A legitimate means of averting an unintended transfer of wealth to creditors in a merger is to: a. decrease leverage. b. reduce the volatility of operating profits. c. offer a guarantee to the separate firms’ creditors. d. increase leverage. 11.According to the hypothesis, in an acquisition or a takeover the bidder’s management overvalues the target […]
In a __, both firms cease to exist, and a new corporation is established with a new name, a new board, and/or a new management team. a. merger b. acquisition c. consolidation d. buyout ANSWER C
A firm may have a negative cash conversion cycle if it carries ________. A) very little inventory and sells its products on credit B) high inventory and sells its products on credit C) very little inventory and sells its products for cash D) high inventory and sells its products for cash ANSWER C
The value of a convertible bond is relatively insensitive to changes in the riskiness of the firm, because the value of the underlying bond is inversely related to changes in the firm’s risk, while the value of the implicit call option is directly related to changes in the firm’s risk. Consequently, with a convertible bond […]
Improvements to cash management include ________. A) a reduction in the cash turnover B) a reduction in the cash conversion cycle C) an increase in the average age of inventory D) an increase in the credit period allowed to customers ANSWER B
A firm with a cash conversion cycle of 175 days wants to stretch its average payment period from 30 days to 45 days. This will result in a(n) ________ in the cash conversion cycle of ________ days. A) increase; 15 B) decrease; 15 C) increase; 45 D) decrease; 45 ANSWER B
Which of the following is NOT one of the six fundamental factors that determine the optimal source of debt funding for a firm? a. the firm’s debt ratio b. lender’s need to monitor the borrower’s operations c. information asymmetry, and specifically the problem of assessing creditworthiness d. the firm’s need for flexibility ANSWER […]
In an aggressive financing strategy, a firm anticipating a large increase in sales for the coming period should finance the increase in working capital with ________. A) the sale of common stock B) the sale of a bond issue C) a line of credit D) a long-term note from the bank ANSWER C
Suppose a firm wants to borrow $200 million for 5 years to fund capital expenditures, and is considering the choice of a bank loan or a public issue through an investment banking firm as underwriter. For simplicity, we will assume that in either case the firm will issue pure-discount debt. The bank demands a 10.25% […]
Which of the following is the fundamental difference between private (bank) debt and publicly issued debt? a. Public debt is often referred to as inside debt because of the close relationship between the lenders and the borrower, while a bank loan is called outside debt because the lender essentially has no active relationship with the […]
