Question

1. Which of the following items are determinants of external financing needed (EFN) when the percentage of sale approach is applied normally based on a sustainable growth rate?

I. increase in total assets
II. new borrowing
III. taxes payable
IV. addition to retained earnings

Select one:

a. I only

b. I and II only

c. I, II, and III only

d. I, II, and IV only

e. I, II, III, and IV

2. Given the following information, what is the desired profit margin?

D/E = 2
current profit margin = 10%
R = 0.6
capital intensity ratio = 2
desired sustainable growth rate = 15%

Select one:

a. 10.1%

b. 13.4%

c. 14.5%

d. 16.8%

e. 18.1%

3. The following information is available regarding XYZ Co.

sales = $250,000
net income = $35,000
dividends = $10,000
total debt = $100,000
total equity = $80,000

What growth rate can be supported without outside financing?

Select one:

a. 9.75%

b. 10.23%

c. 11.75%

d. 16.13%

e. 28.13%

4. VWX Inc., has sales of $500,000, net income of $80,000, dividend payout of 50%, total assets of $700,000 and target debt-equity ratio of 1.5. If the company grows at its sustainable growth rate in the coming year, how much new borrowing (to the nearest dollar) will take place?

Select one:

a. $30,000

b. $40,000

c. $50,000

d. $60,000

e. $70,000

Answer 1

1) Sustainable growth rate means the growth rate at which firm will grow without rise of additional external funds. New borrowing will not be made. Hence, correct option is d. I, II and IV only" *Please rate thumbs up

Answer 2

I II & IV only