Describe the four stages of the business cycle. What are the characteristics of each stage and how would a financial manager adjust their strategic and tactical planning for changes in the business cycle? What will be an ideal response? ANSWER Peaks in the business cycle tend to occur when the capacity-to-output gap is […]
If one borrows $1,000 at 8 percent interest on a discount basis, the effective rate of interest is 7.2 percent. Indicate whether the statement is true or false ANSWER FALSE
The effective interest rate for a discount loan is greater than the loan’s stated interest rate. Indicate whether the statement is true or false ANSWER TRUE
Modigliani and Miller (M&M) Proposition I states: A) overall market value of the firm = market value of equity – market value of debt. B) overall market value of equity = market value of the firm+ market value of debt. C) overall market value of the firm = market value of equity + market value […]
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
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
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
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
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 […]
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
