MGT 3470A
SPRING 2014
Midterm 1
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1. A firm has an ROE of 7.5% and an ROA of 13.5%. What is the internal growth rate if the firm has a 40%
dividend payout ratio?
A. 4.71%
B. 5.71%
C. 8.10%
D. 8.81%
E. 9.19%
2. Given the following information: sales = $670; costs = $520; tax rate = 34%. Assuming costs run at a
constant percentage of sales, if sales rise by 12% next year, what will net income be?
A. $150
B. $99.00
C. $89.10
D. $110.88
E. none of the above
3. Given the following information: current assets = $400; fixed assets = $500; accounts payable = $100; notes
payable = $45; long-term debt = $455; equity = $300; sales = $450; costs = $400; tax rate = 34%. Suppose that
current assets, costs, and accounts payable maintain a constant ratio to sales. If the firm is producing at 80%
capacity, what is the total external financing needed if sales increase 25%? Assume the firm pays no dividends.
A. $33.75
B. $66.25
C. $143.75
D. $172.50
E. $380.25
4. Given the following information: assets = $900; accounts payable = $110; notes payable = $100; long-term
debt = $150; equity = $540; sales = $450; costs = $400; tax rate = 34%; dividends = $16. 50. Costs, assets, and
accounts payable maintain a constant ratio to sales. How much external financing is needed if sales increase
15% and the dividend payout ratio is constant?
A. $81
B. $94
C. $100
D. $106
E. none of the above
5. Wild Rose Stone, firm's full-capacity sales level is $7,000. If the firm is currently operating at 80% of
capacity, what is the current level of sales?
A. $8,750
B. $7,000
C. $5,600
D. $5,833
E. none of the above
6. Moore Money Inc. has a profit margin of 11% and a retention ratio of 70%. Last year, the firm had sales of
$500 and total assets of $1,000. The desired total debt ratio is 75%. What is the firm's sustainable growth rate?
A. none of the below
B. 4.0%
C. 7.22%
D. 11.3%
E. 18.2%
7. Sales of Wintergreen, Inc. are expected to increase by 7% next year. Wintergreen is currently operating at
maximum capacity. Wintergreen does not pay a dividend. Given this projection, which one of the following
statements is correct concerning next year's pro forma statement for Wintergreen Inc. if the percentage of sales
approach is used?
A. Costs are projected to be $11,311.
B. Net income is projected to be $1,986.
C. The projected retained earnings is $11,406.
D. The long-term debt is projected to be $7,062.
E. The EFN is projected to be $52.
8. Sales of Wintergreen, Inc. are expected to increase by 12% next year. Wintergreen is currently operating at
85% of capacity. The plowback ratio is 60%. What is the external financing need?
A. -$810
B. -$433
C. $1,290
D. $1,563
E. $2,043
9. Wintergreen, Inc. is producing at 82% of capacity. What is the capital intensity ratio at maximum capacity?
A. .53
B. .63
C. 1.22
D. 1.44
E. 1.59
10. Sales of Wintergreen, Inc. are expected to increase by 13% next year. The dividend payout ratio is 35%. The
company is currently operating at 93% of capacity. What is the projected retained earnings balance at the end of
next year?
A. $132
B. $414
C. $1,235
D. $2,087
E. $2,203
11. For pro forma purposes, the Martin-Jones Company uses a 7.5 percent profit margin and a 60 percent
dividend payout ratio. Sales for next year are projected to be $267,000. What is the projected addition to
retained earnings?
A. $8,010
B. $8,660
C. $9,120
D. $12,015
E. $12,455
12. A firm desires a sustainable growth rate of 13.3273 percent while maintaining a 30 percent dividend payout
ratio and an 8 percent profit margin. The firm has a total asset turnover ratio of 1.5. What is the debt-equity ratio
that is required to achieve the firm's desired rate of growth?
A. 28 percent
B. 35 percent
C. 40 percent
D. 44 percent
E. 52 percent
13. You purchased a bond for $900 one year ago. Today, you receive your only interest payment for the year of
$80. The bond can currently be sold for $964. What is your total percentage return on investment? Ignore tax
effects.
A. 8.88%
B. 16%
C. 12.3%
D. 7.11%
E. none of the above
14. Given the following historical returns, what is the standard deviation? Year 1 = 20%; year 2 = -12%; year 3
= 16%; year 4 = 3%; year 5 = -15%.
A. 11.89%
B. 12.48%
C. 14.18%
D. 15.85%
E. 16.87%
15. You purchased stock that gives historical average rate of return 7.8% with a standard deviation of 1.8%.
What is the Z-score of 11.75 % return?
A. 1.27
B. 0.25
C. 2.19
D. - 2.19
E. none of the above