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
Date: September 19th, 2020
________ 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
Date: September 19th, 2020
The average working capital gap seems to differ across industries in the United States. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
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
Date: September 19th, 2020
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
Date: September 19th, 2020
Flyover Airlines Inc. has a cost of equity equal to 24.67%. If the firm is financed with 40% debt and 60% equity and has an average cost of capital of 18%, what is the cost of debt? Assume perfect capital markets. A) 8.00% B) 6.67% C) 10.00% D) 12.33% ANSWER A Explanation: A) […]
Date: September 19th, 2020
Generally, increases in leverage result in ________ return and ________ risk. A) decreased; increased B) decreased; decreased C) increased; increased D) increased; decreased ANSWER C
Date: September 19th, 2020
An interesting fact about commerce in America is that we tend to see very few differences in the age of accounts receivable across industries. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
The author presents evidence that recently Southwest Airlines had a negative working capital gap. Which of the following reasons is likely to be primarily responsible for this enviable situation. A) Southwest borrows a lot of money short-term thus keeping their borrowing costs low. B) Southwest receives payment from customers in advance of most flights. C) […]
Date: September 19th, 2020
Stage 1 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 is low but there are high prospects for growth. C) competition is fierce and profit margins begin to narrow. D) firms need a significant amount […]
Date: September 19th, 2020
