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
In case of a manufacturing organization, which of the following is a variable cost that varies directly with the sales volume? A) interest cost B) dividend cost C) shipping cost D) rental cost ANSWER C
The major real-world benefit of debt is that interest payments are: A) made after tax considerations. B) a tax-deductible expense. C) always less than 10% of the firm’s profit. D) smaller than the dividend payments. ANSWER B
Bond covenants place some restrictions on the firm in such a way as to improve the odds that the bondholders will be repaid. Indicate whether the statement is true or false ANSWER TRUE
The average working capital gap seems to differ across industries in the United States. Indicate whether the statement is true or false ANSWER TRUE
Under conditions of perfect capital markets, M&M suggest that the average cost of capital for the firm will increase with the addition of debt. Indicate whether the statement is true or false ANSWER FALSE
Because the bank guarantees the availability of funds, a commitment fee is normally charged on a simple line of credit agreement. Indicate whether the statement is true or false ANSWER FALSE
Bond yields move inversely to bond price changes. Indicate whether the statement is true or false ANSWER TRUE
The beauty of the Modigliani and Miller model is that if you relax the restrictive assumptions, it still demonstrates that capital structure does not impact the value of the firm. Indicate whether the statement is true or false ANSWER FALSE