________ refers to the difficulties experienced by firms as they attempt to meet financial commitments to their creditors. A) Financial distress B) Capital structure C) Capital budgeting D) Working capital management ANSWER A
Date: September 19th, 2020
A firm’s capital structure is the mix of the current liabilities, long-term debt, and equity maintained by the firm. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
Both operating and financial leverage result in the magnification of return as well as risk. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
A line of credit is an agreement between a commercial bank and a business, specifying the amount of unsecured short-term borrowing the bank will make available to the firm over a given period of time. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Operating change restrictions are contractual restrictions that a bank may impose on a firm as part of a line of credit agreement. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
The overall goal in sizing up each of the external and internal factors is to: A) determine the competitive position of the firm relative to its competitors. B) increase the value of the enterprise. C) assess the company’s strengths and weaknesses. D) make better investment decisions. ANSWER B
Date: September 19th, 2020
Identify methods that firms use to establish hurdle rates for capital projects. What will be an ideal response? ANSWER Firms use many techniques to establish hurdle rates. First, if they have multiple and distinct business divisions, they may use industry averages for that type of business. Or, they may have historical reference points […]
Date: September 19th, 2020
The left side of the balance sheet should represent investments made by the firm and the right side should represent the sources of financing. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Which of the following is NOT a common reason for capital rationing? A) The firm puts a limit on the amount of its investments. B) Creditors impose capital rationing on firms due to poor performance. C) Senior executives may be reluctant to issue additional debt, thus limiting capital expenditures. D) All of the above are […]
Date: September 19th, 2020
We should expect the (weighted) average of all hurdle rates within a firm to be approximately equal to the overall WACC Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
