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. […]
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
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
Which of the following is true of leverage? A) It refers to the effects that operating and financial fixed costs have on the returns that shareholders earn. B) It is associated with risks which are out of the control of managers. C) It includes the effect of operating fixed costs on the returns of shareholders […]
The contribution margin is defined as the percent of each sales dollar that remains after satisfying fixed operating costs. Indicate whether the statement is true or false ANSWER FALSE
________ are financial creditors for the firm whereas ________ are the firm owners. A) Bankers; bondholders B) Bondholders; stockholders C) Stockholders; bondholders D) Stockholders; bankers ANSWER B
Which of the following definitions of working capital gap (WCG) is accurate? A) WCG = age of inventory – age of receivables – age of payables B) WCG = Age of receivables – age of inventory – age of payables C) WCG = age of payables – age of inventory – age of receivables D) […]
Modigliani and Miller (M&M) Proposition II states: A) the cost of equity does not change when a firm takes on a greater proportion of debt. B) the cost of equity increases when a firm takes on a greater proportion of debt. C) the cost of debt increases when a firm takes on a greater proportion […]
Operating-change restrictions gives the bank a right to revoke the line of credit if any major changes occur in a firm’s financial condition or operations. Indicate whether the statement is true or false ANSWER TRUE
Capital market conditions affect the timing of a new equity issue. Indicate whether the statement is true or false ANSWER TRUE
