Admati and Pfleiderer (1994) argued that by having both inside and outside investors contribute to a venture, , and thus a rational continuation/termination decision would be made at each stage of development. a. both information asymmetry and principal-agent problems are resolved b. taxes and risk are both minimized c. the overinvestment and underinvestment problems are […]
A firm has an operating cycle of 170 days, an average payment period of 50 days, and an average age of inventory of 145 days. The firm’s average collection period is ________ days. A) 25 B) 75 C) 95 D) 120 ANSWER A
A firm has a cash conversion cycle of 60 days and average payment period of 40 days. The firm’s operating cycle is ________ days. A) 20 B) 100 C) 50 D) 30 ANSWER A
Which of the following is NOT considered an advantage of going public? a. Sharing corporate control with outsiders. b. Better access to both equity and debt markets in the future c. Better liquidity for the firm’s shares d. The firm’s entrepreneurs have a chance to liquidate part of their investment and diversify. ANSWER […]
Which plan has a higher degree of financial leverage and financial risk? (See Table 12.1) What will be an ideal response? ANSWER Financing Plan 2 has higher degree of financial leverage and financial risk.
A firm has an average age of inventory of 60 days, an average collection period of 45 days, and an average payment period of 30 days. The firm’s operating cycle is ________ days. A) 75 B) 105 C) 90 D) 135 ANSWER B
Which of the following elements is required for the calculation of cash conversion cycle? A) current assets ratio B) average cost of goods sold C) average collection period D) cash flows from operations ANSWER C
Harry Trading Company must choose its optimal capital structure. Currently, the firm has a 20 percent debt ratio and the firm expects to generate a dividend next year of $5.44 per share. Dividends are expected to remain at this level indefinitely. Stockholders currently require a 12.1 percent return on their investment. Harry is considering changing […]
Which of the following is NOT generally considered a cost of going public? a. Underpricing: IPOs appear to be substantially underpriced. b. Competition: Now that the firm is more visible, industry rivals will compete more intensively. c. Issuance Costs: The typical underwriter spread for an IPO is 7% of the offering proceeds. d. Management’s time […]
Other factors remaining constant, an increase in the average payment period will result in ________. A) a decrease in the average collection period B) a decrease in the cash conversion cycle C) an increase in the cash conversion cycle D) an increase in the average collection period ANSWER B
