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
In M&M Proposition II the cost of equity changes with changes in the amount of debt financing. Which of the following is the correct formula for Proposition II? A) Ke = Ku + (Ku – Kd) / ( ) B) Ke = Ku + (Ku – Kd) ( ) C) Ke = Ku + (Ku […]
The ultimate goal of sizing up the industry is to: A) identify the industry life cycle. B) identify the key success factors that are necessary for the firm to successfully compete in the industry. C) monitor the nature and intensity of the competition. D) All of the above. ANSWER C
Laminates Inc has as age of inventory of 43 days, an age of receivables of 47 days and an age of payables of 61 days. Their closest competitor, Natural Inc, has comparable numbers of 51 days, 32 days and 55 days. Which of the following statements is TRUE? A) Laminates has the shorter and more […]
Spectronix Inc operates in a world of perfect capital markets, has no debt, and has a required rate of return on equity of 10%. An executive manager has suggested that borrowing money to buy back outstanding stock is a good idea because it would replace equity financing with less expensive debt financing, thus increasing the […]
The operating breakeven point can be found by solving for the sales level that just covers total fixed and variable costs. Indicate whether the statement is true or false ANSWER TRUE
