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 […]
Which of the following is the explanation of why the market generally reacts negatively to the announcement of a SEO offered in the pecking order hypothesis? a. Management is taking a self-serving action. b. Management is signaling that the shares are overpriced. c. Creditors are forcing the firm to increase its equity base. d. The […]
If the firm was to shift $2,000 of current liabilities to long-term funds, the firm’s net working capital would ________, the annual cost of financing would ________, and the risk of insolvency would ________, respectively. (See Table 14.2) A) decrease; decrease; increase B) increase; increase; decrease C) decrease; increase; decrease D) increase; decrease; decrease […]
Researchers point to the decades of the 1960s and 1970s as a period when internal capital markets may have been superior to external capital markets in the U.S. To test this argument, Hubbard and Palia (1999) examined 392 bidding firms involved in mergers in the 1960s. Those bidders that realized the highest returns from merger […]
The firm would like to increase its current ratio. This goal would be accomplished most profitably by ________. (See Table 14.2) A) increasing accounts payable B) decreasing inventory C) increasing accounts receivable D) decreasing cash and cash equivalents ANSWER C
In the text’s equity management model based on Myers (2000), a firm’s net cash flow is allocated in three directions. Which of the following is NOT one of these directions? a. acquisitions b. dividends and share repurchases c. reinvestment d. management’s private benefits of control (i.e., perks) ANSWER A
A is a seasoned equity offering (SEO) of a firm that has recently gone public. a. follow-on b. supplemental IPO c. lockup offering d. quasi-seasoned equity offering ANSWER A
If the firm’s current liabilities in December were $40,000, the net working capital was ________. (See Table 14.1) A) $140,000 B) $60,000 C) $10,000 D) -$10,000 ANSWER C
An increase in the average payment period will ________ the operating cycle and ________ the cash conversion cycle. A) increase; decrease B) decrease; decrease C) decrease; not affect D) not affect; decrease ANSWER D
