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 […]
Date: September 19th, 2020
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
Date: September 19th, 2020
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 […]
Date: September 19th, 2020
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 […]
Date: September 19th, 2020
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
Date: September 19th, 2020
A bond feature that requires firms to repurchase a portion of its bonds on a regular basis throughout the life of the bonds, or to set aside an equivalent amount is known as a: A) debenture contract. B) call option feature. C) sinking fund. D) put option feature. ANSWER C
Date: September 19th, 2020
Corporate bond yields are higher than similar maturity government bond yields due to: A) greater risk on the part of corporate bonds. B) higher overall tax rates on corporate bonds than on government bonds. C) a “thinner” secondary market for corporate bonds than government bonds. D) All of the above. ANSWER D
Date: September 19th, 2020
What are the goals of the Federal Reserve and how does the Federal Reserve attempt to control inflation”? Why is low and steady inflation important? What will be an ideal response? ANSWER The Fed’s primary goals are to maintain stable prices or low and steady inflation, maximize employment, and moderate long-term interest rates. […]
Date: September 19th, 2020
A compensating balance not only forces the borrower to be a good customer of the bank but may also raise the interest cost to the borrower. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Higher the riskiness of a borrower, higher is the premium charged above the prime rate by a banker. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
