Chapter 13 Dividend Policy and Internal Financing

41) Ribbon Industries reported sales of $3 million and net income of $400,000 for 2010. The retained earnings balance at the end of 2012 is $7 million. Ribbon Industries has a dividend payout ratio of 30%. If sales are expected to increase by 25% next year, what will be the projected balance in retained earnings using the percent of sales method?

A) $7,280,000

B) $6,720,000

C) $7,350,000

D) $8,750,000

42) Discretionary financing accounts include all of the following EXCEPT

A) long-term debt.

B) notes payable.

C) accrued liabilities.

D) common stock.

43) Using the percent of sales method and assuming that no excess capacity exists, a 20% increase in sales will result in

A) a 20% increase in total assets.

B) a 20% increase in total liabilities.

C) a 20% increase in retained earnings.

D) a 20% increase in the company's profit margin.

44) The CFO of Twine Enterprises expects sales to increase from $8,000,000 in 2010 to $12,000,000 in 2011. Current assets in 2010 are equal to $5,000,000. Using the percent of sales method, projected current assets for 2011 are equal to

A) $5,500,000.

B) $7,083,333.

C) $9,000,000.

D) $7,500,000.

45) All of the following will increase the discretionary financing needed EXCEPT

A) decrease the net profit margin.

B) decrease the dividend payout ratio.

C) decrease the sales growth rate.

D) decrease the spontaneous financing.

46) DAS, Inc. is preparing its financial forecast for next year and its discretionary financing needed is negative. This means that

A) sales growth must be negative.

B) the predicted change in total assets must be negative.

C) the predicted change in spontaneous liabilities and retained earnings must be greater than the predicted change in total assets.

D) the dividend payout ratio must be greater than the predicted growth rate in sales.

47) Potential sources of financing to support an increase in sales include all of the following EXCEPT

A) increase in the dividend payout ratio.

B) increase in spontaneous liabilities.

C) increase in accounts payable.

D) issuance of bonds and/or common stock.

48) When forecasting fixed asset requirements, the projected fixed asset balance will

A) not increase proportionally with sales if the existing level of fixed assets is sufficient to support current sales.

B) not increase proportionally if excess capacity exists.

C) remain the same since the balance is fixed.

D) always increase proportionally with sales.

49) Using the percentage of sales method of forecasting

A) all asset and liability accounts increase or decrease proportionally with sales.

B) only asset accounts increase or decrease proportionally with sales.

C) accounts payable and accrued expenses are the only liabilities that increase or decrease proportionally with sales.

D) all balance sheet accounts increase or decrease proportionally with sales.

50) Which of the following will most likely result in an increase in discretionary funding needed?

A) The company's profit margin increases.

B) The company's dividend payout ratio increases.

C) The company's assets are only operating at 50% of capacity.

D) The company pays its accounts payable in 50 days, up from 45 days.