Long-Term Financial Planning and Growth

Atlas Industries combines the investment proposals from each operational unit into one single project for planning purposes. This process is referred to as:

• conjoining.

• aggregation.

• conglomeration.

• appropriation

• summation.

When developing a financial plan for a corporation you should consider which of the following?

I. How much net working capital will be needed? II. Will additional fixed assets be required? III. Will dividends be paid to shareholders? IV. How much new debt must be obtained?

• I and IV only

• II and III only

• I, III, and IV only

• II, III, and IV only

• I, II, III, and IV

Financial planning:

• focuses solely on the short-term outlook for a firm.

• is a process that firms employ only when major changes to a firm's operations are anticipated.

• is a process that firms undergo once every five years.

• considers multiple options and scenarios.

• provides minimal benefits for firms that are highly responsive to economic changes.

Financial planning includes the: I. determination of asset requirements. II. development of contingency plans. III. establishment of priorities. IV. analysis of funding options.

• I and III only

• II and IV only

• I, III, and IV only

• I, II, and III only

• I, II, III, and IV

When planning for the long run, the planning horizon is usually a period of:

• 5-10years

• 2-5 years

• 1-3 years

• 3-7 years

• 5 years or more

Which of the following questions are appropriate to address during the financial planning process? I. Should the firm merge with a competitor? II. Should additional shares of stock be sold? III. Should a particular division be sold? IV. Should a new product be introduced?

• I only

• II and III only

• I and II only

• I, II, and III only

• I, II, III, and IV

Financial plans:

• concentrate solely on income and expense items.

• often contain alternative options based on economic developments.

• frequently contain conflicting goals.

• assume that firms obtain no additional external financing.

• are based on a single set of economic assumptions.

Which one of the following are you most apt to estimate first as you begin the process of preparing pro forma statements?

• Need for additional fixed assets

• Current fixed costs

• Projected sales

• Desired net income

• Desired dividend payments

Pro forma statements:

• must assume that no new equity is issued

• are projections, not guarantees.

• are limited to a balance sheet and income statement

• must assume that no dividends will be paid.

• exclude net working capital needs.

The retention ratio can be computed as:

• 1 − Plowback ratio.

• Change in retained earnings/Cash dividends.

• 1 + Dividend payout ratio.

• (Change in retained earnings + Cash dividends)/Net income.

• 1 − (Cash dividends/Net income).