Questions 1.
The most recent financial statements for Live Co. are shown here:
Income Statement
Balance Sheet
Sales
$13,250
Current assets
$10,400
Debt
$51,000
Costs
9,480
Fixed assets
28,750
Equity
21,650
Taxable income
$3,770
Total
$39,150
Total
$39,150
Taxes (34%)
1,508
Net income
$2,262
Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 30 percent dividend payout ratio. No external equity financing is possible.
Required:
What is the internal growth rate?
4.11%
7.89%
1.76%
4.21%
4.31%
Questions 2.
McCormac Co. wishes to maintain a growth rate of 12 percent a year, a debt-equity ratio of 1.20, and a dividend payout ratio of 30 percent. The ratio of total assets to sales is constant at .75.
Required:
What profit margin must the firm achieve?
21.65%
9.28%
12.18%
5.47%
5.22%
Seaweed Mfg., Inc., is currently operating at only 95 percent of fixed asset capacity. Fixed assets are $440,000. Current sales are $550,000 and projected to grow to $630,000.
Required:
How much in new fixed assets are required to support this growth in sales?
$38,700
$38,800
$64,000
$38,900
$39,000
Questions 3.
Assume that the following ratios are constant.
Total asset turnover
2.50
Profit margin
7.8%
Equity multiplier
1.80
Payout ratio
60%
Required:
What is the sustainable growth rate?
16.33%
16.83%
-8.56%
-5.87%
26.68%
Questions 4.
The most recent financial statement for Throwing Copper Co. are shown here:
Income Statement
Balance Sheet
Sales
$42,000
Current assets
$21,000
Long-term debt
$51,000
Costs
28,500
Fixed assets
86,000
Equity
56,000
Taxable income
$13,500
Total
$107,000
Total
$107,000
Taxes (34%)
4,590
Net income
$8,910
Assets and costs are proportional to sales. The company maintains a constant 30 percent dividend payout ratio and a constant debt-equity ratio.
Required:
What is the maximum increase in sales that can be sustained assuming no new equity is issued?
$5,364.03
$5,164.03
$2,105.24
$5264.03
$2,599.70
Questions 5.
Consider the following simplified financial statements for the Phillips Corporation (assuming no income taxes):
Income Statement
Balance Sheet
Sales
$23,000
Assets
$15,800
Debt
$5,200
Costs
16,700
Equity
10,600
Net income
$6,300
Total
$15,800
Total
$15,800
Phillips has predicated a sales increase of 15 percent. It has predicated that every item on the balance sheet will increase by 15 percent as well.
Required:
Calculate the dividend paid.
$5,555
$5,755
$5,655
$4,875
$5,855
Questions 6.
If the Gamett Corp. has a 15 percent ROE and a 25 percent payout ratio, what is its sustainable growth rate?
3.90%
12.68%
12.78%
12.88%
12.58%
Questions 7.
A firm wishes to maintain a growth rate of 11.5 percent and dividend payout ratio of 30 percent. The ratio of total assets to sales is constant at .60, and the profit margin is 6.2 percent. If the firm also wishes to maintain a constant debt-equity ratio, what must it be?
0.42
2.46
2.33
0.43
0.44
Questions 8.
The most recent financial statement for Zoso, Inc., are shown here (assuming no income taxes):
Income Statement
Balance Sheet
Sales
$6,300
Assets
$18,300
Debt
$12,400
Costs
3,890
Equity
5,900
Net Income
$2,410
Total
$18,300
Total
$18,300
Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next yearÂ’s sales are projected to be $7,434.
Required:
What is the external financing needed?
$450
$430
$2,232
$475
$470