The author estimates that in January of 2012, Home Depot had a required return on equity of 6.8%. He explains this relatively ________ rate as a reflection of ________. A) low; near all-time low long-term interest rates. B) low; Home Depot’s very low beta. C) high; near all-time high long-term interest rates. D) high; Home […]
Most of the time the book values and market values for equity are very similar, but this is not true for debt. Indicate whether the statement is true or false ANSWER FALSE
A comprehensive nonfinancial size-up is: A) a critical component in analyzing the firm’s strengths and weaknesses. B) critical in understanding the firm’s historical position. C) critical in anticipating future financing needs. D) All of the above. ANSWER D
Your new firm is operating in an all-cash environment without taxes. You sold $1,000 of inventory for three times the amount you paid for it. If this was the only transaction, which of the following would most closely match the entries on your income statement? A) Revenues = $1,000, expenses = $1,000, profit = $0 […]
The MIRR method requires the specification of two interest rates, the hurdle rate and the reinvestment rate. These rates may or may not be identical. Indicate whether the statement is true or false ANSWER TRUE
Tangshan Mining has 100,000 shares outstanding and just declared a 2-for-1 stock split. Before the announcement, the firm’s shares were trading at $50.00 per share. After the stock split, the firm’s shares should trade at ________ per share. A) $100.00 B) $25.00 C) $50.00 D) $75.00 ANSWER B
A comprehensive nonfinancial size-up should be done: A) monthly. B) quarterly. C) annually. D) as needed. E) All of the above. ANSWER C
Many firms in a particular industry strive to have very similar capital structures. Indicate whether the statement is true or false ANSWER TRUE
When a firm stretches accounts payable without hurting its credit rating, the cost of giving up a cash discount is ________. A) reduced B) increased C) unaffected D) increased or decreased depending on the opening accounts payable balance ANSWER A
Management statements is a third technique identified by the author as a method of determining the appropriate weights for WACC calculations. Indicate whether the statement is true or false ANSWER TRUE
