Market values for equity are calculated as: A) the sum of the value of equity and accumulated retained earnings as found on the balance sheet. B) the price per share multiplied by the number of shares outstanding. C) the price per share multiplied by the number of shares outstanding plus the accumulated retained earnings. D) […]
In order to understand a firm’s current and anticipated financial position and needs, we must first: A) understand overall economic conditions. B) understand the industry in which it operates. C) understand the strengths and weaknesses of the firm itself. D) All of t he above. ANSWER D
The IRR rule states that a firm should accept any project with an internal rate of return greater than or equal to a pre-specified hurdle rate. Indicate whether the statement is true or false ANSWER TRUE
It would be a financially sound decision to pay employees once every two weeks rather than once a month. Indicate whether the statement is true or false ANSWER FALSE
How might inflation restrict the usefulness of the balance sheet as normally presented? What will be an ideal response? ANSWER Inflation may significantly change the market value of assets and liabilities and be representative of actual values nor replacement costs.
An implicit assumption of the IRR method is that any cash inflows generated in the earlier years can be reinvested at the rate of the IRR. Indicate whether the statement is true or false ANSWER TRUE
If a firm stretches its accounts payable, its cost of giving up a cash discount is increased. Indicate whether the statement is true or false ANSWER FALSE
Your new firm uses cash on hand to purchase $5,000 of inventory. The two accounting transactions are to ________ cash by $5,000 and to ________ inventory by $5,000. A) decrease; increase B) decrease; decrease C) increase; increase D) increase; decrease ANSWER A
What is free cash flow? Why is it important in the acquisition of a firm particularly a highly leveraged firm? What will be an ideal response? ANSWER Essentially, free cash flow are the funds available to pay all claimants on a firm. How much is available to meet the needs of creditors, and […]
A stock split has ________. A) little effect on a firm’s capital structure B) no effect on a firm’s capital structure C) a measurable effect on a firm’s capital structure D) a detrimental effect on a firm’s capital structure ANSWER B
