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
The sizing up of the industry involves: A) an external assessment of the industry. B) identifying the industry life cycle stage. C) the nature and intensity of the competition. D) All of the above. ANSWER D
Date: September 19th, 2020
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 […]
Date: September 19th, 2020
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 […]
Date: September 19th, 2020
________ 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
Date: September 19th, 2020
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
Date: September 19th, 2020
