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Financial Planning. True or false - Explain.

a. Financial planning should attempt to minimize risk.

b. The primary aim of financial planning is to obtain better forecasts of future cash flows and earnings.

c. Financial planning is necessary because financing and investment decisions interact and should not be made independently.

d. Firms` planning horizons rarely exceed 3 years.

e. Individual capital investment projects are not considered in a financial plan unless they are very large.

f. Financial planning requires accurate and consistent forecasting.

g. Financial planning models should include as much detail as possible.

2. Financial Models. What are the dangers and disadvantages of using a financial model? Discuss.

3. Using Financial Plans. Corporate financial plans are often used as a basis for judging subsequent performance. What can be learned from such comparisons? What problems might arise and how might you cope with such problems?

4. Growth Rates. Find the sustainable and internal growth rates for a firm with the following ratios: asset turnover = 1.40; profit margin = 5 percent; payout ratio = 25 percent; equity/assets = .60.

5. Percentage of Sales Models. Percentage of sales models usually assume that costs, fixed assets, and working capital all increase at the same rate as sales. When do you think that these assumptions do not make sense? Would you feel happier using a percentage of sales model for short-term or long-term planning?

6. Relationships among Variables. Comebaq Computers is aiming to increase its market share by slashing the price of its new range of personal computers. Are costs and assets likely to increase or decrease as a proportion of sales? Explain.

7. Balancing Items. What are the possible choices of balancing items when using a financial planning model? Discuss whether some are generally preferable to others.

8. Financial Targets. Managers sometimes state a target growth rate for sales or earnings per share. Do you think that either makes sense as a corporate goal? If not, why do you think that managers focus on them?