A bank lends a firm $1,000,000 for one year at 12 percent on a discounted basis and requires compensating balances of 10 percent of the face value of the loan. The effective annual interest rate associated with this loan is ________. A) 12 percent B) 13.3 percent C) 13.6 percent D) 15.4 percent […]
Date: September 19th, 2020
Value is created when the industry is profitable and the firm is in a disadvantaged competitive position within the industry. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
A(n) ________ effectively raises the interest cost to the borrower on a line of credit. A) operating-change restriction B) annual cleanup C) compensating balance D) commitment fee ANSWER C
Date: September 19th, 2020
Carol’s Dolls has fixed operating costs of $25,000. Its sale price is $55 per doll, and its variable operating cost is $30 per doll. It sells 3,000 dolls per month. The firm’s earnings before interest and taxes is ________. A) $37,500 B) $55,000 C) $75,000 D) $50,000 ANSWER D
Date: September 19th, 2020
From a firm’s perspective, preferred shares are at least as desirable as bonds because the firm is able to deduct preferred dividend payments for tax purposes like it can bond interest expenses. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
________ is the process whereby the firm sells receivables to a lender at a discount (say 2 percent) to the actual value of the receivables. Customers then repay the money they owe to the firm directly to the lender instead. A) Factoring of payables B) Loan sharking C) Bridge loaning D) Factoring of receivables […]
Date: September 19th, 2020
Your firm borrows money from the bank on a short-term note due in 9 months. This type of financing would be most appropriate for which of the following activities? A) The support of accounts receivable B) The construction of a new warehouse C) The support of accounts payable D) The financing of new equity […]
Date: September 19th, 2020
In a world with taxes, M&M’s second proposition defines the expected return on equity as: A) Ke = Ku + (Ku – Kd) (1 – t) ( ) B) Ke = Ku + (Ku + Kd) (1 – t) ( ) C) Ke = Ku + (Ku – Kd) (1 + t) ( ) D) […]
Date: September 19th, 2020
The interest tax shield is equal to: A) $0 B) (EBIT – I ) * (1-the tax rate). C) (equity + debt) * (1-the tax rate) D) the tax rate multiplied by the amount of interest. ANSWER D
Date: September 19th, 2020
All of these social factors can give managers further insights into the opportunities and risks facing a particular industry EXCEPT: A) aging of the population. B) new technology developments. C) greater health consciousness. D) obesity concerns. ANSWER B
Date: September 19th, 2020
