1) Two firms, although they operate in different industries, have the same expected
earnings per share and the same standard deviation of expected EPS. Thus, the two
firms must have the same business risk.
2) It is appropriate to use the fixed assets turnover ratio to appraise firms’ effectiveness
in managing their fixed assets if and only if all the firms being compared have the same
proportion of fixed assets to total assets.
3) If a firm takes actions that reduce its days sales outstanding (DSO), then, other things
held constant, this will lengthen its cash conversion cycle (CCC).
4) The strike price is the price that must be paid for a share of common stock when it is
bought by exercising a warrant.
5) Funds from short-term loans can generally be obtained faster than from long-term
loans for two reasons: (1) when lenders consider long-term loans they must make a
more thorough evaluation of the borrower’s financial health, and (2) long-term loan
agreements are more complex.
6) The interest rate paid on Eurodollar deposits depends on the particular bank’s lending
rate and on rates available on U.S. money market instruments.
7) Since receivables and payables both result from sales transactions, a firm with a high
receivables-to-sales ratio must also have a high payables-to-sales ratio.
8) If one of your firm’s customers is ‘stretching” its accounts payable, this may be a
nuisance but it does not represent a real financial cost to your firm as long as the
customer periodically pays off its entire balance.
9) If a firm raises capital by selling new bonds, it is called the “issuing firm,” and the
coupon rate is generally set equal to the required rate on bonds of equal risk.