A high inventory turnover ratio would be important to a company whose product has a
high level of spoilage.
Accruals represent spontaneous financing from things such as purchasing inventory on
credit.
The S-corporation was designed to address the concerns of shareholders of large,
publicly traded companies that wanted to avoid the double taxation of their income.
Merger analysis is always a straightforward exercise in capital budgeting.
Companies may choose to repurchase stock rather than pay dividends, because the
repurchase has significant tax advantages for shareholders. But frequent repurchases are
likely to be challenged by the IRS.
Generally, merchandise is sold on credit under terms such as 2/10, net 30, meaning the
buyer may deduct 10% from the bill if he pays within 2 days or pay the full amount
within thirty days.
Holding all other variables constant, an increase in the market return will increase the
value of a constant growth stock.
In the course of normal operations, firms incur short-term liabilities that partially offset
the need to fund working capital assets. This is generally called automatic financing.
The future and present value factors are reciprocals. Either amount equation can be
used to solve any amount problem.
A firm’s target capital structure is management’s estimate of the optimal capital
structure.
The only negative consequence of slow paying is that the particular vendor involved
may refuse to make additional credit sales. If that happens the customer firm can always
go to other vendors and get credit.
Funds raised by borrowing are said to be “debt financed,” whereas funds raised through
the sale of stock are said to be “invested-capital financed.”
Financial markets provide a “conduit” for money, and act as intermediaries between the
consumption and production sectors.
The slopes of EBIT-EPS lines reflect the impact of financial leverage on the sensitivity
of EPS to changes in EBIT.
If a firm has an ROA of 5% and desires an ROE of 10%, what debt-to-equity ratio will
accomplish this?
A.1.00
B.0.50
C.1.50
D.2.00
Happenings that causes unsystematic risk include:
A.inflation.
B.interest rates changes.
C.local strikes.
D.recession.
Hatter Enterprises has current assets of $15 million and a current ratio of 3. The bank
has offered Hatter a $13 million revolving credit agreement at an interest rate of 10%.
Hatter will have to pay a commitment fee of 1% on the unused balance. Assuming that
current assets and the current ratio remain constant, calculate the total annual financing
charge associated with this agreement if Hatter borrows enough to support all of its net
working capital.
A.$1,030,000
B.$1,240,000
C.$1,310,000
D.$1,390,000
An increase in the average collection period may suggest all of the following except:
A.easing of credit terms.
B.customers are not paying their bills on time.
C.sales have decreased.
D.firm could have a liquidity problem in the future.
What would you be willing to pay today to receive $5,000 at the beginning of each year
for the next 10 years if interest is earned at a rate of 8% compounded annually?
A.$34,656
B.$36,235
C.$33,551
D.$78,228
Which of the following is(are) used to develop a stock’s intrinsic value?
A.Fundamental analysis
B.Assumptions about future cash flows
C.Technical analysis
D.Both a and b
E.All of the above
A growth rate that exceeds the market return is called:
A.acceptable growth.
B.supernormal growth.
C.limited growth.
D.normal growth.
Trade credit is implicitly costless only:
A.during the entire net period.
B.during the prompt payment discount period.
C.between the first and last days of the net period.
D.at no time.
An unapproved prospectus is called:
A.a red letter.
B.a saltwater investment.
C.a red herring.
D.an unapproved offering.
The SOX now requires _____ to certify that they believe in their own financial reports.
A.consultants
B.brokerage firms
C.shareholders
D.analysts
Addleson Corp. has a $1,000 par value bond outstanding that was issued for 30 years 5
years ago at a coupon rate of 15%. What is it yielding if it is selling for $938.81?
A.10%
B.14%
C.16%
D.18%
A reorganization in bankruptcy primarily:
A.restructures the firm’s business operations to enhance performance.
B.reorganizes management to get rid of poor performers and put more competent
people in charge so the firm will do better in the future.
C.restructures capital to lower interest payments.
D.reorganizes customers.
By which means does the consumption sector supply money to the production sector?
A.Product purchases
B.Wages
C.Labor services
D.Supply of goods and services