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
A compensating balance is a balance in checking account that is equal to a certain percentage of the borrower’s short-term unsecured loan. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Due to the difficulty of allocating costs to products in a multiproduct firm, the breakeven model may fail to determine breakeven points for each product line. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
The use of a dollar breakeven point is important when a firm has more than one product, especially when each product is selling at a different price. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Which of the following actions could INCREASE a firm’s working capital gap? A) reduce the age of inventory B) increase the age of accounts payable C) increase the age of accounts receivable D) All actions listed would increase a firm’s working capital gap. ANSWER C
Date: September 19th, 2020
A firm has three independent projects under consideration each with a required rate of return of 10%/ The total projects budget is only $2,000. Project X has an initial investment of $2,000 and a single cash flow in year one of $2,360. Project Y has an initial investment of $1,000 and a single cash flow […]
Date: September 19th, 2020
Modigliani and Miller each won a Nobel prize in economics in at least in part because of their work with capital structure. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
