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 […]
Date: September 19th, 2020
Which of the following is NOT one of M&M’s perfect capital market assumptions? A) No taxes B) Individuals can borrow or lend at the same rate C) Every party has equal access to information D) Bankruptcy costs are reasonably low ANSWER D
Date: September 19th, 2020
Which of the following interest rates would be inappropriate for use as a base rate for a variable rate bond? A) The prime rate B) LIBOR C) A rate determined by the bond issuer’s board of directors. D) The 10-year Treasury bond rate. ANSWER C
Date: September 19th, 2020
Typically, the rate of return on ________ exceeds the rate of return on ________. A) long-term bonds; short-term bonds. B) government bonds; similar maturity corporate bonds. C) short-term bonds; long-term bonds. D) marketable securities; common stock. ANSWER A
Date: September 19th, 2020
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) […]
Date: September 19th, 2020
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 […]
Date: September 19th, 2020
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
Date: September 19th, 2020
Capital market conditions affect the timing of a new equity issue. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
The breakeven point in dollars can be computed by dividing the contribution margin into the variable operating costs. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
Which of the following actions could DECREASE a firm’s working capital gap? A) reduce the age of inventory B) reduce the age of accounts payable C) increase the age of accounts receivable D) All actions listed would decrease a firm’s working capital gap. ANSWER A
Date: September 19th, 2020
