Which of the following statements is NOT correct? Under conditions of perfect capital markets: A) investors do not pay taxes, but firms do. B) firms do not pay taxes, but investors do. C) capital structure matters because it can change the value of the firm. D) capital structure does not matter because it cannot change […]
An industry analysis is critical to better understand a firm’s financial position because: A) it provides insight into how the firm’s financial needs might change as industry conditions change. B) it helps identify the key risks and opportunities facing the firm. C) it provides better insight into how maximize the firm’s current financial position relative […]
________ place some restrictions on the firm in such a way as to improve the odds that the bondholders will be repaid. A) Bond ratings B) Bond covenants C) Bond rating agencies D) Bond exchanges ANSWER B
Tangshan Mining borrowed $10,000 for one year under a line of credit with a stated interest rate of 8 percent and a 10 percent compensating balance. Thus, the firm keeps a balance of about $800 in its checking account. Indicate whether the statement is true or false ANSWER FALSE
The ________ is a benchmark set by each financial institution as the rate at which interest is charged to its most-favored (i.e., least risky) customers. A) LIBOR B) prime rate C) discount window rate D) federal funds ANSWER B
________ results from the use of fixed-cost assets or funds to magnify returns to a firm’s owners. A) Long-term debt B) Equity C) Leverage D) Capital structure ANSWER C
Which of the following statements about inventory control is TRUE? A) Too little inventory may lead to opportunity costs in the form of missed sales. B) Too much inventory may reduce profitability due to increased financing and storage costs. C) Seasonality in sales may require a firm to hold different levels of inventory throughout the […]
PrintQuik Inc. has a cost of equity of 14% and a cost of debt of 6%. If the firm is financed with 70% equity and 30% debt, and they operate under the conditions of a perfect capital market, what is the firm’s average cost of capital? A) 9.80% B) 10.50% C) 11.60% D) 10.00% […]
With ________ bonds a firm can choose to pay back the investor at a pre-specified date prior to the maturity date, usually at a pre-specified price above the face value, representing a premium to the bondholder A) callable B) convertible C) variable rate D) premium ANSWER A
The three basic types of leverage are ________. A) operating, production, and financial B) operating, production, and total C) production, financial, and total D) operating, financial, and total ANSWER D
