Chapter 4 (Ross12e) - 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. determination of asset requirements.
II. development of contingency plans.
III. establishment of priorities.
IV. analysis of funding options.

• I and IV only

• II and III only

• I, III, and IV only

• II, III, and IV only

• I, II, III, and IV

Which of the following statements about financial planning is correct?

• 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 to 10 years.

• 2 to 5 years.

• 1 to 3 years.

• 3 to 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).