The aggressive financing strategy is a ________ method while the conservative financing strategy is a ________ method. A) high-profit, high-risk; low-profit, low-risk B) high-profit, low-risk; low-profit, high-risk C) low-profit, high-risk; high-profit, low-risk D) low-profit, low-risk; high-profit, high-risk ANSWER A
In a _ merger, two firms that heretofore have been competitors in the same line of business combine. a. conglomerate b. vertical c. diagonal d. horizontal ANSWER D
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 […]
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. […]
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
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
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 […]
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
