million; $74.1 million; $18.7 million

$22.1 million; $41.4 million; $14.5 million

$36.3 million; $58.6 million; $21.0 million

$19.4 million; $45.8 million; $11.2 million

none of these

4.

Suppose a firm has a net profit margin of 15%, sales of $155 million, assets of $312 million, and owner’s equity of $223. If the dividend payout ratio is 10%, what is the firm’s sustainable growth rate?

11.55%

10.43%

12.88%

9.38%

cannot be determined

5.

A spontaneous account refers to

an account on the balance sheet and income statement that is calculated using the time value of money.

an account on the balance sheet and income statement that varies automatically when sales are changed.

an account on the income statement that cyclically appears.

an account on the balance sheet that changes when net income is changed.

none of these

6.

The purpose of financial forecasting can best be described as an answer to which of the following questions?

What product will produce the most in sales during the next year?

How much financing will the firm need in the future?

How will an increase in the firm’s tax rate affect the firm’s net income?

What is the firm’s current market share?

7.

What is the main goal of financial forecasting?

to understand the implications of today’s decisions on tomorrow’s performance

to project net income and dividends for the firm

to project sales so investors can adjust stock prices

to provide a detailed map of a firm’s future

8.

Which of the following steps is not used to calculate the firm’s future discretionary financing needed (DFN)?

Project sales and expenses.

Calculate retained earnings.

Calculate cash flows from operations.

Identify the discretionary accounts that will be held constant with an increase in sales.

9.

Which of the following elements on a balance sheet is not a spontaneous account?

notes payable

accounts payable

accounts receivable

cash

inventory

10.

Which of the following ways can a firm decrease it DFN?

Reduce the dividend payout.

Reduce sales growth.

Recheck existing capital constraints.

Improve net margin.

all of these