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 […]
Which of the following is TRUE about the threat of substitutes? A) When threatened by substitutes, existing competitors will increase their prices. B) innovation makes an existing product or service more attractive to its customers. C) If there are numerous substitutes, the firm’s profit margins and revenues will decline. D) If the competitors are strong, […]
Managing inventory involves trading off the benefits of availability with various financial concerns such as storage, insurance, and obsolescence. Indicate whether the statement is true or false ANSWER TRUE
A loan that is usually a one-time loan made to a borrower who needs funds for a specific purpose for a short period is called a ________. A) term loan B) bill of exchange C) mortgage loan D) single-payment note ANSWER D
The ________ is the lowest rate of interest charged on business loans by the nation’s leading banks to their best business borrowers. A) prime rate B) commercial paper rate C) federal funds rate D) treasury bill rate ANSWER A
An INVERTED yield curve is characterized by long-term rates exceeding short-term rates. Indicate whether the statement is true or false ANSWER FALSE
Under conditions of perfect capital markets, M&M insist that the value of the levered firm is greater than the value of the unlevered firm. Indicate whether the statement is true or false ANSWER FALSE
A bond rated “D” by Standard and Poor’s rating service is in default on its financial commitments. Indicate whether the statement is true or false ANSWER TRUE
Short-term loans that businesses obtain from banks and through commercial paper are ________. A) negotiated and secured B) negotiated and unsecured C) spontaneous and secured D) spontaneous and unsecured ANSWER B
________ costs require the payment of a specified amount in each accounting period. A) Operating B) Variable C) Semi-variable D) Fixed ANSWER D
