Question

1. As the growth rate ________, ________ financing will not be enough to fund new projects

1. Increases, External
2. Increases, Internal
3. Decreases, External
4. Decreases, Internal

2. An increase in which of the following will increase a firm's sustainable growth rate?

1. Profit margin
2. Dividend payout ratio
3. Capital structure
4. Both A and C
5. Both B and C

3. The percent of sales method for determining pro-forma financial statements:

1. Assumes a constant retention ratio (dividend policy)
2. Assumes that the marginal tax rate is constant

Depends on a projection of sales for coming periods

All of the above. Question (2) The following table presents the Balance sheet of automobile company at 31/12/2019 Assets Value Liabilities value Cash ? Account payable 10000 Accounts Receivable 15000 accruals 5000 Inventory 30000 Long term debt ? Fixed assets 150000 - - - - Common shares 120000 Retained earnings 50000 Total assets 215000 Total equity and liabilities 215000

Answer 1

Question 1 Increases, Internal

Internal financing refers to the use of company's profit for the expansion or investment in new projects. When the company is growing they have to look for external financing that is issuance of equity and debt to maintain the growth pace because the profots genertaed by the company is very limited if they want to invest in capital projects.

Question 2 Profit Margin and Capital structure

To look for sustainable growth of the company, Profit margin and capital structure helps to determine the accurate picture. capital structure refers to the combination of debt and equity to finance it's capital. If the company has balanced combination then it is likely that they can meet it's cost of them, while profit margin refers to the amount of profit that the company generates from the sales, It depicts how wisely company is using it's resources to generate profit

Question 3 All of the above

In determing percentage of sales, it is assumed that the marginal tax rate, cinstant dividend rate and the company projection of sales for the upcoming period because any change in the above criteria could impact the projections of the company. Therefore, constant rates and ratios are assumed to arrive at the derived targets.

Question 4 Cash - 20,000 and long Term Debt - 30,000

Cash - Total Asset - [Accounts receivable + Inventory + Fixed Asset]

Cash = 215000 -[15,000+30,000+150000]

Cash = 215000 - 195000

Cash = 20,000

Long Term Debt = Total Liabilities - [Accounts Payable + Accruals + Common shares + Retained earnings ]

= 215000 -[10,000+5,000+120000+50000]

= 215000 - 185000

Long Term Debt = 30,000

Note: Retained earning is a part of liability it is misintrepretated in Asset Side.