28. Which one of the following statements concerning the capital intensity ratio is correct? a. The capital intensity ratio is equal to sales divided by total assets. b. The lower the capital intensity ratio the greater the amount of assets required to support each dollar of sales. c. A highly capital-intensive firm will have a low capital intensity ratio. d.The capital intensity ratio is the amount of sales generated from each dollar of total assets. E. The capital intensity ratio is the amount of total assets required to generate one dollar ofsales. 29. A firm is currently operating at full capacity and owns sufficient assets to just support that level of sales. Sales are expected to increase at the internal rate of growth next year. Net working capital and operating costs are expected to increase directly with sales. The interest expense the tax rate and the dividend payout ratio are fixed. The net income is positive. Assume you are comparing next year’s pro forma statements to this year’s financial statements. Which one of the following values should be unchanged from this year? a. profit margin B. capital intensity ratio c. debt-equity ratio d.dividend amount e. plowback amount as a percentage of sales 30. Any external financing needed is generally covered by: a. the net income retained by the firm. b. adjusting accounts payable. c. adjusting the projected cash balance. D. adjusting the level of debt and/or equity.e. the projected operating cash flow. 4-10 Chapter 004 Long-Term Financial Planning and Growth 31. Sales can often increase without increasing which one of the following? a. accounts receivable b. cost of goods sold c. accounts payableD. fixed assets e. inventory 32. If a firm is at full-capacity sales it means the firm is at the maximum level of production possible without increasing: a. net working capital. b. cost of goods sold. c. inventory. D. fixed assets.e. the debt ratio. 33. All else equal the internal growth rate increases when the: a. retention ratio decreases. b. dividend payout ratio increases. c. net income decreases. D. total assets decrease. e. plowback ratio decreases. 4-11 Chapter 004 Long-Term Financial Planning and Growth 34. The external financing needed: A. will decrease if the projected level of sales is decreased. b. is unaffected by the dividend payout ratio. c. must be funded by debt financing. d.is prior to considering any potential increase in retained earnings. e. assumes a firm is operating at full capacity. 35. The sustainable growth rate will be equivalent to the internal growth rate when:A. a firm has no debt. b. the projected growth rate is equal to the internal growth rate. c. the plowback ratio is positive but less than one. d.a firm has a debt-equity ratio exactly equal to one. e. the dividend payout ratio is zero. 36. The sustainable growth rate: a. assumes there is no external financing of any kind.B. is normally higher than the internal growth rate. c. assumes the debt-equity ratio is variable. d.is based on receiving additional external debt and equity financing. e. assumes that all income is retained by the firm. 4-12 Chapter 004 Long-Term Financial Planning and Growth 37. If a firm bases its growth projection on the rate of sustainable growth and has positive net income then the: a. fixed assets will have to increase at the same rate regardless of the current capacity level. b. number of common shares outstanding will increase at the same rate of growth. c. debt-equity ratio will have to increase. D. debt-equity ratio will remain constant while retained earnings increase. e. fixed assets debt-equity ratio and number of common shares outstanding will all increase at the same rate.
