What are the Earnings after tax for the Equity and Debt firm? A) $240,000 B) $300,000 C) $560,000 D) $0 ANSWER C Explanation: C) EAT = EBT – Taxes Payable = $800,000 – $240,000 = $560,000.
Date: September 19th, 2020
Which of the following are the three basic ways of lending unsecured, short-term funds by commercial banks? A) mortgage-backed securities, T-bonds, and commercial paper B) single-payment note, lines of credit, and revolving credit agreements C) T-bills, municipal bonds, and commercial paper D) commercial paper, real estate bonds, and corporate bonds ANSWER B
Date: September 19th, 2020
A supplier to your firm offers credit terms of 2/15 net 45 however, your firm never takes advantage of the discount but instead always pays full price on day 45. Your finance intern claims that your firm would be better off borrowing money from an existing but little used line of credit at a current […]
Date: September 19th, 2020
What is the combined debt and equity income (interest plus earnings after tax) for the Equity and Debt firm? A) $700,000 B) $760,000 C) $560,000 D) $300,000 ANSWER B Explanation: B) = EAT + Interest = $560,000 + $200,000 = $760,000.
Date: September 19th, 2020
What is a callable bond, who “calls” a bond, and under what circumstances? What will be an ideal response? ANSWER Callable bonds have the added feature that at contractually specified times and prices the issuer can repurchase or “call” the bonds away from the owners. In effect, a callable bond is the combination […]
Date: September 19th, 2020
In a line of credit arrangement, a firm pays interest on ________. A) the full line of credit B) the total line of credit C) only the amount actually borrowed D) only the amount actually borrowed and commitment fees on any unused portion of the loan ANSWER C
Date: September 19th, 2020
Describe what an accounts receivable schedule might look like and why a firm may wish to prepare such a schedule. What will be an ideal response? ANSWER The author presents an accounts receivable aging schedule consisting of three columns: Days A/R outstanding (e.g., 1-30 days, 31-60 days, etc,), Amount of AR outstanding (e.g., […]
Date: September 19th, 2020
If a firm’s fixed operating costs decrease, the firm’s ________. A) operating breakeven point will decrease B) operating breakeven point will increase C) sale price per unit will decrease D) sale price per unit will increase ANSWER A
Date: September 19th, 2020
The bargaining power of suppliers and customers will impact the profitability of the industry because: A) powerful suppliers can exert pressure to raise prices. B) powerful customers can exert pressure by forcing down prices. C) powerful customers can exert pressure by demanding higher quality. D) All of the above. ANSWER D
Date: September 19th, 2020
Your firm issues 20-year bonds. 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 inventory ANSWER B
Date: September 19th, 2020
