Pledges of accounts receivable are never made on a notification basis because the lender does not trust the borrower to collect the pledged account receivable and remit these payments as they are received. Indicate whether the statement is true or false ANSWER FALSE
Nonrecourse basis is the basis on which accounts receivable once sold to a factor, the factor accepts all the credit risks on the purchased accounts. Indicate whether the statement is true or false ANSWER TRUE
For public U.S. nonfinancial firms in composite, the fractions of current assets and non-current assets (all in book values; year-end 2000) are approximately: Current Non-current Assets Assets a. 1/3 2/3 b. 1/2 1/2 c. 2/3 1/3 ANSWER A
Fixed financial charges include ________. A) common stock dividends and bond interest expense B) common stock dividends and preferred stock dividends C) bond interest expense and preferred stock dividends D) stock repurchase expense ANSWER C
Higher financial leverage causes ________ to increase more for a given increase in ________. A) EBIT; sales B) EPS; sales C) EPS; EBIT D) EBIT; EPS ANSWER C
The percentage advanced by a lender constitutes the principal of a secured loan and varies according to the type and liquidity of the collateral. Indicate whether the statement is true or false ANSWER TRUE
For public U.S. nonfinancial firms in composite, the fractions of liabilities (current plus non- current), and equities (all in book values, year-end 2000) are approximately: Liabilities Equities a. 1/3 2/3 b. 1/2 1/2 c. 2/3 1/3 ANSWER C
________ is the potential use of fixed costs to magnify the effect of changes in sales on the firm’s earnings per share. A) Investing leverage B) Total leverage C) Operating leverage D) Financial leverage ANSWER B
The ________ model answers one basic question: How soon will I recover my initial investment? A) payback period B) IRR C) NPV D) profitability index ANSWER Answer: A
Name and describe three key observations that we can make about the capital budgeting decision. What will be an ideal response? ANSWER Answer: There are three key observations we can make about the capital budgeting decision: 1) A capital budgeting decision is typically a go or no-go decision on a product, service, facility, […]