Suppose a venture requires $7 mn. in equity financing to move to the next stage of development. The firm’s management is negotiating with a venture capital firm (VC) for the funding. Assuming that the firm’s business goals are achieved, it will generate earnings of $21 mn. per year into perpetuity starting beginning on the harvest […]
A firm has an average age of inventory of 101 days, an average collection period of 49 days, and an average payment period of 60 days. The firm’s cash conversion cycle is ________ days. A) 150 B) 90 C) 109 D) 11 ANSWER B
If a firm attempts to call an outstanding convertible bond, the bondholders: a. have the preemptory right to convert the bonds into stock. b. must tender their bonds immediately and receive the call price. c. must challenge management’s decision to call the bonds via a proxy contest. d. have the option to keep their bonds […]
TRUE or FALSE. Yield spreads on new convertible bonds generally are negative. a. TRUE b. FALSE ANSWER A
A firm can reduce its cash conversion cycle by ________. A) increasing the average age of inventory B) increasing the average collection period C) increasing the operating cycle D) increasing the average payment period ANSWER D
In the EBIT-EPS approach to capital structure, risk is represented by ________. A) the slope of the capital market line B) shifts in the cost of debt capital C) the slope of the capital structure line D) shifts in the times-interest-earned ratio ANSWER C
Which is NOT true of depreciation as found in the pro forma statement? A) Depreciation, unlike sales, tends to go down each year with the Modified Asset Cost Recovery System (MACRS). B) Unless there is a change to investments in plant, property and equipment increasing the depreciation line item, using the same percentage as that […]
Which of the below does a pro forma statement tell us? A) For every sales dollar, it tells us what percentage went to produce the product. B) For every dollar in cost, it tells us what percentage ends up as net income. C) For every sales dollar, it tells us how much shareholders received in […]
When a company has excess funds, it has four options. Describe these options. What is the simplest thing to do with excess cash? What will be an ideal response? ANSWER Answer: First, you can put the excess fund in a savings account or invest them in marketable securities. Second, you can repay lenders […]
A company’s cash sales in January are $200,000, its accounts receivable payments for January are $100,000, its beginning cash for January is $50,000, and there are no other cash inflows for January. Its accounts payable payments for January are $200,000 and its wages and salaries for January are $100,000, and its interest payments for January […]
