We can condense the items that require cash outflow into basic categories. Which of the below is a basic category? A) Wages (but not commissions) B) Accounts receivable C) Long-term financing expenses (interest payments, dividend payments, issuing costs of debt and equity) D) All of these ANSWER Answer: C Explanation: C) We can […]
A firm has an operating profit of $300,000, interest of $35,000, and a tax rate of 40 percent. The firm has an after-tax cost of debt of 5 percent and a cost of equity of 15 percent. The firm’s target capital structure is set at a mix of 40 percent debt and 60 percent equity. […]
The public market for new speculative-grade bonds, also known as high-yield or junk bonds, was created virtually single-handedly by Michael Milken and his firm, Drexel Burnham Lambert, in the late 1970s. Prior to that time, the only corporate bonds that carried a speculative-grade rating were so-called _____, bonds that initially garnered an investment-grade rating, but […]
Firm A cash sales for the month are $200,000 and its accounts receivable payments for the month are $100,000. What is its total incoming cash flow for the month if its beginning cash for the month is $50,000 and there are no other cash inflows for the month? A) $100,000 B) $150,000 C) $300,000 D) […]
Underwriter generally places non-solicitation advertisements in the Wall Street Journal and/or other important newspapers notifying the public of the availability of an issue. These are called _____. a. tombstone ads b. headstone ads c. notifications of availability d. bond issue schedules ANSWER A
Cash disbursements or ________ are closely tied to the sales forecast as the sales forecasts are typically used for scheduling production. A) expenditures B) receipts C) revenues D) sales ANSWER Answer: A
A firm has a cash conversion cycle of 60 days. Annual outlays are $12 million and the cost of financing is 12 percent. If the firm reduces its average age of inventory by 10 days, the annual savings is ________. (Assume a 365-day year.) A) $10,400 B) $14,000 C) $28,800 D) $39,452 ANSWER […]
Northwest Packing Inc. estimates the following expenditures: total shipping costs of $1,100; wages paid to workers of $9,600; overhead costs of $4,300; raw materials of $5,000; and, dividends and interest paid of $2,200. What is the total production cost from all of these costs? A) $22,200 B) $21,100 C) $20,100 D) $20,000 ANSWER […]
In accounting, the recording of the cost of goods sold occurs at the time of the sale, but the cash flow may take place over an extended time period. Indicate whether the statement is true or false. ANSWER Answer: TRUE
When implementing the cash management strategies, a firm should avoid damaging a firm’s credit rating by overstretching accounts payable. Indicate whether the statement is true or false ANSWER FALSE
