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 […]
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, […]
________ refers to the effects that fixed costs have on the returns that shareholders earn. A) Purchase power parity B) Leverage C) Business risk D) Pecking order theory ANSWER B
________ costs are a function of time, not sales, and are typically contractual. A) Fixed B) Semi-variable C) Variable D) Operating ANSWER A
Commitment fee is the fee that is normally charged on a revolving credit agreement. Indicate whether the statement is true or false ANSWER TRUE
The major type of loan made by banks to businesses is the ________. A) fixed-asset-based loan B) short-term secured loan C) short-term, self-liquidating loan D) capital improvement loan ANSWER C
Stage 2 of the industry life cycle is characterized by all of the following EXCEPT: A) there is little demand for the company’s products and services. B) the firm’s revenue tends to grow rapidly. C) positive profits begin to materialize. D) private firms begin to “go public.” ANSWER A
