What is the debt/interest planning problem? O Planned debt is required to forecast interest, but interest is required to forecast debt. O The difficulty of knowing how much debt to issue because net income is constant. The difficulty of knowing how much dividends to pay because debt is constant. Debt is constant, but interest varies through time. Considering each action independently and holding other things constant, which of the following would DECREASE new debt financing need- A decrease in the dividend payout ratio O A decrease in the tax rate A decrease in fixed assets Both "A decrease in the dividend payout ratio & 'A decrease in the tax rate" O All of these choices are correct. Management wishes to reduce next year's external funding needs. Which of the following will accomplish this task? O Decrease profit margins Decrease the dividend payout ratio Increase the assets/sales ratio O None of these choices are correct. Which of the following is true of the financial plan in a reasonably well managed company? The plan should establish measurable goals which result in bonus compensation if achieved. O its stretch goals serve as targets toward which the organization strives and always achieves. The plan should ideally follow the aggressive optimism strategy O its stretch goal faces a risk of overstating achievable performance because of the bottom-up phenomenon. Which of the following sections of a business plan is likely to contain information on why a business is likely to succeed against its competitors? Mission and strategy statement Executive Summary O Market analysis Red herring prospectus Large companies tend to do which of the following types of business planning? Operational planning Strategic planning O Budgeting and forecasting All of these choices are correct. External funding requirements can be estimated using an equation called the EFR relationship. The simple concept behind this equation is that funds will be needed to the extent of forecasted: O growth in sales minus all current liabilities minus all retained earning O growth in assets minus new retained earnings. O growth in assets minus growth in current liabilities minus new retained earnings assets minus current habilities minus new retained earnings The major audiences for a firm's business plan are: O the firm's own management O outside investors. O Neither the firm's own management" nor "outside investors". O Both "the firm's own management" and outside investors". If a firm does not have any debt, what is true about the components of the sustainable growth rate? The dividend payout ratio is 100% The ROE is greater than the ROA. The ROA multiplied by the retention ratio is equal to the sustainable growth rate. The retention ratio is 100% An expected physical or economic condition that dictates the size of one or more financial statement items is a: O sustainable growth rate. O planning assumption. O cash budget O stretch plan
