The following information is for Auxiliary, Inc. for the month of May: cash sales of $200,000; accounts receivable payments of $200,000; accounts payable payments of $200,000; wages and salaries of $100,000; and, interest payments of $50,000. There are no other cash inflows or outflows for the month of May and its beginning monthly cash balance […]
The higher the degree of financial leverage (DFL), the greater the leverage a given financing plan has, and the steeper its slope when plotted on EBIT-EPS axes. Indicate whether the statement is true or false ANSWER TRUE
Benson Incorporated’s cash sales in January are $300,000, its accounts receivable payments for January are $150,000, its beginning cash for January is $75,000, 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 $200,000, and its interest payments for January […]
Simulations based on the Black-Scholes model indicate that, for all combinations of leverage (D/V) and firm risk , debt risk: a. increases as debt maturity increases. b. decreases as debt maturity increases. c. remains fairly constant as debt maturity increases. ANSWER A
A line of credit is a secured bank loan whereby the bank agrees to lend a company up to a specific amount of cash, at the discretion of the company. In other words, it is just a pre-arranged loan. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: A line […]
A line of credit does not resemble a personal credit card. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: A line of credit requirement might be that the line of credit remains at a zero balance for a clean-up period. This is similar to a personal credit card in […]
Often a bank will require a company to pay off its line of credit (return the balance to zero) and keep it there for a specific period of time each year. For example, a requirement might be that the line of credit remains at a zero balance for at least one sixty-day period each year. […]
A firm has an average age of inventory of 90 days, an average collection period of 40 days, and an average payment period of 30 days. The firm’s operating cycle is ________ days. A) 110 B) 130 C) 120 D) 70 ANSWER B
The EBIT-EPS approach to capital structure involves selecting the capital structure that maximizes earnings before interest and taxes (EBIT) over the expected range of earnings per share (EPS). Indicate whether the statement is true or false ANSWER FALSE
Standard & Poors ratings are grouped into two major categories, investment-grade and speculative- grade. Bonds that are rated (i) are included in the investment-grade group, while speculative-grade bonds are those rated (ii) . (i) (ii) a. AAA, AA, A BBB, BB, B, CCC, CC, C b. AAA, AA, A, BBB BB, B, CCC, CC, C […]
