Question 1

Howton & Howton Worldwide The firm is operating at full capacity.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.
Last year's sales = S0 $300.0 Last year's accounts payable $50.0
Sales growth rate = g 40% Last year's notes payable $15.0
Last year's total assets = A0* $500.0 Last year's accruals $20.0
Last year's profit margin = PM 20.0% Initial payout ratio 10.0%

Accepted Answer

A)  $31.9
B)  $33.6
C)  $35.3
D)  $37.0
E)  $38.9F) B) and E)
G) C) and E)

Question 2

firm will use spontaneous funds to the extent possible; however, due to credit terms, contracts with workers, and tax laws there is little flexibility in their usage.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is CORRECT?

Accepted Answer

A)  Perhaps the most important step when developing forecasted financial statements is to determine the breakdown of common equity between common stock and retained earnings.
B)  The first, and perhaps the most critical, step in forecasting financial requirements is to forecast future sales.
C)  Forecasted financial statements, as discussed in the text, are used primarily as a part of the managerial compensation program, where management's historical performance is evaluated.
D)  The capital intensity ratio gives us an idea of the physical condition of the firm's fixed assets.
E)  The AFN equation produces more accurate forecasts than the forecasted financial statement method, especially if fixed assets are lumpy, economies of scale exist, or if excess capacity exists.F) B) and D)
G) A) and E)

Question 4

year Jain Technologies had $250 million of sales and $100 million of fixed assets, so its FA/Sales ratio was 40%.However, its fixed assets were used at only 75% 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 FA/Sales ratio should the company set?

Accepted Answer

A)  28.5%
B)  30.0%
C)  31.5%
D)  33.1%
E)  34.7%F) A) and D)
G) B) and D)

Question 5

a firm wants to maintain its ratios at their existing levels, then if it has a positive sales growth rate of any amount, it will require some amount of external funding.

Accepted Answer

A) True 
 B)False

Question 6

Firms pay a low interest rate on spontaneous liabilities so these funds are its cheapest source of capital.Consequently, the firm should make arrangements with its suppliers to use as much of this credit as possible.

Accepted Answer

A) True 
 B)False

Question 7

Clayton Industries is planning its operations for next year, and Ronnie Clayton, the CEO, wants you to forecast the firm's additional funds needed The firm is operating at full capacity.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.
Last year's sales = S0 $350 Last year's accounts payable $40
Sales growth rate = g 30% Last year's notes payable $50
Last year's total assets = A0* $500 Last year's accruals $30
Last year's profit margin = PM 5% Target payout ratio 60%

Accepted Answer

A)  $102.8
B)  $108.2
C)  $113.9
D)  $119.9
E)  $125.9F) A) and B)
G) A) and C)

Question 8

a firm has defined its purpose, scope, and objectives, it must develop a strategy for achieving its goals.Corporate strategies are detailed plans rather than broad approaches.

Accepted Answer

A) True 
 B)False

Exam 12: Forecasting

Firms pay a low interest rate on spontaneous liabilities so these funds are its cheapest source of capital.Consequently, the firm should make arrangements with its suppliers to use as much of this credit as possible.

Correct Answer
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Correct Answer
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Correct Answer
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a firm wants to maintain its ratios at their existing levels, then if it has a positive sales growth rate of any amount, it will require some amount of external funding.

Correct Answer
verified

a firm has defined its purpose, scope, and objectives, it must develop a strategy for achieving its goals.Corporate strategies are detailed plans rather than broad approaches.

Correct Answer
verified

firm will use spontaneous funds to the extent possible; however, due to credit terms, contracts with workers, and tax laws there is little flexibility in their usage.

Correct Answer
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Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Exam 12: Forecasting

Firms pay a low interest rate on spontaneous liabilities so these funds are its cheapest source of capital.Consequently, the firm should make arrangements with its suppliers to use as much of this credit as possible.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

a firm wants to maintain its ratios at their existing levels, then if it has a positive sales growth rate of any amount, it will require some amount of external funding.

Correct AnswerverifiedShow Answer

a firm has defined its purpose, scope, and objectives, it must develop a strategy for achieving its goals.Corporate strategies are detailed plans rather than broad approaches.

Correct AnswerverifiedShow Answer

firm will use spontaneous funds to the extent possible; however, due to credit terms, contracts with workers, and tax laws there is little flexibility in their usage.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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