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., […]
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
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
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
Intense rivalry among existing firms can result in: A) the introduction of new products or services. B) lower profit margins as competitors jockey for position. C) decreased capacity. D) Both A and B. ANSWER D
Which of the following have payments that are tax deductible for the corporation? A) bond interest payments B) preferred dividends C) common dividends D) retained earnings ANSWER A
Short-term, self-liquidating loans are intended to ________. A) provide one-time loan to the borrower who needs funds for a specific purpose B) cover seasonal peaks in financing caused by inventory and receivable buildups C) provide maximum amount to the firm that it can owe to the bank D) recapitalize the firm ANSWER B
A firm’s ________ is the level of sales necessary to cover all operating costs, i.e., the point at which EBIT equals zero. A) cash breakeven point B) financial breakeven point C) operating breakeven point D) total breakeven point ANSWER C
A bond rated AAA is perceived to have GREATER default risk than a bond rated BBB. Indicate whether the statement is true or false ANSWER FALSE
Use the information for Silicon Solutions found in Figure 11.1 and assume perfect capital markets (PCM) to determine the average cost of capital for the unlevered firm. Then determine the return on shares, the return on debt, and the average cost of capital for the levered firm. What do you think will happen to the […]
