1) AFN = Required additional liabilities - Increase in spontaneous liabilities - Increase in retained earnings.

True

False

2) Self supporting growth rate represents what the firm can achieve if it had no access to external capital.

True

False

3) Which statement is not true: (Note: all statements assume other things held constant)

	a.	The higher the firms spontaneous liabilities,the smaller AFN will be.
	b.	The lower the payout ratio, the smaller AFN will be
	c.	The higher the profit margin, the smaller AFN will be
	d.	The higher the capital intensity ratio, the smaller AFN will be.

4) Select all true statements regarding the results of the AFN model:

	a.	If a deficit results, draw on a line of credit.
	b.	If a deficit results, go to the bank and obtain a long term loan.
	c.	If a surplus results, pay out bonuses to management.
	d.	If a surplus results, eliminate it by paying a special dividend.

5) What steps are part of the financial planning process? (select all that apply)

	a.	Forecast financial statements underalternative operating plans.
	b.	Forecast the free cash flows todetermine the estimated intrinsic stockprice.
	c.	Determine amount of financing neededto support the plan.
	d.	Establish a line of credit