In economic conditions characterized by short-term interest rates which exceed long-term interest rates, the financing strategy which would maximize profits is ________ strategy. A) the aggressive B) the conservative C) the trade-off D) a seasonal ANSWER B
Date: September 19th, 2020
A firm with a very low current ratio in comparison to the industry standard could lower the risk of unavailable short-term funds by moving toward ________ financing strategy. A) the aggressive B) the conservative C) a permanent D) a seasonal ANSWER B
Date: September 19th, 2020
How does Jensen’s free cash flow hypothesis relate to a firm’s dividend policy? a. Dividends discipline management by forcing free cash flow to be disgorged to shareholders, thus mitigating management’s tendency to engage in empire building. b. Dividends act as a signal of firm value. c. Dividends solve the principal-agent problem between shareholders and creditors. […]
Date: September 19th, 2020
The aggressive financing strategy is risky in two aspects: a firm operates with a possibility of ________, and a firm has only a limited amount of ________ capacity. A) insolvency; short-term borrowing B) interest rate swings; short-term borrowing C) low earnings; long-term borrowing D) fixed interest rate; long-term borrowing ANSWER B
Date: September 19th, 2020
A decrease in the production time to manufacture a finished good will result in ________. A) an increase in the average age of inventory B) a decrease in the cash conversion cycle C) an increase in the cash conversion cycle D) a decrease in the average age of inventory ANSWER B
Date: September 19th, 2020
Suppose a firm wants to borrow $200 million for 10 years to fund capital expenditures, and is considering the choice of a private placement with several insurance companies 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 bonds. The […]
Date: September 19th, 2020
A firm has annual operating outlays of $1,800,000 and a cash conversion cycle of 60 days. If the firm currently pays 12 percent for financing and reduces its cash conversion cycle to 50 days, the annual savings is ________. (Assume a 365-day year.) A) $4,652.19 B) $3,065.86 C) $5,917.81 D) $2,160.23 ANSWER C
Date: September 19th, 2020
The conservative financing strategy results in financing all projected funds requirements with ________ funds and use of ________ funds in the event of an unexpected cash outflow. A) long-term; short-term B) short-term; long-term C) permanent; seasonal D) seasonal; permanent ANSWER A
Date: September 19th, 2020
Under what circumstances would a firm engage in share repurchases rather than increasing dividends? a. If the firm has excess free cash flow that management expects will continue indefinitely. b. If the firm has excess free cash flow that management expects will be only temporary. c. If shareholders are in a lower tax bracket for […]
Date: September 19th, 2020
A firm wants to borrow $100 million for 5 years (pure discount, for simplicity). Which of the following sources has the lower effective interest cost? Orig. Fee/ Source Interest Rate Flotation Cost Private Placement 9. 00% 1% Public Issue 8.25% 3% a. The private placement b. The public issue c. The costs are the same […]
Date: September 19th, 2020
