Question Details

The Tapley Company is trying to determine an acceptable growth rate 



1)	Jefferson City Computers has developed a forecasting model to estimate its AFN for the upcoming year. All else being equal, which of the following factors is most likely to increase its additional funds needed (AFN)?
A.	A sharp increase in its forecasted sales.
B.	A sharp reduction in its forecasted sales.
C.	The company reduces its dividend payout ratio.
D.	The company decides to switch its materials purchases to a supplier that sells on terms of 1/5, net 90, from a supplier whose terms are 3/15, net 35.
E.	The company discovers that it has excess capacity in its fixed assets.


	2)	The term "additional funds needed (AFN)" is generally defined as:
A.	Funds that are obtained automatically from routine business transactions.
B.	Funds that a firm must raise externally from non-spontaneous sources, i.e., through borrowing or by selling new stock, to support operations.
C.	The amount of assets required per dollar of sales.
D.	The amount of internally generated cash in a given year minus the amount of cash needed to acquire the new assets needed to support growth.
E.	A forecasting approach in which the forecasted percentage of sales for each balance sheet account is held constant.


	3)	A company is forecasting an increase in sales and is using the percent of sales (AFN model) to forecast the additional capital that it must raise. Which of the following conditions would be most likely to increase the AFN?
A.	The company previously thought its fixed assets were being operated at full capacity, but now it learns that it actually has excess capacity.
B.	The company increases its dividend payout ratio.
C.	The company begins to pay employees monthly rather than weekly.
D.	The company's profit margin increases.
E.	The company decides to forego discounts on purchased materials.


	4)	Flannery Furnishings has $150,000 in sales. The company expects that its sales will increase 30% this year. Flannery's CFO uses a simple linear regression to forecast the company's inventory level for a given level of projected sales. On the basis of recent history, the estimated relationship between inventories and sales (in thousands of dollars) is

     Inventories  $7.50  0.1875(Sales).

Given the estimated sales forecast and the estimated relationship between inventories and sales, what is your forecast of the company's year-end inventory turnover ratio?
A.	2.25
B.	2.89
C.	3.35
D.	3.66
E.	4.43


	5)	The Tapley Company is trying to determine an acceptable growth rate in sales. While the firm wants to expand, it does not want to use any external funds to support such expansion due to the particularly high interest rates in the market now. Having gathered the following data for the firm, what is the maximum growth rate it can sustain without requiring additional funds?

•	Capital intensity ratio  1.2.
•	Profit margin  10%.
•	Dividend payout ratio  50%.
•	Current sales  $100,000.
•	Spontaneous liabilities  $10,000.

A.	3.6%
B.	4.8%
C.	5.2%
D.	6.1%
E.	5.7%



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