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CMAS-Financial Management A Financial Planning and Strategies
Accountancy and Business Management (ABM001)
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(A&Strategies) MODULE 1 1 FINANCIALMANAGEMENT A THEORIES: Businessplan 3 .Thetypicaloutlineofthecomponentpartsofabusinessplanwouldbethe A. C. financialprojections. B. D. Financialplanningprocess 2 .Planningforfuturegrowthiscalled: A C B D
- Theidealfinancialplanningprocesswouldbe A-downplanning. B-upplanning. C-downandbottom-upplanning. D. 18 .Whichofthefollowingisincorrectregardingtheconstructionoffinancial planningmodels? A strategy. B. C different strategies may be projected under a range of assumptionsaboutthefuturebeforeonestrategyisfinallychosen. D- and-errorprocessgenerateaheavyloadofarithmeticandpaperwork. Financingpolicy Maturitiesmatching 23 .Whenafirm financeslong-term assetswithshort-term sourcesoffunding, it: A B C D Short-term financing 14 .Thetypeofcompanymostlikelytoneedshort-term financingisonethat A yeartoyear B C D 25 .Commonsourcesofshort-term financinginclude: A C B D 24 .How does long-term financing policy affect short-term financing requirements? A nature ofthe firm's short-term financialplanning problem is determinedbytheamountoflong-term capitalitraises. B thatissueslargeamountsoflong-term debtorcommonstock, orthatretains a large partofits earnings,may find thatithas permanentexcesscash relativelylittle long-term capitalandendupaspermanentshort-term debtors. C andpartofcurrentassetswithequityandlong-term debt mayinvestcashsurplusesduringpartoftheyearandborrow during therestoftheyear. D-term financing. Judgmentalapproach 21 .Underthejudgmentalapproachfordevelopingaproformabalancesheet, the “plug”figure required to bring the statementinto balance maybe calledthe A C
(A&Strategies) B D Percentofsalesmethod 6 .Thepercentofsalesmethodisbasedonwhichofthefollowingassumptions? A. B. C. D. 4 .Whichofthefollowingisthemajorindependentvariableinconstructing proformaincomestatementsandbalancesheets? A C B D 7 .Thefirststepindevelopingaproformaincomestatementisto: A C B D. noneoftheabove 20 .The percent-of-sales method of preparing the projected income statementassumesthatallcostsare: A C B D 22 .Utilizing pastcostandexpenseratios(percent-of-salesmethod)when preparingproformafinancialstatementswilltendto A profitswhen salesare decreasing and overstate profits whensalesareincreasing. B,nomatterwhatthechangeinsales,aslongasfixed costsarepresent. C profitswhen salesare increasing and overstate profits whensalesaredecreasing. D,nomatterwhatthechangeinsales,aslongasfixed costsarepresent. Additionalfundsneeded 5 .Additionalfundsneededarebestdefinedas: A routinebusinesstransactions. B mustraiseexternallythroughborrowingorbyselling newcommonorpreferredstock. C. D eachitem isheldconstant. 8 .Which ofthe following statementsaboutforecasting externalfunding requirementsviathepercentageofsalesmethodistrue? A theexternalfundsneeded. B inturndrivesales. C plan assumesthatsalesdetermine assetsthatdetermine the externalfundingneeded. D, assets,andfundsneeded. 11 .Which of the following best describes a firm's external funding requirement? A B'sretainedearnings C D's retainedearnings 15 .Acompanythathasrapidlygrowingsaleswillprobably A-term financingC. have increasing asset requirements B D 17 .Whichofthefollowingstatementsismostcorrect? A, astheseaccountsincrease,requirednewfinancingalsoincreases. B isoperatingitsfixedassetsbelow 1 0 0percentcapacity butisat 10 0percentwithrespecttocurrentassets,the firm canoffsettheneededincreaseincurrentassetswithitsidlefixed assetscapacity.
(A&Strategies) ii. Calculate the totalassets ofPremiere Company given the following information: Salesthisyear P 3 , 000 , 000 Salesincreaseprojectedfornextyear 2 0percent Netincomethisyear P 2 50 , 000 Dividendpayoutratio 4 0percent Projectedexcessfundsavailablenextyear P 1 00 , 000 Accountspayable P 6 00 , 000 Notespayable P 1 00 , 000 Accruedwagesandtaxes P 2 00 , 000 Exceptfortheaccountsnoted,therewerenoothercurrentliabilities thatthe firm’澙澖澘澕澌澏澚澓澇澘澍澏澔 澘澋澓澇澏澔澙澉澕澔澙澚澇澔澚澇澔澊 澚澎澇澚澚澎澋 澉澕澓澖澇澔澟澏澙 operatingatfullcapacity. A 3 , 000 , 000 C 2 , 000 , 000 B 2 , 200 , 000 D 1 , 200 , 000 Additiontoretainedearnings iii 2006 (inP’潖潖潖): Sales P 7 , 000 Operatingcosts 3 , 000 EBIT P 4 , 000 Interest 200 Earningsbeforetaxes(EBT) P 3 , 800 Taxes( 40 %) 1 , 520 Netincometocommonshareholders P 2 , 280 Thecompanyforecaststhatitssaleswillincreaseby10percentin2 00 7and itsoperatingcostswillincreaseinproportiontosales’澙澏澔澚澋澘澋澙澚 expenseisexpectedtoremainatP 200 , 000 ,andthetaxratewillremainat 4 0percent 5 0percentofitsnetincomeas dividends,theother 5 0percentwillbeadditionstoretainedearnings theforecastedadditiontoretainedearningsfor 2007? A 1 , 140 C 1 , 440 B 1 , 260 D 1 , 790 Additionalfinancingneeded iv usesexternalfinancingasaplugitem,hasanewcapitalbudgetof P2million,anetincomeofP3million,andaplowbackratioof 40 %,how muchshouldberaisedinexternalfunds? A 2 00 , 000 C 8 00 , 000 B 6 00 , 000 D 1 , 200 , 000 v. PatioCompanyrecentlyreportedsalesofP 10 0million,andnetincome equaltoP5million 7 0millionintotalassets nextyear,thecompanyisforecasting a20 percentincreaseinsales. Since the company is atfullcapacity,its assets mustincrease in proportiontosales 0 percent,spontaneous liabilities willincrease by P2 million. If the company’澙澙澇澒澋澙澏澔澉澘澋澇澙澋,itsprofitmarginwillremainatitscurrentlevel. Thecompany’澙澊澏澜澏澊澋澔澊澖澇澟澕澛澚澘澇澚澏澕澏澙潚潖澖澋澘澉澋澔澚. BasedontheRNF formula,how muchadditionalcapitalmustthecompanyraiseinorderto supportthe20percentincreaseinsales? A, 000 , 000 C, 400 , 000 B, 000 , 000 D, 600 , 000 vi’澙潪澋澉澋澓澈澋澘潙潗, 200 6balancesheet(inP’潖潖潖, 000 )is givenbelow: Cash P1 0 Accountspayable P1 5 Accountsreceivable 25 Notespayable 20 Inventories 40 Accruedexpenses 15 Long-term debt 30 Netfixedassets 75 Commonstock 70 Totalassets P 150 TotalLiab&equity P 150 SalesduringthepastyearwereP 100 , 000 , 00 0andtheyareexpectedtorise by50percenttoP 150 , 000 , 00 0during2 007. Also,duringlastyearfixed assetswere being utilized to only85 percentofcapacity,so Leverage CompanycouldhavesupportedP 100 , 000 , 00 0ofsaleswithfixedassetsthat were only 85 percentoflastyear’澙澇澉澚澛澇澒澌澏澞澋澊 澇澙澙澋澚澙. Assume that Leverage’澙澖澘澕澌澏澚澓澇澘澍澏澔 澝澏澒澒澘澋澓澇澏澔 澉澕澔澙澚澇澔澚澇澚潛 澖澋澘澉澋澔澚澇澔澊 澚澎澇澚澚澎澋 companywillcontinuetopayout 6 0percentofitsearningsasdividends. Whatamountofnonspontaneous,required new financing (RNF),willbe neededduringthenextyear? A 55 , 500 , 000 C 49 , 500 , 000 B 52 , 500 , 000 D 40 , 125 , 000
(A&Strategies) vii. Salesforlastyearwere P 10 0million,andthebalancesheetatyear-endissimilarinpercentage ofsalestothatofpreviousyears(andthiswillcontinueinthefuture).All assets(includingfixedassets)andcurrentliabilitieswillvarydirectlywith sales. BalanceSheet (Inmillionpesos) Assets LiabilitiesandStockholders’潫澗澛澏澚澟 AccountspayableandaccrualsP 25 Currentassets P 50 Notespayable–longterm 30 Commonstock 15 Fixedassets 40 Retainedearnings 20 Total P 90 Total P 90 Spark Company has an after-tax profitmargin of5 percentand a dividendpayoutratioof 3 0percent. Ifsalesgrow by10percentnextyear,therequirednew financing(RNF) tofinancetheexpansionis A 4 , 850 , 000 C 2 , 650 , 000 B 3 , 000 , 000 D 5 , 000 , 000 NewLong-term debt viii 31 , 2006. Currentassets P 6 00 , 000 Fixedassets 400 , 000 TotalAssets P 1 , 000 , 000 Accountspayable P 1 00 , 000 Accruedliabilities 100 , 000 Notespayable 100 , 000 Long-term debt 300 , 000 Totalcommonequity 400 , 000 TotalLiabilitiesandEquity P 1 , 000 , 000 In2 006 ,thecompanyreportedsalesofP5million,netincomeofP 100 , 000 , anddividendsofP 60 , 000 .Thecompanyanticipatesitssaleswillincrease 2 0 percentin 2 00 7 and itsdividend payoutwillremain at60 percent. Assumethecompanyisatfullcapacity,so itsassetsand spontaneous liabilitieswillincreaseproportionatelywithanincreaseinsales. AssumethecompanyusestheAFNformulaandalladditionalfundsneeded (AFN)willcomefrom issuingnew long-term debt,how muchlong-term debtwillthecompanyhavetoissuein2 007? A 6 0 , 000 C 9 2 , 000 B 8 8 , 000 D 112 , 000 Maximum sales ix 2 .5millioninsalesandP 0 .8millioninfixedassets. Currently,thecompany’澙澌澏澞澋澊澇澙澙澋澚澙澇澘澋澕澖澋澘澇澚澏澔澍澇澚潝潛澖澋澘澉澋澔澚澕澌澉澇澖澇澉澏澚澟. Whatlevelofsalescould Indo Industrieshave obtained ifithad been operatingatfullcapacity? A 2 , 800 , 000 C 3 , 000 , 000 B 3 , 333 , 333 D 3 , 125 , 575 Maximum growthrate x. PierreCompanyhasthefollowingratios:A*/S=1. 6 ;L*/S=0. 4 ;profit margin=0. 10 ;anddividendpayoutratio=0. 45 ,or 4 5percent yearwereP 10 0million andthatallliabilitiesincreasespontaneouslywithincreasesinsales,what isthemaximum growthratePiereCompanycanachievewithouthaving toemploynonspontaneousexternalfunds? A. 3 .9percent C. 7 .8percent B. 4 .8percent D. 9 .6percent xi sales wantstoexpand,itdoesnotwanttouseanyexternal fundstosupportsuchexpansionduetotheparticularlyhighinterestratesin themarketnow,whatisthe maximum growthrateitcansustainwithoutrequiringadditionalfunds? Capitalintensityratio=1. 2. Profitmargin=1 0 %. Dividendpayoutratio=5 0 %. Currentsales=P 100 , 000.
(A&Strategies) IncreaseinRetainedEarnings P 1 , 260 , 000 iv:C Capitalbudget 2 , 000 , 000 Increaseinretainedearnings( 3 M x 0. 4 ) 1 , 200 , 000 Externalfundsneeded 800 , 000 v. Answer:C Additionalassets( 70 M 0. 2 ) 14 , 000 , 000 Deduct: Increaseinspontaneousliabilities 2 , 000 , 000 Increaseinretainedearnings( 120 M x 0. 0 5x 0. 6 ) 3 , 600 , 000 5 , 600 , 000 Additionalcapital 8 , 400 , 000 vi:D FixedrequiredbyP 100 M sales(P 75 M x 0. 85 ) P 63 , 750 , 000 TotalfixedassetsrequiredbyP 150 M sales( 150 ÷ 10 0xP 63 , 750 , 000 ) P 95 , 625 , 000 Deductcurrentleveloffixedassets 75 , 000 , 000 Requiredincreaseinfixedassets 20 , 625 , 000 Increaseinnetspontaneousassets 0(P 75 M – P 30 ) 22 , 500 , 000 Totalfinancingneeded 43 , 125 , 000 Deductincreaseinretainedearnings (P 150 M x 0. 0 5x 0. 4 ) 3 , 000 , 000 AdditionalFinancingNeeded P 40 , 125 , 000 vii:C RNF= (SA/S0x∆S)–(SL/S0x∆S)-∆RE ( 0. 9 0x 1 0M)–(. 2 5x 1 0M)–(. 7 0x. 0 5x 11 0M) 6 , 500 , 000 – 3 , 850 , 00 0= 2 , 650 , 000 AlternativeSolution: RNF=( 0. 1 x 90 M)–( 0. 1 x 25 M)–( 0 .7x 0. 0 5x 110 M)= 2 , 650 , 000 SA=Spontaneous(variable)assets SL=Spontaneous(variable)liabilities RE=Retainedearnings ∆S=Increaseinsales viii:D Increaseintotalassets ( 1 M x 0. 2 ) 200 , 000 Increaseinliabilities ( 200 , 00 0x 0. 2 ) 40 , 000 Increaseinnetspontaneousassets 160 , 000 Increaseinretainedearnings ( 6 M x 0. 0 2x 0. 4 ) 48 , 000 Increaseinlong-term debt(RNF) 112 , 000 ix:B Amountsalespercapacityunit( 2. 5 M ÷ 75 ) 23 , 333. 33 Amountofsalesat 100 % capacity: 10 0x 33 , 333. 33 3 , 333 , 333 x. Answer:B
- 6 (X– 100 , 000 , 000 )– 0. 4 (X– 100 , 000 , 000 )–( 0. 5 5x 0. 10 X)=
- 2 (X– 100 , 000 , 000 )– 0. 055 X =
- 2 X - 120 , 000 , 000 - 0. 055 X =-
- 145 X =1 20 , 000 , 000 X = 1 04 , 803 , 493 Growth:( 104 , 803 , 493 / 100 , 000 , 000 )– 1 = 4. 8 % xi:B ThesolutionmayusetheRNFformula. [g(A–L)]–(RRxROSxS 1 ) *Refertospontaneousorvariableassetsandliabilities. Totalassetsbasedonintensityratio:( 100 , 00 0x 1. 2 ) P 120 , 000 0=g( 120 , 000 – 10 , 000 )–[ 0. 1 x 0 .5x 100 , 00 0x( 1 +g)] 0=1 10 , 000 g– 5 , 00 0x( 1 +g) 0=1 10 , 000 g– 5 , 00 0+5, 000 g 105 , 000 g=5, 000 g 4. 8 %
(A&Strategies) xii:B Equityratio: 1 ÷( 1 +0. 5 ) 66. 67 % 0 =0. 09 – ( 0. 1 5x 0. 666 7xRR) 0 =( 0. 09 – 0. 1 RR 0. 1 RR = 0. 09 RR = 90 % xiii:B Long-term financing ( 11. 75 M x 0. 15 1 , 762 , 500 Short-term financing ( 2. 25 M x 0. 10 ) 225 , 000 Interestcosts 1 , 987 , 500 Aftertaxincome: ( 2 , 200 , 000 – 1 , 987. 000 ). 60 127 , 500 FinancingMix: Fixedassets 6. 00 M Permanentlevelofcurrentassets 3. 50 M Temporarylevelofcurrentassets ( 0 .5x 4. 5 M) 2. 25 M TotalLong-term Financing 11. 75 M xiv:C Fixedassets 100 , 000 Permanentcurrentassets( 100 , 00 0x 0. 5 ) 50 , 000 TotalPermanentFinancing 150 , 000 Permanentcurrentassetsrepresentthelowestlevelofcurrentassets duringtheyear.
CMAS-Financial Management A Financial Planning and Strategies
Course: Accountancy and Business Management (ABM001)
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