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
Bond rating agencies: A) assess the credit worthiness of the firm. B) assess the possibility of default by a firm on the payment of its bonds. C) include firm’s such a Moody’s and Fitch. D) all of the statements above are true. ANSWER D
A major benefit to firms that rely on accounts payable as a source of short-term financing is that it can defer payment of goods and services received. A potential cost is that the firm might be foregoing discounts for early repayment. Indicate whether the statement is true or false ANSWER TRUE
Stage 3 of the industry life cycle is characterized by all of the following EXCEPT: A) competition intensifies as more and more firms enter the industry. B) there is little demand for the company’s products and services. C) revenues continue to grow, but at a slower pace. D) firms become more efficient at maintaining costs. […]
Modigliani and Miller (M&M) proposed a model in which, given certain restrictive assumptions, the capital structure of a firm does not impact the value of the firm. Indicate whether the statement is true or false ANSWER TRUE
________ analysis is a technique used to assess the returns associated with various cost structures and levels of sales. A) Time-series B) Marginal C) Breakeven D) Ratio ANSWER C
