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 […]
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
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
Since the sales price per unit generally decreases with volume and the cost per unit generally increases with volume, the true breakeven point may be different from those obtained using linear revenue and cost functions as assumed in the breakeven analysis. Indicate whether the statement is true or false ANSWER TRUE
Lines of credit are guaranteed loans that specify the maximum amount that a firm can owe the bank at any point in time. Indicate whether the statement is true or false ANSWER FALSE
One of the limitations of breakeven analysis is its short-term time horizon. A large outlay in the current financial period could significantly raise the firm’s breakeven point, while the benefits may occur over a period of years. Indicate whether the statement is true or false ANSWER TRUE
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
