QUESTION Why is liquidity important in analysis of financial statements? Explain its importance from the viewpoint of more than one type of user. Liquidity is very important part of financial statement analysis. For an investor considering an investment in a company, liquidity of the stock of the company will be important to measure the transaction […]
QUESTION Explain the following statement: While the balance sheet can be thought of as a snapshot of the firm”s financial position at a point in time, the income statement reports on operations over a period of time. Balance Sheet or Statement of financial position reflects the financial position of the organization at a particular date. […]
QUESTION a. Marshall Arts has just invested one million euros in BTPs (long-term Italian government bonds). Marshall is concerned about increasing volatility in interest rates. He decides to hedge using bond futures contracts. Should he buy or sell such contracts? b. The treasurer of an Italian corporation plans to issue bonds in three months. She […]
QUESTION Nixon Communications is trying to estimate the first-year operating cash flow (at t = 1) for a proposed project. The financial staff has collected the following information: Projected sales $10 million Operating costs (not including depreciation) $7 million ANSWER: CLICK REQUEST FOR AN EXPERT SOLUTION
QUESTION The following table shows the prices of a sample of strips of UK gilts (government bonds) in December 1998. Each strip makes a single payment of 100 at maturity. Maturity Price () Dec-00 90.826 ANSWER: CLICK REQUEST FOR AN EXPERT SOLUTION
QUESTION The Aubey Coffee Company is evaluating the within-plant distribution system for its new roasting, grinding, and packing plant. The two alternatives are (1) a conveyor system with a high initial cost, but low annual operating costs, and (2) several forklift trucks, which cost less, but have considerably higher operating costs. The decision to construct […]
QUESTION Suppose the trade-off theory of capital structure is true. Can you predict how companies” debt ratios should change over time? How do these predictions differ from the pecking-order theory”s? Answer: The capital structure of a company is how it finances its operations using debt and equity as the sources of funds. The major issue […]
QUESTION Explain why the NPV of a relatively long-term project, defined as one for which a high percentage of its cash flows are expected in the distant future, is more sensitive to changes in the cost of capital than is the NPV of a short-term project. In NPV method, the net present value is calculated […]
QUESTION Assume a perfectly competitive market with no corporate or personal taxes. Companies A and B each earn gross profits of P and differ only in their capital structureA is wholly equity-financed and B has debt outstanding on which it pays a certain $100 of interest each year. Investor X purchases 10 percent of the […]
QUESTION Big-Deal Construction Company specializes in building dams. During Years 3, 4, and 5, three dams were completed. The first dam was started in Year 1 and completed in Year 3 at a profit before income taxes of $120,000. The second and third dams were started in Year 2. The second dam was completed in […]
