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 […]
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 […]
Which of the following correctly describes the Dutch auction method of share repurchase? a. The firm conducts open-market purchases. b. The firm specifies a price and a quantity of shares that it will repurchase. c. The firm auctions shares to the highest bidder, as long as that bidder meets the firm’s reservation price. d. The […]
According to the principal, short-term assets should be financed with short-term capital and long-term assets with long-term capital. a. maturity matching b. hedging c. risk-return c. capital asset ANSWER A
A negative cash conversion cycle ________. A) means that the operating cycle exceeds the average inventory period B) means that the average payment period exceeds the operating cycle C) indicates that a firm is shortening its average payment period and lengthening its average collection period D) indicates that a firm is shortening its average age […]
Monitoring is one means by which creditors can control a borrower’s incentive to expropriate wealth from the creditors. However, direct monitoring of a borrower’s actions is more difficult in a public bond issue than in a private bond issue because of the: a. free-rider problem. b. requirement of registration with the SEC for a public […]
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
