1) Firms with high capital intensity ratios have found ways to lower this ratio
permitting them to achieve a given level of growth with fewer assets and consequently
less external capital. For example, just-in-time inventory systems, multiple shifts for
labor, and outsourcing production are all feasible ways for firms to reduce their capital
intensity ratios.
2) A bond that had a 20-year original maturity with 1 year left to maturity has more
interest rate price risk than a 10-year original maturity bond with 1 year left to maturity.
(Assume that the bonds have equal default risk and equal coupon rates, and they cannot
be called.)
3) Other things equal, a firm will have to pay a higher coupon rate on its subordinated
debentures than on its second mortgage bonds.
4) Net operating working capital is equal to operating current assets minus operating
current liabilities.
5) Changes in a firm’s collection policy can affect sales, working capital, and profits.
6) The cost of debt is equal to one minus the marginal tax rate multiplied by the interest
rate on new debt.
7) Market risk refers to the tendency of a stock to move with the general stock market.
A stock with above-average market risk will tend to be more volatile than an average
stock, and its beta will be greater than 1.0.