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
________ represent current investor expectations about a firm whereas ________ are representations of historical costs. A) Book values; market values B) Market values; book values C) Regulators; investment bankers D) Common equity holders; bondholders ANSWER B
Accruals are liabilities for services received for which payment has yet to be made. Indicate whether the statement is true or false ANSWER TRUE
For projects with typical cash flows the IRR method agrees with the NPV accept/reject decision. Indicate whether the statement is true or false ANSWER TRUE
Why is the examination of the balance sheet and income statement only not an adequate evaluation of a firm? What else should be done? What will be an ideal response? ANSWER The most obvious part missing is an examination of the statement of cash flows. Understanding cash flow statements helps identify the extent […]
Your new firm just purchased a storage building and property for $40,000 that was paid for with a $20,000 long-term loan and a new infusion of $20,000 from the owners. Which of the following accounting entries is most appropriate? A) $40,000 increase in plant, property and equipment, a $20,000 decrease in long-term debt, and a […]
The cash flow cycle also is known as the: A) cash conversion cycle. B) cash-to-cash cycle. C) working capital cycle. D) revolving credit cycle. ANSWER A